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<PAGE> PAGE 9
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 17
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<PAGE> PAGE 19
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<PAGE> PAGE 20
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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<PAGE> PAGE 27
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<PAGE> PAGE 28
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<PAGE> PAGE 29
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<PAGE> PAGE 31
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<PAGE> PAGE 32
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<PAGE> PAGE 36
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070 D020800 N
070 E010800 N
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070 H010800 Y
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<PAGE> PAGE 40
070 N010800 Y
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072 M000800 1
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072 P000800 0
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072 Z000800 47
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072BB000800 30
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<PAGE> PAGE 41
074 A000800 0
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008 A000901 CATERPILLAR INVESTMENT MANAGEMENT LTD.
008 B000901 A
008 C000901 801-34522
008 D010901 PEORIA
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<PAGE> PAGE 42
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047 000900 Y
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052 000900 N
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<PAGE> PAGE 43
053 C000900 N
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<PAGE> PAGE 44
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<PAGE> PAGE 45
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SIGNATURE FRED L. KAUFMAN
TITLE VP AND TREASURER
EX-99.77D
THE PREFERRED INTERNATIONAL FUND
A SERIES OF THE PREFERRED GROUP OF MUTUAL FUNDS
November 10, 1995
INFORMATION STATEMENT
GENERAL INFORMATION
This information statement, which was first mailed on or about November
10, 1995, is distributed in connection with action to be taken by written
consent of the Majority Shareholders (as defined below) of the Preferred
International Fund (the "Fund"), a series of The Preferred Group of Mutual
Funds (the "Trust"), on or about November 30, 1995, all as more fully
described below. THIS DOCUMENT IS REQUIRED UNDER THE FEDERAL SECURITIES LAWS
AND IS PROVIDED SOLELY FOR YOUR INFORMATION. WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The Trustees have set November 8, 1995, (the "Record Date") as the
record date for determining the number of shares and the shareholders entitled
to give consent and to receive this information statement. On the Record Date,
10,960,461.404 shares of the Fund were outstanding, and the Trustees and
Officers of the Fund owned less than 1% of the Fund's outstanding shares.
Information concerning shareholders who were known to be the beneficial owners
of more than 5% of the Fund's shares as of the Record Date is set forth below.
<TABLE>
<CAPTION>
Amount and Percent
Name and Address Nature of of the
of Beneficial Owner Beneficial Ownership Fund
-------------------------------------------------------------------------------
<S> <C> <C>
Caterpillar Investment Trust 401(k) Plan 5,248,392.143 47.88
Caterpillar Inc. Supplemental Unemployment 3,539,569.769 32.29
and Benefits Group Insurance Trust A
and Trust B (together with the Caterpillar
Investment Trust 401(k) Plan, the "Majority
Shareholders")
Caterpillar Insurance Company Limited 911,695.042 8.32
</TABLE>
The address of each of the shareholders listed above is 100 N.E. Adams
Street, Peoria, Illinois 61629.
As described more fully below, a transaction (the "Transaction")
involving a transfer of the business of Mercator Asset Management, Inc. ("Old
Mercator") to Mercator Asset Management, L.P. ("New Mercator") is expected to
take place before the end of calendar 1995 and under relevant law will result
in termination of the existing subadvisory agreement (the "Current Agreement")
dated as of June 29, 1992, between Old Mercator and Caterpillar Investment
Management Ltd. ("CIML") with respect to the Fund. In order for a new
subadvisory agreement between New Mercator and CIML with respect to the Fund
(the "Proposed Agreement") to be put in place, the Investment Company Act of
1940, as amended
<PAGE>
(the "1940 Act"), requires approval of the Proposed Agreement by both the
Trust's Board of Trustees and the Fund's shareholders.
The Proposed Agreement was approved (to be effective upon consummation
of the Transaction or shareholder approval, whichever is later) by all the
Trustees, including those Trustees who are not "interested persons" or
affiliates (as defined in the 1940 Act) of any party to the Proposed Agreement
(the "Independent Trustees"), on October 25, 1995. The Trustees, including the
Independent Trustees, have recommended approval of the Proposed Agreement by
shareholders and the Majority Shareholders have indicated on a preliminary
basis that they intend to grant such approval by written consent.
A description of the Current Agreement and the Proposed Agreement, the
services provided and to be provided thereunder, and procedures for termination
and renewal is set forth below under "Description of Current and Proposed
Agreements." Such description is qualified in its entirety by reference to the
form of the Proposed Agreement set forth in Appendix A to this Information
Statement. Additional information about New Mercator is set forth below under
"Other Information."
FURTHER INFORMATION CONCERNING THE FUND IS CONTAINED IN ITS MOST RECENT
ANNUAL REPORT TO SHAREHOLDERS, WHICH MAY BE OBTAINED FREE OF CHARGE BY WRITING
TO THE PREFERRED GROUP, P.O. BOX 8320, BOSTON, MA 02266-8320 OR BY TELEPHONING
1-800-662-4769.
THE TRANSACTION.
On October 4, 1995, New Mercator, a Delaware limited partnership, was
organized pursuant to the limited partnership agreement (the "Partnership
Agreement") by and between four Florida corporations, JZT Corp., PXS Corp., KXB
Corp. and MXW Corp., as general partners (collectively, the "General Partners"
and each, a "General Partner"), and Old Mercator, as a limited partner. The
General Partners, Old Mercator, the Prudential Asset Management Company, Inc.
("PAMCO") (which owns 100% of the outstanding common stock of Old Mercator),
and John G. Thompson, Peter F. Spano, Kenneth B. Brown and Michael A. Williams
(collectively, the "Principals") have also executed a contribution agreement
(the "Contribution Agreement") dated October 4, 1995, pursuant to which New
Mercator, subject to certain conditions, including the effective registration
of New Mercator, will assume the investment advisory business of Old Mercator.
The Principals are executive officers of Old Mercator and each of them is the
President, Chief Executive Officer and sole shareholder of a General Partner of
New Mercator.
Under the Contribution Agreement, Old Mercator will transfer to New
Mercator, in exchange for a limited partnership interest and New Mercator's
assumption of Old Mercator's liabilities, all of its assets (excluding
approximately $4,000,000 in cash), including Old Mercator's interest in
investment advisory contracts with its other investment advisory clients.
-2-
<PAGE>
Each of the General Partners will have a substantial interest in the profits of
New Mercator. It is contemplated that New Mercator will provide advice to the
Fund under substantially the same terms and utilizing the same investment
professionals as Old Mercator, subject to the conditions set forth below.
The consummation of the transaction to be effected by the Contribution
Agreement (the "Transaction") is subject to several conditions, of which the
principal conditions are: (i) submission of the Proposed Agreement to the
shareholders of the Fund and the submission of a new subadvisory agreement to
the other investment company client of Old Mercator; (ii) request by New
Mercator and Old Mercator for the consent of Old Mercator's other clients to
the assignment of Old Mercator's investment advisory contracts to New Mercator;
(iii) registration of New Mercator as an investment adviser (A) under the
Investment Advisers Act of 1940 ("Advisers Act"), (B) in all jurisdictions in
which Old Mercator is registered on the date of the Partnership Agreement, and
(C) in all jurisdictions in which New Mercator will be required to be
registered in order to conduct business presently conducted by Old Mercator;
(iv) approval of the transaction by the board of directors of the Prudential
Insurance Company of America; and (v) execution of a non-competition agreement
by each of the Principals and New Mercator pursuant to which Old Mercator is a
named third-party beneficiary.
Old Mercator and the General Partners have informed the Trustees of the
Trust that the Transaction is not expected to result in any change in the
investment personnel providing subadvisory services to the Fund, although no
assurance can be given that such a change will not occur. Old Mercator and the
General Partners have also advised the Trustees that, at present, the
Transaction should not result in New Mercator having a business or composition
of the senior management or personnel materially different from that of Old
Mercator, other than as described herein, nor should the manner in which New
Mercator renders investment subadvisory services to the Fund be materially
different from the manner in which Old Mercator renders subadvisory services to
the Fund.
Old Mercator and the General Partners have also informed the Fund that
the parties to the Contribution Agreement have agreed that, in order to comply
with Section 15(f) of the 1940 Act, they will not, for a period of two years
following consummation of the Transaction, impose an "unfair burden" on the
Fund. Section 15(f) provides a non-exclusive safe harbor for an investment
company's investment adviser or any affiliated persons to receive any amount or
benefit in connection with a change in control of the investment adviser as
long as two conditions are met. First, for a period of three years after such
change in control, at least 75% of the trustees of any fund whose management
agreement terminates as a result of the change in control must not be
interested persons of the adviser or the predecessor adviser. Second, an
"unfair burden" must not be imposed on the investment company as a result of
such change in control or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
change in control pursuant to which the investment adviser (including its
predecessor or successor), or any interested person of any
-3-
<PAGE>
such adviser, receives or its entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders (other than
fees for bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from
or on behalf of the investment company (other than bona fide ordinary
compensation as principal underwriter for such investment company). The Fund
has been advised that Old Mercator and the General Partners, after due inquiry,
are not aware of any express or implied term, condition, arrangement or
understanding which would impose an "unfair burden" on the Fund, as a result of
the transaction. All fees and expenses incurred by the Fund relating to this
Information Statement will be paid by parties other than the Fund and its
shareholders.
DESCRIPTION OF CURRENT AND PROPOSED AGREEMENTS
In order to assist it in carrying out its responsibilities as manager
of the Fund, CIML has retained Old Mercator under the Current Agreement to
render advisory services to the Fund under the supervision of CIML and the
Trustees of the Trust. The sole initial shareholder of the Fund approved the
Current Agreement on June 30, 1992. The Trustees of the Trust last approved the
continuance of the Current Agreement, effective on and after June 29, 1995, at
a meeting held on April 26, 1995.
CIML pays the fees of Old Mercator under the Current Agreement and,
under the Proposed Agreement, will pay the fees of New Mercator. Under the
Current Agreement, Old Mercator receives a fee based on the Fund assets managed
or advised by Old Mercator (the "Fund Assets") together with any other assets
managed or advised by Old Mercator relating to Caterpillar Inc. or any of its
affiliates. (The Fund Assets together with such other assets are collectively
referred to as the "Combined Assets.") The subadvisory fee is calculated based
on the average quarterly net asset value, determined as of the last business
day of each month in the calendar quarter, of the Combined Assets at the annual
rate of 0.75% of the first $50 million of Combined Assets and 0.60% of Combined
Assets in excess of $50 million. This amount is then allocated based upon the
ratio of Fund Assets to Combined Assets. Old Mercator has agreed to waive a
portion (0.15% of Combined Assets) of its fee under the Current Agreement with
respect to Combined Assets in excess of $300 million. The fees paid to Old
Mercator by CIML are higher than the management fees paid by most other mutual
funds. CIML has informed the Trust that for the fiscal year ended June 30,
1995, Old Mercator was paid $677,479.
THE PROPOSED AGREEMENT IS IDENTICAL TO THE CURRENT AGREEMENT, EXCEPT
FOR (I) THE REPLACEMENT OF OLD MERCATOR BY NEW MERCATOR AS SUBADVISER, (II) THE
ADDITION OF A NEW SUBADVISORY FEE BREAKPOINT AT AVERAGE COMBINED ASSETS IN
EXCESS OF $300 MILLION, (III) CERTAIN CLARIFYING CHANGES TO THE DEFINITION OF
"PLAN ASSETS," AND (IV) A NEW EFFECTIVE DATE.
Under the Proposed Agreement, CIML will pay New Mercator for its
subadvisory services with respect to the Fund a fee, calculated as described
above, at the annual rate of
-4-
<PAGE>
0.75% of the first $50 million of Combined Assets, 0.60% of the next $250
million of Combined Assets and 0.45% of Combined Assets in excess of $300
million. The fees to be paid to New Mercator by CIML are higher than the
management fees paid by most other mutual funds. Because Old Mercator has
agreed to waive a portion of its fees on Combined Assets in excess of $300
million under the Current Agreement, the compensation payable to New Mercator
under the Proposed Agreement will be the same as that payable under the Current
Agreement (after giving effect to the waiver). Had the Proposed Agreement been
in effect throughout the Fund's 1995 fiscal year, CIML would have paid New
Mercator $636,712.
The Current and Proposed Agreements provide that, subject to the
supervision of the Trustees and CIML, each of Old Mercator and New Mercator,
respectively, will furnish continuously an investment program for the Fund, 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
accordance with its Prospectus and Statement of Additional Information. The
Current and Proposed Agreements also require each of Old Mercator and New
Mercator, respectively, to furnish, at its expense, (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).
Each of the Current and Proposed Agreements provides that it will
continue in effect for an initial term of two years from its date of execution
(which, in the case of the Proposed Agreement, is expected to be approximately
the time of the consummation of the Transaction) and thereafter so long as it
is approved at least annually in accordance with the 1940 Act. The 1940 Act
requires that, after the initial two-year term, all subadvisory agreements be
approved at least annually be (i) the vote, cast in person at a meeting called
for the purpose, of a majority of the Independent Trustees and (ii) the
majority vote of the full Board of Trustees or the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund. Each of
the Current and Proposed Agreements terminates automatically in the event of
its assignment, and may be terminated without penalty by the Trust at any time,
on written notice to CIML and the relevant subadviser, by CIML on sixty days'
written notice to the relevant subadviser and by the relevant subadviser on
ninety days' written notice to CIML and the Trust. Each of the Current and
Proposed Agreements may be amended only by the affirmative vote of the holders
of a "majority of the outstanding voting securities" of the Fund (as defined in
the 1940 Act).
The Current and Proposed Agreements provide that Old Mercator and New
Mercator, respectively, shall not be subject to any liability to the Trust, the
Fund or CIML, or to any shareholder, officer, director or Trustee thereof, for
any act or omission in the course of, or
-5-
<PAGE>
connected with, rendering services thereunder, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties by Old Mercator or New Mercator, as the case may be.
SHAREHOLDER CONSENT
Approval of the Proposed Agreement will require the consent of a
"majority of the outstanding voting securities" of the Fund (as defined in the
1940 Act), which means the affirmative vote of the lesser of (1) more than 50%
of the outstanding shares of the Fund or (2) 67% or more of the shares of the
Fund present at the meeting if more than 50% of the Outstanding shares of the
Fund are represented at the meeting in person or by proxy. As stated above, the
Majority Shareholders have indicated that, as permitted by the Trust's by-laws,
they intend to execute a consent to be effective on or about November 29, 1995,
which would by itself constitute the necessary shareholder approval under the
1940 Act. NO ACTION IS REQUIRED TO BE TAKEN BY YOU AS A SHAREHOLDER OF THE
FUND; THIS INFORMATION STATEMENT IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY
IN LIGHT OF RELEVANT FEDERAL SECURITIES LAWS. If the Transaction is not
consummated, the Current Agreement will remain in effect.
OTHER INFORMATION
TRUSTEE REVIEW. The Trustees, including the Independent Trustees,
reviewed all material provided by New Mercator and its affiliates, and
requested and received all information which they deemed relevant to form a
judgment as to whether the Proposed Agreement is in the best interests of the
Fund and its shareholders.
A primary consideration of the Independent Trustees was New Mercator's
representation that it expects no diminution in the scope and quality of
subadvisory and other services to be provided by New Mercator under the
Proposed Agreement from that provided by Old Mercator under the Current
Agreement. The Independent Trustees considered the fact that the Proposed
Agreement would, except as described herein, have terms and conditions
identical to those of the Current Agreement, and considered certain
representations of New Mercator (and its affiliates), described above in the
section entitled "The Transaction," with respect to its plans for the Fund.
In their consideration of the Proposed Agreement, the Trustees noted
that New Mercator may receive research services from brokers in connection with
portfolio securities transactions for the Fund. The Trustees realize that
research services furnished by brokers through which the Fund effects
securities transactions may be used by new Mercator in advising other accounts
that it advises. Conversely, research services furnished to New Mercator in
connection with other accounts New Mercator advises may be used by New Mercator
in advising the Fund. No material change in brokerage arrangements is
contemplated to result from the approval of Proposed Agreement, however.
-6-
<PAGE>
CATERPILLAR INVESTMENT MANAGEMENT LIMITED. CIML serves as manager of
the Fund pursuant to a management contract (the "Management Contract") dated as
of June 29, 1992. The sole initial shareholder of the Fund approved the
Management Contract on June 10, 1992, and the Trustees of the Trust last
approved the continuance of the Management Contract at a meeting held on April
26, 1995.
Under the Management Contract, subject to the control of the Trustees,
CIML has agreed to furnish continuously an investment program for the Fund,
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
accordance with its Prospectus and Statement of Additional Information. The
Management Contract expressly permits advisory services to be delegated to and
performed by a subadviser. CIML also manages, supervises and conducts the other
affairs and business of the Trust, furnishes office space and equipment,
provides bookkeeping and certain clerical services and pays all salaries, fees
and expenses of the officers and Trustees of the Trust who are affiliated with
CIML.
Under the Management Contract, the Fund pays CIML a monthly fee based
on average net assets of the Fund at an annual rate of 0.95% of such average
net assets. The management fees paid to CIML are higher than those paid by most
other mutual funds. For the fiscal year ended June 30, 1995, the Fund paid CIML
$1,046,409. Under the Management Contract, the Fund bears all expenses of the
Fund not expressly assumed by CIML. CIML's compensation under the Management
Contract is subject to reduction to the extent that in any year the expenses of
the Fund exceed the limits on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer or sale.
The Management Contract provides that CIML shall not be subject to any
liability in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The directors and principal executive officer of CIML are: P. Michael
Pond, President and Director, and Robert C. Franz, Vice President and Director.
The principal occupation of each of CIML's directors and principal executive
officer is as a director or executive officer of CIML and certain of its
corporate affiliates. Mr. Pond also serves as Trustee, Chairman and President
of the Trust. In addition, Ms. Carol K. Burns, Manager of Marketing for CIML,
serves as Vice President and Assistant Clerk of the Trust, Mr. Fred Kaufman,
Vice President and Treasurer of CIML, serves as Vice President and Treasurer of
the Trust, Mr. Richard P. Konrath, Clerk of CIML, serves as Clerk of the Trust,
and James F. Masterson, Director, Investor Relations for Caterpillar Inc.,
serves as Trustee of the Trust. CIML is a Delaware corporation and a
wholly-owned subsidiary of Caterpillar Inc., a Delaware corporation. The
address of the principal executive offices of each of CIML, and of its
directors and principal executive officer; Caterpillar Securities Inc., the
Trust's principal underwriter; the Fund and Caterpillar Inc. is 100 N.E. Adams
Street, Peoria, Illinois 61629.
-7-
<PAGE>
NEW MERCATOR. The principal business of each of the General Partners
of New Mercator is as a General Partner of New Mercator, and the principal
occupation of each of the Principals is as the President, Chief Executive
Officer and sole shareholder of a General Partner. The mailing address of each
General Partner and Principal of New Mercator is 2400 East Commercial
Boulevard, Suite 810, Fort Lauderdale, Florida 33308.
Old Mercator also serves, and New Mercator expects to serve, as
subadviser to the International Stock Fund, a series of The Prudential
Institutional Fund, a registered investment company with assets of
approximately $136,685,222 as of September 30, 1995. Old Mercator receives fees
for such subadvisory services at the rate of 0.75% of the first $50 million of
such fund's assets and 0.60% of such fund's assets in excess of $50 million.
New Mercator expects to receive fees for such subadvisory services at the rate
of 0.75% of the first $50 million of such fund's assets, 0.60% of the next $250
million of such fund's assets and 0.45% of such fund's assets in excess of $300
million.
AFFILIATED BROKERAGE AND FEES TO OLD MERCATOR OR NEW MERCATOR. For the
fiscal year ended June 30, 1995, the Fund paid no brokerage commissions to any
affiliated person (or any affiliated person of such person) of the Fund, and
paid no fees to either Old Mercator or New Mercator. The Trust has been
informed by CIML that CIML paid fees of $677,479 to Old Mercator for the fiscal
year ended June 30, 1995. During the fiscal year ended July 30, 1995, the
Preferred Value Fund, another series of the Trust and an affiliate of the Fund,
paid $3,918 in brokerage commissions to Prudential Securities, Inc., an
affiliate of Old Mercator.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY
-8-
<PAGE>
APPENDIX A
PREFERRED INTERNATIONAL FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of , 1995 between
CATERPILLAR INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"),
and MERCATOR ASSET MANAGEMENT, L.P., a Delaware limited partnership (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 International 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
<PAGE>
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, 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.
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
A-2
<PAGE>
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 June 29, 1992 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 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
A-3
<PAGE>
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.
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
A-4
<PAGE>
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.
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.
A-5
<PAGE>
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and MERCATOR
ASSET MANAGEMENT, L.P. 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:
MERCATOR ASSET MANAGEMENT, L.P.
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: ________________________
A-6
<PAGE>
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, (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 Next Over
$59 Million $250 Million $300 Million
----------- ------------ ------------
0.75% 0.60% 0.45%
<PAGE>
EX-99.77O
The Preferred Group of Mutual Funds
Record of Securities Purchased
under the Trust's Rule 10f-3 Procedures
1. Subadviser: JENNISON ASSOCIATES CAPITAL CORP.
2. Fund: PREFERRED GROWTH FUND
3. Securities are: (Select one)
"Municipal securities" Part of an issue
as defined in Section registered under the
3(a)(29) of the Securities Act of
Securities Exchange 1933 which is being
Act of 1934 offered to the public
Yes No Yes X No
----- ----- ----- -----
4. Issuer: LSI LOGIC CORP.
5. Description of Security: COMMON STOCK
6. Date of Purchase: 07/11/95
7. Underwriter from whom
purchased: LEHMAN BROTHERS
8. Name of Affiliated Underwriter
managing or participating in
syndicate (attach list of all
members of syndicate): PRUDENTIAL SECURITIES INCORPORATED
other members of the syndicate:* LEHMAN BROTHERS, MERRILL LYNCH & CO.,
& MONTGOMERY SECURITIES
* Please note the underwriters used a "severally" form of agreement.
9. Aggregate principal amount of
purchase [this amount, when
added to purchases by other
investment companies for whom
CIML and the relevant Subadviser
act as adviser, may not exceed
(A) the greater of 4% of (10)
or $500,000, or (B) 10% of (11)]: $1,054,650.00
<PAGE>
10. Aggregate principal amount of class of
securities being offered (i.e., existing
securities plus current offering, both of
which are the same class of securities): $5,625,076,434
11. Aggregate principal amount of offering: $222,500,000.00
12. Purchase price, net of fees and
expenses [may not exceed (14)]: 44.50
13. Date offering commenced: 07/11/95
14. a. Public offering price: 44.50
b. Was it purchased prior to close of first
full business day after offering
commenced? YES
15. Commission, spread or profit: 3.48% $1.55
-----
16. Have the following conditions been satisfied? Yes No
----- ------
a. The purchase price did not exceed the
offering price prior to the close of the
first full business day after the first day
of the offering (or, if a rights offering,
the securities were purchased on the fourth
day preceding the day on which the offering
terminated)? X
----- ------
b. The underwriting was a firm commitment
underwriting? X
----- ------
c. The commission, spread or profit was
reasonable and fair in relation to that
being received by others for underwriting
similar securities during the same period? X
----- ------
d. (FOR SECURITIES THAT ARE NOT MUNICIPAL
SECURITIES) The issuer has been in
continuous operation for not less than
three years, including the operations of
any predecessors? X
----- ------
<PAGE>
e. (FOR MUNICIPAL SECURITIES ONLY) The
issue of securities has received an
investment grade rating from a
nationally recognized statistical
rating organization or, if the issuer
or entity supplying the revenues from
which the issue is to be paid shall have
been in existence less than three years
(including any predecessors), it has
received one of the three highest
ratings from at lest one such rating
service?
----- ------
f. The amount of such securities purchased
by all of the investment companies
advised by CIML and the Subadviser(s) to
the Fund purchasing such securities did
not exceed 10% of the principal amount
of the offering and did not exceed the
greater of (I) 4% of the principal amount
of the class of securities being offered, or
(ii) $500,000? X*
----- ------
*With regard to the Preferred Growth Fund only
g. The purchase price was less than 3% of the
value of the total assets of the Fund for
which the securities were purchased? X
----- ------
h. No Affiliated Underwriter was a direct or
indirect participant in the sale? X**
----- ------
Submitted by: Stephanie Willis Date: 10/17/95
----------------------------- -------------
**As defined by 10(f) of the Investment Company Act and in accordance with the
Ropes & Gray memorandum dated June 4, 1993, Jennison Associates, on behalf of
the Preferred Funds, may purchase securities from an underwriting syndicate, of
which an affiliated person of the Subadvisor to another fund is a principal
underwriter, without violating Section 10(f). Jennison Associates and Pan Agora
Management are both sub-advisors to the Preferred Group. Lehman, who is an
affiliate of Pan Agora Management, is the underwriter with whom Jennison
Associates purchased the shares of LSI Logic. Jennison's purchase of LSI Logic
through Lehman Brothers is consistent with this interpretation. Additionally,
Prudential Securities Incorporated, an affiliate of Jennison, did not
participate in the LSI Logic sale to Jennison.
<PAGE>
The Preferred Group of Mutual Funds
Record of Securities Purchased
under the Trust's Rule 10f-3 Procedures
1. Subadviser: JENNISON ASSOCIATES CAPITAL CORP.
2. Fund: PREFERRED BALANCED FUND
3. Securities are: (Select one)
"Municipal securities" Part of an issue
as defined in Section registered under the
3(a)(29) of the Securities Act of
Securities Exchange 1933 which is being
Act of 1934 offered to the public
Yes No Yes X No
----- ----- ----- -----
4. Issuer: UNION PACIFIC RESOURCES GROUP INC.
5. Description of Security: COMMON STOCK
6. Date of Purchase: 10/10/95
7. Underwriter from whom
purchased: SMITH BARNEY INC.
8. Name of Affiliated Underwriter
managing or participating in
syndicate (attach list of all
members of syndicate): PRUDENTIAL SECURITIES INCORPORATED
other members of syndicate:* PLEASE SEE ATTACHED LIST
* Please note the underwriters used a "severally" form of agreement.
9. Aggregate principal amount of
purchase [this amount, when
added to purchases by other
investment companies for whom
Preferred and the relevant Subadviser
act as adviser, may not exceed
(A) the greater of 4% of (10)
or $500,000, or(B) 10% of (11)]: $25,200.00
<PAGE>
10. Aggregate principal amount of class of
securities being offered (i.e., existing
securities plus current offering, both of
which are the same class of securities): $5,233,209,912.00
11. Aggregate principal amount of offering: $777,000,000
12. Purchase price, net of fees and
expenses [may not exceed (14)]: 21.00
13. Date offering commenced: 10/10/95
14. a. Public offering price: 21.00
b. Was it purchased prior to close of first
full business day after offering
commenced? YES
15. Commission, spread or profit: 5.00% $1.05
-----
16. Have the following conditions been satisfied? Yes No
----- ------
a. The purchase price did not exceed the
offering price prior to the close of the
first full business day after the first day
of the offering (or, if a rights offering,
the securities were purchased on the fourth
day preceding the day on which the offering
terminated)? X
----- ------
b. The underwriting was a firm commitment
underwriting? X
----- ------
c. The commission, spread or profit was
reasonable and fair in relation to that
being received by others for underwriting
similar securities during the same period? X
----- ------
d. (FOR SECURITIES THAT ARE NOT MUNICIPAL
SECURITIES) The issuer has been in
continuous operation for not less than
three years, including the operations of
any predecessors? X
----- ------
<PAGE>
e. (For municipal securities only) The
issue of securities has received an
investment grade rating from a
nationally recognized statistical rating
organization or, if the issuer or entity
supplying the revenues from which the
issue is to be paid shall have been in
existence less than three years
(including any predecessors), it has
received one of the three highest
ratings from at lest one such rating
service?
----- -----
f. The amount of such securities
purchased by all of the investment
companies advised by Preferred and the
Subadviser(s) to the Fund purchasing
such securities did not exceed 10% of
the principal amount of the offering
and did not exceed the greater of (I)
4% of the principal amount of the class
of securities being offered, or (ii)
$500,000? X*
----- -----
*With regard to the Preferred Balanced Fund only
g. The purchase price was less than 3%
of the value of the total assets of the
Fund for which the securities were
purchased?
X
----- -----
h. No Affiliated Underwriter was a direct
or indirect participant in the sale? X**
----- -----
** Prudential Securities Incorporated, an affiliate of Jennison, did not
participate in the Union Pacific Resources Group Inc. sale to Jennison.
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions in the U.S. Underwriting
Agreement dated the date hereof, each of the underwriters of the U.S. Offering
of Common Stock named below (the "U.S. Underwriters"), for whom Smith Barney
Inc., CS First Boston Corporation, Goldman, Sachs & Co. and Petrie Parkman &
Co., Inc. are acting as the Representatives (the "Representatives"), has
severally agreed to purchase, and the Company has agreed to sell to each U.S.
Underwriter, shares of Common Stock which equal the number of shares set forth
opposite the name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Smith Barney Inc. ..................................................... 5,160,000
CS First Boston Corporation............................................ 5,160,000
Goldman, Sachs & Co. .................................................. 5,160,000
Petrie Parkman & Co., Inc. ............................................ 1,730,000
Advest, Inc. .......................................................... 95,000
Bear, Stearns & Co. Inc. .............................................. 295,000
Alex. Brown & Sons Incorporated........................................ 295,000
The Chicago Corporation................................................ 195,000
Cowen & Company........................................................ 195,000
Crowell, Weedon & Co. ................................................. 95,000
Dain Bosworth Incorporated............................................. 195,000
Dean Witter Reynolds Inc. ............................................. 295,000
Deutsche Morgan Grenfell/C.J. Lawrence Inc. ........................... 295,000
Dillon, Read & Co. Inc. ............................................... 295,000
A.G. Edwards & Sons, Inc. ............................................. 295,000
EVEREN Securities, Inc. ............................................... 195,000
Fahnestock & Co. Inc. ................................................. 195,000
Furman Selz Incorporated............................................... 195,000
Gerard Klauer Mattison & Co., LLC...................................... 95,000
Gruntal & Co., Incorporated............................................ 95,000
Hambrecht & Quist LLC.................................................. 295,000
Howard, Weil, Labouisse, Friedrichs Incorporated....................... 295,000
Janney Montgomery Scott Inc. .......................................... 195,000
Jefferies & Company, Inc. ............................................. 195,000
Johnson Rice & Company L.L.C. ......................................... 95,000
Kirkpatrick, Pettis, Smith, Polian, Inc. .............................. 95,000
Lazard Freres & Co. LLC................................................ 295,000
WR Lazard, Laidlaw & Luther............................................ 95,000
Legg Mason Wood Walker, Incorporated................................... 195,000
Lehman Brothers Inc. .................................................. 295,000
McDonald & Company Securities, Inc. ................................... 195,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated..................... 295,000
Montgomery Securities.................................................. 295,000
J. P. Morgan Securities Inc. .......................................... 295,000
Morgan Keegan & Company, Inc. ......................................... 195,000
Morgan Stanley & Co. Incorporated...................................... 295,000
NatWest Securities Limited............................................. 295,000
Nesbitt Burns Securities Inc. ......................................... 95,000
Oppenheimer & Co., Inc. ............................................... 295,000
PaineWebber Incorporated............................................... 295,000
Parker/Hunter Incorporated............................................. 95,000
Pennsylvania Merchant Group Ltd........................................ 95,000
Piper Jaffray Inc. .................................................... 195,000
Principal Financial Securities, Inc. .................................. 195,000
Prudential Securities Incorporated..................................... 295,000
Pryor, McClendon, Counts & Co., Inc. .................................. 95,000
Ragen MacKenzie Incorporated........................................... 195,000
Rauscher Pierce Refsnes, Inc. ......................................... 195,000
Raymond James & Associates, Inc. ...................................... 195,000
Richardson Greenshields Securities Inc. ............................... 95,000
Robertson, Stephens & Company, L.P. ................................... 295,000
The Robinson-Humphrey Company, Inc. ................................... 195,000
Rodman & Renshaw, Inc. ................................................ 195,000
Sanders Morris Mundy Inc. ............................................. 95,000
Schroder Wertheim & Co. Incorporated................................... 295,000
Muriel Siebert & Co., Inc. ............................................ 95,000
Simmons & Company International........................................ 195,000
Wm Smith Securities Incorporated....................................... 95,000
Southwest Securities, Inc. ............................................ 95,000
Stephens Inc. ......................................................... 195,000
Sturdivant & Co., Inc. ................................................ 95,000
Sutro & Co. Incorporated............................................... 195,000
Toronto Dominion Securities Inc. ...................................... 95,000
Tucker Anthony Incorporated............................................ 195,000
UBS Securities Inc. ................................................... 295,000
Wheat, First Securities, Inc. ......................................... 195,000
----------
Total......................................................... 29,600,000
==========
</TABLE>
Under the terms and subject to the conditions contained in the
International Underwriting Agreement dated the date hereof, each of the
managers of the concurrent International Offering of Common Stock named below
(the "Managers"), for whom Smith Barney Inc., CS First Boston Limited,
Goldman Sachs International and Petrie Parkman & Co., Inc. are acting as lead
managers (the "Lead Managers"), has severally agreed to purchase, and the
Company has agreed to sell to each Manager, shares of Common Stock which equal
the number of shares set forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
NUMBER OF
MANAGERS SHARES
-------- ---------
<S> <C>
Smith Barney Inc. .................................................... 1,625,000
CS First Boston Limited................................................ 1,625,000
Goldman Sachs International............................................ 1,625,000
Petrie Parkman & Co., Inc. ............................................ 1,625,000
ABN AMRO Bank N.V. .................................................... 100,000
BNP Capital Markets Limited............................................ 100,000
Bayerische Landesbank Girozentrale..................................... 100,000
Caisse des Depots et Consignations..................................... 100,000
Commerzbank AG......................................................... 100,000
Kleinwort Benson Limited............................................... 100,000
Nomura International plc............................................... 100,000
Panmure Gordon & Co. Limited........................................... 100,000
Swiss Bank Corporation................................................. 100,000
---------
Total......................................................... 7,400,000
=========
</TABLE>
97
<PAGE>
The Preferred Group of Mutual Funds
Record of Securities Purchased
under the Trust's Rule 10f-3 Procedures
1. Subadviser: JENNISON ASSOCIATES CAPITAL CORP.
2. Fund: PREFERRED BALANCED FUND
3. Securities are: (Select one)
"Municipal securities" Part of an issue
as defined in Section registered under the
3(a)(29) of the Securities Act of
Securities Exchange 1933 which is being
Act of 1934 offered to the public
Yes No Yes X No
----- ----- ----- -----
4. Issuer: HENRY SCHEIN
5. Description of Security: COMMON STOCK
6. Date of Purchase: 11/3/95
7. Underwriter from whom
purchased: WILLIAM BLAIR & COMPANY
8. Name of Affiliated Underwriter
managing or participating in
syndicate (attach list of all
members of syndicate): PRUDENTIAL SECURITIES INC.
PLEASE SEE ATTACHED LIST
9. Aggregate principal amount of
purchase [this amount, when
added to purchases by other
investment companies for
whom CIML and the relevant
Subadviser act as adviser, may
not exceed (A) the greater of
4% of (10) or $500,000, or (B)
10% of (11)]: $14,400.00
<PAGE>
10. Aggregate principal amount of class of
securities being offered (i.e., existing
securities plus current offering, both of
which are the same class of securities): $293,120,000
11. Aggregate principal amount of offering: $98,640,000
12. Purchase price, net of fees and
expenses [may not exceed (14)]: $16.00
13. Date offering commenced: 11/3/95
14. a. Public offering price: $16.00
b. Was it purchased prior to close of first
full business day after offering commenced? Yes
15. Commission, spread or profit: 7.0 % $1.12
----- -----
16. Have the following conditions been Yes No
satisfied? ----- -----
a. The purchase price did not exceed the
offering price prior to the close of the
first full business day after the first day
of the offering (or, if a rights offering,
the securities were purchased on the
fourth day preceding the day on which X
the offering terminated)? ----- -----
b. The underwriting was a firm commitment X
underwriting? ----- -----
c. The commission, spread or profit was
reasonable and fair in relation to that
being received by others for underwriting X
similar securities during the same period? ----- -----
d. (FOR SECURITIES THAT ARE NOT MUNICIPAL
SECURITIES) The issuer has been in
continuous operation for not less than
three years, including the operations of X
any predecessors? ----- -----
<PAGE>
e. (For municipal securities only) The
issue of securities has received an
investment grade rating from a
nationally recognized statistical rating
organization or, if the issuer or entity
supplying the revenues from which the
issue is to be paid shall have been in
existence less than three years
(including any predecessors), it has
received one of the three highest
ratings from at lest one such rating
service?
----- -----
f. The amount of such securities
purchased by all of the investment
companies advised by CIML and the
Subadviser(s) to the Fund purchasing
such securities did not exceed 10% of
the principal amount of the offering
and did not exceed the greater of (I)
4% of the principal amount of the class
of securities being offered, or (ii)
$500,000? X*
----- -----
*With regard to the Preferred Balanced Fund only
g. The purchase price was less than 3%
of the value of the total assets of the
Fund for which the securities were
purchased? X
----- -----
h. No Affiliated Underwriter was a direct
or indirect participant in the sale? X**
----- -----
** Prudential Securities Incorporated, an affiliate of Jennison, did not
participate in the Henry Schein sale to Jennison.
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for William Blair
& Company, Alex. Brown & Sons Incorporated and Montgomery Securities are acting
as representatives (the "Representatives") have severally agreed, subject to
the terms and conditions set forth in the Underwriting Agreement by and among
the Company, the Selling Stockholders and the Underwriters, to purchase from
the Company and the Selling Stockholders, and the Company and the Selling
Stockholders have agreed to sell to the Underwriters, the respective number of
shares of Common Stock set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
William Blair & Company.............................. 1,195,000
Alex. Brown & Sons Incorporated...................... 1,195,000
Montgomery Securities................................ 1,195,000
Bear, Stearns & Co. Inc. ............................. 120,000
Dean Witter Reynolds Inc. ........................... 120,000
Dillon, Read & Co. Inc. ............................. 120,000
Donaldson, Lufkin & Jenrette Securities Corporation.. 120,000
A.G. Edwards & Sons, Inc. ........................... 120,000
Goldman, Sachs & Co. ................................ 120,000
Hambrecht & Quist LLC................................ 120,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated... 120,000
Morgan Stanley & Co. Incorporated.................... 120,000
Oppenheimer & Co., Inc. ............................. 120,000
Prudential Securities Incorporated................... 120,000
Robertson, Stephens & Company, L.P. ................. 120,000
Salomon Brothers Inc. ............................... 120,000
Smith Barney Inc. ................................... 120,000
Advest, Inc. ........................................ 45,000
Robert W. Baird & Co. Incorporated................... 45,000
The Chicago Corporation.............................. 45,000
Cleary Gull Reiland & McDevitt Inc. ................. 45,000
Dain Bosworth Incorporated........................... 45,000
EVEREN Securities, Inc. ............................. 45,000
Fahnestock & Co. Inc. ............................... 45,000
First of Michigan Corporation........................ 45,000
Furman Selz Incorporated............................. 45,000
Howe Barnes Investments, Inc. ....................... 45,000
C.L. King & Associates, Inc. ........................ 45,000
McDonald & Company Securities, Inc. ................. 45,000
Mesirow Financial, Inc. ............................. 45,000
Piper Jaffray Inc. .................................. 45,000
Principal Financial Securities, Inc. ................ 45,000
Rauscher Pierce Refsnes, Inc. ....................... 45,000
Volpe, Welty & Company............................... 45,000
Wessels, Arnold & Henderson.......................... 45,000
Wheat First Butcher Singer Securities, Inc. ......... 45,000
WR Lazard, Laidlaw & Luther.......................... 45,000
---------
Total........................................... 6,165,000
=========
</TABLE>
<PAGE>
The Preferred Group of Mutual Funds
Record of Securities Purchased
under the Trust's Rule 10f-3 Procedures
1. Subadviser: JENNISON ASSOCIATES CAPITAL CORP.
2. Fund: PREFERRED GROWTH FUND
3. Securities are: (Select one)
"Municipal securities" Part of an issue
as defined in Section registered under the
3(a)(29) of the Securities Act of
Securities Exchange 1933 which is being
Act of 1934 offered to the public
Yes No Yes X No
----- ----- ----- -----
4. Issuer: CITRIX
5. Description of Security: COMMON STOCK
6. Date of Purchase: 12/08/95
7. Underwriter from whom
purchased: HAMBRECHT & QUIST
8. Name of Affiliated Underwriter
managing or participating in
syndicate (attach list of all
members of syndicate): PRUDENTIAL SECURITIES INCORPORATED
PLEASE SEE ATTACHED LIST
9. Aggregate principal amount of
purchase [this amount, when
added to purchases by other
investment companies for whom
CIML and the relevant Subadviser
act as adviser, may not exceed
(A) the greater of 4% of (10)
or $500,000, or(B) 10% of (11)]: $225,000
<PAGE>
10. Aggregate principal amount of class of
securities being offered (i.e., existing
securities plus current offering, both of
which are the same class of securities): $170,863,950
11. Aggregate principal amount of offering: $37,500,000
12. Purchase price, net of fees and
expenses [may not exceed (14)]: $15.00
13. Date offering commenced: 12/8/95
14. a. Public offering price: $15.00
b. Was it purchased prior to close of first
full business day after offering
commenced? YES
15. Commission, spread or profit: 7.0% $1.05
---- -----
16. Have the following conditions been satisfied? Yes No
----- ------
a. The purchase price did not exceed the
offering price prior to the close of the
first full business day after the first day
of the offering (or, if a rights offering,
the securities were purchased on the fourth
day preceding the day on which the offering
terminated)? X
----- ------
b. The underwriting was a firm commitment
underwriting? X
----- ------
c. The commission, spread or profit was
reasonable and fair in relation to that
being received by others for underwriting
similar securities during the same period? X
----- ------
d. (FOR SECURITIES THAT ARE NOT MUNICIPAL
SECURITIES) The issuer has been in
continuous operation for not less than
three years, including the operations of
any predecessors? X
----- ------
<PAGE>
e. (FOR MUNICIPAL SECURITIES ONLY) The
issue of securities has received an
investment grade rating from a
nationally recognized statistical
rating organization or, if the issuer
or entity supplying the revenues from
which the issue is to be paid shall have
been in existence less than three years
(including any predecessors), it has
received one of the three highest
ratings from at lest one such rating
service?
----- ------
f. The amount of such securities purchased
by all of the investment companies
advised by CIML and the Subadviser(s) to
the Fund purchasing such securities did
not exceed 10% of the principal amount
of the offering and did not exceed the
greater of (I) 4% of the principal amount
of the class of securities being offered, or
(ii) $500,000? X*
----- ------
*With regard to the Preferred Growth Fund only
g. The purchase price was less than 3% of the
value of the total assets of the Fund for
which the securities were purchased? X
----- ------
h. No Affiliated Underwriter was a direct or
indirect participant in the sale? X**
----- ------
**Prudential Securities Incorporated, an affiliate of Jennison, did not
participate in the Citrix sale to Jennison.
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Robertson, Stephens & Company, L.P., have severally agreed to purchase from
the Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Hambrecht & Quist LLC................................................ 550,000
Robertson, Stephens & Company, L.P. ................................. 550,000
Bear, Stearns & Co., Inc. ........................................... 100,000
Alex. Brown & Sons Incorporated ..................................... 100,000
Cowen & Company...................................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation.................. 100,000
Montgomery Securities................................................ 100,000
Morgan Stanley & Co., Incorporated................................... 100,000
Needham & Company, Inc. ............................................. 100,000
Oppenheimer & Co., Inc. ............................................. 100,000
Prudential Securities Incorporated................................... 100,000
Smith Barney Inc. ................................................... 100,000
Adams, Harkness & Hill, Inc. ........................................ 50,000
Brean Murray, Foster Securities Inc. ................................ 50,000
First Albany Corporation............................................. 50,000
JW Charles Securities, Inc. ......................................... 50,000
Punk, Ziegel & Knoell, L.P. ......................................... 50,000
Raymond James & Associates, Inc. .................................... 50,000
SoundView Financial Group, Inc. ..................................... 50,000
Wessels, Arnold & Henderson, L.L.C. ................................. 50,000
---------
Total.................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the
absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company, its
counsel and independent auditors. The nature of the Underwriters' obligation is
such that they are committed to purchase all shares of Common Stock offered
hereby if any such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $.60 per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $.10 per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no
later than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the initial public offering price, less
the underwriting discount, set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table bears to the total number of shares of Common Stock offered
hereby. The Company will be obligated, pursuant to the option, to sell shares
to the Underwriters to the extent the option is exercised. The Underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of shares of Common Stock offered hereby.
54
<PAGE>
EX-99.77Q1A1
THE PREFERRED GROUP OF MUTUAL FUNDS
AMENDMENT NO. 3
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being a majority of the Trustees of The Preferred Group
of Mutual Funds, a Massachusetts business trust, created and existing under an
Agreement and Declaration of Trust dated November 19, 1991, as amended (the
"Agreement"), a copy of which is on file in the Office of the Secretary of
State of The Commonwealth of Massachusetts, do hereby direct that this
Amendment No. 3 be filed with the Secretary of State of The Commonwealth of
Massachusetts and do hereby amend to read in its entirety the first sentence of
Section 6 of Article III of the Agreement as follows:
"Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or Classes or
to modify the rights and preferences of any Series or Classes, the
"Preferred International Fund", "Preferred Value Fund", "Preferred Fixed
Income Fund", "Preferred Money Market Fund", "Preferred Growth Fund",
"Preferred Asset Allocation Fund", "Preferred Short-Term Government
Securities Fund" and "Preferred Balanced Fund" shall be, and are hereby
established and designated."
<PAGE>
The foregoing amendment shall become effective as of the time it is filed
with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunto set our hands for ourselves and our
successors and assigns this 25th day of January, 1995.
P. Michael Pond
--------------------------------------
P. Michael Pond
Gary M. Anna
--------------------------------------
Gary M. Anna
Dixie L. Mills
--------------------------------------
Dixie L. Mills
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF )
Then personally appeared before me each of the above-named Trustees and
acknowledged the foregoing instrument to be their free act and deed.
Dated: January 25th, 1995 Doris J. Howard
-----------------------
Notary Public
My Commission Expires:
December 15, 1997
<PAGE>
EX-99.77Q1A2
THE PREFERRED GROUP OF MUTUAL FUNDS
AMENDMENT NO. 4
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being a majority of the Trustees of The Preferred Group
of Mutual Funds, a Massachusetts business trust, created and existing under an
Agreement and Declaration of Trust dated November 19, 1991, as amended (the
"Agreement"), a copy of which is on file in the Office of the Secretary of
State of The Commonwealth of Massachusetts, do hereby direct that this
Amendment No. 4 be filed with the Secretary of State of The Commonwealth of
Massachusetts and do hereby amend to read in its entirety the first sentence of
Section 6 of Article III of the Agreement as follows:
"Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or Classes or
to modify the rights and preferences of any Series or Classes, the
"Preferred Growth Fund","Preferred Value Fund","Preferred International
Fund", "Preferred Small Cap Fund", "Preferred Asset Allocation Fund",
"Preferred Balanced Fund", "Preferred Fixed Income Fund","Preferred
Short-Term Government Securities Fund", "Preferred Money Market Fund",
shall be, and are hereby established and designated."
<PAGE>
The foregoing amendment shall become effective as of the time it is filed
with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunto set our hands for ourselves and our
successors and assigns this 25th day of October, 1995.
P. Michael Pond
----------------------------------
P. Michael Pond
Gary M. Anna
----------------------------------
Gary M. Anna
William F. Bahl
----------------------------------
William F. Bahl
James F. Masterson
----------------------------------
James F. Masterson
Dixie L. Mills
----------------------------------
Dixie L. Mills
-2-
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF )
Then personally appeared before me each of the above-named Trustees and
acknowledged the foregoing instrument to be their free act and deed.
Dated: October 25, 1995 --------------------------------
Notary Public
My Commission Expires:
, 199
-------- -- --
-3-
<PAGE>
EX-99.77Q1E1
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June 27, 1995, between THE PREFERRED
GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"), on behalf
of the Preferred Balanced 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
<PAGE>
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
-2-
<PAGE>
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
-3-
<PAGE>
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
-4-
<PAGE>
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
-5-
<PAGE>
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:
-6-
<PAGE>
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
<PAGE>
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
-2-
<PAGE>
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
-3-
<PAGE>
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
-4-
<PAGE>
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
-5-
<PAGE>
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:
-6-
<PAGE>
EX-99.77Q1E3
PREFERRED BALANCED FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of June 27, 1995 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"), and
JENNISON ASSOCIATES CAPITAL CORP., a New York 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 Balanced 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 portfolio securities (but excluding determination of net asset
value, shareholder accounting services and fund accounting services).
<PAGE>
(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.
-2-
<PAGE>
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 June 27, 1995 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
-3-
<PAGE>
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.
-4-
<PAGE>
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.
-5-
<PAGE>
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and JENNISON
ASSOCIATES CAPITAL CORP. 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:
JENNISON ASSOCIATES CAPITAL CORP.
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:________________________________
-6-
<PAGE>
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, (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:
<TABLE>
<CAPTION>
First Next Next Next Next Over
$10 Million $30 Million $25 Million $335 Million $600 Million $1 Billion
- ----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
0.75% 0.50% 0.35% 0.25% 0.22% 0.20%
</TABLE>
-7-
<PAGE>
EX-99.77Q1E4
PREFERRED INTERNATIONAL FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of ________ __, 1995 between
CATERPILLAR INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"),
and MERCATOR ASSET MANAGEMENT, L.P., a Delaware limited partnership (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 International 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 portfolio securities (but excluding determination of net asset
value, shareholder accounting services and fund accounting services).
<PAGE>
(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, 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.
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
-2-
<PAGE>
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 June 29, 1992 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 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
-3-
<PAGE>
(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.
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.
-4-
<PAGE>
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.
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.
-5-
<PAGE>
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and MERCATOR
ASSET MANAGEMENT, L.P. 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:
MERCATOR ASSET MANAGEMENT, L.P.
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:___________________________________
-6-
<PAGE>
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, (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:
<TABLE>
<CAPTION>
First Next Over
$50 Million $250 Million $300 Million
- ----------- ------------ ------------
<S> <C> <C>
0.75% 0.60% 0.45%
</TABLE>
-7-
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMATION EXTRACTED FROM THE UNAUDITED
FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD ENDED
DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> PREFERRED VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 167,684,301
<INVESTMENTS-AT-VALUE> 229,387,909
<RECEIVABLES> 1,092,938
<ASSETS-OTHER> 9,938
<OTHER-ITEMS-ASSETS> 1,695
<TOTAL-ASSETS> 230,491,576
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 197,549
<TOTAL-LIABILITIES> 197,549
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 163,679,223
<SHARES-COMMON-STOCK> 15,331,594
<SHARES-COMMON-PRIOR> 15,386,666
<ACCUMULATED-NII-CURRENT> 6,440
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,904,756
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 61,703,608
<NET-ASSETS> 230,294,027
<DIVIDEND-INCOME> 1,864,216
<INTEREST-INCOME> 418,978
<OTHER-INCOME> 0
<EXPENSES-NET> 953,460
<NET-INVESTMENT-INCOME> 1,329,734
<REALIZED-GAINS-CURRENT> 8,525,095
<APPREC-INCREASE-CURRENT> 15,409,272
<NET-CHANGE-FROM-OPS> 25,264,101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,050,000
<DISTRIBUTIONS-OF-GAINS> 4,345,798
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,081,389
<NUMBER-OF-SHARES-REDEEMED> 3,632,757
<SHARES-REINVESTED> 496,296
<NET-CHANGE-IN-ASSETS> 17,615,664
<ACCUMULATED-NII-PRIOR> 1,726,706
<ACCUMULATED-GAINS-PRIOR> 725,459
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 831,517
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 953,460
<AVERAGE-NET-ASSETS> 220,027,660
<PER-SHARE-NAV-BEGIN> 13.82
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> .21
<PER-SHARE-DISTRIBUTIONS> .29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.02
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PG$PCN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> PREFERRED GROWTH FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 293,307,062
<INVESTMENTS-AT-VALUE> 388,813,488
<RECEIVABLES> 3,606,145
<ASSETS-OTHER> 39,481
<OTHER-ITEMS-ASSETS> 20,435
<TOTAL-ASSETS> 392,479,549
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 376,588
<TOTAL-LIABILITIES> 376,588
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 291,028,557
<SHARES-COMMON-STOCK> 23,196,785
<SHARES-COMMON-PRIOR> 22,520,286
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (370,744)
<ACCUMULATED-NET-GAINS> 5,938,722
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 95,506,426
<NET-ASSETS> 392,102,961
<DIVIDEND-INCOME> 1,184,683
<INTEREST-INCOME> 159,387
<OTHER-INCOME> 0
<EXPENSES-NET> 1,714,790
<NET-INVESTMENT-INCOME> (370,720)
<REALIZED-GAINS-CURRENT> 17,449,049
<APPREC-INCREASE-CURRENT> 1,537,727
<NET-CHANGE-FROM-OPS> 18,616,056
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 171,060
<DISTRIBUTIONS-OF-GAINS> 12,083,363
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,268,058
<NUMBER-OF-SHARES-REDEEMED> 4,312,353
<SHARES-REINVESTED> 720,794
<NET-CHANGE-IN-ASSETS> 17,510,261
<ACCUMULATED-NII-PRIOR> 171,036
<ACCUMULATED-GAINS-PRIOR> 573,036
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,512,284
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,714,790
<AVERAGE-NET-ASSETS> 398,022,481
<PER-SHARE-NAV-BEGIN> 16.63
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .84
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.90
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> PREFERRED INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 120,779,953
<INVESTMENTS-AT-VALUE> 136,109,756
<RECEIVABLES> 920,384
<ASSETS-OTHER> 31,068
<OTHER-ITEMS-ASSETS> 53,015
<TOTAL-ASSETS> 137,114,223
<PAYABLE-FOR-SECURITIES> 118,032
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 295,978
<TOTAL-LIABILITIES> 414,010
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 122,527,873
<SHARES-COMMON-STOCK> 10,895,661
<SHARES-COMMON-PRIOR> 9,661,134
<ACCUMULATED-NII-CURRENT> 50,109
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,211,900)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,334,131
<NET-ASSETS> 136,700,213
<DIVIDEND-INCOME> 1,282,893
<INTEREST-INCOME> 222,398
<OTHER-INCOME> 0
<EXPENSES-NET> 971,564
<NET-INVESTMENT-INCOME> 533,727
<REALIZED-GAINS-CURRENT> 2,312,837
<APPREC-INCREASE-CURRENT> 2,124,795
<NET-CHANGE-FROM-OPS> 4,971,359
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,800,796
<DISTRIBUTIONS-OF-GAINS> 126,594
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,301,120
<NUMBER-OF-SHARES-REDEEMED> 2,219,922
<SHARES-REINVESTED> 153,329
<NET-CHANGE-IN-ASSETS> 18,484,175
<ACCUMULATED-NII-PRIOR> 1,317,178
<ACCUMULATED-GAINS-PRIOR> (3,398,143)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 597,998
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 971,564
<AVERAGE-NET-ASSETS> 123,605,008
<PER-SHARE-NAV-BEGIN> 12.24
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.55
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> PREFERRED FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 70,674,169
<INVESTMENTS-AT-VALUE> 73,074,879
<RECEIVABLES> 990,257
<ASSETS-OTHER> 26,324
<OTHER-ITEMS-ASSETS> 1,155
<TOTAL-ASSETS> 74,092,615
<PAYABLE-FOR-SECURITIES> 8,234,770
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,787
<TOTAL-LIABILITIES> 8,303,557
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,878,761
<SHARES-COMMON-STOCK> 6,220,957
<SHARES-COMMON-PRIOR> 5,624,590
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 509,587
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,400,710
<NET-ASSETS> 65,789,058
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,045,895
<OTHER-INCOME> 0
<EXPENSES-NET> 286,909
<NET-INVESTMENT-INCOME> 1,758,986
<REALIZED-GAINS-CURRENT> 1,219,731
<APPREC-INCREASE-CURRENT> 820,933
<NET-CHANGE-FROM-OPS> 3,799,650
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,758,986
<DISTRIBUTIONS-OF-GAINS> 317,329
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,104,903
<NUMBER-OF-SHARES-REDEEMED> 706,394
<SHARES-REINVESTED> 197,858
<NET-CHANGE-IN-ASSETS> 7,877,159
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (392,815)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 203,468
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 286,909
<AVERAGE-NET-ASSETS> 61,871,162
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> .33
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> .91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> PREFERRED ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 70,248,536
<INVESTMENTS-AT-VALUE> 82,754,668
<RECEIVABLES> 691,281
<ASSETS-OTHER> 850
<OTHER-ITEMS-ASSETS> 12,506,982
<TOTAL-ASSETS> 83,501,864
<PAYABLE-FOR-SECURITIES> 277,737
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 135,605
<TOTAL-LIABILITIES> 413,342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,712,586
<SHARES-COMMON-STOCK> 6,672,872
<SHARES-COMMON-PRIOR> 6,492,607
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 519,144
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,856,792
<NET-ASSETS> 83,088,522
<DIVIDEND-INCOME> 501,885
<INTEREST-INCOME> 1,272,215
<OTHER-INCOME> 0
<EXPENSES-NET> 433,742
<NET-INVESTMENT-INCOME> 1,340,358
<REALIZED-GAINS-CURRENT> 4,969,383
<APPREC-INCREASE-CURRENT> 3,302,159
<NET-CHANGE-FROM-OPS> 9,611,900
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,328,065
<DISTRIBUTIONS-OF-GAINS> 5,044,890
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,189,252
<NUMBER-OF-SHARES-REDEEMED> 1,517,423
<SHARES-REINVESTED> 508,436
<NET-CHANGE-IN-ASSETS> 5,343,504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 594,651
<OVERDISTRIB-NII-PRIOR> 12,293
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 289,190
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 433,742
<AVERAGE-NET-ASSETS> 82,062,502
<PER-SHARE-NAV-BEGIN> 11.97
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> .20
<PER-SHARE-DISTRIBUTIONS> .81
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.45
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 31,281,510
<INVESTMENTS-AT-VALUE> 31,617,282
<RECEIVABLES> 813,867
<ASSETS-OTHER> 15,054
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,446,203
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,331
<TOTAL-LIABILITIES> 38,331
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,823,861
<SHARES-COMMON-STOCK> 3,282,031
<SHARES-COMMON-PRIOR> 3,278,603
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (751,761)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 335,772
<NET-ASSETS> 32,407,872
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 992,353
<OTHER-INCOME> 0
<EXPENSES-NET> 110,220
<NET-INVESTMENT-INCOME> 882,133
<REALIZED-GAINS-CURRENT> 186,829
<APPREC-INCREASE-CURRENT> 66,115
<NET-CHANGE-FROM-OPS> 1,135,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 882,133
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 231,727
<NUMBER-OF-SHARES-REDEEMED> 318,075
<SHARES-REINVESTED> 89,776
<NET-CHANGE-IN-ASSETS> 286,701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (938,590)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56,431
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110,220
<AVERAGE-NET-ASSETS> 31,966,373
<PER-SHARE-NAV-BEGIN> 9.80
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .07
<PER-SHARE-DIVIDEND> .27
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.87
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> PREFERRED MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 71,757,168
<INVESTMENTS-AT-VALUE> 71,757,168
<RECEIVABLES> 615,464
<ASSETS-OTHER> 21,844
<OTHER-ITEMS-ASSETS> 819
<TOTAL-ASSETS> 72,395,295
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 146,003
<TOTAL-LIABILITIES> 146,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,249,292
<SHARES-COMMON-STOCK> 72,249,292
<SHARES-COMMON-PRIOR> 79,585,753
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 72,249,292
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,231,674
<OTHER-INCOME> 0
<EXPENSES-NET> 156,519
<NET-INVESTMENT-INCOME> 2,075,155
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,075,155
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,075,155
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,316,411
<NUMBER-OF-SHARES-REDEEMED> 55,727,964
<SHARES-REINVESTED> 2,075,092
<NET-CHANGE-IN-ASSETS> (7,336,461)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74,341
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 156,519
<AVERAGE-NET-ASSETS> 75,386,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> PREFERRED BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 3,172,866
<INVESTMENTS-AT-VALUE> 3,336,986
<RECEIVABLES> 28,886
<ASSETS-OTHER> 64,737
<OTHER-ITEMS-ASSETS> 321
<TOTAL-ASSETS> 3,430,930
<PAYABLE-FOR-SECURITIES> 5,618
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,998
<TOTAL-LIABILITIES> 44,616
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,226,400
<SHARES-COMMON-STOCK> 322,497
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,206)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 164,120
<NET-ASSETS> 3,386,314
<DIVIDEND-INCOME> 14,091
<INTEREST-INCOME> 51,740
<OTHER-INCOME> 0
<EXPENSES-NET> 19,009
<NET-INVESTMENT-INCOME> 46,822
<REALIZED-GAINS-CURRENT> 25,866
<APPREC-INCREASE-CURRENT> 164,120
<NET-CHANGE-FROM-OPS> 236,808
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 46,822
<DISTRIBUTIONS-OF-GAINS> 30,072
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 346,573
<NUMBER-OF-SHARES-REDEEMED> 24,499
<SHARES-REINVESTED> 423
<NET-CHANGE-IN-ASSETS> 3,386,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63
<AVERAGE-NET-ASSETS> 3,331,912
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> .59
<PER-SHARE-DIVIDEND> .15
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE SEMI-ANNUAL REPORT FOR THE PERIOD
ENDED DECEMBER 31, 1995 OF THE PREFERRED GROUP OF MUTUAL FUNDS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> PREFERRED SMALL CAP FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 25,830,490
<INVESTMENTS-AT-VALUE> 26,868,831
<RECEIVABLES> 28,748
<ASSETS-OTHER> 13,142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,910,721
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,220
<TOTAL-LIABILITIES> 28,220
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,581,232
<SHARES-COMMON-STOCK> 2,561,943
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,417
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 258,511
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,038,341
<NET-ASSETS> 26,882,501
<DIVIDEND-INCOME> 60,491
<INTEREST-INCOME> 28,563
<OTHER-INCOME> 0
<EXPENSES-NET> 44,637
<NET-INVESTMENT-INCOME> 44,417
<REALIZED-GAINS-CURRENT> 258,511
<APPREC-INCREASE-CURRENT> 1,038,341
<NET-CHANGE-FROM-OPS> 1,341,269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40,000
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,650,211
<NUMBER-OF-SHARES-REDEEMED> 92,110
<SHARES-REINVESTED> 3,842
<NET-CHANGE-IN-ASSETS> 26,882,501
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,779
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44,637
<AVERAGE-NET-ASSETS> 26,964,475
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .49
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
