PREFERRED FIXED INCOME FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of November 1, 1996 between
CATERPILLAR INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"),
and X. X. XXXXXX INVESTMENT MANAGEMENT INC., a Delaware corporation (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 trustees of The Preferred
Group of Mutual Funds (the "Trustees"), a Massachusetts business trust (the
"Trust"), the Subadviser, at its expense, will furnish continuously an
investment program for the Preferred Fixed Income Fund series of the Trust (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
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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 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, 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 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.
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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.
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 November __, 1996 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 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
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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 Investment
Company Act of 1940, as amended (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.
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.
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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.
Except as specifically provided in the Indemnification Agreement among
the Trust, the Manager and the 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.
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.
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IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD.
and X. X. XXXXXX INVESTMENT MANAGEMENT INC. have each caused this instrument
to be signed in duplicate on its behalf by its duly authorized representative,
as of the day and year first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By:___________________________________
Title:
X. X. XXXXXX INVESTMENT MANAGEMENT INC.
By:____________________________________
Title
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 of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers or
shareholders of the Trust but are binding only upon the assets of the Fund.
THE PREFERRED GROUP OF MUTUAL FUNDS
By:________________________________
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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;
"Plan Assets" shall mean the net assets of the portion of
assets managed by the Subadviser, excluding the Fund and the Preferred
Money Market 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 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 NEXT NEXT NEXT OVER
$75 MILLION $75 MILLION $150 MILLION $100 MILLION $400 MILLION
0.25% 0.225% 0.175% 0.125% 0.10%
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