EX-99.77Q1E2
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of , , 1995, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred Small Cap Fund (the "Fund"), and CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the Trust (the
"Trustees") and to such policies as the Trustees may determine, the Manager
will, at its expense, (i) 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 its portfolio securities and (ii) furnish
all necessary office space and equipment, provide bookkeeping and clerical
services required to perform its duties hereunder and pay all salaries, fees
and expenses of the Trustees and officers of the Trust who are affiliated
persons of the Manager. In the performance of its duties, the Manager will
comply with the provisions of the Agreement and Declaration of Trust and
By-laws of the Trust and the Fund's stated investment objectives, policies and
restrictions.
(b) 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 Manager shall seek to
obtain 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 Manager, bearing
in mind the Fund's best interests at all times, shall consider all factors it
deems relevant, including, by way of illustration, the 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 may determine, the
Manager shall not be deemed to have acted unlawfully or to have breached any
duty created by this Contract or otherwise solely by reason of its having
caused the Trust to pay, on behalf of the Fund, a broker that provides
brokerage and research services to the Manager or any affiliated person of the
Manager 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 Manager 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 Manager's overall responsibilities
with respect to the Fund and to other clients of the Manager and any affiliated
person of the Manager as to which the Manager or any affiliated person of the
Manager exercises investment discretion. The Trust hereby agrees with the
Manager and with any Subadviser (as defined in Section 1(c) below) that any
entity or person associated with the Manager or Subadviser (or with any
affiliated person of the Manager or 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).
Subject to the provisions of the Agreement and Declaration of Trust of
the Trust and the Investment Company Act of 1940, as amended (the "1940 Act"),
the Manager, at its expense, may select and contract with one or more
investment advisers (the "Subadviser") for the Fund to perform some or all of
the services for which it is responsible pursuant to paragraph (a) of this
Section 1. The Manager will compensate any Subadviser of the Fund for its
services to the Fund. The Manager may terminate the services of any Subadviser
at any time in its sole discretion, and shall at such time assume the
responsibilities of such Subadviser unless and until a successor
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Subadviser is selected. To the extent that more than one Subadviser is
selected, the Manager shall, in its sole discretion, determine the amount of
the Fund's assets allocated to each such Subadviser.
(d) The Manager shall not be obligated to pay any expenses of or for
the Trust or of or for the Fund not expressly assumed by the Manager pursuant
to this Section 1 other than as provided in Section 3.
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 Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate (based on the number of days elapsed through the end of the month)
of 0.75% of the Fund's net asset value as of the last business day of the
month. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the
Trust are qualified for offer and sale, the compensation due the Manager for
such fiscal year shall be reduced by the amount of such excess by a reduction
or refund thereof. In the event that the expenses of the Fund
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exceed any expense limitation which the Manager may, by written notice to the
Trust, voluntarily declare to be effective with respect to the Fund, subject to
such terms and conditions as the Manager may prescribe in such notice, the
compensation due the Manager shall be reduced, and, if necessary, the Manager
shall bear the Fund's expenses to the extent required by such expense
limitation.
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is 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.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract 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) Either party hereto may at any time terminate this Contract by not
more than sixty days' written notice delivered or mailed by registered mail,
postage prepaid, to the other party, 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, 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 Contract, then this Contract shall automatically terminate
at the close of business on the second
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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 Contract is submitted to the
shareholders of the Fund for their approval and such shareholders fail to
approve such continuance of this Contract as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the 1940 Act and the
rules and regulations thereunder.
Action by the Trust under paragraph (a) of this Section 5 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.
6. CERTAIN DEFINITIONS
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund 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 Contract, 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 said 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.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be
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subject to any liability 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.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, THE PREFERRED GROUP OF MUTUAL FUNDS and CATERPILLAR
INVESTMENT MANAGEMENT LTD. 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.
THE PREFERRED GROUP OF MUTUAL FUNDS
By__________________________________
Title:
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By__________________________________
Title:
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