EXHIBIT (d)(2)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of February 1, 2003 between THE PREFERRED
GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"), on behalf
of the Preferred Value 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, 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).
(c) 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 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 .90% 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 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, to the extent required by the 1940
Act, 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 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.
Termination of this Contract pursuant to this Section 5 shall be without
the payment of any penalty.
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 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:
