TAX-FREE FUND OF COLORADO
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of June 29, 1998 by and between TAX-
FREE FUND OF COLORADO (the "Fund"), 000 Xxxxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000 and AQUILA MANAGEMENT CORPORATION
(the "Manager"), a New York corporation, 000 Xxxxxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 10017
W I T N E S S E T H:
WHEREAS, 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 Fund and the Manager wish to enter into an
Advisory and Administration Agreement referred to hereafter as
"this Agreement," with respect to the Fund;
WHEREAS, on the date of this Agreement, payments are being
made as contemplated by the Distribution Plan (the "Current
Distribution Plan") in effect on that date, which plan has been
approved by shareholders of the Fund on June 8, 1994 and has been
amended by the Board of the Trustees from time to time in a
manner consistent with the requirements of the Investment Company
Act of 1940 and rules thereunder;
WHEREAS, on June 7, 1995 shareholders of the Fund have also
approved, but the Fund has not implemented, another Distribution
Plan (the "New Distribution Plan") which has been amended by the
Board of the Trustees from time to time in a manner consistent
with the requirements of the Investment Company Act of 1940 and
rules thereunder; and
WHEREAS, the fee payable to the Sub-Adviser is to be reduced
at such time as the New Distribution Plan is implemented, which
implementation requires approval of the Board of Trustees of the
Fund;
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consider-
ation, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. In General
The Manager shall perform (at its own expense) the functions
set forth more fully herein for the Fund.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the succeeding
provisions of this section and subject to the direction and
control of the Board of Trustees of the Fund, the Manager 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 port-
folio 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
Subject to the provisions of Section 5 hereof, the Manager may at
its own expense delegate to a qualified organization ("Sub-
Adviser"), affiliated or not affiliated with the Manager, any or
all of the above duties. Any such delegation of the duties set
forth in (i), (ii) or (iii) above shall be by a written agreement
(the "Sub-Advisory Agreement") approved as provided in Section 15
of the Investment Company Act of 1940.
(b) Administration. Subject to the succeeding provisions of
this section and subject to the direction and control of the
Board of Trustees of the Fund, the Manager shall provide all
administrative services to the Fund other than those relating to
its investment portfolio delegated to a Sub-Adviser of the Fund
under a Sub-Advisory Agreement; as part of such administrative
duties, the Manager shall:
(i) provide office space, personnel, facilities and equip-
ment for the performance of the following functions and for
the maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotia-
tion of agreements in relation thereto, the supervision and
coordination of the performance of such agreements, and the
overseeing of all administrative matters which are necessary
or desirable for the effective operation of the Fund and for
the sale, servicing or redemption of the Fund's shares;
(iii) either keep the accounting records of the Fund, in-
cluding the computation of net asset value per share and the
dividends (provided that if there is a Sub-Adviser, daily
pricing of the Fund's portfolio shall be the responsibility
of the Sub-Adviser under the Sub-Advisory Agreement) or, at
its expense and responsibility, delegate such duties in
whole or in part to a company satisfactory to the Fund;
(iv) maintain the Fund's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Fund's sharehold-
ers and Trustees, reports to and other filings with the
Securities and Exchange Commission and any other governmen-
tal agencies, and tax returns, and oversee the insurance
relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's ex-
pense, such applications and reports as may be necessary to
register or maintain the registration of the Fund and/or its
shares under the securities or "Blue-Sky" laws of all such
jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund and broker-dealers, or if any such
inquiry or communication is more properly to be responded to
by the Fund's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
(c) Compliance with Requirements. Any investment program
furnished, and any activities performed, by the Manager or by a
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 registra-
tion statement under the Act or as amended by the shareholders of
the Fund.
(d) Best Efforts; Responsibility. The Manager shall give
the Fund the benefit of its best judgment and effort in rendering
services hereunder, but the Manager 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 Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall
prevent the Manager or any officer thereof from acting as invest-
ment adviser, sub-adviser, administrator or manager for any other
person, firm, or corporation, and shall not in any way limit or
restrict the Manager or any of its officers, stockholders or
employees 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 Manager
expressly represents that it will undertake no activities which,
in its judgment, will adversely affect the performance of its
obligations under this Agreement.
(f) Order Allocation. In connection with any duties for
which it may become responsible to arrange for the purchase and
sale of the Fund's portfolio securities, the Manager shall
select, and shall cause any Sub-Adviser to select, such broker-
dealers ("dealers") as shall, in the Manager's judgment, imple-
ment 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 Manager shall cause the Fund to deal
directly with the selling or purchasing principal or market maker
without incurring brokerage commissions unless the Manager
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 conces-
sion 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
Manager is authorized and shall authorize any Sub-Adviser, 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
Manager 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 Manager's overall responsibilities.
If, on the foregoing basis, the transaction in question could be
allocated to two or more dealers, the Manager 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, econom-
ic, 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
Manager or its other clients. The Manager shall cause the forego-
ing provisions, in substantially the same form, to be included in
any Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed that
the Manager 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 informa-
tion supplied by the Manager for inclusion therein. The Manager
shall promptly inform the Fund as to any information concerning
the Manager appropriate for inclusion in such Registration
Statement, or as to any transaction or proposed transaction which
might result in an assignment of the Agreement.
(h) Liability for Error. The Manager 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 misfea-
sance, bad faith or gross negligence on its part in the perfor-
xxxxx 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.
(i) Indemnification. The Fund shall indemnify the Manager
to the full extent permitted by the Fund's Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Fund who are affiliated persons of
the Manager.
The Fund agrees to bear the costs of preparing and setting
in type its prospectuses, statements of additional information
and reports to its shareholders, and the costs of printing or
otherwise producing and distributing those copies of such pro-
spectuses, statements of additional information and reports as
are sent to its shareholders. All costs and expenses not ex-
pressly assumed by the Manager under this sub-section or other-
wise by the Manager, administrator or principal underwriter or by
any Sub-Adviser shall be paid by the Fund, including, but not
limited to (i) interest and taxes; (ii) brokerage commissions;
(iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such
adviser, administrator or principal underwriter; (v) legal and
audit expenses; (vi) custodian and transfer agent, or shareholder
servicing agent, fees and expenses; (vii) expenses incident to
the issuance of its shares (including issuance on the payment of,
or reinvestment of, dividends); (viii) fees and expenses incident
to the registration under Federal or State securities laws of the
Fund or its shares; (ix) expenses of preparing, printing and
mailing reports and notices and proxy material to shareholders of
the Fund; (x) all other expenses incidental to holding meetings
of the Fund's shareholders; and (xi) such non-recurring expenses
as may arise, including litigation affecting the Fund and the
legal obligations for which the Fund may have to indemnify its
officers and Trustees.
4. Compensation of the Manager
The Fund agrees to pay the Manager, and the Manager agrees
to accept as full compensation for all services rendered by the
Manager as such, an annual 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 0.50 of 1% of such net asset
value; provided, however, that for any day that the Fund pays or
accrues a fee under the part of the Distribution Plan which
applies only to the Front-Payment Class ("Class A") of shares of
the Fund (regardless of whether such class is so designated or is
redesignated by some other name), the annual management fee shall
be payable as follows:
(a) on any day that such fee under the Current Distribution
Plan is paid or accrued then the Manager's fee shall be
payable at the annual rate of 0.50 of 1% of such net asset
value up to $250 million and at the annual rate of 0.40 of
1% of such net asset value above that amount; and
(b) on any day that such fee under the Distribution Plan is
paid or accrued under the New Distribution Plan, then the
Manager's fee shall be payable at the annual rate of 0.40 of
1% of such net asset value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination
by the Manager upon reasonable notice, provided, however, that
the Manager agrees not to terminate the Sub-Advisory Agreement
except in accordance with such authorization and direction of the
Board of Trustees, if any, as may be in effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become effective as of
the date first written above following approval by the sharehold-
ers 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) Termination. This Agreement may be terminated by the
Manager at any time without penalty upon giving the Fund sixty
days' written notice (which notice may be waived by the Fund) and
may be terminated by the Fund at any time without penalty upon
giving the Manager sixty days' written notice (which notice may
be waived by the Manager), 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. The portions of this
Agreement which relate to providing investment advisory services
(Sections 2(a), (c), (d) and (e)) shall automatically terminate
in the event of the assignment (as defined in the Act) of this
Agreement, but all other provisions relating to providing servic-
es other than investment advisory services shall not terminate,
provided however, that upon such an assignment the annual fee
payable monthly and computed on the net asset value of the Fund
as of the close of business each business day shall be reduced to
the annual rate of .30 of 1% of such net asset value, and provid-
ed further that for any day that the Fund pays or accrues a fee
under the part of the Distribution Plan which applies only to the
Front-Payment Class ("Class A") of shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name), the annual management fee shall be payable at the
annual rate of 0.30 of 1% of such net asset value up to $250
million and at the annual rate of 0.24 of 1% of such net asset
value above that amount.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this Agree-
ment are not binding upon any shareholder of the Fund personally,
but bind only the Fund's property; the Manager represents that it
has notice of the provisions of the Fund's Declaration of Trust
disclaiming shareholder liability for acts or obligations of the
Fund.
8. Notices of Meetings
The Fund agrees that notice of each meeting of the
Board of Trustees of the Fund will be sent to the Manager and
that the Fund will make appropriate arrangements for the atten-
dance (as persons present by invitation) of such person or
persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this
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: TAX-FREE FUND OF COLORADO
By
ATTEST: AQUILA MANAGEMENT CORPORATION
___________________ By:___________________________________
