TAX-FREE FUND OF COLORADO
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of August 28, 2000 by and
between AQUILA MANAGEMENT CORPORATION (the "Manager"), 000
Xxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, and
KPM INVESTMENT MANAGEMENT, INC. (the "Sub-Adviser"), One
Norwest Center, 0000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, XX
00000.
W I T N E S S E T H :
WHEREAS, Tax-Free Fund of Colorado (the "Fund") is a
Massachusetts business trust which is registered under the
Investment Company Act of 1940 (the "Act") as an open-end,
non-diversified management investment company;
WHEREAS, the Manager has entered into an Advisory and
Administration Agreement as of the date hereof with the Fund
(the "Advisory and Administration Agreement") pursuant to
which the Manager shall act as investment adviser with
respect to the Fund;
WHEREAS, pursuant to paragraph 2 of the Advisory and
Administration Agreement, the Manager wishes to retain the
Sub-Adviser for purposes of rendering investment advisory
services to the Manager in connection with the Fund upon the
terms and conditions hereinafter set forth;
WHEREAS, the shareholders of the Fund have approved
this Agreement on August 28, 2000 at a reconvened meeting of
shareholders originally held on June 22, 2000;
NOW THEREFORE, in consideration of the mutual promises
and agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. In General
The Manager hereby appoints the Sub-Adviser to render,
to the Manager and to the Fund, investment research and
advisory services as set forth below under the supervision
of the Manager and subject to the approval and direction of
the Board of Trustees of the Fund. The Sub-Adviser shall,
all as more fully set forth herein, act as managerial
investment adviser to the Fund with respect to the
investment of the Fund's assets, and supervise and arrange
the purchase of securities for and the sale of securities
held in the portfolio of the Fund.
2. Duties and Obligations of the Sub-Adviser With Respect To
Investment of the Assets of the Fund
(a) Subject to the succeeding provisions of this
section and subject to the direction and control of the
Manager and the Board of Trustees of the Fund, the Sub-
Adviser shall:
(i) supervise continuously the investment program of
the Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or
sold by the Fund;
(iii) arrange for the purchase and the sale of
securities held in the portfolio of the Fund;
(iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source
of pricing information satisfactory to the Fund and,
unless otherwise directed by the Board of Trustees,
provide for pricing of the Fund's portfolio at least
quarterly using another such source satisfactory to the
Fund; and
(v) consult with the Manager in connection with its
duties hereunder.
(b) Any investment program furnished by the Sub-Adviser
under this section shall at all times conform to, and be in
accordance with, any requirements imposed by: (1) the
Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable
laws, rules and regulations; (3) the Declaration of Trust
and By-Laws of the Fund as amended from time to time; (4)
any policies and determinations of the Board of Trustees of
the Fund; and (5) the fundamental policies of the Fund, as
reflected in its registration statement under the Act or as
amended by the shareholders of the Fund.
(c) The Sub-Adviser shall give to the Manager and to
the Fund the benefit of its best judgment and effort in
rendering services hereunder, but the Sub-Adviser shall not
be liable for any loss sustained by reason of the adoption
of any investment policy or the purchase, sale or retention
of any security, whether or not such purchase, sale or
retention shall have been based upon (i) its own
investigation and research or (ii) investigation and
research made by any other individual, firm or corporation,
if such purchase, sale or retention shall have been made and
such other individual, firm or corporation shall have been
selected in good faith by the Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Sub-
Adviser or any affiliated person (as defined in the Act) of
the Sub-Adviser from acting as investment adviser or manager
for any other person, firm or corporation and shall not in
any way limit or restrict the Sub-Adviser or any such
affiliated person from buying, selling or trading any
securities for its own or their own accounts or for the
accounts of others for whom it or they may be acting,
provided, however, that the Sub-Adviser expressly represents
that, while acting as Sub-Adviser, it will undertake no
activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this
Agreement.
(e) In connection with its duties to arrange for the
purchase and sale of the Fund's portfolio securities, the
Sub-Adviser shall select such broker-dealers ("dealers") as
shall, in the Sub-Adviser's judgment, implement the policy
of the Fund to achieve "best execution," i.e., prompt,
efficient, and reliable execution of orders at the most
favorable net price. The Sub-Adviser shall cause the Fund
to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless
the Sub-Adviser determines that better price or execution
may be obtained by paying such commissions; the Fund expects
that most transactions will be principal transactions at net
prices and that the Fund will incur little or no brokerage
costs. The Fund understands that purchases from
underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions
placed through dealers include a spread between the bid and
asked prices. In allocating transactions to dealers, the
Sub-Adviser is authorized to consider, in determining
whether a particular dealer will provide best execution, the
dealer's reliability, integrity, financial condition and
risk in positioning the securities involved, as well as the
difficulty of the transaction in question, and thus need not
pay the lowest spread or commission available if the Sub-
Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the
brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the
Sub-Adviser's overall responsibilities. If, on the
foregoing basis, the transaction in question could be
allocated to two or more dealers, the Sub-Adviser is
authorized, in making such allocation, to consider (i)
whether a dealer has provided research services, as further
discussed below; and (ii) whether a dealer has sold shares
of the Fund. Such research may be in written form or
through direct contact with individuals and may include
quotations on portfolio securities and information on
particular issuers and industries, as well as on market,
economic, or institutional activities. The Fund recognizes
that no dollar value can be placed on such research services
or on execution services and that such research services may
or may not be useful to the Fund and may be used for the
benefit of the Sub-Adviser or its other clients.
(f) The Sub-Adviser agrees to maintain, and to
preserve for the periods prescribed, such books and records
with respect to the portfolio transactions of the Fund as
are required by applicable law and regulation, and agrees
that all records which it maintains for the Fund on behalf
of the Manager shall be the property of the Fund and shall
be surrendered promptly to the Fund or the Manager upon
request.
(g) The Sub-Adviser agrees to furnish to the Manager
and to the Board of Trustees of the Fund such periodic and
special reports as each may reasonably request.
(h) It is agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or completeness
of the Fund's Registration Statement under the Act and the
Securities Act of 1933, except for information supplied by
the Sub-Adviser for inclusion therein. The Sub-Adviser
shall promptly inform the Fund as to any information
concerning the Sub-Adviser appropriate for inclusion in such
Registration Statement, or as to any transaction or proposed
transaction which might result in an assignment (as defined
in the Act) of this Agreement.
(i) The Sub-Adviser shall not be liable for any error
in judgment or for any loss suffered by the Fund or its
security holders in connection with the matters to which
this Agreement relates, except a loss resulting from wilful
misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement.
Nothing in this Agreement shall, or shall be construed to,
waive or limit any rights which the Fund may have under
federal and state securities laws which may impose liability
under certain circumstances on persons who act in good
faith.
(j) To the extent that the Manager is indemnified under
the Fund's Declaration of Trust with respect to the services
provided hereunder by the Sub-Adviser, the Manager agrees to
provide the Sub-Adviser the benefits of such
indemnification.
3. Allocation of Expenses
The Sub-Adviser shall bear all of the expenses it
incurs in fulfilling its obligations under this Agreement.
In particular, but without limiting the generality of the
foregoing: the Sub-Adviser shall furnish, at the Sub-
Adviser's expense, all office space, facilities, equipment
and clerical personnel necessary for carrying out its duties
under this Agreement. The Sub-Adviser shall supply, or cause
to be supplied, to any investment adviser, administrator or
principal underwriter of the Fund all necessary financial
information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Fund. The Sub-Adviser will also pay all
compensation of the Fund's officers, employees, and
Trustees, if any, who are affiliated persons of the Sub-
Adviser.
4. Compensation of the Sub-Adviser
The Manager agrees to pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation for all
services rendered by the Sub-Adviser as such, a management
fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day at
the annual rate of 0.20 of 1% of such net asset value.
5. Duration and Termination
(a) This Agreement shall become effective on the day it
is approved by the shareholders of the Fund and shall,
unless terminated as hereinafter provided, continue in
effect until the April 30 next preceding the first
anniversary of the effective date of this Agreement, and
from year to year thereafter, but only so long as such
continuance is specifically approved at least annually (1)
by a vote of the Fund's Board of Trustees, including a vote
of a majority of the Trustees who are not parties to this
Agreement or "interested persons" (as defined in the Act) of
any such party, with votes cast in person at a meeting
called for the purpose of voting on such approval, or (2) by
a vote of the holders of a "majority" (as so defined) of the
outstanding voting securities of the Fund and by such a vote
of the Trustees.
(b) This Agreement may be terminated by the Sub-Adviser
at any time without penalty upon giving the Manager and the
Fund sixty days' written notice (which notice may be
waived). This Agreement may be terminated by the Manager or
the Fund at any time without penalty upon giving the Sub-
Adviser sixty days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination
by the Fund shall be directed or approved by a vote of a
majority of its Trustees in office at the time or by a vote
of the holders of a majority (as defined in the Act) of the
voting securities of the Fund outstanding and entitled to
vote. This Agreement shall automatically terminate in the
event of its assignment (as defined in the Act) or the
termination of the Advisory and Administration Agreement.
6. Notices of Meetings
The Manager agrees that notice of each meeting of the
Board of Trustees of the Fund will be sent to the Sub-
Adviser and that Sub-Adviser will make appropriate
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arrangements for the attendance (as persons present by
invitation) of such person or persons as the Sub-Adviser may
designate.
IN WITNESS WHEREOF, the parties hereto have caused
the foregoing instrument to be executed by their duly
authorized officers and their seals to be hereunto affixed,
all as of the day and year first above written.
ATTEST: AQUILA MANAGEMENT CORPORATION
/s/ Xxxxxxxxx Xxxxx
By: Xxxxx X. Xxxxxxxx
ATTEST: KPM INVESTMENT MANAGEMENT, INC.
/s/ X.Xxxx
By: Xxxx X. Xxxxxxx
