TAX-FREE TRUST OF ARIZONA
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of November 6, 1997 by and between
AQUILA MANAGEMENT CORPORATION, a New York Corporation (the
"Manager"), ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ and BANC ONE INVESTMENT ADVISORS CORPORATION, an Ohio
corporation (the "Sub-Adviser"), ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇.▇. ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
W I T N E S S E T H :
WHEREAS, Tax-Free Trust of Arizona (the "Trust") 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 Trust
(the "Advisory and Administration Agreement") pursuant to which
the Manager shall act as investment adviser with respect to the
Trust; and
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 Trust upon the terms and
conditions hereinafter set forth;
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 Trust, 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 Trust. The Sub-Adviser shall, all as more fully
set forth herein, act as managerial investment adviser to the
Trust with respect to the investment of the Trust's assets, and
supervise and arrange the purchase of securities for and the sale
of securities held in the portfolio of the Trust.
2. Duties and Obligations of the Sub-Adviser With Respect To
Investment of the Assets of the Trust
(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 Trust, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust;
(iv) either keep the accounting records of the Trust,
including the computation of net asset value per share and
the dividends or, at its expense and responsibility,
delegate such duties in whole or in part to a company
satisfactory to the Trust; 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
Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
(c) The Sub-Adviser shall give to the Manager and to the
Trust 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 Trust under this Agreement.
(e) In connection with its duties to arrange for the
purchase and sale of the Trust'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 Trust 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 Trust 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 Trust expects that most transactions will be
principal transactions at net prices and that the Trust will
incur little or no brokerage costs. The Trust 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 Trust. 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 Trust 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 Trust 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 Trust as are required by
applicable law and regulation, and agrees that all records which
it maintains for the Trust on behalf of the Manager shall be the
property of the Trust and shall be surrendered promptly to the
Trust or the Manager upon request.
(g) The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Trust 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 Trust'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 Trust 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 Trust 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 Trust
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
Trust'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 Trust 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 Trust. The Sub-Adviser will also pay all
compensation of the Trust'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 Trust as of
the close of business each business day at the annual rate of
0.25 of 1% of such net asset value, provided, however, that for
any day that the Trust pays or accrues a fee under the
Distribution Plan of the Trust based upon the assets of the
Trust, the annual fee shall be payable 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 Trust 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 Trust'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 Trust 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 Trust
sixty days' written notice (which notice may be waived). This
Agreement may be terminated by the Manager or the Trust 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 Trust 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 Trust 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 Trust will be sent to the Sub-Adviser and that
Sub-Adviser will make appropriate arrangements for the attendance
(as persons present by invitation) of such person or persons as
the Sub-Adviser may designate.
7. No Waiver
No delay by the Adviser or the Trust in exercising, or in
taking any action to enforce, any right under this Agreement will
operate as a waiver of any such right or in any manner affect the
respective rights and obligations of the Adviser or the Trust
under this Agreement.
8. Separability
If at any time any provision of this Agreement is or becomes
illegal, invalid, or unenforceable in any respect, the legality,
validity, and enforceability of the remaining provisions will
remain in full force and effect.
9. Indemnification
The indemnification obligations of the Manager under Section
2(j) hereof will survive termination of this Agreement and will
remain in full force and effect thereafter without termination.
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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
___________________ By:______________________________
ATTEST: BANC ONE INVESTMENT ADVISORS
CORPORATION
___________________ By:_______________________________