Sub-Item 77Q1(e)
PREFERRED VALUE FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of March 29, 2006 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a placeStateDelaware corporation (the "Manager"),
and BARROW, HANLEY, XXXXXXXXX & XXXXXXX, INC. (the "Subadviser").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST.
(a) Subject always to the control of the Manager (to the extent
contemplated by this Agreement and the Management Contract described in Section
4 hereof) and the trustees of The Preferred Group of Mutual Funds (the
"Trustees"), a Massachusetts business trust (the "Trust"), including the
Manager's authority to determine what securities or other property shall be
purchased or sold by or for the Preferred Value Fund series of the Trust (the
"Fund"), the Subadviser, at its expense, will furnish continuously an investment
program for the Fund and will make investment decisions on behalf of the Fund
and place all orders for the purchase and sale of portfolio securities and all
other investments. In the performance of its duties, the Subadviser (i) will
comply with the provisions of the Trust's Agreement and Declaration of Trust and
By-laws, including any amendments thereto (upon receipt of such amendments by
the Subadviser), and the investment objectives, policies and restrictions of the
Fund as set forth in its current Prospectus and Statement of Additional
Information (copies of which will be supplied to the Subadviser upon filing with
the Securities and Exchange Commission), (ii) will use its best efforts to
safeguard and promote the welfare of the Fund, (iii) will comply with other
policies which the Trustees or the Manager, as the case may be, may from time to
time determine as promptly as practicable after such policies have been
communicated to the Subadviser in writing, and (iv) shall exercise the same care
and diligence expected of the Trustees. The Subadviser and the Manager shall
each make its officers and employees available to the other from time to time at
reasonable times to review investment policies of the Fund and to consult with
each other regarding the investment affairs of the Fund.
(b) The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel, required
for it to execute its duties hereunder faithfully and (ii) administrative
facilities, including bookkeeping, clerical personnel and equipment necessary
for the efficient conduct of the investment affairs of the Fund, including
oversight of the pricing of the Fund's portfolio and assistance in obtaining
prices for
portfolio securities (but excluding determination of net asset value,
shareholder accounting services and fund accounting services).
(c) In the selection of brokers, dealers or futures commissions merchants
(collectively, "brokers") and the placing of orders for the purchase and sale of
portfolio investments for the Fund, the Subadviser shall comply with such
policies established by the Trustees or the Manager and communicated to the
Subadviser in writing and shall seek to obtain for the Fund the most favorable
price and execution available, except to the extent it may be permitted to pay
higher brokerage commissions for brokerage and research services as described
below. In using its best efforts to obtain for the Fund the most favorable price
and execution available, the Subadviser, bearing in mind the Fund's best
interests at all times, shall consider all factors it deems relevant, including,
by way of illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker involved and the quality of
service rendered by the broker in other transactions. Subject to such policies
as the Trustees or the Manager may determine and communicate to the Subadviser
in writing, the Subadviser shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker that provides brokerage and
research services to the Subadviser or any affiliated person of the Subadviser
an amount of commission for effecting a portfolio investment transaction in
excess of the amount of commission another broker would have charged for
effecting that transaction, if the Subadviser determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed in terms of either that
particular transaction or the Subadviser's overall responsibilities with respect
to the Fund and to other clients of the Subadviser and any affiliated person of
the Subadviser as to which the Subadviser or any affiliated person of the
Subadviser exercises investment discretion. The Trust agrees that any entity or
person associated with the Subadviser or any affiliated person of the Subadviser
which is a member of a national securities exchange is authorized to effect any
transaction on such exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the
retention of compensation for such transactions in accordance with Rule
11a2-2(T)(2)(iv).
(d) The Subadviser shall not be obligated to pay any expenses of or for the
Trust or of or for the Fund not expressly assumed by the Subadviser pursuant to
this Section 1.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, partner, director, officer or
employee of, or be otherwise interested in, the Subadviser, and in any person
controlling, controlled by or under common control with the Subadviser, and that
the Subadviser and any person controlling, controlled by or under common control
with the Subadviser may have an interest in the Trust. It is also understood
that the Subadviser and persons controlling, controlled by or under common
control with the Subadviser have and may have advisory, management service,
distribution or other contracts with other organizations and persons, and may
have other interests and businesses.
2
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUBADVISER.
The Manager will pay to the Subadviser as compensation for the Subadviser's
services rendered, for the facilities furnished and for the expenses borne by
the Subadviser pursuant to Section 1, a fee in accordance with Schedule A of
this Agreement.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment or in the event that the Management
Contract dated as of February 1, 2003 between the Manager and the Trust, with
respect to the Fund, shall have terminated for any reason, and the Manager shall
provide notice of any such termination of the Management Contract to the
Subadviser; and, to the extent required by the Investment Company Act of 1940,
as amended (the "1940 Act"), this Agreement shall not be amended unless such
amendment be approved by the affirmative vote of a majority of the outstanding
shares of the Fund, and by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Trustees who are not
interested persons of the Trust or of the Manager or of the Subadviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall remain
in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) The Trust may at any time terminate this Agreement by written notice
delivered or mailed by registered mail, postage prepaid, to the Manager and the
Subadviser, or
(b) If (i) the Trustees or the shareholders of the Trust by the affirmative
vote of a majority of the outstanding shares of the Fund, and (ii) a majority of
the Trustees who are not interested persons of the Trust or of the Manager or of
the Subadviser, by vote cast in person at a meeting called for the purpose of
voting on such approval, do not specifically approve at least annually the
continuance of this Agreement, then this Agreement shall automatically terminate
at the close of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such continuance,
whichever is later; provided, however, that if the continuance of this Agreement
is submitted to the shareholders of the Fund for their approval and such
shareholders fail to approve such continuance of this Agreement as provided
herein, the Subadviser may continue to serve hereunder in a manner consistent
with the 1940 Act, and the rules and regulations thereunder, or
(c) The Manager may at any time terminate this Agreement by not less than
60 days' written notice delivered or mailed by registered mail, postage prepaid,
to the Subadviser, and the Subadviser may at any time terminate this Agreement
by not less than 90 days' written notice delivered or mailed by registered mail,
postage prepaid, to the Manager.
3
Action by the Trust under paragraph (a) above may be taken either (i) by
vote of a majority of the Trustees, or (ii) by the affirmative vote of a
majority of the outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 5 shall be without
the payment of any penalty.
6. CERTAIN INFORMATION.
The Subadviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Subadviser shall fail to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended from time to time, and under the laws of any jurisdiction in which
the Subadviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement or any other agreement concerning
the provision of investment advisory services to the Trust, (b) the Subadviser
shall have been served or otherwise have notice of any action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court, public
board or body, involving the affairs of the Trust, (c) there is a change in
control of the Subadviser or any parent of the Subadviser within the meaning of
the 1940 Act or (d) there is a material adverse change in the business or
financial position of the Subadviser.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority of
the outstanding shares" means the affirmative vote, at a duly called and held
meeting of shareholders, (a) of the holders of 67% or more of the shares of the
Fund present (in person or by proxy) and entitled to vote at such meeting, if
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting are present in person or by proxy, or (b) of the holders of
more than 50% of the outstanding shares of the Fund entitled to vote at such
meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research services"
shall have the meaning given in the 1934 Act and the rules and regulations
thereunder.
8. NONLIABILITY OF SUBADVISER.
In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Subadviser, or reckless disregard of its obligations and duties
hereunder, the Subadviser shall not be subject to any liability to the Manager,
to the Trust, to the Fund, or to any shareholder, officer, director or Trustee
thereof, for any act or omission in the course of, or connected with, rendering
services hereunder.
4
9. EXERCISE OF VOTING RIGHTS.
Except with the agreement or on the specific instructions of the Trustees
or the Manager, the Subadviser shall exercise or procure the exercise of any
voting right attaching to investments of the Fund.
10. NOTICES.
All notices, requests and consents shall be in writing and shall be
personally delivered or mailed by registered mail, postage prepaid, to the other
party at such address as may be furnished in writing by such party.
11. CONSULTING WITH SUBADVISERS.
(a) The Subadviser shall not consult with any Preferred Subadviser (other
than an affiliated person of the Subadviser) concerning transactions of the Fund
in securities or other assets.
(b) To the extent that multiple Preferred Subadvisers serve as investment
advisers of the Fund, the Subadviser shall be responsible for providing
investment advice only with respect to such portion of the Fund as may from time
to time be determined by the Manager.
(c) "Preferred Subadviser" means an investment adviser, as defined in
Section 2(a)(20)(B) of the 1940 Act, for a series of the Trust. "Preferred
Subadviser" shall include an investment adviser that serves as an investment
adviser for a series of the Trust pursuant to an agreement between such
investment adviser and a Preferred Subadviser.
5
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and BARROW,
HANLEY, XXXXXXXXX & XXXXXXX, INC. have each caused this instrument to be signed
in duplicate on its behalf by its duly authorized representative, all as of the
day and year first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By: _______________________________
Name:
Title:
BARROW, HANLEY, XXXXXXXXX & XXXXXXX, INC.
By: _______________________________
Name:
Title:
The foregoing is accepted by:
THE PREFERRED GROUP OF MUTUAL FUNDS
By: ______________________________
Name:
Title:
6
SCHEDULE A
1. For purposes of calculating the fee to be paid to the Subadviser under
this Agreement:
"Fund Assets" shall mean the net assets of the Fund managed by the
Subadviser;
"Plan Assets" shall mean the net assets of the portion of assets managed by
the Subadviser, excluding the Fund, (i) of any constituent fund of the
Caterpillar Investment Management Ltd. Tax Exempt Group Trust, (ii) of any
assets managed or advised by the Manager for which the Subadviser has been
appointed subadviser by the Manager, (iii) of Caterpillar Inc. or any of its
subsidiaries or (iv) of any employee benefit plan sponsored by Caterpillar Inc.
or any of its subsidiaries;
"Combined Assets" shall mean the sum of Fund Assets and Plan Assets; and
"Average Quarterly Net Assets" shall mean the average of the net asset
value of the Fund Assets, Plan Assets or Combined Assets, as the case may be, as
of the last business day of each month in the calendar quarter.
2. The Subadviser fee shall be paid in arrears (within 10 days of receipt
by the Manager of an invoice from the Subadviser) based upon the Average
Quarterly Net Assets of the Combined Assets during the preceding calendar
quarter. The fee payable for the calendar quarter shall be calculated by
applying the annual rate, as set forth in the fee schedule below, to the Average
Quarterly Net Assets of the Combined Assets, and dividing by four. The portion
of the quarterly fee to be paid by the Manager shall be prorated based upon the
Average Quarterly Net Assets of the Fund Assets as compared to the Average
Quarterly Net Assets of the Combined Assets. For a calendar quarter in which
this Agreement becomes effective or terminates, the portion of the Subadviser
fee due hereunder shall be prorated on the basis of the number of days that the
Agreement is in effect during the calendar quarter.
3. The following fee schedule shall be used to calculate the fee to be paid
to the Subadviser under this Agreement:
---------------- -------------- ---------------- --------------- ---------------- ---------------
First $10 Next $15 Next $175 Next $600 Next $200 Over $1
million million million million million billion
---------------- -------------- ---------------- --------------- ---------------- ---------------
0.75% 0.50% 0.25% 0.20% 0.15% 0.125%
---------------- -------------- ---------------- --------------- ---------------- ---------------
