APPENDIX
TAX-FREE FUND OF COLORADO
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of December 12, 2004 by and between AQUILA
INVESTMENT MANAGEMENT LLC (the "Manager"), 000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxx, Xxx Xxxx 00000, and XXXXXXXXXXX XXXXXX CAPITAL MANAGEMENT, INC., 0000
Xxxxxxxx, Xxxxx 0000, Xxxxxx, XX 00000, (the "Future Sub-Adviser"),
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 acts as investment adviser with respect to the Fund
pursuant to an Advisory and Administration Agreement dated October 31, 1997
between the Fund and Aquila Management Corporation (the "Advisory and
Administration Agreement"), which agreement was assigned to the Manager
effective January 1, 2004;
WHEREAS, pursuant to paragraph 2 of the Advisory and Administration
Agreement, Aquila Management Corporation has retained and the Manager continues
to utilize Xxxxxxxxxxx Xxxxxx Investment Management, Inc. (formerly named KPM
Investment Management, Inc.) (the "Current Sub-Adviser"), 0000 Xxxxxxxx, Xxxxx
0000, Xxxxxx, XX 00000, for purposes of rendering investment advisory services
to the Manager pursuant to a Sub-Advisory Agreement dated August 28, 2000 (the
"Current Agreement") with respect to the Fund;
WHEREAS, the Current Agreement is anticipated to be terminated by its terms
upon its assignment (the "Assignment") effective as of the closing of the sale
of the assets of the Current Sub-Adviser and sale of the outstanding stock of
the Future Sub-Adviser to X.X. Xxxxxxxx & Co. and Davidson Companies,
respectively;
WHEREAS, the parties desire that effective on the Assignment, the Future
Sub-Adviser, which is an affiliated company of the Current Sub-Adviser, shall
provide investment advisory services to the Manager and the Fund;
WHEREAS, these services are to be provided on the same terms and conditions
as the Current Agreement, in accordance with the conditions set forth in, and
except for certain differences enumerated in, Rule 15a-4(b)(2) (the "Rule")
promulgated by the Securities and Exchange Commission under the Act and except
for certain additional differences as agreed by the parties; and
WHEREAS, as provided in the Rule, this Agreement has been approved by the
Board of Trustees of the Fund at meetings called and held for the purpose on
September 11, 2004 and December 12, 2004 and will be submitted for approval by
the shareholders of the Fund at a meeting anticipated to be held on or about
March 10, 2005;
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
Effective as of the date of the Assignment, the Manager hereby appoints the
Future 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 Future 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 Future 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 Future 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 Future 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 Future 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 Future 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 Future
Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Future Sub-Adviser or any
affiliated person (as defined in the Act) of the Future 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
Future 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 Future Sub-Adviser expressly represents that, while
acting as Future 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 Future Sub-Adviser shall select
such broker-dealers ("dealers") as shall, in the Future 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 Future Sub-Adviser shall cause
the Fund to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless the Future
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 Future 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 Future
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 Future Sub-Adviser's overall
responsibilities. If, on the foregoing basis, the transaction in
question could be allocated to two or more dealers, the Future
Sub-Adviser is authorized, in making such allocation, to consider
whether a dealer has provided research services, as further discussed
below. 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 Future
Sub-Adviser or its other clients.
(f) The Future 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 Future 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 Future 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 Future Sub-Adviser for
inclusion therein. The Future Sub-Adviser shall promptly inform the
Fund as to any information concerning the Future 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 Future 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 Future Sub-Adviser, the Manager agrees to provide the Future
Sub-Adviser the benefits of such indemnification.
3. Allocation of Expenses
The Future 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 Future Sub-Adviser shall furnish,
at the Future Sub-Adviser's expense, all office space, facilities, equipment and
clerical personnel necessary for carrying out its duties under this Agreement.
The Future 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 Future Sub-Adviser will
also pay all compensation of the Fund's officers, employees, and Trustees, if
any, who are affiliated persons of the Future Sub-Adviser.
4. Compensation of the Future Sub-Adviser
(a) The Manager agrees to pay the Future Sub-Adviser, and the Future
Sub-Adviser agrees to accept as full compensation for all services
rendered by the Future 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.
(b) Until this agreement is approved by a vote of the holders of a
"majority" (as defined in the Act) of the outstanding voting
securities of the Fund in accordance with the Rule, the fees earned by
the Future Sub-Adviser and paid by the Manager hereunder will be held
in an interest-bearing escrow account with the Fund's custodian or a
bank; if a majority of the Fund's outstanding voting securities
approve a contract with the Future Sub-Adviser by the end of the
150-day period provided in the Rule, the amount in the escrow account
(including interest earned) will be paid to the Future Sub-Adviser
within 30 days of such approval; and if a majority of the Fund's
outstanding voting securities do not approve a contract with the
Future Sub-Adviser, the Future Sub-Adviser will be paid within 30 days
of the failure to receive approval, out of the escrow account, the
lesser of:
(1) Any costs incurred in performing the interim contract (plus
interest earned on that amount while in escrow); or
(2) The total amount in the escrow account (plus interest earned).
5. Duration and Termination
(a) This Agreement shall become effective on the termination of the
Current Agreement 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 Future 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 Future Sub-Adviser sixty days' written notice (which notice
may be waived by the Future 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.
(c) As provided in the Rule, this Agreement shall also terminate
automatically unless it is approved by a vote of the holders of a
majority (as defined in the Act) of voting securities of the Fund
outstanding and entitled to vote at a meeting to be held on or before
the 150th day following termination of the Current Agreement. Until
this Agreement is so approved, the Fund's Board of Trustees or a
majority of the Fund's outstanding voting securities may terminate the
contract at any time, without the payment of any penalty, on not more
than 10 calendar days' written notice to the Future Sub-Adviser.
6. Additional Undertakings of Future Sub-Adviser
(a) The Future Sub-Adviser, under the supervision of the Manager, shall
provide at its expense portfolio management particularly qualified to
manage investments in which the Fund primarily invests, and such
portfolio management personnel shall be principally located in the
state of issuers of such investments. Such portfolio management
personnel shall consist upon the effectiveness of this Agreement of
the portfolio manager and the credit committee listed on Appendix A
attached hereto. The Future Sub-Adviser shall assure that the
portfolio manager and credit committee shall be provided with
appropriate resources for the performance of their functions
hereunder. For at least three years after the Assignment, any change
of personnel, and any change of arrangements materially adversely
affecting the provision of portfolio management services hereunder,
shall be reported immediately to the Manager and, unless beyond the
control of the Future Sub-Adviser, shall be permissible only if
acceptable to the Board of Trustees of the Fund.
(b) For at least five years after the Assignment, the business name of the
Future Sub-Adviser shall include the words "Xxxxxxxxxxx Xxxxxx," all
material referring to the Future Sub-Adviser in connection with the
Fund shall include that name, and the Buyer shall cause all investment
advisory services performed on behalf of the Fund to be provided in
association with that name.
(c) For the duration of this Agreement, the Future Sub-Adviser shall not
cause or permit any Advised Investment Company, as hereafter defined,
to offer or sell its shares directly to retail customers, but shall
restrict such offers or sales to institutions acting for investors in
a fiduciary, advisory, agency, custodial or similar capacity. An
Advised Investment Company is an investment company registered under
the Investment Company Act of 1940 which (i) is provided with
portfolio management by the Future Sub-Adviser or any affiliate
thereof; and (ii) invests in municipal securities issued by the State
of Colorado or its political subdivisions.
(d) Notwithstanding anything in this Section 6, either party may terminate
this Agreement in accordance with the provisions of Section 5 of this
Agreement.
7. Notices of Meetings
The Manager agrees that notice of each meeting of the Board of Trustees of
the Fund will be sent to the Future Sub-Adviser. The Future Sub-Adviser will
make appropriate arrangements for the attendance (as persons present by
invitation) of such person or persons as the Future Sub-Adviser may designate.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument
to be executed by their duly
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authorized officers and their seals to be hereunto affixed, all as of the day
and year first above written.
ATTEST: AQUILA INVESTMENT MANAGEMENT LLC
By:
ATTEST: XXXXXXXXXXX XXXXXX CAPITAL MANAGEMENT, INC.
By
The performance of the undertakings of the Future Sub-Adviser under the
foregoing agreement is hereby guaranteed as of January 1, 2005:
ATTEST: DAVIDSON COMPANIES
BY By:
Appendix A
Portfolio Manager:
Xxxxxxxxxxx X. Xxxxx
Credit Committee:
Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx
Xxxxxxxxxxx X. Xxxxx
Xxxx X. Xxxxx
Xxxx X. Xxxxxx
L. Xxxx Xxxxxxxx
Xxxxxx X. Xxxxxxx
