<PAGE> 1
As filed with the Securities and Exchange Commission on APRIL 9, 1996
Registration No. 33-46479
File No. 811-06602
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
-----
Pre-Effective Amendment No.
----- -----
Post-Effective Amendment No. 11 x
---- -----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
-----
Amendment No. 14 x
---- -----
THE PREFERRED GROUP OF MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
100 N.E. Adams Street
Peoria, Illinois 61629-5330
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (309) 675-4999
Name and Address of Agent for Service:
P. Michael Pond
THE PREFERRED GROUP OF MUTUAL FUNDS
100 N.E. Adams Street
Peoria, Illinois 61629-5330
Copy to:
J.B. Kittredge, Esq.
Ropes & Gray
One International Place
Boston, MA 02110-2624
The Registrant has previously registered an indefinite number or amount of its
shares of beneficial interest pursuant to Rule 24f-2. The Registrant filed a
Rule 24f-2 Notice on August 22, 1995.
It is proposed that this filing will become effective:
Immediately upon filing pursuant to paragraph (b),
------
x ON APRIL 15, 1996 pursuant to paragraph (b),
------
60 days after filing pursuant to paragraph (a)(1),
------
On _______________ pursuant to paragraph (a)(1),
------
75 days after filing pursuant to paragraph (a)(2), or
------
On _______________ pursuant to paragraph (a)(2), of
------
Rule 485.
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE> 2
THE PREFERRED GROUP OF MUTUAL FUNDS
CROSS-REFERENCE SHEET
Items Required by Form N-1A
<TABLE>
<CAPTION>
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis SCHEDULE OF FEES; SHAREHOLDER
TRANSACTION EXPENSES
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description INVESTMENT OBJECTIVES
of Registrant AND POLICIES; GENERAL POLICIES AND RISK
CONSIDERATIONS; DESCRIPTION OF THE PREFERRED GROUP
5. Management of the Fund EXPENSES SUMMARY; INVESTMENT OBJECTIVES AND
POLICIES; MANAGEMENT OF THE PREFERRED GROUP; BACK
COVER
5A. Management's Discussion (CONTAINED IN REGISTRANT'S
of Fund Performance ANNUAL REPORT)
6. Capital Stock and Other DISTRIBUTIONS; HOW
Securities TO BUY SHARES; EXCHANGING AND
REDEEMING SHARES; TAXES; DESCRIPTION OF THE
PREFERRED GROUP
7. Purchase of Securities OPENING YOUR ACCOUNT; HOW TO BUY
Being Offered SHARES; EXCHANGING AND REDEEMING
SHARES; IMPORTANT INFORMATION ABOUT
YOUR ACCOUNT; ADDITIONAL SHAREHOLDER
SERVICES; DETERMINATION OF NET ASSET
VALUE AND PRICING; BACK COVER
8. Redemption or EXCHANGING AND
Repurchase REDEEMING SHARES
9. Pending Legal NOT APPLICABLE
Proceedings
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
PART B
- ------
Statement of Additional
Item No. Item Caption Information Caption
- -------- ------------ -----------------------
<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information NOT APPLICABLE
and History
13. Investment Objectives INVESTMENT RESTRICTIONS;
and Policies OPTIONS AND FUTURES
TRANSACTIONS; MISCELLANEOUS
INVESTMENT PRACTICES;
PORTFOLIO TRANSACTIONS
14. Management of the Fund MANAGEMENT OF THE TRUST
15. Control Persons and MANAGEMENT OF THE TRUST
Principal Holders
of Securities
16. Investment Advisory and MANAGEMENT OF THE PREFERRED
Other Services GROUP (PART A); MANAGEMENT OF
THE TRUST; OTHER SERVICES
17. Brokerage Allocation PORTFOLIO TRANSACTIONS
and Other Practices
18. Capital Stock and Other ORGANIZATION AND
Securities CAPITALIZATION OF THE
TRUST
19. Purchase, Redemption EXCHANGE PRIVILEGE;
and Pricing of HOW TO REDEEM; HOW NET
Securities Being ASSET VALUE IS DETERMINED
Offered
20. Tax Status TAXES
21. Underwriters OTHER SERVICES
22. Calculation of CALCULATION OF YIELD AND
Performance Data TOTAL RETURN; PERFORMANCE
COMPARISONS; PERFORMANCE
DATA
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
-3-
<PAGE> 4
THE PREFERRED GROUP OF MUTUAL FUNDS
SUPPLEMENT TO THE PROSPECTUS DATED APRIL 15, 1996
(AMENDS PROSPECTUS DATED NOVEMBER 1, 1995)
1. DATE OF THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION.
Effective April 15, 1996, the date of the Prospectus is amended to April 15,
1996. The Prospectus, as modified by this Supplement, concisely describes
information which investors should know prior to investing. Please read the
Prospectus and this Supplement carefuly and keep them for future reference.
The Preferred Group's Statement of Additional Information dated April 15, 1996,
as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The statement,
which contains more detailed information abut The Preferred Group, is available
free of charge by writing to The Preferred Group, P.O. Box 8320, Boston, MA
02266-8320 or by telephoning 1-800-662-4769.
2. FINANCIAL HIGHLIGHTS.
The financial information in the table below for periods ended December 31,
1995 is unaudited and updates and supplements the table on pages 5 and 6 of the
Prospectus dated November 1, 1995. Audited financial statements for The
Preferred Group appear in The Preferred Group's Annual Report for fiscal 1995
and have been audited and reported on by Price Waterhouse LLP, independent
accountants, and are incorporated by reference. The unaudited financial
statements included in The Preferred Group's Semiannual Report for the period
ended December 31, 1995 are incorporated by reference into this Supplement.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------
(Selected data for a share Net Total
of beneficial interest NET ASSET Net Realized Income
outstanding throughout VALUE investment and (Loss) from
the period) BEGINNING Income Unrealized Investment
OF PERIOD (Loss) Gain (Loss) Operations
<S> <C> <C> <C> <C>
GROWTH
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 $16.63 $(0.02) $0.84 $0.82
VALUE
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 13.82 0.09 1.61 1.70
INTERNATIONAL
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 12.24 0.04 0.45 0.49
SMALL CAP
- -------------------------------------------------------------------------------------------------
Two Months Ended December 31, 1995 (Commenced investment operations on November 1, 1995)
10.00 0.02 0.49 0.51
ASSET ALLOCATION
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 11.97 0.20 1.29 1.49
BALANCED
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (Commenced investment operations on July 3, 1995)
10.00 0.15 0.59 0.74
FIXED INCOME
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 10.30 0.29 0.33 0.62
SHORT-TERM GOVERNMENT
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 9.80 0.27 0.07 0.34
MONEY MARKET
- -------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 $ 1.00 $ 0.03 $ - $0.03
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
------------------------------------------------------------
(Selected data for a share Distributions
of beneficial interest Distributions from Net Distributions NET ASSET TOTAL
outstanding throughout from Net Realized in Excess VALUE RETURN AT
the period) Investment Gains on of Realized Total END OF NET ASSET
Income Investments Gains Distributions PERIOD VALUE***
<S> <C> <C> <C> <C> <C> <C>
GROWTH
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 $ (0.01) $(0.54) $ - $(0.55) $16.90 4.90%+
VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (0.21) (0.29) - (0.50) 15.02 12.30%+
INTERNATIONAL
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (0.17) (0.01) - (0.18) 12.55 4.00%+
SMALL CAP
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (Commenced investment operations on November 1, 1995)
(0.02) - - (0.02) 10.49 5.06%+*
ASSET ALLOCATION
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (0.20) (0.81) - (1.01) 12.45 12.53%+
BALANCED
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (Commenced investment operations on July 3, 1995)
(0.15) (0.09) - (0.24) 10.50 7.44%+*
FIXED INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (0.29) (0.05) - (0.34) 10.58 6.16%+
SHORT-TERM GOVERNMENT
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (0.27) - - (0.27) 9.87 3.51%+
MONEY MARKET
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 $ (0.03) $ - $ - $(0.03) $ 1.00 2.80%+*
</TABLE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------
(Selected data for a share Operating
of beneficial interest Net Expenses
outstanding throughout Assets, Before Net Portfolio
the period) End of Operating Voluntary Investment Turnover
Period Expenses Waiver Income (Loss) Rate
<S> <C> <C> <C> <C> <C>
GROWTH
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 $392,102,961 0.84%++ - (0.18%)++ 36.37%
VALUE
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 230,294,027 0.85%++ - 1.20%++ 10.22%
INTERNATIONAL
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 136,700,213 1.30%++ - 0.85%++ 10.12%
SMALL CAP
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (Commenced investment operations on November 1, 1995)
$ 26,882,501 1.00%++ 1.35%++ 1.00%++ 10.01%
ASSET ALLOCATION
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 83,088,522 1.04%++ - 3.24%++ 25.85%
BALANCED
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 (Commenced investment operations on July 3, 1995)
3,386,314 1.15%++** 3.80%++** 2.84%++ 20.01%
FIXED INCOME
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 65,789,058 0.91%++ - 5.60%++ 155.82%
SHORT-TERM GOVERNMENT
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 32,407,872 0.68%++ - 5.46%++ 81.63%
MONEY MARKET
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended December 31, 1995 $ 72,249,292 0.42%++ 0.47%++ 5.54%++ N/A
</TABLE>
* Total return for the Small Cap Fund, Money Market Fund and Balanced
Fund would have been lower if a portion of the fees had not been waived or
borne by the advisor.
** Effective July 3, 1995 and until further notice, the Manager has agreed to
limit expenses to 1.15% of average net assets.
*** Total return at net asset value and assumes reinvestment of dividends and
capital gains distributions.
+ Not annualized ++Annualized
<PAGE> 5
THE PREFERRED GROUP OF MUTUAL FUNDS PROSPECTUS
100 N.E. Adams Street NOVEMBER 1, 1995
Peoria, Illinois 61629
- --------------------------------------------------------------------------------
The Preferred Group of Mutual Funds ("The Preferred Group") is an open-end,
diversified series investment company offering nine portfolios ("Funds") with
different investment objectives and strategies. Shares of the Funds are offered
without a sales charge at net asset value.
PREFERRED GROWTH FUND seeks long-term capital appreciation. The Fund will invest
primarily in equity securities believed to offer the potential for capital
appreciation, including stocks of companies that are experiencing rapid earnings
growth.
PREFERRED VALUE FUND seeks capital appreciation and current income. The Fund
will invest primarily in equity securities that are believed to be undervalued
and that offer above-average potential for capital appreciation.
PREFERRED INTERNATIONAL FUND seeks long-term capital appreciation by investing
its assets primarily in equity securities traded principally on markets outside
the United States.
PREFERRED SMALL CAP FUND seeks long-term capital appreciation through
investments in companies with small equity capitalizations.
PREFERRED ASSET ALLOCATION FUND seeks both capital appreciation and current
income by allocating its assets among stocks, bonds and high quality money
market instruments.
PREFERRED BALANCED FUND seeks total return through a combination of capital
appreciation and current income. The Fund allocates its assets among stocks,
bonds and money market instruments.
PREFERRED FIXED INCOME FUND seeks a high level of current income consistent with
investment in a diversified portfolio of high quality debt securities.
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND seeks high current income,
consistent with preservation of capital, primarily through investment in U.S.
Government Securities.
PREFERRED MONEY MARKET FUND seeks the maximum current income believed to be
consistent with preservation of capital and maintenance of liquidity by
investing in a portfolio of short-term, fixed-income instruments.
AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus concisely describes the information which investors should know
before investing. Please read this Prospectus carefully and keep it for future
reference.
A Statement of Additional Information dated November 1, 1995, as supplemented
from time to time, is available 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 Statement, which contains more detailed information about The Preferred
Group, has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference in this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR MORE INFORMATION ABOUT THE PREFERRED GROUP CALL
1-800-662-GROW.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule of Fund Expenses................................................................. 3
Financial Highlights...................................................................... 5
Investment Objectives and Policies........................................................ 7
Preferred Growth Fund.............................................................. 7
Preferred Value Fund............................................................... 8
Preferred International Fund....................................................... 8
Preferred Small Cap Fund........................................................... 9
Preferred Asset Allocation Fund.................................................... 10
Preferred Balanced Fund............................................................ 11
Preferred Fixed Income Fund........................................................ 13
Preferred Short-Term Government Securities Fund.................................... 14
Preferred Money Market Fund........................................................ 15
General Policies and Risk Considerations.................................................. 15
Performance Information................................................................... 21
OPENING YOUR ACCOUNT...................................................................... 22
How to Buy Shares......................................................................... 22
Exchanging and Redeeming Shares........................................................... 23
Important Information About Your Account.................................................. 25
Additional Shareholder Services........................................................... 26
Determination of Net Asset Value and Pricing.............................................. 27
Distributions............................................................................. 27
Choosing a Distribution Option............................................................ 28
Taxes..................................................................................... 28
Statements and Reports.................................................................... 29
Management of The Preferred Group......................................................... 30
Description of The Preferred Group........................................................ 31
Appendix A................................................................................ 33
Appendix B................................................................................ 35
</TABLE>
-2-
<PAGE> 7
SCHEDULE OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(ALL FUNDS)
Maximum sales load imposed on purchases................................... NONE
Maximum sales load imposed on reinvested dividends........................ NONE
Exchange fees............................................................. NONE
Maximum contingent deferred sales charge.................................. NONE
Redemption fees........................................................... NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
ASSET
GROWTH VALUE INTERNATIONAL SMALL CAP ALLOCATION
------ ----- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Management Fees (after fee waiver)............. 0.75% 0.75% 0.95% 0.40% 0.70%
Other Expenses................................. 0.12% 0.14% 0.37% 0.70% 0.41%
Total Fund Operating Expenses (after fee
waiver)...................................... 0.87% 0.89% 1.32% 1.10% 1.11%
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM
FIXED GOVERNMENT
BALANCED INCOME SECURITIES MONEY MARKET
-------- ------ ---------- ------------
<S> <C> <C> <C> <C>
Management Fees....................................... 0.75% 0.65% 0.35% 0.30%
Other Expenses (after expense limitation)............. 0.40% 0.30% 0.36% 0.24%
Total Fund Operating Expenses (after expense
limitation)......................................... 1.15% 0.95% 0.71% 0.54%
</TABLE>
- ---------------
The purpose of this table is to assist in understanding the various costs and
expenses of The Preferred Group that are borne by shareholders. "Other Expenses"
and Total Fund Operating Expenses for the Small Cap and Balanced Funds are based
upon estimates for the Fund's current fiscal year. Management Fees for the Small
Cap Fund reflect a voluntary undertaking by Caterpillar Investment Management
Ltd. ("CIML") to waive a portion of its Management Fees for such Fund to the
extent necessary to ensure that Management Fees for the Small Cap Fund do not
exceed the amount shown in the table above. In the absence of such undertaking,
which may be modified at any time, estimated Management Fees and Total Fund
Operating Expenses for the Small Cap Fund would have been 0.75% and 1.45% of
average net assets, respectively. Management Fees for the Money Market Fund
reflect the termination of a voluntary undertaking by CIML to waive fees in
excess of 0.15% of average net assets. Actual Management Fees and Total Fund
Operating Expenses for the Money Market Fund were 0.15% and 0.39% of average net
assets, respectively. Estimated "Other Expenses" for the Balanced Fund reflect
an expense limitation currently in effect. In the absence of the expense
limitation, estimated "Other Expenses" and Total Fund Operating Expenses for the
Balanced Fund would have been 0.41% and 1.16% of average net assets,
respectively.
-3-
<PAGE> 8
EXAMPLE: Your investment of $1,000 would incur the following expenses assuming
5% annual return and redemption at the end of each period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth.......................................................... $9 $28 $48 $107
Value........................................................... 9 28 49 110
International................................................... 13 42 72 159
Small Cap....................................................... 11 35 N/A N/A
Asset Allocation................................................ 11 35 61 135
Balanced........................................................ 12 37 N/A N/A
Fixed Income.................................................... 10 30 53 117
Short-Term Government Securities................................ 7 23 40 88
Money Market.................................................... 6 17 30 68
</TABLE>
NOTE: THE FIGURES SHOWN IN THE EXAMPLE ARE ENTIRELY HYPOTHETICAL. THEY ARE NOT
REPRESENTATIONS OF PAST OR FUTURE PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE
AND/OR EXPENSES MAY BE GREATER OR LESS THAN SHOWN.
-4-
<PAGE> 9
FINANCIAL HIGHLIGHTS
The table on the following pages presents per share financial highlights for The
Preferred Group, including certain performance information. This information has
been audited and reported on by The Preferred Group's independent accountants,
Price Waterhouse LLP, whose report appears in the Statement of Additional
Information. The Preferred Group's Annual Report, which contains additional
unaudited performance information, is available without charge upon request.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993 1995
------------ ------------ ------------ ------------ ------------ ------------ ------------
VALUE INTERNATIONAL
------------------------------------------ ------------
GROWTH
------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(SELECTED DATA FOR A SHARE
OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT
THE PERIOD)
NET ASSET VALUE, BEGINNING
OF PERIOD................ $12.46 $12.42 $10.00 $11.33 $11.52 $10.00 $12.02
Investment Operations
Net Investment Income.... 0.01 0.01 0.01 0.21 0.19 0.19 0.18
Net Realized and
Unrealized Gain (Loss)... 4.24 0.03 2.42 2.62 (0.12) 1.44 0.60
Total from Investment ------ ------ ------ ------ ------ ------ ------
Operations............. 4.25 0.04 2.43 2.83 0.07 1.63 0.78
Distributions ------ ------ ------ ------ ------ ------ ------
Distributions from Net
Investment Income........ (0.02) -- (0.01) (0.20) (0.16) (0.11) (0.13)
Distributions from Net
Realized Gain on
Investments.............. (0.06) -- -- (0.14) (0.10) -- (0.26)
Distributions in Excess
of Realized Gains........ -- -- -- -- -- -- (0.17)
------ ------ ------ ------ ------ ------ ------
Total Distributions...... (0.08) -- (0.01) (0.34) (0.26) (0.11) (0.56)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................... 16.63 12.46 12.42 13.82 11.33 11.52 12.24
TOTAL RETURN AT NET ASSET
VALUE.................... 34.21% 0.34% 24.25% 25.72% 0.60% 16.37% 6.70%
NET ASSETS, END OF
PERIOD................... $374,592,700 $171,467,064 $117,706,665 $212,678,363 $121,088,130 $121,511,090 $118,216,038
Operating Expenses........ 0.87% 0.91% 1.00% 0.89% 0.93% 0.96% 1.32%
Operating Expenses Before
Voluntary Waiver......... -- -- -- -- -- -- --
Net Investment Income..... 0.13% 0.13% 0.07% 1.95% 1.64% 1.79% 1.65%
Portfolio Turnover Rate... 55.32% 51.56% 58.12% 29.02% 11.95% 17.77% 29.47%
<CAPTION>
1994 1993
----------- -----------
<S> <<C> <C>
(SELECTED DATA FOR A SHARE
OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT
THE PERIOD)
NET ASSET VALUE, BEGINNING
OF PERIOD................ $9.59 $10.00
Investment Operations
Net Investment Income.... 0.08 0.15
Net Realized and
Unrealized Gain (Loss)... 2.47 (0.53)
Total from Investment ----- ------
Operations............. 2.55 (0.38)
----- ------
Distributions
Distributions from Net
Investment Income........ (0.07) (0.03)
Distributions from Net
Realized Gain on
Investments.............. (0.05) --
Distributions in Excess
of Realized Gains........ -- --
----- ------
Total Distributions...... (0.12) (0.03)
----- ------
NET ASSET VALUE, END OF
PERIOD................... 12.02 9.59
TOTAL RETURN AT NET ASSET
VALUE.................... 26.66% (3.77%)
NET ASSETS, END OF
PERIOD................... $94,933,414 $39,126,841
Operating Expenses........ 1.38% 1.60%
Operating Expenses Before
Voluntary Waiver......... -- --
Net Investment Income..... 1.37% 1.83%
Portfolio Turnover Rate... 27.78% 16.21%
</TABLE>
-5-
<PAGE> 10
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ASSET ALLOCATION FIXED INCOME SHORT-TERM GOVERNMENT SECURITIES
--------------------------------------- --------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.27 $10.90 $10.00 $ 9.80 $10.60 $10.00 $ 9.77 $10.08 $10.00
0.38 0.30 0.34 0.58 0.47 0.51 0.51 0.37 0.39
1.79 (0.42) 0.99 0.50 (0.50) 0.71 0.03 (0.29) 0.23
------ ------ ------ ------ ------ ------ ------ ------ ------
2.17 (0.12) 1.33 1.08 (0.03) 1.22 0.54 0.08 0.62
------ ------ ------ ------ ------ ------ ------ ------ ------
(0.38) (0.30) (0.34) (0.58) (0.47) (0.51) (0.51) (0.37) (0.39)
(0.09) (0.21) (0.09) -- (0.14) (0.11) -- -- (0.15)
-- -- -- -- (0.16) -- -- (0.02) --
------ ------ ------ ------ ------ ------ ------ ------ ------
(0.47) (0.51) (0.43) (0.58) (0.77) (0.62) (0.51) (0.39) (0.54)
------ ------ ------ ------ ------ ------ ------ ------ ------
11.97 10.27 10.90 10.30 9.80 10.60 9.80 9.77 10.08
21.70% (1.28%) 13.57% 11.48% (0.46%) 12.59% 5.71% 0.86% 6.32%
$77,745,018 $58,961,139 $48,420,381 $57,911,899 $45,872,668 $35,889,454 $32,121,171 $30,271,535 $27,027,485
1.11% 1.25% 1.27% 0.95% 0.97% 1.05% 0.71% 0.74% 0.78%
-- -- -- -- -- -- -- -- --
3.52% 2.76% 3.25% 5.94% 4.53% 4.91% 5.27% 3.75% 3.87%
18.27% 24.71% 34.10% 330.55% 254.92% 316.06% 256.44% 134.34% 268.36%
<CAPTION>
----------- ----------- -----------
1995 1994 1993
----------- ----------- -----------
MONEY MARKET
---------------------------------------
<C> <C> <C>
$ 1.00 $ 1.00 $ 1.00
0.05 0.03 0.03
-- -- --
------ ------ ------
0.05 0.03 0.03
------ ------ ------
(0.05) (0.03) (0.03)
-- -- --
-- -- --
------ ------ ------
(0.05) (0.03) (0.03)
------ ------ ------
1.00 1.00 1.00
5.27%* 2.91%* 2.71%*
$79,585,753 $45,605,598 $18,146,496
0.39% 0.53% 0.80%
0.54% 0.68% 0.87%
5.24% 2.97% 2.67%
N/A N/A N/A
</TABLE>
- ---------------
* Total return for the Money Market Fund would have been lower if a portion of
the fee (0.15%) had not been waived by the adviser.
-6-
<PAGE> 11
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are stated below. There is no
assurance that any Fund will achieve its objective.
Each Fund (other than the Money Market Fund) may engage in a variety of
transactions involving options and futures contracts and each Fund (other than
the Short-Term Government Securities and Money Market Funds) may invest in
securities traded principally in securities markets outside the United States.
For more information about these and other investment strategies employed by the
Funds, see "General Policies and Risk Considerations." Appendix A contains a
description of the ratings of the bonds in which the Funds may invest.
Each Fund is managed by Caterpillar Investment Management Ltd. ("CIML"). CIML is
responsible for, among other things, providing a continuing investment program
for the Funds in accordance with the investment objectives and policies of each
Fund. In order to assist it in carrying out its responsibility, CIML has
retained various subadvisers to render advisory services to the Funds under the
supervision of CIML and The Preferred Group's Board of Trustees. For further
information about CIML and the various subadvisers, see "Management of The
Preferred Group."
PREFERRED GROWTH FUND
Subadviser: Jennison Associates Capital Corp. ("Jennison")
Portfolio Manager: Lulu C. Wang, CFA
Title: Executive Vice President/Director, Jennison
Last Five Years Experience: Portfolio Manager at Jennison. Lulu has managed the
Growth Fund since its inception on July 1, 1992.
Education: B.S. - Wellesley College; MBA - Columbia University; Chartered
Financial Analyst
The investment objective of the Growth Fund is long-term capital appreciation.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities believed by Jennison to offer the potential for
capital appreciation, including stocks of companies that are experiencing
above-average earnings growth. When selecting securities for the Fund's
portfolio, Jennison will consider a variety of factors, including a company's
earnings, historical and expected sales growth, return on assets and equity,
financial condition, strength and experience of its management group, research
and development practices and marketing strength and capability. The Fund may
also invest in other securities, including obligations issued or guaranteed by
the U.S. Government or its agencies, authorities or instrumentalities, corporate
bonds or short-term debt obligations.
A portion of the Fund's assets may be invested in securities of companies with
relatively low equity market capitalizations. These may include securities
traded over-the-counter and securities of companies with limited operating
histories. Such companies may have more restricted product lines or more limited
financial resources than larger, more established companies. For these and other
reasons, they may be more severely affected by economic downturns or other
adverse developments than are larger, more established companies. Securities of
such companies often trade less frequently and in more limited volume, and may
be subject to more upside or downside risk, than securities of larger, more
established companies.
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<PAGE> 12
PREFERRED VALUE FUND
Subadviser: Oppenheimer Capital ("Oppenheimer")
Portfolio Manager: John G. Lindenthal
Title: Managing Director, Oppenheimer
Last Five Years Experience: Portfolio Manager at Oppenheimer. John has managed
the Value Fund since its inception on July 1, 1992.
Education: B.S., MBA - University of Santa Clara
The Value Fund seeks capital appreciation and current income.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities that Oppenheimer believes are undervalued and that
offer above-average potential for capital appreciation. Equity securities
include common stocks, preferred stocks and securities convertible into common
stocks ("convertible securities"). In selecting securities, Oppenheimer analyzes
companies that have high return on equity and assets, large undedicated cash
flows, significant prospects for dividend growth and reasonable prices in
relation to book value. The key considerations in evaluating a security are
financial strength of the balance sheet, industrial position, current and future
profitability, effectiveness of management and attractive valuation. The Fund
may also invest in other securities, including obligations issued or guaranteed
by the U.S. Government or its agencies, authorities or instrumentalities,
corporate bonds or short-term debt obligations.
PREFERRED INTERNATIONAL FUND
Subadviser: Mercator Asset Management, Inc.(1)
Portfolio Manager: Peter F. Spano, CFA
Title: Managing Director, Mercator
Last Five Years Experience: Portfolio Manager at Mercator. Pete has managed the
International Fund since its inception on July 1, 1992.
Education: BBA - St. John's University; MBA - Baruch College (City University
of New York); Chartered Financial Analyst
The investment objective of the International Fund is long-term capital
appreciation.
- ---------------
(1) As of the date of this Prospectus, it is expected that Mercator Asset
Management, Inc. will transfer substantially all of its non-cash assets,
including its interest in its subadviser agreement with respect to the
International Fund, to Mercator Asset Management, L.P. It is also expected
that, prior to any such transfer, a new subadviser agreement between CIML
and Mercator Asset Management, L.P. will be submitted for approval of the
shareholders of the International Fund. All references herein to "Mercator"
shall refer to Mercator Asset Management, Inc. until such subadviser
agreement has been approved by shareholders and Mercator Asset Management,
Inc. transfers its interest in its subadviser agreement with respect to the
International Fund to Mercator Asset Management, L.P., and shall refer to
Mercator Asset Management, L.P. thereafter. If the new subadviser agreement
is not approved by the shareholders of the International Fund, or if the
expected transfer of the assets of Mercator Asset Management, Inc. is
abandoned, this Prospectus will be supplemented.
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<PAGE> 13
The International Fund will invest primarily in equity securities traded
principally on markets outside the United States, including emerging markets,
that Mercator believes are undervalued and that offer above-average potential
for capital appreciation. Under normal market conditions, at least 65% of the
International Fund's total assets will be invested in at least three different
countries, not including the United States. The Fund may also purchase corporate
bonds and government bonds, including any such securities traded principally in
domestic markets. The International Fund may also invest in bankers' acceptances
or negotiable bank certificates of deposit issued by United States or foreign
banks having outstanding debt rated at least A by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's ("S&P") or, if not so rated, of equivalent
quality as determined by Mercator; prime commercial paper issued by companies
having an outstanding debt issue rated at least A by Moody's or S&P or rated at
least Prime-2 or better by Moody's or A-2 or better by S&P or, if not rated, of
comparable quality as determined by Mercator; and high-grade short-term
corporate obligations rated at least A by Moody's or S&P.
The securities markets of many nations can be expected to move relatively
independently of one another, because business cycles and other economic or
political events that influence one country's securities markets may have little
effect on the securities markets of other countries. By investing in a foreign
portfolio, the International Fund seeks to reduce the risks associated with
investing in the economy of only one country. However, investments in foreign
securities involve certain risks. See "General Policies and Risk Considerations
- -- Risk Factors of Foreign Investments."
PREFERRED SMALL CAP FUND
Portfolio Manager: Todd M. Sheridan, CFA
Title: Portfolio Manager, CIML
Last Five Years Experience: Portfolio Manager at CIML since October, 1992. Prior
to that time, he held various positions within the Corporate Treasury Department
of Caterpillar Inc. Todd has been involved in the management of the Small Cap
Fund since its inception on November 1, 1995.
Education: B.S. - University of Illinois; Chartered Financial Analyst
The Small Cap Fund seeks long-term capital appreciation through investments in
companies with small equity capitalizations.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in common stock and other equity securities of small-capitalization
issuers (generally defined as companies with equity capitalizations of less than
$1 billion). In selecting securities for the Fund, CIML seeks out
small-capitalization companies according to a variety of factors, including a
company's earnings, price/cash flow ratio, market price to book value,
earnings/price ratio and various technical analyses. The Fund may also invest in
other securities, including equity securities of large-capitalization issuers,
obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities, and corporate bonds or short-term debt
obligations rated at the time of purchase at least A or Prime-2, respectively,
by Moody's or A or A-2, respectively, by S&P or, if not so rated, of equivalent
quality as determined by CIML.
Securities of small-capitalization companies may include securities traded
over-the-counter and securities of companies with limited operating histories.
Such companies may have more restricted product lines or more limited financial
resources than larger, more established companies. For these and other reasons,
they may be more severely affected by economic downturns or other adverse
developments than are larger, more established companies. Securities of
small-capitalization companies often trade less frequently and in more limited
volume, and may be subject to greater volatility, than securities of larger,
more established companies.
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<PAGE> 14
PREFERRED ASSET ALLOCATION FUND
Subadvisers: Mellon Capital Management Corporation ("Mellon") and PanAgora
Asset Management, Inc. ("PanAgora")
Portfolio Manager: Thomas B. Hazuka
Title: Executive Vice President, Mellon
Last Five Years Experience: Portfolio Manager at Mellon. Tom has been involved
in the management of the Asset Allocation Fund since its inception on July 1,
1992.
Education: B.S. - Stevens Institute of Technology; MBA - University of
Connecticut; PHD - Stanford University
Portfolio Manager: Edgar E. Peters
Title: Director of Asset Allocation and Chief Investment Strategist, PanAgora
Last Five Years Experience: Portfolio Manager at PanAgora. Ed has been involved
in the management of the Asset Allocation Fund since its inception on July 1,
1992.
Education: B.S. - Montclair State College; MBA - Rutgers University
The Asset Allocation Fund seeks both capital appreciation and current income.
The Fund allocates its assets among stocks, bonds and money market instruments.
At the date of this Prospectus, Mellon and PanAgora each manage approximately
one-half of the Fund's assets (although these proportions may change due to
differential performance) and it is currently expected that all amounts received
by the Fund for sales of its shares and all amounts paid by the Fund for
redemptions of Fund shares will be split evenly between Mellon and PanAgora. The
portion of the Fund's assets invested in stocks, bonds and money market
instruments will vary from time to time in light of changes in interest rates
and other economic factors. The Fund expects, however, that in the near term it
will invest a substantial portion of its assets in each asset class, although
the Fund may invest without limit in each asset class.
HOW MELLON MANAGES THE FUND. Mellon allocates the Fund's assets among stocks,
bonds and money market instruments based on the expected returns on each of
these three asset classes, the risks of each of the asset classes and the
correlations among the asset classes. The common stocks in which the Fund may
invest are those that from time to time comprise the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"). The bonds in which the Fund may
invest will be limited to long-term U.S. Treasury Bonds. The money market
instruments in which the Fund may invest will be limited to short-term
investments (i) rated at the time of purchase Prime-1 as determined by Moody's
or A-1 as determined by S&P, (ii) unrated securities that Mellon determines to
be of comparable quality, and (iii) repurchase agreements with respect to U.S.
Government securities. Mellon may also achieve a substantial portion of the
Fund's exposure to the stock and bond markets through the use of financial
futures and related options. For instance, Mellon may increase the Fund's
exposure to stocks by taking long positions in Standard & Poor's 500 Stock Index
futures contracts. Similarly, Mellon may increase the Fund's exposure to bonds
by taking long positions in futures contracts on U.S. Treasury bonds. The Fund
may also engage in a variety of strategies, including the use of futures
contracts and related options and investments in asset-backed securities. See
"General Policies and Risk Considerations" for more information about these
strategies.
HOW PANAGORA MANAGES THE FUND. PanAgora uses a proprietary asset allocation
discipline that provides percentage guidelines (the "Guidelines") indicating the
mix of holdings among stocks, bonds and money market instruments that may be
appropriate at any given time. The Guidelines are established by comparing the
expected performance with the current performance for each investment class. The
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<PAGE> 15
expected performance for each investment class is the performance that PanAgora
would ordinarily expect to obtain over a ten-year period from investments in
that class, based upon its empirical analysis of the long-term performance of
stocks, bonds and money market instruments. The current performance for each
investment class is the actual performance for that class during a current
period with reference to the following: stocks -- the S&P 500; bonds -- the
Shearson Lehman Long Treasury Index; and money market instruments -- the 3-month
and 1-year Treasury bills. Leading economic and capital market indicators are
also integrated into the process of establishing Guidelines. PanAgora may
achieve a substantial portion of the Fund's exposure to the stock and bond
markets through the use of financial futures and related options, as described
in the preceding paragraph.
In selecting stocks for the Fund, PanAgora will generally purchase a substantial
percentage of the stocks comprising the S&P 500 and gives important
consideration to diversification and trading liquidity. PanAgora attempts to
select stocks which, as a portfolio, have similar investment characteristics,
such as industry representation, dividend yield and capitalization, and which
have investment performance similar to the stocks comprising the S&P 500. In
selecting stocks, PanAgora also gives consideration to the value and growth
potential of individual stocks.
With respect to bonds, the Fund invests in highly liquid investment-grade
securities issued by the U.S. Government and its agencies, instrumentalities or
authorities and by major U.S. corporations. All such securities are included in
the Lehman Brothers Government/Corporate Bond Index (the "Lehman Index"), a
composite of all government, Federal agency and publicly traded investment-grade
corporate debt securities with a maturity of one year or longer.
Investment-grade fixed income securities are securities rated Baa or higher by
Moody's or BBB or higher by S&P, and unrated securities that are of equivalent
quality in the opinion of PanAgora. Securities rated Baa by Moody's or BBB by
S&P have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments on such obligations than in the case of
higher-rated securities. In the event that the rating of any security held by
the Fund falls below Baa by Moody's and/or BBB by S&P, the Fund will not be
obligated to dispose of such security, and may continue to hold the obligation
if, in the opinion of PanAgora, such investment is considered appropriate in the
circumstance. PanAgora generally selects fixed income securities for the Fund to
match the Lehman Index in maturity, quality, sector and coupon characteristics.
Typically, the average maturity of fixed income securities selected is
approximately 10 years, although the Fund may invest in longer or shorter
maturities when, in the opinion of PanAgora, investment opportunities warrant.
With respect to money market instruments, the Fund invests in U.S. Government
obligations, bank certificates of deposit and time deposits, bankers'
acceptances, prime commercial paper, high-grade, short-term corporate
obligations and repurchase agreements with respect to these instruments.
PREFERRED BALANCED FUND
Subadviser: Jennison Associates Capital Corp.
Portfolio Manager: Bradley L. Goldberg, CFA
Title: Director, Executive Vice President, Jennison
Last Five Years Experience: Equity and balanced portfolio manager and chairman
of the Asset Allocation Committee at Jennison. Brad has managed the Balanced
Fund since its inception on July 3, 1995.
Education: B.S. - University of Illinois; MBA - New York University; Chartered
Financial Analyst
The Balanced Fund seeks total return through a combination of capital
appreciation and current income. The Fund allocates its assets among stocks,
bonds and money market instruments.
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<PAGE> 16
At the date of this Prospectus, Jennison intends to allocate the assets of the
Fund according to the following ranges: (i) 40-70% of the assets of the Fund
will be invested in common stocks, preferred stocks and securities convertible
into common stocks; (ii) 25-55% of the assets of the Fund will be invested in
debt securities (i.e., fixed income securities with maturities of one to thirty
years); and (iii) 5-35% of the assets of the Fund will be invested in short-term
fixed income securities (i.e., money market instruments). From time to time,
Jennison may vary the allocations of the Fund's assets from those ranges
described above. In determining the Fund's allocation among the various asset
classes, Jennison focuses on the relative valuation of each asset class,
utilizing a wide range of macroeconomic, fundamental, quantitative and technical
methods. The Fund's assets are actively shifted among the three asset classes in
an attempt to capitalize on intermediate term (i.e., twelve to eighteen months)
valuation opportunities and to maximize the Fund's total investment return. The
Fund will at all times hold at least 25% of its assets in senior fixed income
securities (including, for these purposes, that portion of the value of
securities convertible into common stock which is attributable to the fixed
income characteristics of those securities).
The equity component of the Fund will consist of common stocks, preferred stocks
and securities convertible into common stocks of companies that Jennison
believes offer the potential for above-average capital appreciation. The primary
factor in selecting equity securities for the Fund is earnings growth at a
reasonable price. In evaluating earnings growth prospects for individual
companies, Jennison considers a variety of characteristics including a company's
historic record, management skills and financial strength. Jennison utilizes its
staff of research analysts as an important part of this equity selection
process. Jennison combines this focus on earnings growth with valuation
discipline. A number of both fundamental and technical measures are utilized in
determining whether individual securities are attractively priced. The overall
objective is to capture corporate earnings growth at a reasonable price.
The debt securities component of the Fund will consist primarily of high quality
fixed income securities, such as U.S. Government and agency obligations. The
Fund may also invest in U.S. corporate debt securities, foreign government and
corporate obligations, and mortgage-backed and asset-backed securities. See
"General Policies and Risk Considerations" for more information about these
strategies. The minimum average dollar-weighted credit quality of the Fund's
debt portfolio (excluding short-term investments) will be A by either Moody's or
S&P. For purposes of this average credit rating requirement, instruments that
are not rated will be assigned a rating by Jennison. The Fund may, subject to
the average credit rating requirement, invest up to 5% of its net assets in
securities rated below Baa by Moody's or BBB by S&P (commonly known as "junk
bonds") and in unrated securities that are of equivalent quality in the opinion
of Jennison. Securities rated lower than A by either Moody's or S&P have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments on such obligations than in the case of higher-rated
securities. In the event that the rating of any security held by the Fund falls
below its rating at the time of purchase, the Fund will not be obligated to
dispose of such security and may continue to hold the security if, in the
opinion of Jennison, such investment is considered appropriate in the
circumstances. The values of debt securities generally vary inversely with
interest rates. Investments in lower-rated fixed income securities generally
provide greater income than investments in higher-rated securities, but are
subject to greater market fluctuations and risks of loss of income and principal
than higher-rated securities. Fluctuations in the value of portfolio securities
will not affect interest income on existing portfolio securities but will be
reflected in the Fund's net asset value.
With respect to short-term fixed income securities, the Fund may invest in U.S.
Government obligations, bank certificates of deposit and time deposits, banker's
acceptances, prime commercial paper, high-grade short-term corporate obligations
and repurchase agreements with respect to these instruments.
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<PAGE> 17
PREFERRED FIXED INCOME FUND
Subadviser: J.P. Morgan Investment Management Inc. ("Morgan")
Portfolio Manager: Paul L. Zemsky, CFA
Title: Vice President, Morgan
Last Five Years Experience: Portfolio Manager at Morgan. Paul has been involved
in the management of the Fixed Income Fund since January 1, 1994.
Education: B.S.E.E. - University of Pennsylvania
The investment objective of the Fixed Income Fund is a high level of current
income consistent with investment in a diversified portfolio of debt securities.
Morgan will pursue the Fund's objective by investing the Fund's assets primarily
in publicly traded domestic debt securities (e.g., U.S. Treasury and agency
obligations, mortgage-backed securities and corporate debt securities), as
supplemented by investment in other fixed income markets (e.g., corporate
private placements, directly-placed mortgage obligations and foreign currency
denominated bonds) to increase the potential for higher returns with reduced
volatility. Morgan does not seek to achieve the Fund's objective in each
portfolio security, but endeavors to manage the portfolio as a whole in such a
way as to achieve its objective. Under normal market conditions, at least 65% of
the Fund's total assets will be invested in fixed income securities. Pending
investment and reinvestment in debt securities and for temporary defensive
purposes, Morgan may invest the Fund's assets in money market instruments.
Allocations are made among a wide array of market sectors, such as U.S. Treasury
and agency obligations, corporate securities, mortgages and mortgage-backed
securities, private placement securities and non-U.S. dollar denominated
securities, based on the relative attractiveness of such sectors. Following
these sector allocations, Morgan will purchase those securities deemed
attractively valued in the desired sectors. The Fund may invest in any fixed
income security, including preferred stocks.
Under normal market conditions, Morgan will manage the Fund's portfolio subject
to the following investment guidelines:
1. Minimum average dollar-weighted credit quality of the portfolio (excluding
short-term investments): A by either Moody's or S&P. For purposes of
calculating this average credit requirement, instruments that are not rated
will be assigned a rating by Morgan.
2. Minimum credit quality for short-term investments at the time of purchase:
Prime-1 by Moody's or A-1 by S&P.
It is expected that the Fund's portfolio will generally have a duration of no
less than three years and no more than seven years (excluding short-term
investments). The duration of a fixed income security is the weighted average
maturity, expressed in years, of the present value of all future cash flows,
including coupon payments and principal repayments.
The Fund may invest in any security which is rated, at the time of purchase, at
least Baa as determined by Moody's or BBB as determined by S&P, or in any
unrated security that Morgan determines to be of comparable quality. Securities
rated Baa by Moody's or BBB by S&P have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments on such obligations
than in the case of higher-rated securities. In the event that the rating of any
security held by the Fund falls below Baa by Moody's and/or BBB by S&P, the Fund
will not be obligated to dispose of such security, and may continue to hold the
obligation if, in the opinion of Morgan, such investment is considered
appropriate in the circumstance. The values of debt securities change as
interest rates fluctuate. Investments in lower-quality fixed income securities
generally
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<PAGE> 18
provide greater income than investments in higher-rated securities, but are
subject to greater market fluctuations and risks of loss of income and principal
than higher-rated securities. Fluctuations in the value of portfolio securities
will not affect interest income on existing portfolio securities but will be
reflected in the Fund's net asset value.
The Fund's debt securities may include corporate or U.S. Government zero-coupon
securities of any maturity, securities such as Government National Mortgage
Association ("Ginnie Mae") certificates which represent ownership interests in
mortgage pools and securities backed by commercial mortgages, including
mortgages on a single property. For additional information about these
securities, see "General Policies and Risk Considerations -- Mortgage-Backed
Securities, Asset-Backed Securities and Zero-Coupon Securities."
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
Portfolio Manager: J. Steven Orr, CFA
Title: Portfolio Manager, CIML
Last Five Years Experience: Portfolio Manager at CIML since June, 1993. Prior
to that time, he held fixed income trading and portfolio management positions
with United Services Advisors, L&N Investment Co., and MBank Austin. Steven has
had primary responsibility for the Short-Term Government Securities Fund since
June 28, 1995.
Education: B.A. - University of Texas; MBA - Southwest Texas State University;
JD - St. Mary's School of Law; Chartered Financial Analyst
The investment objective of the Short-Term Government Securities Fund is high
current income, consistent with preservation of capital.
The Fund will invest primarily in securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities. Certain of these "U.S. Government Securities," such as U.S.
Treasury bills, notes and bonds, mortgage participation certificates guaranteed
by Ginnie Mae and Federal Housing Administration debentures, are supported by
the full faith and credit of the United States. Other U.S. Government Securities
are supported by the discretionary authority of the U.S. Government to purchase
the issuer's obligations or by the right of the issuer to borrow from the U.S.
Treasury. The U.S. Treasury is under no legal obligation, however, to purchase
securities or to make loans. Still other U.S. Government Securities are
supported only by the credit of the agency, authority or instrumentality itself.
Agencies or instrumentalities whose obligations are not backed by the full faith
and credit of the U.S. Government include, among others, the Federal National
Mortgage Association ("Fannie Mae"), Federal Home Loan Banks, the Tennessee
Valley Authority, the Bank for Cooperatives and the Federal Home Loan Mortgage
Corporation. A significant portion of the Fund's portfolio may consist of Ginnie
Mae mortgage-backed certificates ("Ginnie Mae Certificates") and other U.S.
Government Securities representing ownership interests in mortgage pools. Under
normal market conditions, not less than 65% of the Fund's total assets will be
invested in U.S. Government Securities and related repurchase agreements. In
order to reduce risk, the Fund will maintain an average dollar-weighted
portfolio maturity of not more than three years and will typically purchase
securities with remaining maturities of less than five years.
U.S. Government Securities do not involve the credit risks associated with
investments in other types of fixed income securities, although, as a result,
the yields available from U.S. Government Securities are generally lower than
the yields available from otherwise comparable corporate fixed income
securities. Like other fixed income securities, however, the values of U.S.
Government Securities change as interest
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<PAGE> 19
rates fluctuate. Fluctuations in the value of portfolio securities will not
affect interest income on existing portfolio securities but will be reflected in
the Fund's net asset value.
The Fund's debt securities may include U.S. Government zero-coupon securities of
any maturity and securities such as Ginnie Mae Certificates which represent
ownership interests in mortgage pools. For additional information about these
securities, see "General Policies and Risk Considerations -- Mortgage-Backed
Securities, Asset-Backed Securities and Zero-Coupon Securities."
PREFERRED MONEY MARKET FUND
Subadviser: J.P. Morgan Investment Management Inc.
Portfolio Manager: Robert (Skip) R. Johnson
Title: Vice President, Morgan
Last Five Years Experience: Portfolio Manager at Morgan. Skip has been involved
with the management of the Money Market Fund since its inception on July 1,
1992.
Education: B.A. - Dartmouth College
The Money Market Fund seeks the maximum current income believed to be consistent
with preservation of capital and maintenance of liquidity by investing in a
portfolio of U.S. dollar-denominated short-term, fixed income instruments which
include:
- short-term U.S. Government Securities;
- certificates of deposit and bankers' acceptances;
- prime commercial paper;
- high-quality, short-term corporate obligations; and
- repurchase agreements with respect to U.S. Government Securities.
All of the Fund's investments will, at the time of investment, have remaining
maturities of 397 days or less. The average dollar-weighted maturity of the
Fund's portfolio will be 90 days or less. The Fund's investments are limited to
those which, in accordance with standards established by The Preferred Group's
Trustees, are believed to present minimal credit risk.
The Money Market Fund may invest up to 100% of its total assets in bank
obligations.
For more information about the securities in which the Fund may invest, see
"General Policies and Risk Considerations -- Money Market Instruments."
Because of the high quality and short maturity of the Fund's investments, the
Fund's yield may be lower than that of funds that invest in lower-rated
securities and securities of longer maturities. Unlike investments which pay a
fixed yield for a stated period of time, money market fund yields fluctuate.
GENERAL POLICIES AND RISK CONSIDERATIONS
PORTFOLIO TURNOVER. Portfolio turnover is not a limiting factor with respect to
investment decisions. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs on the sale of securities and
reinvestment in other securities, which will be borne directly by the Funds.
These transactions may also result in the realization of taxable capital gains.
Portfolio turnover rates for the life of the Funds (other than the Small Cap and
Balanced Funds) are shown in the section "Financial Highlights." Portfolio
turnover rates in excess of 100% are generally considered to be high. While it
is
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<PAGE> 20
impossible to predict a Fund's portfolio turnover rate, such rates are not
generally expected to exceed 200% and 150% for the Small Cap and Balanced Funds,
respectively.
MONEY MARKET INSTRUMENTS. The money market instruments in which the Money Market
Fund may invest include:
(1) short-term U.S. Government Securities;
(2) certificates of deposit, bankers' acceptances and other bank
obligations rated in the two highest rating categories by at least two
major rating agencies, or, if rated by only one major agency, in such
agency's two highest grades, or unrated but determined to be comparable by
the subadviser to the Fund pursuant to procedures approved by The Preferred
Group's Trustees. Bank obligations must be those of a bank that has
deposits in excess of $2 billion or that is a member of the Federal Deposit
Insurance Corporation. The Fund may invest in obligations of U.S. branches
or subsidiaries of foreign banks ("Yankeedollar obligations") or foreign
branches of U.S. banks ("Eurodollar obligations");
(3) commercial paper rated in the two highest rating categories by at
least two major rating agencies, or, if rated by only one major agency, in
such agency's two highest grades, or if not rated, of comparable quality as
determined by the subadviser to the Fund pursuant to procedures approved by
The Preferred Group's Trustees;
(4) corporate obligations with an initial maturity in excess of 397
days but a remaining maturity of 397 days or less whose issuers have
outstanding short-term debt obligations rated in the highest rating
category by at least two major rating agencies, or, if rated by only one
major agency, in such agency's highest grade; and
(5) repurchase agreements with domestic commercial banks or registered
broker-dealers. See "Repurchase Agreements."
For temporary defensive purposes, each of the other Funds may also invest all or
a portion of its assets in the foregoing kinds of money market instruments,
although determinations of the quality of unrated securities may be made by each
Fund's subadviser.
Federal law limits the percentage of the Money Market Fund's assets that may be
invested in instruments that are not rated in the highest rating category (or
that are unrated but determined to be of comparable quality).
OPTIONS AND FUTURES TRANSACTIONS; FOREIGN CURRENCY TRANSACTIONS. Each Fund
(except the Money Market Fund) may engage in a variety of transactions involving
options and futures contracts, which are commonly known as "derivative
securities," for hedging, for divided accruals and portfolio allocation purposes
and not for speculation, as follows:
The Fixed Income and Short-Term Government Securities Funds, to increase current
return, may write covered call and covered put options on any security that they
are eligible to purchase. For hedging purposes, they may (1) purchase call
options on securities they expect to acquire, and put options on securities they
hold, and (2) purchase and sell futures contracts on U.S. Government Securities
and purchase and write options on such futures contracts.
The Growth, Value, International, Small Cap, Asset Allocation and Balanced Funds
may each: (1) purchase call and put options, and purchase warrants, on
securities that they are eligible to purchase; (2) write covered call and
covered put options on such securities; and (3) buy and sell stock index
options, stock index futures contracts and options on stock index futures
contracts. In addition, the Asset Allocation and Balanced Funds may purchase and
sell futures contracts on U.S. Government Securities and purchase and write
options on such futures contracts.
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<PAGE> 21
In order to hedge against possible variations in foreign exchange rates pending
the settlement of securities transactions, each of the Funds (other than the
Short-Term Government Securities and Money Market Funds) may buy or sell foreign
currencies or may deal in forward foreign currency contracts; that is, agree to
buy or sell a specified currency at a specified price and future date. These
Funds may also invest in currency futures contracts and related options. If a
fall in exchange rates for a particular currency is anticipated, a Fund may sell
a currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates for a
particular currency will rise, a Fund may purchase a currency futures contract
or a call option thereon or sell (write) a put option to protect against an
increase in the price of securities denominated in that currency the Fund
intends to purchase. These futures contracts and related options will be used
only as a hedge against anticipated currency rate changes, and all options on
currency futures written by the Funds will be covered. These practices, however,
may present risks different from or in addition to the risks associated with
investments in foreign currencies. Each of the Growth, Value, Small Cap, Asset
Allocation, Balanced and Fixed Income Funds will invest no more than 5% of its
assets in foreign currencies, foreign currency forward contracts or foreign
currency futures contracts and options on such futures contracts.
Although hedging strategies are intended to reduce fluctuations in a Fund's net
asset value, each Fund (other than the Money Market Fund) nonetheless
anticipates that its net asset value will fluctuate to some degree. No Fund will
engage in options and futures transactions for leveraging purposes.
Appendix B and the Statement of Additional Information contain more information
about options and futures contracts and related risks.
RISK FACTORS OF FOREIGN INVESTMENTS. The Money Market Fund may invest all or any
portion of its assets in Yankeedollar and Eurodollar obligations and in
dollar-denominated commercial paper of foreign issuers. The Growth, Value, Small
Cap, Asset Allocation, Balanced and Fixed Income Funds each may invest without
limit in securities of foreign issuers which are traded in domestic securities
markets and may invest up to 10% (20% with respect to the Balanced Fund) of
their respective total assets in securities traded principally in securities
markets outside the United States. (Eurodollar certificates of deposit are
excluded for purposes of these limitations.)
These investments, as well as investments of the International Fund in
securities of foreign issuers or securities principally traded overseas, may
involve certain special risks due to foreign economic, political and legal
developments, including favorable or unfavorable changes in currency exchange
rates, exchange control regulations (including currency blockage), expropriation
of assets, imposition of withholding taxes on dividend or interest payments, and
possible difficulty in obtaining and enforcing judgments against foreign
entities. Furthermore, issuers of foreign securities are subject to different,
often less comprehensive, accounting, reporting and disclosure requirements than
domestic issuers. The securities of some foreign companies and foreign
securities markets are less liquid and at times more volatile than securities of
comparable U.S. companies and U.S. securities markets, and certain foreign
securities markets may be subject to less governmental supervision than in the
United States. Foreign brokerage commissions and other fees are also generally
higher than in the United States. There are also special tax considerations
which apply to securities of foreign issuers and securities principally traded
overseas.
The International Fund may also invest in countries whose economies or
securities markets are not yet highly developed. Special considerations
associated with these investments (in addition to the considerations regarding
foreign investments generally) may include, among others, greater political
uncertainties, an economy's dependence on revenues from particular commodities
or on international aid or development assistance, currency transfer
restrictions, a limited number of potential buyers for such securities and
delays and disruptions in securities settlement procedures.
-17-
<PAGE> 22
A Fund's investments in foreign currency-denominated debt obligations and
hedging activities will likely produce a difference between its book income and
its taxable income. This difference may cause a portion of the Fund's income
distributions to constitute returns of capital for tax purposes or require the
Fund to make distributions exceeding book income to qualify as a "regulated
investment company" for federal tax purposes.
LOANS OF PORTFOLIO SECURITIES. Each Fund (except the Money Market Fund) may lend
its portfolio securities to broker-dealers under contracts calling for
collateral in cash, U.S. Government Securities or other high-quality debt
securities equal to at least the market value of the securities loaned. Each
Fund will continue to benefit from interest on the securities loaned and will
also receive either interest, through investment of cash collateral by the Fund
in permissible investments, or a fee, if the collateral is U.S. Government
Securities. Securities lending involves the risk of loss of rights in the
collateral or delay in recovery of the collateral should the borrower fail
financially.
SHORT SALES. Each Fund (except the Money Market Fund) may from time to time make
short sales involving securities held in the Fund's portfolio or which the Fund
has the right to acquire without the payment of further consideration.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Balanced
and Short-Term Government Securities Funds may purchase U.S. Government
Securities on a when-issued basis, and may purchase or sell such securities for
delayed delivery. All Funds except the Money Market Fund may make contracts to
purchase securities for a fixed price at a future date beyond normal settlement
time ("forward commitments"). Each of these Funds may also enter into forward
commitments to sell securities. Each Fund may simultaneously be obligated with
respect to forward commitment purchase and sale contracts. However, each Fund
will generally not sell a portfolio security or enter into a forward commitment
sale contract if that sale or forward commitment is coupled with an agreement by
the Fund (including a forward commitment) to repurchase the security at a later
date. When-issued transactions, delayed delivery purchases and forward
commitments involve a risk of loss if the value of the securities declines prior
to the settlement date, which risk is in addition to the risk of decline in the
value of the Fund's other assets. No income accrues to the purchaser of such
securities prior to delivery.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase agreements
with banks and broker-dealers, which are agreements by which a Fund acquires a
security (usually an obligation of the U.S. Government) for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed-upon price and date. The resale price is in excess of the acquisition
price and reflects an agreed-upon market rate unrelated to the coupon rate on
the purchased security. Such transactions afford an opportunity for the Fund to
earn a return on temporarily available cash at no market risk, although there is
a risk that the seller may default in its obligation to pay the agreed-upon sum
on the redelivery date. Such a default may subject the Fund to expenses, delays
and risks of loss.
MORTGAGE-BACKED SECURITIES, ASSET-BACKED SECURITIES AND ZERO-COUPON
SECURITIES. Each of the Funds may invest in mortgage-backed securities,
collateralized mortgage obligations ("CMOs") and asset-backed securities.
Interest and principal payments (including prepayments) on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
mortgage-backed security. Prepayments occur when the mortgagor on an individual
mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. As a result of the pass-through of prepayments of principal on
the underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgages vary, it is not
possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate and a
Fund would be required to reinvest the proceeds at the lower interest rates then
-18-
<PAGE> 23
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses because the premium may
not have been fully amortized at the time the obligation is prepaid. As a result
of these principal prepayment features, mortgage-backed securities that are U.S.
Government Securities are generally more volatile investments than other U.S.
Government Securities. Also, although the values of mortgage-backed securities
generally fall when interest rates rise, their potential for capital
appreciation in periods of falling interest rates is limited because of the
prepayment feature.
CMOs, which are commonly known as "derivatives," are securities backed by a
portfolio of mortgages or mortgage-backed securities held under an indenture.
The issuer's obligation to make interest and principal payments is secured by
the underlying portfolio of mortgages or mortgage-backed securities. CMOs are
issued with a number of classes or series which have different maturities and
which may represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of CMOs first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of a
CMO held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.
Commercial mortgage-related securities are generally structured similarly to
pass-through securities or to CMOs, although other structures are possible. They
may pay fixed or adjustable rates of interest. Commercial mortgage-related
securities have been issued in public or private transactions by a variety of
public and private issuers. The commercial mortgage loans that underlie
commercial mortgage-related securities have certain distinct risk
characteristics. Commercial mortgage loans generally lack standardized terms,
which may complicate their structure. Commercial properties themselves tend to
be unique and are more difficult to value than single family residential
properties. Commercial mortgage loans also tend to have shorter maturities than
residential mortgage loans, and may not be fully amortizing, meaning that they
may have a significant principal balance, or "balloon" payment, due on maturity.
Assets underlying commercial mortgage-related securities may relate only to a
few properties or a single property. The risk involved in single property
financings is highly concentrated.
Asset-backed securities are structured like mortgage-backed securities, but
instead of mortgage loans or interests in mortgage loans, the underlying assets
may include motor vehicle installment sales or installment loan contracts,
leases of various types of real and personal property and receivables from
credit card agreements. The ability of an issuer of asset-backed securities to
enforce its security interest in the underlying assets may be limited, and
asset-backed securities are subject to prepayment risks similar to those
described above for mortgage-backed securities.
The Fixed Income and Short-Term Government Securities Funds may also invest in
"zero-coupon" U.S. Government Securities (which are issued at a significant
discount from face value and pay interest only at maturity rather than at
intervals during the life of the security) or in certificates representing
undivided interests in "stripped" U.S. Government Securities and coupons ("IO/PO
Strips"). See "Taxes" for a discussion of the tax consequences of zero-coupon
securities. IO/PO Strips are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage assets. Zero-coupon securities and IO/PO Strips tend to be more
volatile than other types of U.S. Government Securities. Mortgage-backed IO
Strips involve the additional risk of loss of the entire value of the investment
if the underlying mortgages are prepaid. IO/PO Strips that are U.S. Government
Securities backed by fixed-rate mortgages may be considered liquid securities if
so determined by the relevant subadviser pursuant to procedures approved by The
Preferred Group's Trustees. All other IO/PO Strips will be considered illiquid.
To the extent either Fund invests in IO/PO Strips that are "stripped" by private
entities, such securities will not be considered to be U.S. Government
Securities.
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<PAGE> 24
Zero-coupon securities may be issued by the U.S. Treasury or by a U.S.
Government agency, authority or instrumentality (such as the Student Loan
Marketing Association or the Resolution Funding Corporation). A Fund is required
to accrue and distribute income from zero-coupon securities on a current basis,
even though it does not receive that income currently in cash. Thus the Fund may
have to sell other investments to obtain cash needed to make income
distributions.
ILLIQUID SECURITIES. Each Fund (other than the Money Market Fund) may purchase
"illiquid securities," which include securities whose disposition is restricted
by the securities laws, so long as no more than a fixed percentage of that
Fund's net assets (determined by the SEC to be 15% as of the date of this
Prospectus) would be invested in such illiquid securities after giving effect to
the purchase. Because there may be relatively few potential purchasers for such
securities, especially under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, a Fund could
find it more difficult to sell such securities when CIML or the relevant
subadviser believes it advisable to do so or may be able to sell such securities
only at prices lower than if such securities were not subject to restrictions on
disposition. At times, it may also be more difficult to determine the fair value
of such securities for purposes of computing a Fund's net asset value. The Money
Market Fund may not invest more than 10% of its net assets in illiquid
securities. Illiquid securities at present are considered to include repurchase
agreements maturing in more than seven days, certain IO/PO Strips, over-the-
counter options and assets used to "cover" over-the-counter options written by a
Fund (to the extent described under "Options and Futures Transactions -- OTC
Options" in the Statement of Additional Information).
LIMITING INVESTMENT RISK. Specific investment restrictions help the Funds limit
investment risks for their shareholders. These restrictions prohibit:
- each Fund from investing more than 5% of its total assets in the
securities of any one issuer (other than U.S. Government Securities and
repurchase agreements relating thereto), although up to 25% of the total
assets of each Fund may be invested without regard to this restriction;*
- each Fund from investing 25% or more of its total assets in the
securities of any one industry, except that the Money Market Fund may
invest up to 100% of its assets in certificates of deposit and bankers'
acceptances issued by domestic banks (obligations of a foreign government
and its agencies or instrumentalities constitute a separate "industry"
from those of another foreign country; issuers of U.S. Government
Securities and repurchase agreements relating thereto do not constitute
an "industry");* and
- each Fund from investing more than 5% of its total assets in securities
of any issuers if the issuers (or the parties responsible for payment in
the case of debt securities), together with any predecessors, have been
in operation for less than three years (except CMOs, asset-backed
securities, U.S. Government Securities and repurchase agreements relating
thereto).
"FUNDAMENTAL" POLICIES. Restrictions marked with an asterisk (*) above are
summaries of fundamental policies and therefore may only be changed with the
approval of shareholders. See the Statement of Additional Information for the
full text of these policies and the Funds' other fundamental policies. Except
for any policy explicitly identified as "fundamental," the investment objective
and policies of each Fund described in this Prospectus may be changed without
shareholder approval. If there is a change in a Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs.
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<PAGE> 25
PERFORMANCE INFORMATION
From time to time The Preferred Group may make available certain information
about the performance of some or all of the Funds. Information about a Fund's
performance is based on that Fund's record to a recent date and is not intended
to indicate future performance.
All Funds may include Total Return data in advertisements or other written
material. Total Return for the one and three-year periods and for the life of a
Fund, each through the most recent calendar quarter, represents the average
annual compounded rate of return on an investment of $1,000 in the Fund.
Each of the Asset Allocation, Balanced, Fixed Income and Short-Term Government
Securities Funds may advertise its Yield, accompanied by its Total Return. A
Fund's Yield will be computed by dividing the net investment income per share
earned during a recent one-month period by the net asset value per share
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period.
The Money Market Fund may advertise its Yield and Effective Yield. The Money
Market Fund's Yield is based upon the income earned by the Fund over a seven-day
period and then annualized (i.e., the income earned in the period is assumed to
be earned every seven days over a 52-week period and stated as a percentage of
the investment). Effective Yield is calculated similarly but, when annualized,
the income earned by the investment is assumed to be reinvested in Fund shares
and thus compounded over the course of a 52-week period. Methods used to
calculate advertised yields are standardized for money market funds.
The Preferred Group may also include in its advertising and sales materials
editorial comments and performance rankings published by 1) recognized mutual
fund statistical services, such as Lipper Analytical Services, Inc.,
Morningstar, Inc. or Donoghue's Money Fund Report, and 2) publications of
general interest, such as Money, Forbes or Business Week magazines. Performance
information may be quoted numerically or may be presented in a graph, table or
other illustration. The Preferred Group may also compare the performance of a
Fund to that of well-known market indicators.
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<PAGE> 26
- --------------------------------------------------------------------------------
OPENING YOUR ACCOUNT
- --------------------------------------------------------------------------------
To open a new account, simply complete and return the New Account Registration
Form included with this Prospectus and mail with your check or money order. We
must have your correct social security or corporate tax identification number
and your signature. In order to open an account, you must meet the minimum
investment requirements described below.
A completed and signed application is required for each new account you open.
Redemptions will not be permitted until your completed application is on file.
Purchase orders received by The Preferred Group by 4:00 p.m. (Eastern time) on
any regular business day will be processed at that day's net asset value. (See
"Determination of Net Asset Value and Pricing.") There are no sales commissions
or 12b-1 fees.
All shareholders will receive individual confirmations of each purchase,
redemption, dividend reinvestment, exchange or transfer of shares, including the
total number of shares owned as of the confirmation date.
If you have questions about the Funds, or require additional assistance with the
New Account Registration Form, please call INVESTOR SERVICES AT 1-800-662-GROW
(1-800-662-4769).
HOW TO BUY SHARES
You can purchase shares of any Fund by using one of the four methods described
below.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENTS MINIMUM
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BY MAIL $1,000 -- Regular Account $50 for All Accounts
$ 250 -- IRAs & Uniform Gifts/Transfers
to Minors Accounts
$ 150 -- Quarterly Systematic Savings
Plan
$ 50 -- Monthly Systematic
Savings Plan
</TABLE>
For new accounts, please mail us your New Account Registration Form and check in
the return envelope provided. For additional investments, please mail us your
check, write your account number on your check, use the remittance form attached
to your confirmation statement, and mail in the return envelope provided. All
checks should be made payable to "The Preferred Group (name of Fund)." All
purchase requests should be mailed to one of the following addresses:
<TABLE>
<S> <C>
Regular Mail: Registered, Express or Certified Mail:
The Preferred Group The Preferred Group
P.O. Box 8320 2 Heritage Drive
Boston, MA 02266-8320 N. Quincy, MA 02171
</TABLE>
Shares of each Fund of The Preferred Group are continuously offered to the
public each day the New York Stock Exchange is open.
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<PAGE> 27
FOR ALL CHOICES BELOW, PLEASE CALL 1-800-662-GROW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENTS MINIMUM
- ---------------------------------------------------------------------------------------
<S> <C> <C>
BY EXCHANGE $1,000 $50
(from another Fund)
</TABLE>
The new account will have the same registration as the account from which you
are exchanging. For more information about exchanges, see "Exchanging and
Redeeming Shares."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENTS MINIMUM
- ---------------------------------------------------------------------------------------
<S> <C> <C>
BY WIRE $1,000 $1,000
</TABLE>
Federal funds should be wired to: State Street Bank & Trust Company, Custody and
Shareholder Services Division, Boston, MA 02110, ABA No. 011000028, DDA:
9904-636-9, The Preferred Group, your name and, if you are an existing
shareholder, your Fund/Account Number.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENTS MINIMUM
- ---------------------------------------------------------------------------------------
<S> <C> <C>
BY MONEY Not Available $50
EXPRESS
(Electronic Funds
Transfer Option)
</TABLE>
You must authorize this service on your account application. The maximum
transfer amount is $50,000.
EXCHANGING AND REDEEMING SHARES
Shares may be exchanged or redeemed on the basis of their respective net asset
values beginning 10 days after purchase on any day the New York Stock Exchange
is open. There are currently no exchange or redemption fees or charges. You may
redeem all or a portion of your shares. Please note that an exchange is treated
as a redemption and a subsequent purchase. Therefore, you could realize a
taxable gain or loss on your transaction. The Preferred Group reserves the right
to modify or terminate the exchange privilege at any time. Except as otherwise
permitted by SEC regulations, The Preferred Group will give 60 days' advance
written notice to shareholders of any termination or material modification of
the exchange privilege. The Preferred Group's exchange service is not intended
to encourage shareholder speculation on short-term movements in the market. Each
Fund reserves the right to restrict exchanges to one purchase and redemption of
shares in the same Fund during any 120-day period. The exchange privilege may
not be exercised for shares of any Fund which are not qualified or exempt under
the securities laws of the state in which the shareholder resides.
HOW TO REDEEM OR EXCHANGE SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
- ---------------------------------------------------------------------------------------
<S> <C>
BY MAIL To redeem or exchange shares in writing, send an instruction letter signed by all
registered owners, including fiduciary titles, specifying the name on the account
and the account number, the Fund name and the number of shares or dollar amount you
want to exchange or redeem. For exchanges, mail to the attention of the Fund you
are exchanging from and specify the Fund you are exchanging to. We require the
signature of all owners exactly as registered. For redemptions over $50,000 we
require a signature guarantee.
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
Regular Mail Address: Express, Registered or Certified Mail:
The Preferred Group The Preferred Group
P.O. Box 8320 2 Heritage Drive
Boston, MA 02266-8320 N. Quincy, MA 02171
CORPORATIONS, PARTNERSHIPS OR ASSOCIATIONS. The letter of instruction must be
accompanied by a resolution. The letter must be signed by at least one individual
authorized by resolution to act on the account. The resolution must include a
signature guarantee.
TRUSTS. The letter of instruction must be signed by the Trustee(s) with a signature
guarantee.
NOTE: If you want to keep your account open, please maintain a balance of at least
$1,000. If you have questions, please call Investor Services at 1-800-662-GROW.
- -----------------------------------------------------------------------------------------------------
FOR ALL OPTIONS BELOW, CALL INVESTOR SERVICES AT 1-800-662-GROW
- -----------------------------------------------------------------------------------------------------
BY PHONE If you have authorized Preferred Tele-Services on your account application,
exchanges or redemptions can be made between 8:00 a.m. (Eastern time) and the close
of regular trading on the New York Stock Exchange (generally 4:00 p.m. (Eastern
time)).
Redemption proceeds can be mailed, wired to your bank or sent by electronic funds
transfer. The Preferred Group's bank charges a $10.00 fee for wire redemptions,
minimum $100, subject to change without notice. Your bank may also charge you for
receiving wires.
- -----------------------------------------------------------------------------------------------------
BY CHECK If you have authorized the check writing feature on your account application, you
may redeem shares in your account provided that the appropriate signatures are on
your check. The minimum check amount is $250. There is no charge for this service,
and you may write an unlimited number of checks, provided the account minimum of
$1,000 per Fund is maintained. Check writing privileges apply to the Money Market
and the Short-Term Government Securities Funds ONLY.
- -----------------------------------------------------------------------------------------------------
BY MONEY If you have authorized the Preferred Money Express feature on your account
EXPRESS application, you may redeem by electronic funds transfer. The maximum redemption
amount is $50,000.
- -----------------------------------------------------------------------------------------------------
BY WIRE If you have authorized the Wire Transfer feature on your account application, you
may have your redemption proceeds wired to your bank on the next business day after
the redemption is processed. The Preferred Group's bank charges a $10.00 fee for
wire redemptions, minimum $100, subject to change without notice. Your bank may
also charge you for receiving wires.
- -----------------------------------------------------------------------------------------------------
</TABLE>
The redemption of shares will be suspended during any period in which the New
York Stock Exchange is closed for other than weekends or holidays or, if
permitted by the rules of the SEC, when trading on the Exchange is restricted or
during an emergency which makes it impracticable for the Funds to dispose of
their securities or to determine fairly the value of their net assets, or during
any other period permitted by the SEC for the protection of investors.
Redemption proceeds are normally paid in cash. However, if you redeem more than
$250,000, or 1% of a Fund's net assets, in any 90-day period, the Fund may, at
its discretion, pay the difference between the redemption amount and the lesser
of those two figures with securities of the Fund. In the event that redemptions
are made in securities rather than cash, such securities will be valued using
the procedures described under "Determination of Net Asset Value and Pricing."
Although The Preferred Group will normally send you payment for your shares the
following business day after your request is received in proper form by the
Transfer Agent, the transmission of your proceeds may be delayed for up to seven
-24-
<PAGE> 29
days after your request is received. The mailing of proceeds on redemption
requests involving any shares purchased by personal, corporate or government
check, or bank-fund transfers is generally subject to a 10-day delay to allow
the check or transfer to clear. The clearing period does not apply to purchases
made by wire, Systematic Savings Plan, or cashier's, treasurer's or certified
checks. Redemption or transfer requests will not be honored until all required
documents in the proper form have been received by the Transfer Agent.
IMPORTANT INFORMATION ABOUT YOUR ACCOUNT
ACCOUNT BALANCES. The Preferred Group reserves the right to redeem shares in any
account which drops below the minimum initial investment amount of $1,000 due to
shareholder redemptions. You will be allowed 60 days to make an additional
investment before the account is liquidated. The minimum does not apply to IRAs
or other retirement accounts, Uniform Gifts/Transfers to Minors Act accounts, or
Systematic Savings Accounts.
BROKER-DEALERS. If you purchase Preferred Group shares through a registered
broker-dealer, a bank or other institution, those entities may charge a service
fee.
DISTRIBUTION OPTIONS. You can select the distribution option that best suits
your needs. See "Choosing a Distribution Option."
NON-U.S. BANK CHECKS. All deposit checks must be drawn on U.S. chartered banks.
Checks drawn on foreign banks must be converted to U.S. dollars; in the case of
smaller investments, the fee for conversion may be disproportionately high in
relation to the value of the investment.
PURCHASES BY CHECK. Purchases are accepted subject to collection of checks at
full value and conversion into federal funds. Payment by a check drawn on any
member of the Federal Reserve System can normally be converted into federal
funds within two business days after receipt of the check. Checks drawn on a
nonmember bank may take up to 10 days to convert into federal funds. In all
cases, the purchase price is based on the net asset value next determined after
the purchase order and check are accepted, even though the check may not yet
have been converted into federal funds.
SHARE CERTIFICATES. When you open your account, you will receive a confirmation
indicating your name and account number which will be evidence that you have
opened a Preferred Group account. No share certificates will normally be issued.
SIGNATURE GUARANTEES. A signature guarantee verifies the authenticity of your
signature and is sometimes required for our mutual protection. When a signature
guarantee is required, you should have "Signature Guaranteed" stamped under your
signature and guaranteed at a commercial bank (FDIC member), trust company, firm
that is a member of a domestic stock exchange, foreign branches of any of the
above and certain other financial institutions.
You will need a signature guarantee to: (1) authorize or change certain services
after your account is opened; (2) transfer shares to another owner; (3) redeem
over $50,000 by written request; (4) redeem or exchange shares when someone who
is not a registered owner of the account will receive the proceeds; (5) send
proceeds to an address other than the account address; and (6) pay the proceeds
to a corporation, partnership, trust or fiduciary.
TELEPHONE EXCHANGE AND REDEMPTION. The Preferred Group may accept telephone
redemption or exchange instructions from any person with respect to accounts of
shareholders who elect this service. The Preferred Group will employ reasonable
procedures in order to verify that telephone requests for redemptions and
exchanges are genuine, including, among others, requiring a form of personal
identification prior to acting on telephone instructions, recording telephone
instructions and sending written confirmations of the resulting transactions to
shareholders. If the Preferred Group did not
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employ such procedures, it could be liable for losses arising from unauthorized
or fraudulent telephone instructions. The Preferred Group reserves the right to
terminate or modify the telephone exchange or telephone redemption service at
any time. Except as otherwise permitted by SEC regulations, The Preferred Group
will give 60 days' advance written notice to shareholders of any termination or
material modification of the telephone exchange or telephone redemption service.
During times of severe disruption in the securities markets, the volume of calls
may make it difficult to exchange or redeem by telephone, in which case a
shareholder may wish to send a written request for exchange or redemption as
described under "Exchanging and Redeeming Shares -- By Mail."
ADDITIONAL SHAREHOLDER SERVICES
CHECK-WRITING SERVICES (MONEY MARKET AND SHORT-TERM GOVERNMENT SECURITIES FUNDS
ONLY). The minimum check amount is $250. This service is FREE and you may write
an unlimited number of checks. You must maintain a minimum $1,000 account
balance after your withdrawal. (Remember that redeeming shares from the
Short-Term Government Securities Fund will be treated as a capital gain or loss
transaction for tax purposes.)
PREFERRED MONEY EXPRESS (ELECTRONIC FUNDS TRANSFER OPTION). This plan allows you
to buy or sell shares by transferring money between your Fund account and your
account at a bank, savings and loan association or a credit union that is a
member of the ACH (Automated Clearing House) system. Preferred Money Express
eliminates the expense of wiring funds and the delay of mailing a check. You
will need to sign up for Preferred Money Express on your account application.
PREFERRED TELE-SERVICES LINE. You may reach The Preferred Group by calling
Preferred Tele-Services at 1-800-662-GROW, 24 hours a day. Between the hours of
8:00 a.m. and 8:00 p.m. (Eastern time) you will reach an Investor Services
Representative. If you are calling after 8:00 p.m. (Eastern Time) on a Touch-
Tone phone, you will receive instructions on how you can (1) listen to price and
yield information and (2) obtain your share balance and account value. If you
are calling on a rotary dial phone during normal business hours, you will be
connected with an Investor Services Representative. The Preferred Group will
record telephone transactions to verify data concerning these transactions.
SYSTEMATIC SAVINGS PLAN. This option allows you to make monthly or quarterly
investments automatically by authorizing us to move $50 or more on the same day
each month (or $150 per quarter) from your checking account to any Fund. You
will be sent a confirmation statement for each transaction, and a debit will
appear on your checking account statement. To change the amount of your
systematic savings or to terminate this service, please call Investor Services
or write to the address printed on your account statement. Be sure to include
your account number.
SYSTEMATIC WITHDRAWAL PLAN. This plan automatically redeems enough shares each
month or quarter to provide you with a check, wire or electronic funds transfer
to your checking account for a minimum amount of $50 monthly or $150 quarterly.
You must maintain a $1,000 minimum account balance after your withdrawal.
TAX-QUALIFIED RETIREMENT PLANS. Tax-deferred individual retirement plans are
available. Please call Investor Services for details and the appropriate forms
for:
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). Any wage earner between 18 and
70 1/2 years of age can contribute up to $2,000 per tax year. Contributions
of up to $250 per year may be made in the name of your spouse if your
spouse has no earned income.
ROLLOVER IRAS. When a participant of a tax-favored retirement plan receives
an eligible rollover distribution of assets, the assets may be "directly
transferred" or "directly rolled over" into an IRA. Eligible rollover
distributions that are not "directly transferred" to an IRA or other
tax-favored
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retirement plan are subject to tax withholding at a 20% rate. Rollovers can
also occur from an existing IRA into a Preferred Group IRA.
SEP-IRAS. Simplified Employee Pension Plans are arrangements under which
employers may contribute directly to an employee's IRA.
In addition, The Preferred Group may be an appropriate investment for 403(b)
Plans, 401(k) Plans and Keogh or corporate Profit-Sharing Plans.
DETERMINATION OF NET ASSET VALUE AND PRICING
NET ASSET VALUE PER SHARE (NAV), or share price, for each Fund is normally
determined on each day the New York Stock Exchange is open as of the close of
regular trading on the Exchange (generally 4:00 p.m. (Eastern time)). Fund share
prices (other than the Money Market Fund) can be found daily in most major
newspapers' mutual fund listings under the heading "Preferred Group."
PURCHASE SHARE PRICE. If your request is received on a regular business day
before 4:00 p.m. (Eastern time) in good order, your shares will be priced at
that day's net asset value. Requests received after 4:00 p.m. (Eastern time)
will be priced at the next day's net asset value. Requests to purchase shares on
other than a regular business day will be priced at the net asset value
determined on the next succeeding regular business day. The Preferred Group
reserves the right to accept or reject any order for the purchase of Fund
shares.
REDEMPTION SHARE PRICE. If your redemption request is received prior to 4:00
p.m. (Eastern time) in good order on a regular business day, your shares will be
priced at that day's net asset value. Redemption proceeds will normally be sent
on the following business day. Redemption requests received after 4:00 p.m.
(Eastern time) will be processed on the business day following receipt.
EXCHANGE SHARE PRICE. Exchanges are priced in the same manner as purchases and
redemptions.
DETERMINATION OF NAV. Each Fund's share price is calculated by dividing the
total value of each Fund's assets, minus liabilities, by the total number of
shares outstanding. Portfolio securities, options and futures contracts for
which market quotations are readily available are valued at market value.
Short-term obligations having remaining maturities of 60 days or less are valued
at amortized cost, which approximates market value. The portfolio investments of
the Money Market Fund are valued using the amortized cost method of valuation,
in accordance with Rule 2a-7 under the Investment Company Act of 1940. All other
securities and assets are valued at their fair value as determined in good faith
following procedures approved by the Trustees.
GENERAL. Please note that The Preferred Group does not accept requests which
specify a particular date for purchases or redemptions, or which specify any
special conditions. We will notify you if your request cannot be accepted and
provide additional instructions.
DISTRIBUTIONS
GENERAL. Dividends will be declared daily and paid monthly for the Fixed Income
Funds, Short-Term Government Securities Fund and Money Market Funds. Dividends
will be declared and paid quarterly for the Asset Allocation and Balanced Funds.
The Value, Growth, International and Small Cap Funds will declare and pay
dividends at least annually. Each Fund pays out as dividends substantially all
of its net investment income (which comes from dividends and interest it
receives from its investments) and net realized short-term capital gains. For
these purposes and for federal income tax purposes, a portion of the premiums
from certain expired call or put options written by a Fund, net gains from
closing purchase and sale transactions with respect to such options, and net
gains from futures transactions are treated as
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<PAGE> 32
short-term capital gains. Each Fund distributes substantially all of its net
realized capital gains, if any, at least annually after giving effect to any
available capital loss carry-over. The Growth and International Funds currently
have available capital loss carry-overs. Subject to applicable law, dividends
and capital gains distributions may be declared more or less frequently in the
discretion of the Trustees.
BUYING A DIVIDEND. On the record date for a distribution, the Fund's share value
will be reduced by the amount of the distribution. If you purchase shares just
before the record date ("buying a dividend"), you will pay the full price for
the shares and then receive a portion of the purchase price back as a taxable
distribution.
CHOOSING A DISTRIBUTION OPTION
When you fill out your account application, you may select any one of the
following distribution options. If you do not specify an option, all of your
distributions will be reinvested in additional shares of the relevant Fund. If
you choose to change your distribution election, you must notify Investor
Services in writing. The address for Investor Services is The Preferred Group,
P.O. Box 8320, Boston, MA 02266-8320.
REINVEST OPTION. All dividends and capital gain distributions are reinvested in
additional shares. All distributions will be reinvested as of the record date
for the distribution and will be paid on the payment date.
CASH DIVIDEND OPTION. All dividends are paid in cash (by check). All capital
gains distributions are reinvested in additional Fund shares as of the record
date for the distribution and will be paid on the payment date.
ALL CASH OPTION. All dividends and capital gain distributions are paid in cash
(by check).
In addition, an option to invest your cash dividends and/or capital gains
distributions of a Preferred Group Fund in another Preferred Group Fund is
available. Please call Investor Services (1-800-662-GROW) for more information.
If it is determined that the U.S. Postal Service cannot properly deliver Fund
mailings to you, The Preferred Group will terminate your election to receive
dividends and other distributions in cash. Thereafter, your subsequent dividends
and other distributions will be automatically reinvested in additional shares of
the relevant Fund until you notify The Preferred Group in writing of your
correct address and request in writing that the election to receive dividends
and other distributions in cash be reinstated.
TAXES
Each Fund will be treated as a separate taxable entity for federal income tax
purposes. Each Fund plans to distribute substantially all of its net investment
income and net realized short-term capital gains, if any, to its shareholders.
So long as it does so and otherwise satisfies the requirements for being taxed
as a regulated investment company, the Fund itself will not pay federal income
tax on the amounts distributed. Shareholders will receive an annual statement
detailing federal tax information about dividends and distributions paid to
shareholders during or with respect to the preceding calendar year.
Dividends and any short-term capital gains distributions of the Funds are
taxable to the shareholder as ordinary income. Distributions designated as
long-term capital gains are taxable to shareholders as such, regardless of how
long a shareholder may have owned shares in the Fund.
Distributions will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions. A dividend paid to a
shareholder by a Fund in January of a year generally is
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<PAGE> 33
deemed to have been paid by the Fund by December 31 of that preceding year if
the dividend was declared and payable to shareholders of record on a date in the
preceding year.
Dividends derived from interest on certain U.S. Government Securities may be
exempt from state and local taxes, although interest on mortgage-backed U.S.
Government Securities (which may constitute a substantial portion of the
Short-Term Government Securities Fund's assets) may not be so exempt.
Shareholders should consult their tax advisers as to the possible application of
state and local income tax laws to a Fund's dividends and capital gains
distributions.
The International Fund generally intends to make an election which allows
shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax
credit or deduction (but not both) on their U.S. income tax returns. As a
result, the amounts of foreign income taxes paid by the International Fund would
be treated as additional income to International Fund shareholders from non-U.S.
sources and as foreign taxes paid by International Fund shareholders for
purposes of the foreign tax credit. Investors should consult their tax advisers
for further information relating to the foreign tax credit and deduction, which
are subject to certain restrictions and limitations. International Fund
shareholders who are not U.S. citizens or which are foreign corporations may be
subject to substantially different tax treatment on distributions by the
International Fund.
The Internal Revenue Code of 1986 (the "Code") imposes a 4% excise tax on the
undistributed ordinary income of any Fund that fails to distribute prior to
calendar year end virtually all of its ordinary income on a calendar year basis.
Capital gain net income realized by each Fund in the one-year period ending
October 31 and not distributed during the calendar year is also subject to the
4% excise tax. It is each Fund's intention to make distributions sufficient to
avoid the excise tax.
Current federal tax law requires the holder of a Treasury or other fixed income
zero-coupon security to accrue as income each year a portion of the discount at
which the security was purchased, even though the holder receives no interest
payment in cash on the security during the year. In addition, so-called
payment-in-kind securities will give rise to income which is required to be
distributed and is taxable even though the Fund holding the security receives no
interest payments in cash on the security during the year. Accordingly, each
Fund that holds the foregoing kinds of securities may be required to pay out as
an income distribution each year an amount which is greater than the total
amount of cash interest the Fund actually received. Such distributions may be
made from the cash assets of the Fund or by liquidation of portfolio securities,
if necessary. The Fund may realize gains or losses from such liquidations. In
the event a Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution, if any, than they
would in the absence of such transactions.
STATEMENTS AND REPORTS
You will receive a confirmation statement after every transaction that affects
the share balance in any of your accounts.
By January 31 of each year, The Preferred Group will send you the following
reports which may be utilized in completing your U.S. income tax return:
<TABLE>
<S> <C>
Form 1099 - DIV Reports taxable distributions during the preceding calendar year.
Form 1099 - B Reports redemption proceeds during the preceding calendar year.
Form 1099 - R Reports distributions from IRAs and 403(b) plans during the
preceding calendar year.
</TABLE>
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Each year by the end of February, The Preferred Group will send you a semiannual
report that includes unaudited financial statements for the six months ending
the preceding December 31, as well as a list of portfolio holdings as of that
date.
Each year by the end of August, The Preferred Group will send you an annual
report that includes audited financial statements for the fiscal year ending the
preceding June 30, as well as a list of portfolio holdings as of that date.
MANAGEMENT OF THE PREFERRED GROUP
GENERAL. The Preferred Group is managed by Caterpillar Investment Management
Ltd. (the "Manager"), which provides investment advisory and portfolio
management services for The Preferred Group. The Manager also provides executive
and other personnel for management of The Preferred Group. Pursuant to The
Preferred Group's Agreement and Declaration of Trust, the Trustees supervise the
affairs of The Preferred Group as conducted by the Manager.
Each of the Small Cap and Balanced Funds pays CIML a monthly fee at the rate of
0.75% of its average net assets. Pursuant to fee waivers presently in effect,
CIML has waived fees for the Small Cap Fund in excess of 0.40% of average net
assets. The management fees paid to CIML with respect to the Growth, Value,
International, Small Cap and Balanced Funds are higher than that paid by most
other investment companies.
The Preferred Group pays all expenses not assumed by the Manager, including,
without limitation, fees and expenses of Trustees who are not "interested
persons" of the Manager or The Preferred Group, interest charges, taxes,
brokerage commissions, expenses of issuing or redeeming shares, fees and
expenses of registering and qualifying The Preferred Group and shares of the
respective Funds for distribution under federal and state laws and regulations,
charges of custodians, auditing and legal expenses, expenses of determining net
asset value, reports to shareholders, expenses of meetings of shareholders,
expenses of printing and mailing prospectuses, proxy statements and proxies to
existing shareholders, and insurance premiums and professional association dues
or assessments.
CIML is a Delaware corporation formed on December 18, 1991. Its principal place
of business is 100 N.E. Adams Street, Peoria, Illinois 61629-5330. CIML is a
wholly-owned subsidiary of Caterpillar Inc., an international manufacturer of
machinery and engines and provider of financial products. In addition to
managing the Funds, CIML serves as an investment adviser to the Caterpillar
Investment Management Ltd. Tax Exempt Group Trust (the "Group Trust"). CIML has
advised the Funds since inception and has experience managing portfolios of the
Group Trust that are similar to certain of the Funds.
THE SUBADVISERS. In order to assist it in carrying out its responsibilities,
CIML has retained various subadvisers to render advisory services to the Funds,
under the supervision of CIML and The Preferred Group's Trustees. CIML pays the
fees of each of the subadvisers. The fee paid to the subadvisers (other than
Morgan) is based on the Fund assets managed or advised by such subadviser (the
"Fund Assets") together with any other assets managed or advised by the
subadviser 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 by applying the average
quarterly net asset value, as of the last business day of each month in the
calendar quarter, of the Combined Assets to the annual rates for each subadviser
(other than Morgan), as set forth below. This amount is then adjusted based upon
the ratio of Fund Assets to Combined Assets. The subadvisory fee paid to Morgan
with respect to the Money Market and Fixed Income Funds is based solely on the
average net assets of the respective Funds.
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Oppenheimer is a Delaware general partnership formed on July 1, 1987. Its
address is Oppenheimer Tower, World Financial Center, New York, New York 10281.
Oppenheimer & Co., L.P. ("OpCo"), a New York limited partnership, through
various subsidiaries, owns 32.3% of Oppenheimer. OpCo is owned by executive
officers and other key employees of both Oppenheimer and its affiliated
broker/dealer, Oppenheimer & Co., Inc. Oppenheimer Capital, L.P., a
publicly-owned master limited partnership, owns the remaining 67.7% of
Oppenheimer. Oppenheimer provides investment advice to individuals, state and
local government agencies, pension and profit sharing plans, trusts, estates,
businesses and other organizations.
Jennison provides investment advice to mutual funds, institutional accounts and
other entities. Its principal place of business is 466 Lexington Avenue, New
York, New York 10017. Jennison is a wholly-owned subsidiary of The Prudential
Insurance Company of America, a mutual insurance company and a registered
investment adviser. CIML pays Jennison for its subadvisory services with respect
to the Growth and Balanced Funds a fee, calculated as described above, at the
annual rate of 0.75% of the first $10 million of Combined Assets, 0.50% of the
next $30 million of Combined Assets, 0.35% of the next $25 million of Combined
Assets, 0.25% of the next $335 million of Combined Assets, 0.22% of the next
$600 million of Combined Assets and 0.20% of Combined Assets in excess of $1
billion.
Mellon, a Delaware corporation, is located at 595 Market Street, Suite 3000, San
Francisco, California 94105. Mellon was founded in 1983 and presently manages
over $36 billion in funds. Mellon is a wholly-owned, indirect subsidiary of
Mellon Bank Corporation, Pittsburgh, Pennsylvania, a bank holding company which
engages in the businesses of retail banking, wholesale banking and service
products. Mellon serves as an investment adviser and manager for institutional
clients.
PanAgora's principal place of business is 260 Franklin Street, Boston,
Massachusetts 02110. Fifty percent of the outstanding voting stock of PanAgora
is owned by each of Nippon Life Insurance Company, a mutual life insurance
company, and Lehman Brothers Inc., a brokerage and investment advisory firm.
PanAgora currently provides asset allocations indexing and related investment
advisory services to a variety of endowment funds, pension accounts, other
institutions and investment companies, with total assets under management in
excess of $11 billion.
Mercator provides investment advice to mutual funds and other entities. Its
principal place of business is 2400 East Commercial Blvd., Ft. Lauderdale,
Florida 33308. Mercator Asset Management, Inc. is an indirect subsidiary of The
Prudential Insurance Company of America, a mutual insurance company and a
registered investment adviser. Mercator Asset Management, L.P. is a Delaware
general partnership owned by its executive officers and Mercator Asset
Management, Inc.
Morgan provides investment advice to mutual funds and other entities. Its
principal place of business is 522 Fifth Avenue, New York, New York 10036.
Morgan is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated, an
international financial services corporation. CIML pays Morgan for its
subadvisory services with respect to the Money Market Fund a fee computed and
paid quarterly at the annual rate of 0.15% of the average quarterly net assets,
as of the last business day of each month in the calendar quarter, of the Money
Market Fund.
DESCRIPTION OF THE PREFERRED GROUP
The Preferred Group was established in 1991 as a business trust under
Massachusetts law. The Preferred Group has an unlimited authorized number of
shares of beneficial interest which may, without shareholder approval, be
divided into an unlimited number of series of such shares which, in turn, may be
subdivided into an unlimited number of classes of shares. The Preferred Group
currently consists of nine series of shares, each series of which represents
interests in a separate Fund. Each Fund is an open-end, diversified management
investment company. The Funds' shares are not currently divided into classes.
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<PAGE> 36
Matters submitted to shareholder vote must be approved by each Fund separately
except that (i) when required by law, shares shall be voted together and (ii)
when the Trustees have determined that the matter does not affect all Funds,
only shareholders of the Fund or Funds affected shall be entitled to vote on the
matter. Shares of a Fund are freely transferable, are entitled to dividends as
declared by the Trustees and, in liquidation of such Fund or The Preferred
Group, are entitled to receive the net assets of such Fund, but not of the other
Funds. The Preferred Group does not generally hold annual meetings of
shareholders and will do so only when required by law. Shareholders may remove
Trustees from office by votes cast in person or by proxy at a meeting of
shareholders or by written consent. Such a meeting will be called at the written
request of the holders of 10% of The Preferred Group's outstanding shares.
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APPENDIX A
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
DESCRIPTION OF STANDARD & POOR'S CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
RATINGS OF COMMERCIAL PAPER
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
Moody's Investors Service, Inc. evaluates the salient features that affect
a Commercial Paper issuer's financial and competitive position. Its appraisal
includes, but is not limited to, the review of such factors as: quality of
management, industry strengths and risks, vulnerability to business cycles,
competitive
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position, liquidity measurements, debt structure, operating trends and
access to capital markets. Differing degrees of weight are applied to these
factors as deemed appropriate for individual situations. Commercial Paper
issuers rated "Prime-1" are judged to be of the best quality. Their short-term
debt obligations carry the smallest degree of investment risk. Margins of
support for current indebtedness are large or stable with cash flow and asset
protection well assured. Current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are generally
available. While protective elements may change over the intermediate or longer
term, such changes are most unlikely to impair the fundamentally strong position
of short-term obligations. Issuers in the Commercial Paper market rated
"Prime-2" are of high quality. Protection for short-term note holders is assured
with liquidity and value of current assets as well as cash generation in sound
relationship to current indebtedness. They are rated lower than the best
commercial paper issuers because margins of protection may not be as large or
because fluctuations of protective elements over the near or intermediate term
may be of greater amplitude. Temporary increases in relative short and overall
debt load may occur. Alternate means of financing remain assured. Issuers rated
Prime-1 and Prime-2 categories are judged to be investment grade.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS:
Standard & Poor's describes its highest ("A") rating for commercial paper
as follows, with numbers 1, 2 and 3 being used to denote relative strength
within the "A" classification: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt rating should be "A" or better; in some
instances "BBB" credits may be allowed if other factors outweigh the "BBB". The
issuer should be well-established and the issuer should have a strong position
within its industry. The reliability and quality of management should be
unquestioned.
Additional information concerning securities in the lower rating categories
is included in the Trust's Statement of Additional Information.
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<PAGE> 39
APPENDIX B
OPTIONS AND FUTURES PORTFOLIO STRATEGIES
WRITING COVERED OPTIONS
Each of the Funds (other than the Money Market Fund) may write covered call and
covered put options on securities. Call options written by a Fund give the
holder the right to buy the underlying securities from the Fund at a stated
exercise price; put options give the holder the right to sell the underlying
security to the Fund. These options are covered by the Fund because, in the case
of call options, it will own the underlying securities as long as the option is
outstanding or because, in the case of put options, it will maintain a
segregated account of cash, U.S. Government Securities or other high quality
debt securities which can be liquidated promptly to satisfy any obligation of
the Fund to purchase the underlying securities. The Funds may also write
straddles (combinations of puts and calls on the same underlying security).
A Fund will receive a premium from writing a put or call option, which increases
the Fund's return in the event the option expires unexercised or is closed out
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option and the remaining term of the option. By writing a call
option, the Fund limits its opportunity to profit from any increase in the
market value of the underlying security above the exercise price of the option.
By writing a put option, the Fund assumes the risk that it may be required to
purchase the underlying security for an exercise price higher than its then
current market value, resulting in a potential capital loss unless the security
subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. It is possible, however, that
illiquidity in the options markets may make it difficult from time to time for a
Fund to close out its written option positions. Also, the securities exchanges
have established limitations on the number of options which may be written by an
investor or group of investors acting in concert. It is possible that the Funds,
together with CIML and the various subadvisers and their other clients, might be
considered to be such a group.
PURCHASING OPTIONS
Each Fund (except the Money Market Fund) may purchase put options to hedge
against a decline in the value of its portfolio. By using put options in this
manner, a Fund will reduce any profit it might otherwise have realized in the
underlying security by the amount of the premium paid for the put option and by
transaction costs.
Each Fund (except the Money Market Fund) may purchase call options to hedge
against an increase in the value of securities that the Fund wants to buy
sometime in the future. The premium paid for the call option and any transaction
costs will increase the cost of the securities acquired upon exercise of the
option, and, unless the price of the underlying security rises sufficiently, the
option may expire worthless to the Fund.
OVER-THE-COUNTER OPTIONS
Each of the Funds may purchase and write either exchange-traded or
over-the-counter options on securities. A Fund's ability to terminate options
positions established in the over-the-counter market may
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be more limited than in the case of exchange-traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to the Fund.
PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
If CIML or the relevant subadviser, as the case may be, wants to hedge the Asset
Allocation Fund's, the Balanced Fund's, the Fixed Income Fund's or the
Short-Term Government Securities Fund's respective investments in debt
securities against an increase in interest rates, it might sell futures
contracts with respect to U.S. Government Securities. If interest rates rise and
the value of the securities declines, the value of the futures contracts should
increase. Likewise, if the Asset Allocation, Balanced, Fixed Income or
Short-Term Government Securities Funds hold cash reserves and short-term
investments and CIML or the relevant subadviser, as the case may be, expects
interest rates to fall, the relevant Fund might purchase futures contracts. If,
as expected, the market value both of long-term debt securities and futures
contracts with respect thereto increased, the Fund would benefit from a rise in
the value of long-term securities without actually buying them until the market
had stabilized. The Growth, Value, International, Small Cap and Asset Allocation
Funds may similarly buy or sell futures contracts on stock indices in
anticipation of broad movements in equity market prices. The Asset Allocation
Fund may also buy and sell futures contracts in order to reallocate its exposure
to the equity or fixed income markets and for dividend accruals. The successful
use of futures and related options depends on CIML's or the relevant
subadviser's ability to forecast correctly movements in interest rates or equity
markets generally.
The correlation between price movements of futures contracts and of the
securities which are the subject of the hedge is usually imperfect. The
correlation is higher between price movements of futures contracts and the
underlying securities. The correlation is lower when futures are used to hedge
securities other than the securities underlying such futures. For example, a
Fund that invests in equity securities will generally not own all the securities
included in a particular stock index, so the value of the Fund's holdings of
equities may change to a different extent than does the value of a futures
contract on that index.
Options on futures contracts may also be used for hedging. For example, if the
value of the Fixed Income Fund's portfolio securities is expected to decline as
a result of an increase in interest rates, the Fund might purchase put options
or write call options on futures contracts rather than selling futures
contracts. Similarly, to hedge against an anticipated increase in the price of
long-term debt securities, the Asset Allocation, Balanced, Fixed Income or
Short-Term Government Securities Funds may purchase call options or write put
options as a substitute for the purchase of futures contracts. The Growth,
Value, International, Small Cap and Asset Allocation Funds may engage in similar
transactions in options on stock index futures contracts, and the Asset
Allocation Fund may purchase and sell options on futures contracts in order to
reallocate the Fund's exposure to the equity or fixed income markets.
When a Fund enters into a futures contract, it is required to deposit with the
broker as "initial margin" an amount of cash or short-term U.S. Government
Securities equal to approximately 5% of the contract amount. That amount is
adjusted by payments to or from the broker ("variation margin") as the value of
the contract changes. No Fund will purchase or sell futures contracts or related
options for non-hedging purposes if as a result such Fund's initial margin
deposits on existing futures contracts plus premiums paid for outstanding
options on future contracts would be greater than 5% of the Fund's assets.
Positions in long futures contracts may be closed out only by entering into a
futures contract sale on the exchange where the futures are traded. The
liquidity of the futures markets could be adversely affected by "daily price
fluctuation limits" established by the exchange which limit the amount of
fluctuations in the price of futures contracts during a single trading day. In
such events, it may not be possible for the Fund to close out its futures
contract positions and, in the event of adverse price movements, the Fund would
continue to be exposed to the relevant market and be required to make daily
variation margin payments.
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OFFICERS AND TRUSTEES
<TABLE>
<S> <C>
P. Michael Pond President and Trustee
Gary M. Anna Trustee
William F. Bahl Trustee
James F. Masterson Trustee
Dixie L. Mills Trustee
Carol K. Burns Vice President and
Assistant Clerk
Fred L. Kaufman Vice President and
Treasurer
Richard P. Konrath Clerk
</TABLE>
INVESTMENT ADVISOR
Caterpillar Investment Management Ltd.
100 N.E. Adams Street
Peoria, IL 61629-5330
DISTRIBUTOR
Caterpillar Securities Inc.
100 N.E. Adams Street
Peoria, IL 61629-5330
CUSTODIAN
State Street Bank and Trust Co.
P.O. Box 1713
Boston, MA 02101
TRANSFER AGENT AND INVESTOR SERVICES
Boston Financial Data Services, Inc.
The BFDS Building
Two Heritage Drive
Quincy, MA 02171
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110-2624
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
[LOGO]
TM
THE PREFERRED GROUP
OF MUTUAL FUNDS
PROSPECTUS
NOVEMBER 1, 1995
<PAGE> 42
THE PREFERRED GROUP OF MUTUAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
April 15, 1996
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated November 1, 1995, as
supplemented by the Supplement dated April 15, 1996 and as further supplemented
from time to time, and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from The Preferred Group of Mutual Funds, P.O. Box
8320, Boston, MA 02266-8320 or by calling 1-800-662-4769.
<PAGE> 43
- ---------------------------------------------------------------
TABLE OF CONTENTS
- ---------------------------------------------------------------
<TABLE>
<S> <C>
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . 2
OPTIONS AND FUTURES TRANSACTIONS . . . . . . . . . . . . . 8
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . 22
AMORTIZED COST VALUATION AND DAILY DIVIDENDS . . . . . . . 28
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . 29
HOW TO BUY . . . . . . . . . . . . . . . . . . . . . . . . 30
HOW TO REDEEM . . . . . . . . . . . . . . . . . . . . . . 30
HOW NET ASSET VALUE IS DETERMINED . . . . . . . . . . . . 31
CALCULATION OF YIELD AND TOTAL RETURN . . . . . . . . . . 33
PERFORMANCE COMPARISONS . . . . . . . . . . . . . . . . . 35
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . 37
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 39
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . 43
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . 54
OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . 54
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . 55
PAST PERFORMANCE OF JENNISON . . . . . . . . . . . . . . . 63
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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<TABLE>
<S> <C>
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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<PAGE> 45
DEFINITIONS
"Asset Allocation Fund" - Preferred Asset Allocation Fund
"Balanced Fund" - Preferred Balanced Fund
"Distributor" - Caterpillar Securities Inc.
"Fixed Income Fund" - Preferred Fixed Income Fund
"Fund" - any of the portfolios offered by The
Preferred Group of
Mutual Funds
"Growth Fund" - Preferred Growth Fund
"International Fund" - Preferred International Fund
"Manager" - Caterpillar Investment Management Ltd.
"Money Market Fund" - Preferred Money Market Fund
"1940 Act" - Investment Company Act of 1940
"Short-Term Government - Preferred Short-Term
Securities Fund" Government Securities Fund
"Small Cap Fund" - Preferred Small Cap Fund
"Subadviser" - any subadviser of any of the Funds
"Trust" - The Preferred Group of Mutual Funds
"Value Fund" - Preferred Value Fund
<PAGE> 46
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
a Fund, the Trust will not take any of the following actions with respect to
such Fund:
(1) Issue senior securities or borrow money in excess of 10%
of the value (taken at the lower of cost or current value) of the
Fund's total assets (not including the amount borrowed) at the time
the borrowing is made, and then only from banks as a temporary measure
to facilitate the meeting of redemption requests (not for leverage)
which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased. For purposes of this restriction, the purchase or sale of
securities on a "when-issued" or delayed delivery basis, the purchase
and sale of futures contracts, the entry into forward contracts and
short sales and collateral arrangements with respect to any of the
foregoing, to the extent consistent with pronouncements of the
Securities and Exchange Commission, are not deemed to be the issuance
of a senior security.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of the Fund's total assets (taken at cost) in
connection with borrowings permitted by Restriction 1 above.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales
of securities. (For this purpose, the deposit or payment by a Fund of
initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a
security on margin.)
(4) Make short sales of securities or maintain a short
position for the account of a Fund unless at all times when a short
position is open such Fund owns an equal amount of such securities or
owns securities
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<PAGE> 47
which, without payment of any further consideration, are convertible
into or exchangeable for securities of the same issue as, and equal in
amount to, the securities sold short.
(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(6) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, including securities
of real estate investment trusts, and may purchase securities which
are secured by interests in real estate.
(7) Purchase or sell commodities or commodity contracts
except that the Growth, Value, International, Small Cap, Asset
Allocation, Balanced, Fixed Income, and Short-Term Government
Securities Funds may purchase and sell futures contracts and related
options.
(8) Make loans, except by purchase of debt obligations or by
entering into repurchase agreements or through the lending of the
Fund's portfolio securities with respect to not more than 33 1/3% of
its total assets.
(9) Invest in securities of any issuer if, to the knowledge
of the Trust, any officers and Trustees of the Trust and officers and
directors of the Manager who individually own beneficially more than
1/2 of 1% of the securities of that issuer, own beneficially in the
aggregate more than 5%.
(10) With respect to 75% of the total assets of each of the
Funds, invest in securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the Fund (taken at
current value) would be invested in the securities of such issuer;
provided that this limitation does not apply to obligations issued or
guaranteed as to interest and principal by the U.S. government or its
agencies or
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<PAGE> 48
instrumentalities or repurchase agreements relating thereto.
(11) Acquire more than 10% of the voting securities of any
issuer, both with respect to any Fund and to the Trust in the
aggregate.
(12) Concentrate more than 25% of the value of its total
assets in any one industry; except that the Money Market Fund reserves
freedom of action to invest up to 100% of its assets in certificates
of deposit and bankers' acceptances issued by domestic banks (for the
purposes of this restriction, obligations of a foreign government and
its agencies or instrumentalities constitute a separate "industry"
from those of another foreign country; issuers of U.S. Government
Securities and repurchase agreements relating thereto do not
constitute an "industry"; and the term "domestic banks" includes
foreign branches of domestic banks only if, in the determination of
the Manager or the relevant Subadviser, the investment risk associated
with investing in instruments issued by the foreign branch of a
domestic bank is the same as that of investing in instruments issued
by the domestic parent, in that the domestic parent would be
unconditionally liable in the event that the foreign branch failed to
pay on its instruments for any reason).
(13) Invest in securities of other registered investment
companies, except by purchase in the open market involving only
customary brokers' commissions. For purposes of this restriction,
foreign banks or their agents or subsidiaries are not considered
investment companies.
In addition, without the approval of a majority of the outstanding
voting securities of the relevant Fund, no Fund will purchase securities the
disposition of which is restricted under federal securities laws if, as a
result, such investments would exceed 15% of the value of the net assets of
such Fund, excluding restricted securities that have been determined by the
Trustees of the Trust (or the person designated by them to make such
determinations) to be readily marketable.
-4-
<PAGE> 49
In determining whether to invest in certificates of deposit or
bankers' acceptances, the Money Market Fund will consider a variety of factors
such as interest rates and the credit quality of the issuer.
It is contrary to the Trust's present policy with respect to any Fund
created under the Trust, which may be changed by the Trustees without
shareholder approval, to:
(1) Invest in warrants or rights excluding options (other
than warrants or rights acquired by the Fund as a part of a unit or
attached to securities at the time of purchase) if as a result such
investments (valued at the lower of cost or market) would exceed 5% of
the value of a Fund's net assets; provided that not more than 2% of
the Fund's net assets may be invested in warrants not listed on the
New York or American Stock Exchanges.
(2) Invest in securities of an issuer, which, together with
any predecessors or controlling persons, has been in operation for
less than three consecutive years and in equity securities for which
market quotations are not readily available (excluding restricted
securities) if, as a result, the aggregate of such investments would
exceed 5% of the value of a Fund's net assets; provided, however, that
this restriction shall not apply to any obligation of the U.S.
Government or its instrumentalities or agencies, repurchase agreements
relating thereto, CMOs or asset-backed securities. (Debt securities
having equity features are not considered "equity securities" for
purposes of this restriction.)
(3) Write (sell) or purchase options except that each Fund
other than the Money Market Fund may (a) with respect to all or any
part of its portfolio securities, write covered call options or
covered put options and enter into closing purchase transactions with
respect to such options, and (b) in combination therewith, or
separately, purchase put and call options; provided that the premiums
paid by each Fund on all outstanding options it has purchased do not
exceed 5% of its total
-5-
<PAGE> 50
assets. Each Fund may enter into closing sale
transactions with respect to options it has purchased.
(4) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(5) Make investments for the purpose of gaining control of a
company's management.
(6) Invest in certificates of deposit of any bank if,
immediately after such investment, more than 5% of the total assets of
the Fund (taken at current value) would be invested in the securities
(including certificates of deposit) of that bank, except that (i) the
Money Market Fund may, to the extent permitted by Rule 2a-7 under the
1940 Act, invest more than 5% of its total assets in the securities
(including certificates of deposit) of any bank and (ii) each other
Fund may invest up to 25% of its total assets without regard to this
restriction.
(7) Make any additional investment if, immediately after
such investment, the Fund's outstanding borrowings of money would
exceed 5% of the current value of the Fund's total assets.
(8) Purchase or sell real property (including real estate
limited partnership interests, but excluding readily marketable
interests in real estate investment trusts or readily marketable
securities of companies which invest in real estate).
(9) With respect to the Money Market Fund, invest in
securities of any issuer if, immediately after such investment, more
than 5% of the total assets of the Fund (taken at current value) would
be invested in the securities of such issuer, except that the Fund
may, to the extent permitted by Rule 2a-7 under the 1940 Act, invest
more than 5% of its total assets in the securities (including
certificates of deposit) of any bank. (Provided that this limitation
does not apply to obligations issued or guaranteed as to interest and
principal by the U.S.
-6-
<PAGE> 51
government or its agencies or instrumentalities or repurchase
agreements relating thereto.)
(10) WITH RESPECT TO THE SMALL CAP FUND, INVEST MORE THAN 25%
OF ITS ASSETS IN ANY COMBINATION OF MORTGAGE-BACKED SECURITIES,
ASSET-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS.
(11) WITH RESPECT TO THE SMALL CAP FUND, SELL SHORT
SECURITIES VALUED, AT THE TIME OF PURCHASE, GREATER THAN 10% OF ITS
ASSETS (EXCLUDING "COVERED" SHORT SALES, I.E. SHORT SALES OF
SECURITIES HELD BY THE FUND).
All percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
IN ADDITION, EACH OF THE FUNDS HAS AGREED THAT, (1) FOR SO LONG AS
SHARES OF THE FUND ARE REGISTERED FOR OFFER AND SALE IN THE STATE OF ARKANSAS
AND SUCH UNDERTAKING IS REQUIRED AS A CONDITION OF SUCH REGISTRATION, IT WILL
NOT PURCHASE SECURITIES THE DISPOSITION OF WHICH IS RESTRICTED UNDER THE
FEDERAL SECURITIES LAWS IF, AS A RESULT, SUCH INVESTMENTS WOULD EXCEED 10% OF
THE FUND'S TOTAL ASSETS (EXCLUDING RULE 144A SECURITIES AND COMMERCIAL PAPER)
AND (2) FOR SO LONG AS SHARES OF EACH OF THE FUNDS ARE REGISTERED FOR OFFER AND
SALE TO THE PUBLIC IN THE STATE OF OHIO AND SUCH UNDERTAKING IS REQUIRED AS A
CONDITION OF SUCH REGISTRATION, THAT EACH OF THE FUNDS WILL NOT INVEST MORE
THAN 15% OF ITS TOTAL ASSETS IN SECURITIES WHICH ARE ILLIQUID. FOR PURPOSES OF
UNDERTAKING (2), AN ILLIQUID SECURITY SHALL BE CONSIDERED TO BE A SECURITY THAT
CANNOT BE DISPOSED OF IN THE ORDINARY COURSE OF BUSINESS WITHIN SEVEN DAYS AT
APPROXIMATELY THE AMOUNT AT WHICH THE FUND VALUES THE SECURITY. AN ILLIQUID
SECURITY SHALL NOT INCLUDE:
(a) SECURITIES ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT OF 1933 THAT HAVE BEEN DETERMINED TO BE LIQUID BY THE FUND'S
TRUSTEES; AND
(b) COMMERCIAL PAPER THAT IS SOLD UNDER SECTION 4(2) OF THE SECURITIES
ACT OF 1933 WHICH: (i) IS NOT TRADED FLAT OR IN
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<PAGE> 52
DEFAULT AS TO INTEREST OR PRINCIPAL; AND (II) IS RATED IN ONE OF THE TWO
HIGHEST CATEGORIES BY AT LEAST TWO NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS AND THE FUND'S TRUSTEES HAVE DETERMINED THE COMMERCIAL PAPER TO
BE LIQUID; OR (III) IS RATED IN ONE OF THE TWO HIGHEST CATEGORIES BY ONE
NATIONALLY RECOGNIZED STATISTICAL RATING AGENCY AND THE FUND'S TRUSTEES HAVE
DETERMINED THAT THE COMMERCIAL PAPER IS OF EQUIVALENT QUALITY AND IS LIQUID.
THE SMALL CAP FUND HAS AGREED THAT, SO LONG AS SHARES OF THE FUND ARE
REGISTERED FOR OFFER AND SALE IN THE STATE OF ARKANSAS AND SUCH UNDERTAKING IS
REQUIRED AS A CONDITION OF SUCH REGISTRATION, IT WILL NOT INVEST IN COMMODITIES
FUTURES CONTRACTS, ALTHOUGH IT MAY INVEST IN FINANCIAL FUTURES CONTRACTS.
The phrase "shareholder approval," as used in the Prospectus, and the
phrase a "vote of a majority of the outstanding voting securities," as used
herein, means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the relevant Fund or the Trust, as the case may be, or
(2) 67% or more of the shares of the relevant Fund or the Trust, as the case
may be, present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
Note on Shareholder Approval
Unless otherwise indicated, the investment policies and objectives of
the Funds may be changed without shareholder approval.
OPTIONS AND FUTURES TRANSACTIONS (All Funds except the Money Market Fund)
As disclosed in the Prospectus, the Fixed Income and Short-Term
Government Securities Funds, to increase current return, may write covered call
and covered put options on any security that it is eligible to purchase. For
hedging purposes, they may (1) purchase call options on securities they expect
to acquire, and put options on securities they hold, and (2) purchase and sell
futures contracts on U.S. Government Securities and purchase and write options
on such futures contracts.
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<PAGE> 53
The Growth, Value, International, Small Cap, Asset Allocation and
Balanced Funds may each: (1) purchase call and put options, and purchase
warrants, on securities that they are eligible to purchase; (2) write covered
call and covered put options on such securities; (3) buy and sell stock index
options, stock index futures contracts, options on stock index futures
contracts, currency futures contracts and options on currency futures
contracts; and (4) write covered call and put options on stock indices. In
addition, the Asset Allocation and Balanced Funds may purchase and sell futures
contracts on U.S. Government Securities and purchase and write options on such
futures contracts.
Options Transactions
No Fund will write options that are not "covered." A call option is
"covered" if the Fund owns the underlying security covered by the call or has
an absolute and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities held
in its portfolio. A call option is also covered if the Fund holds on a
share-for-share basis a call on the same security as the call written where
the exercise price of the call held is equal to or less than the exercise price
of the call written or greater than the exercise price of the call written if
the difference is maintained by the Fund in cash, Treasury bills or other high
grade short-term obligations in a segregated account with its custodian. A put
option is "covered" if the Fund maintains cash, Treasury bills or other high
grade obligations with a value equal to the exercise price in a segregated
account with its custodian, or else holds on a share-for-share basis a put on
the same security as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.
If the writer of an option wishes to terminate his obligation, he may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the
-9-
<PAGE> 54
option previously written. The effect of the purchase is that the writer's
position will be cancelled by the clearing corporation. However, a writer may
not effect a closing purchase transaction after he has been notified of the
exercise of an option. Likewise, an investor who is the holder of an option
may liquidate his position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that a Fund will be able to effect a closing
purchase or a closing sale transaction at any particular time.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option
to the extent that the exercise price thereof is secured by depositing cash or
high grade obligations. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option,
it will effect a closing transaction prior to or concurrent with the sale of
the security.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
The Funds which may write options may do so in connection with
buy-and-write transactions; that is, the Fund will purchase a security and then
write a call option against that security. The exercise price of the call the
Fund determines to write will depend upon the expected price movement of the
underlying
-10-
<PAGE> 55
security. The exercise price of a call option may be below ("in-the-money"),
equal to ("at-the-money") or above ("out-of-the-money") the current value of
the underlying security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected
that the price of the underlying security will remain flat or decline
moderately during the option period. Buy-and-write transactions using
at-the-money call options may be used when it is expected that the price of the
underlying security will remain fixed or advance moderately during the option
period. Buy-and-write transactions using out-of-the-money call options may be
used when it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, the Fund's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the difference between the
Fund's purchase price of the security and the exercise price. If the options
are not exercised and the price of the underlying security declines, the amount
of such decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price. In that event, the Fund's
return will be the premium received from the put option minus the cost of
closing the position or, if it chooses to take delivery of the security, the
premium received from the put option minus the amount by which the market price
of the security is below the exercise price.
No Fund may invest more than 5% of its assets in the purchase of put
and call options.
The extent to which each Fund will be able to write and purchase call
and put options will also be restricted by the
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<PAGE> 56
Trust's intention to qualify each Fund as a regulated investment company under
the federal income tax law. See "Taxes."
OTC Options. The staff of the Securities and Exchange Commission has
taken the position that options purchased on the over-the-counter market ("OTC
Options") and the assets used as "cover" for written OTC Options should
generally be treated as illiquid securities. However, if a dealer recognized
by the Federal Reserve Bank as a "primary dealer" in U.S. Government Securities
is the other party to an option contract written by a Fund, and that Fund has
the absolute right to repurchase the option from the dealer at a formula price
established in a contract with the dealer, the Securities and Exchange
Commission staff has agreed that that Fund only needs to treat as illiquid that
amount of the "cover" assets equal to the amount by which (i) the formula price
exceeds (ii) any amount by which the market value of the security subject to
the option exceeds the exercise price of the option (the amount by which the
option is "in-the-money"). Although the Trust does not believe that OTC
Options are generally illiquid, it has agreed that pending resolution of this
issue, the Funds will conduct their operations in conformity with the views of
the Securities and Exchange Commission staff.
Futures Transactions
Futures Contracts. A futures contract sale creates an obligation by
the seller to deliver the type of financial instrument called for in the
contract in a specified delivery month for a stated price. A futures contract
purchase creates an obligation by the purchaser to take delivery of the
underlying financial instrument in a specified delivery month at a stated
price. The specific instruments delivered or taken, respectively, at
settlement date are not determined until at or near that date. The
determination is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. A stock index futures contract is
similar except that the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. Futures contracts are
traded only on commodity exchanges -- known as "contract markets" -- approved
for such trading by the Commodity Futures Trading Commission (the
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<PAGE> 57
"CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument and the same
delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase
exceeds the price of the initial sale, the Fund realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the purchaser
entering into a futures contract sale. If the offsetting sale price exceeds
the purchase price, the purchaser realizes a gain, and if the purchase price
exceeds the offsetting sale price, he realizes a loss.
The purchase (that is, assuming a long position in) or sale (that is,
assuming a short position in) of a futures contract differs from the purchase
or sale of a security, in that no price or premium is paid or received.
Instead, an amount of cash or U.S. Treasury bills generally not exceeding 5% of
the contract amount must be deposited with the broker. This amount is known as
initial margin. Subsequent payments to and from the broker, known as variation
margin, are made on a daily basis as the price of the underlying futures
contract fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as "marking to market." At any time
prior to the settlement date of the futures contract, the position may be
closed out by taking an opposite position which will operate to terminate the
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid to or released by the broker,
and the purchaser realizes a loss or gain. A commission is ALSO paid on each
completed purchase and sale transaction. IN ADDITION, A FUND THAT PURCHASES A
FUTURES CONTRACT WILL ESTABLISH A SEGREGATED ACCOUNT WITH CASH, U.S. GOVERNMENT
SECURITIES OR OTHER APPROPRIATE HIGH-GRADE DEBT OBLIGATIONS IN AN AMOUNT EQUAL
TO THE PURCHASE PRICE UNDER THE FUTURES CONTRACT (LESS ANY MARGIN ON
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DEPOSIT). ALTERNATIVELY, A FUND THAT PURCHASES A FUTURES CONTRACT MAY COVER
THE POSITION BY PURCHASING A PUT OPTION ON THE SAME CONTRACT WITH A STRIKE
PRICE AS HIGH OR HIGHER THAN THE PURCHASE PRICE OF THE FUTURES CONTRACT IT
COVERS.
The Funds may engage in transactions in futures contracts and related
options for purposes of reallocating a Fund's exposure to the equity or fixed
income markets and also for the purpose of hedging against changes in the
values of securities they own or intend to acquire. In the case of
transactions entered into for purposes of reallocating a Fund's exposure to the
equity or fixed income markets, the futures contracts may be used to expose a
substantial portion of the Fund to equities and/or fixed income instruments to
facilitate trading and/or to minimize transaction costs. Future contracts will
not be used to leverage the Fund. For example, in the case of the Asset
Allocation Fund, if the Fund purchases futures contracts relating to equity
securities (e.g., S&P 500 index futures), the face amount of the futures
contracts plus the value of the Fund's equity securities will not exceed the
Fund's net assets. Similarly, if the Fund purchases interest rate futures
contracts, the face amount of the futures contracts plus the value of the
Fund's fixed income securities will not exceed the Fund's net assets. In the
case of transactions in futures contracts for hedging purposes, the Funds may
sell such futures contracts in anticipation of a decline in the value of its
investments. The risk of such a decline can be reduced without employing
futures as a hedge by selling portfolio securities and either reinvesting the
proceeds in securities subject to lesser risk or by holding assets in cash.
This strategy, however, entails increased transaction costs in the form of
brokerage commissions and dealer spreads and will typically reduce a Fund's
total return or, with respect to futures on fixed income securities, yield.
The sale of futures contracts provides an alternative means of hedging a Fund
against a decline in the value of its investments. As such values decline, the
value of a Fund's position in the futures contracts will tend to increase, thus
offsetting all or a portion of the depreciation in the market value of a Fund's
securities which are being hedged. While the Fund will incur commission
expenses in establishing and closing out futures positions, commissions on
futures transactions may be significantly lower than transaction costs incurred
in the purchase and sale of securities. Employing futures as a hedge may also
permit a Fund
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to assume a defensive posture without reducing its total return or yield.
Call Options on Futures Contracts. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
underlying securities, it may or may not be less risky than ownership of the
futures contract or underlying securities. As with the purchase of a futures
contract, a Fund may purchase a call option on a futures contract to hedge
against a market advance when the Fund is not fully invested.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities which are deliverable
upon exercise of the futures contract. If the futures price at expiration of
the option is below the exercise price, the Fund will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings.
Put Options on Futures Contracts. The purchase of put options on a
futures contract is similar in some respects to the purchase of put options on
portfolio securities. Each Fund may purchase put options on futures contracts
to hedge the Fund's portfolio against the risk of rising interest rates or
declining stock market prices.
A Fund may write a put option on a futures contract as a partial hedge
against increasing prices of the assets which are deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any increase in the price
of assets that the Fund intends to purchase.
Currency Futures and Related Options. As described in the Prospectus,
each Fund (other than the Short-Term Government Securities and Money Market
Funds) may invest in currency futures contracts and related options thereon to
hedge its portfolio investments and to protect itself against changes in
foreign
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exchange rates. A currency futures contract sale creates an obligation by the
Fund, as seller, to deliver the amount of currency called for in the contract
at a specified future time for a specified price. A currency futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of
an amount of currency at a specified future time at a specified price.
Although the terms of currency futures contracts specify actual delivery or
receipt, in most instances the contracts are closed out before the settlement
date without the making or taking of delivery of the currency. Closing out of a
currency futures contract is effected by entering into an offsetting purchase
or sale transaction.
Unlike a currency futures contract, which requires the parties to buy
and sell currency on a set date, an option on a futures contract entitles its
holder to decide on or before a future date whether to enter into such a
contract. If the holder decides not to enter into the contract, the premium
paid for the option is lost. Since the value of the option is fixed at the
point of sale, there are no daily payments of cash in the nature of "variation"
or "maintenance" margin payments to reflect the change in the value of the
underlying contract as there are by a purchaser or seller of a currency futures
contract. The value of the option does not change and is reflected in the net
asset value of the Fund.
The Funds will write only covered put and call options on currency
futures. This means that each such Fund will provide for its obligations upon
exercise of the option by segregating sufficient cash or short-term obligations
or by holding an offsetting position in the option or underlying currency
future, or a combination of the foregoing. Set forth below is a description of
methods of providing cover that the Funds currently expect to employ, subject
to applicable exchange and regulatory requirements. If other methods of
providing appropriate cover are developed, the Funds reserve the right to
employ them to the extent consistent with applicable regulatory and exchange
requirements.
A Fund will, so long as it is obligated as the writer of a call option
on currency futures, own on a contract-for-contract basis an equal long
position in currency futures with the same delivery date or a call option on
currency futures with the
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difference, if any, between the market value of the call written and the market
value of the call or long currency futures purchased maintained by the Fund in
cash, Treasury bills, or other high-grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the call purchased by the Fund falls below 100% of the
market value of the call written by the Fund, the Fund will so segregate an
amount of cash, Treasury bills or other high grade short-term obligations equal
in value to the difference. Alternatively, the Fund may cover the call option
through segregating with the custodian an amount of the particular foreign
currency equal to the amount of foreign currency per futures contract option
times the number of options written by the Fund.
In the case of put options on currency futures written by a Fund, the
Fund will hold the aggregate exercise price in cash, Treasury bills, or other
high grade short-term obligations in a segregated account with its custodian,
or own put options on currency futures or short currency futures, with the
difference, if any, between the market value of the put written and the market
value of the puts purchased or the currency futures sold maintained by the Fund
in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures sold by
the Fund falls below 100% of the market value of the put options written by the
Fund, the Fund will so segregate an amount of cash, Treasury bills or other
high grade short-term obligations equal in value to the difference.
Stock Index Futures. The Growth, Value, International, Small Cap,
Asset Allocation and Balanced Funds may also purchase and sell United States
and foreign stock index futures contracts and options thereon in order to
reallocate their equity market exposure or to hedge themselves against changes
in market conditions. A stock index assigns relative values to the common
stocks comprising the index. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at
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which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made.
As indicated above, the Funds may engage in transactions in stock
index futures contracts and related options for the purpose of reallocating a
Fund's exposure to the equity markets and also for the purpose of hedging
against changes resulting from market conditions in the values of securities
held in the Fund's portfolio or which the Fund intends to purchase. If a
transaction involves the purchase of stock index futures contracts (for
example, in a transaction designed to increase a Fund's equity market
exposure), the Fund will deposit an amount of cash and cash equivalents, equal
to the market value of the futures contracts, in a segregated account with its
custodian and/or in a margin account with a broker. Each Fund will cover any
options it writes on stock index futures in the manner described above with
respect to currency futures.
Limitations on the Use of Options and Futures Portfolio Strategies
No Fund will "over-hedge," that is, no Fund will maintain open short
positions in futures contracts if, in the aggregate, the value of its open
positions (marked to market) exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on such open positions,
adjusted for the historical volatility relationship between the portfolio and
futures contracts. A Fund will not use futures contracts for leveraging
purposes. Thus, when a Fund uses futures contracts to reallocate the Fund's
exposure to equity (or fixed income) markets, that Fund will not maintain open
long positions in stock index (or interest rate) futures contracts if, in the
aggregate, the face amount of the contracts plus the Fund's equity (or fixed
income) securities would exceed the Fund's net assets.
A Fund's ability to engage in the options and futures strategies
described above will depend on the availability of liquid markets in such
instruments. Markets in certain options and futures are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes set forth above.
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Furthermore, a Fund's ability to engage in options and futures transactions may
be limited by tax considerations and CFTC rules.
No Fund may enter into futures contracts or related options thereon if
immediately thereafter the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the market
value of the Fund's total assets.
Risk Factors in Options and Futures Transactions
Options Transactions. The option writer has no control over when the
underlying securities must be sold, in the case of a call option, or purchased,
in the case of a put option, since the writer may be assigned an exercise
notice at any time prior to the termination of the obligation. If an option
expires unexercised, the writer realizes a gain in the amount of the premium.
Such a gain, of course, may, in the case of a covered call option, be offset by
a decline in the market value of the underlying security during the option
period. If a call option is exercised, the writer realizes a gain or loss from
the sale of the underlying security. If a put option is exercised, the writer
must fulfill the obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security.
An exchange-traded option may be closed out only on a national
securities exchange (an "Exchange") which generally provides a liquid secondary
market for an option of the same series. An over-the-counter option may be
closed out only with the other party to the option transaction. If a liquid
secondary market for an exchange-traded option does not exist, it might not be
possible to effect a closing sale transaction with respect to a particular
option with the result that the Fund would have to exercise the option in order
to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market on an Exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an Exchange on opening
transactions or closing transactions or both; (iii) trading
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halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an Exchange; (v)
the facilities of an Exchange or the Options Clearing Corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Exchanges have established limitations governing the maximum
number of options which may be written by an investor or group of investors
acting in concert. It is possible that the Trust and other clients of the
Manager and Subadvisers may be considered to be such a group. These position
limits may restrict the Funds' ability to purchase or sell options on a
particular security.
Futures Transactions. Investment by a Fund in futures contracts
involves risk. In the case of hedging transactions, some of that risk may be
caused by an imperfect correlation between movements in the price of the
futures contract and the price of the security or other investment being
hedged. The hedge will not be fully effective where there is such imperfect
correlation. For example, if the price of the futures contract moves more than
the price of the hedged security, a Fund would experience either a loss or gain
on the future which is not completely offset by movements in the price of the
hedged securities. To compensate for imperfect correlations, a Fund may
purchase or sell futures contracts in a greater dollar amount than the hedged
securities if the volatility of the hedged securities is historically greater
than the volatility of the futures contracts. Conversely, a Fund may purchase
or sell fewer contracts if the volatility of the price of the hedged securities
is historically less than that of the futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the futures
contract approaches.
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As noted above, a Fund may purchase futures contracts to hedge against
a possible increase in the price of securities which the Fund anticipates
purchasing, or options thereon. In such instances, it is possible that the
market may instead decline. If the Fund does not then invest in such
securities because of concern as to possible further market decline or for
other reasons, the Fund may realize a loss on the futures contract that is not
offset by a reduction in the price of the securities purchased. In the case of
futures contracts purchased to increase a Fund's exposure to the equity (or
fixed income) markets, the Fund could suffer a loss on the futures contracts
similar to the loss which the Fund would have suffered if, instead, it had
actually purchased equity or fixed income securities.
The amount of risk a Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of
an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
exceeded the daily limit on a number of consecutive trading days.
The successful use of transactions in futures and related options also
depends on the ability of the Manager or relevant Subadviser to forecast
correctly the direction and extent of market and interest rate movements within
a given time frame. In the case of hedging transactions, to the extent market
prices or interest rates remain stable during the period in which a futures
contract or related option is held by a Fund or such prices or rates move in a
direction opposite to that anticipated, a Fund may realize a loss on the
hedging transaction which is not fully or partially offset by an increase in
the value of portfolio securities. As a result, a Fund's total return for such
period
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may be less than if it had not engaged in the hedging transaction.
MISCELLANEOUS INVESTMENT PRACTICES
Lower-rated Securities. The Balanced Fund may invest up to 5% of its
total assets in lower-rated fixed-income securities (commonly known as "junk
bonds"), provided that the dollar-weighted average credit quality of its debt
portfolio (excluding short-term investments) is at least A by either Moody's
Investors Service, Inc. or Standard & Poor's. The lower ratings of certain
securities held by the Fund reflect a greater possibility that adverse changes
in the financial condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the ability of the
issuer to make payments of interest and principal. The inability (or perceived
inability) of issuers to make timely payment of interest and principal would
likely make the values of securities held by the Fund more volatile and could
limit the Fund's ability to sell its securities at prices approximating the
values the Fund had placed on such securities. In the absence of a liquid
trading market for securities held by it, the Fund may be unable at times to
establish the fair value of such securities. The rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (or by any other
nationally recognized securities rating organization) does not reflect an
assessment of the volatility of the security's market value or the liquidity of
an investment in the security. See Appendix A to this Statement for a
description of security ratings.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a
decrease in interest rates will generally result in an increase in the value of
the Balanced Fund's debt securities. Conversely, during periods of rising
interest rates, the value of the Fund's debt securities will generally decline.
In addition, the values of fixed income securities are also affected by changes
in general economic conditions and business conditions affecting the specific
industries of their issuers. Changes by recognized rating services in their
ratings of any fixed income security and in the ability of an issuer to make
payments of interest and principal may also affect the value of these
investments. Changes in the
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value of portfolio securities generally will not affect cash income derived
from such securities, but will affect the Fund's net asset value. The Fund
will not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although Jennison Associates Capital Corp. will
monitor the investment to determine whether its retention will assist in
meeting the Fund's investment objective.
At times, a substantial portion of the Balanced Fund's assets may be
invested in securities as to which the Fund, by itself or together with other
funds and accounts managed by Jennison Associates Capital Corp., holds a major
portion or all of such securities. Although Jennison Associates Capital Corp.
generally considers such securities to be liquid because of the availability of
an institutional market for such securities, it is possible that, under adverse
market or economic conditions or in the event of adverse changes in the
financial condition of the issuer, the Fund could find it more difficult to
sell such securities when Jennison Associates Capital Corp. believes it
advisable to do so or may be able to sell such securities only at prices lower
than if such securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such securities for
purposes of computing the Fund's net asset value. In order to enforce its
rights in the event of a default under such securities, the Fund may be
required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the Fund's operating
expenses and adversely affect the Fund's net asset value. In addition, the
Fund's intention to qualify as a "regulated investment company" under the
Internal Revenue Code may limit the extent to which the Fund may exercise its
rights by taking possession of such assets. To the extent the Fund invests in
fixed income securities in the lower rating categories, the achievement of the
Fund's goals is more dependent on Jennison Associates Capital Corp.'s
investment analysis than would be the case if the Fund were investing in fixed
income securities in the higher rating categories.
Portfolio Turnover. A change in securities held by a Fund is known as
"portfolio turnover" and almost always involves the payment by the Fund of
brokerage commissions or dealer markup and other transaction costs on the sale
of securities as well as on the reinvestment of the proceeds in other
securities. THESE
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TRANSACTIONS MAY ALSO RESULT IN THE REALIZATION OF TAXABLE CAPITAL GAINS. As a
result of the investment policies of the Funds, under certain market conditions
their portfolio turnover may be higher than those of many other investment
companies. It is, however, impossible to predict portfolio turnover in future
years. The overall portfolio turnover rate for the Preferred Balanced Fund
will not generally exceed 150%. The rate of portfolio turnover for the equity
portfolio of the Balanced Fund will not generally exceed 75% and the rate of
portfolio turnover for the fixed income portfolio of the Balanced Fund will not
generally exceed 150%. The portfolio turnover rate for the Small Cap Fund will
not generally exceed 150%. Portfolio turnover rates in excess of 100% are
generally considered to be high. For purposes of reporting portfolio turnover
rates, all securities the maturities of which at the time of purchase are one
year or less are excluded, so that it is expected that the policies of the
Money Market Fund will result in a reported portfolio turnover rate of zero for
that Fund, although it is anticipated that, like other funds with similar
portfolios, it will change the securities in its portfolio frequently. During
the Trust's fiscal years ended June 30, 1993 and 1994, the portfolio turnover
rate for the Short-Term Government Securities Fund was 268.36% and 134.34%,
respectively. This variation in portfolio turnover was primarily attributable
to a decrease in holdings by the Fund during fiscal 1994 of securities with
maturities of less than one year. Such securities are not included in the
calculation of portfolio turnover in accordance with Securities and Exchange
Commission guidelines.
Forward Commitments. As described in the Prospectus following the
caption "General Policies and Risk Considerations--Forward Commitments,
When-Issued and Delayed Delivery Transactions," all of the Funds except the
Money Market Fund may make contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments"), if
the Fund either (i) holds, and maintains until the settlement date in a
segregated account, cash or high grade debt obligations in an amount sufficient
to meet the purchase price or (ii) enters into an offsetting contract for the
forward sale of securities of equal value that it owns. Each Fund may
simultaneously be obligated with respect to forward commitment purchase and
sale contracts. However, each Fund will generally not sell a portfolio
security or enter into a forward commitment
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sale contract if that sale or forward commitment is coupled with an agreement
by the Fund, including a forward commitment, to repurchase the security at a
later date. Forward commitments may be considered securities in themselves.
They involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in value of the Fund's other assets. A Fund may dispose of a
commitment prior to settlement and may realize short-term profits or losses
upon such disposition.
Repurchase Agreements. A repurchase agreement is a contract under
which a Fund would acquire a security for a relatively short period (usually
not more than one week) subject to the obligation of the seller to repurchase
and the Fund to resell such security at a fixed time and price (representing
the Fund's cost plus interest). The value of the underlying securities (or
collateral) will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. The Fund bears a risk of
loss in the event that the other party to a repurchase agreement defaults on
its obligations and the Fund is delayed or prevented from exercising its rights
to dispose of the collateral securities. The Manager (in the case of the Small
Cap and Short-Term Government Securities Funds) and the Subadvisers (in the
case of the other Funds), as appropriate, will monitor the creditworthiness of
the counterparties.
Securities Loans. Each Fund (other than the Money Market Fund) may
make secured loans of its portfolio securities amounting to no more than 33
1/3% of its total assets. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. However, such loans will be made only to broker-dealers that
are believed by the Manager (in the case of the Small Cap and Short-Term
Government Securities Funds) and the Subadvisers (in the case of the other
Funds) to be of relatively high credit standing. Securities loans are made to
broker-dealers pursuant to agreements requiring that the loans be continuously
secured by collateral in cash or U.S. Government Securities at least equal at
all times to the market value of the securities lent. The borrower pays to the
lending Fund an amount equal to any dividends or interest received on the
securities
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lent. The Fund may invest the cash collateral received in interest-bearing,
short-term securities or receive a fee from the borrower. Although voting
rights or rights to consent with respect to the loaned securities pass to the
borrower, the Fund retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the Fund if the holders of such securities are asked to vote upon or consent
to matters materially affecting the investment. A Fund may also call such
loans in order to sell the securities involved.
Warrants. Each of the Growth, Value, International, Small Cap, Asset
Allocation and Balanced Funds may invest up to 5% of its total assets in
warrants which entitle the holder to buy equity securities at a specific price
for a specified period of time, provided that no more than 2% of its assets are
invested in warrants not listed on the New York or American Stock Exchanges.
Foreign Currency Transactions. Each of the Funds (other than the
Short-Term Government Securities and the Money Market Funds) may enter into
forward foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates. Since investment in
foreign companies will usually involve currencies of foreign countries, and
since a Fund may temporarily hold funds in bank deposits in foreign currencies
during the course of investment programs, the value of the assets of a Fund as
measured in United States dollars may be affected by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may
incur costs in connection with conversion between various currencies.
A Fund may enter into forward contracts only under two circumstances.
First, when the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during
the period between the date on which the investment is purchased or sold and
the date on which payment is made or received.
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Second, when the Subadviser of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio investments denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those investments between the date the forward
contract is entered into and the date it matures.
The Funds generally will not enter into a forward contract with a term
of greater than one year. The Funds' ability to engage in forward contracts
may be limited by tax considerations. The Funds may also engage in currency
futures contracts and related options. See "Options and Futures Transactions -
Currency Futures and Related Options."
When-Issued and Delayed Delivery Transactions. As described in the
text of the Prospectus following the caption "General Policies and Risk
Considerations--Forward Commitments, When-Issued and Delayed Delivery
Transactions," the Short-Term Government Securities Fund may enter into
agreements with banks or broker-dealers for the purchase or sale of securities
at an agreed-upon price on a specified future date. Such agreements might be
entered into, for example, when the Fund anticipates a decline in interest
rates and is able to obtain a more advantageous yield by committing currently
to purchase securities to be issued later. When the Fund purchases securities
on a when-issued or delayed delivery basis, it is required either (i) to create
a segregated account with the Fund's custodian and to maintain in that account
cash, U.S. Government securities or other high grade debt obligations in an
amount equal on a daily basis to the amount of the Fund's when-issued or
delayed delivery commitments or (ii) to enter into an offsetting forward sale
of securities it owns equal in value to those purchased. The Fund will only
make commitments to purchase securities on a when-issued or delayed-delivery
basis with the intention of actually acquiring the securities. However, the
Fund may sell these securities before the settlement date if it is deemed
advisable as a matter of investment strategy. When the time comes to pay
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for when-issued or delayed-delivery securities, the Fund will meet its
obligations from then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of the
when-issued or delayed delivery securities themselves (which may have a value
greater or less than the Fund's payment obligation).
AMORTIZED COST VALUATION AND DAILY DIVIDENDS
The valuation of the Money Market Fund's portfolio instruments at
amortized cost is permitted in accordance with Securities and Exchange
Commission Rule 2a-7 and certain procedures adopted by the Trustees. The
amortized cost of an instrument is determined by valuing it at cost originally
and thereafter amortizing any discount or premium from its face value at a
constant rate until maturity, regardless of the effect of fluctuating interest
rates on the market value of the instrument. Although the amortized cost
method provides certainty in valuation, it may result at times in
determinations of value that are higher or lower than the price the Fund would
receive if the instruments were sold. Consequently, changes in the market
value of portfolio instruments during periods of rising or falling interest
rates will not normally be reflected either in the computation of net asset
value of the Fund's portfolio or in the daily computation of net income. Under
the procedures adopted by the Trustees, the Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less and invest in
securities determined by the Trustees to be of high quality with minimal credit
risks. The Trustees have also established procedures designed to stabilize, to
the extent reasonably possible, the Fund's price per share as computed for the
purpose of distribution, redemption and repurchase at $1.00. These procedures
include review of the Fund's portfolio holdings to determine whether the Fund's
net asset value calculated by using readily available market quotations
deviates from $1.00 per share, and, if so, whether such deviation may result in
material dilution or is otherwise unfair to existing shareholders. In the
event the Trustees determine that such a deviation exists, or in any event if
the deviation exceeds .5%, they will take such corrective action as they regard
as necessary and appropriate, including the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
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maturity; withholding dividends; redemption of shares in kind; or establishing
a net asset value per share by using readily available market quotations.
Since the net income of the Money Market Fund is declared as a
dividend each time it is determined, the net asset value per share of the Fund
remains at $1.00 per share immediately after such determination and dividend
declaration. Any increase in the value of a shareholder's investment in the
Fund representing the reinvestment of dividend income is reflected by an
increase in the number of shares of the Fund in the shareholder's account at
the end of each month. It is expected that the Fund's net income will be
positive each time it is determined. However, if because of realized losses on
sales of portfolio investments, a sudden rise in interest rates, or for any
other reason the net income of the Fund determined at any time is a negative
amount, the Fund will offset such amount allocable to each then shareholder's
account from dividends accrued during the month with respect to such account.
If at the time of payment of a dividend (either at the regular monthly dividend
payment date, or, in the case of a shareholder who is withdrawing all or
substantially all of the shares in an account, at the time of withdrawal), such
negative amount exceeds a shareholder's accrued dividends, the Fund will reduce
the number of outstanding shares by treating the shareholder as having
contributed to the capital of the Fund that number of full and fractional
shares which represent the amount of the excess. Each shareholder is deemed to
have agreed to such contribution in these circumstances by his or her
investment in the Fund.
EXCHANGE PRIVILEGE
As described in the Prospectus under the caption "Exchanging and
Redeeming Shares," a shareholder may exchange shares of any Fund for shares of
any other Fund on the basis of their respective net asset values beginning 10
days after their purchase on any day the New York Stock Exchange is open.
Orders for exchanges accepted by the Distributor prior to 4:00 p.m. (Eastern
Time) on any day the Trust is open for business will be executed at the
respective net asset values determined as of the close of business that day.
Orders for exchanges received after 4:00 p.m. (Eastern Time) on any business
day will be executed at
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the respective net asset values determined at the close of the next
business day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to restrict exchanges to one purchase and redemption of shares in the
same Fund during any 120-day period.
The Trust reserves the right to modify or discontinue the exchange
privilege at any time. Except as otherwise permitted by SEC regulations, the
Trust will give 60 days' advance written notice to shareholders of any
termination or material modification of the exchange privilege.
HOW TO BUY
THE PROCEDURES FOR PURCHASE OF TRUST SHARES ARE SUMMARIZED IN THE TEXT
OF THE PROSPECTUS UNDER THE CAPTION "HOW TO BUY SHARES."
IN ADDITION TO THE METHODS DESCRIBED THEREIN, SHARES MAY BE PURCHASED
THROUGH REGULAR PAYROLL DEDUCTIONS, PROVIDED THAT SUCH DEDUCTIONS ARE AVAILABLE
THROUGH THE RELEVANT EMPLOYER. THE MINIMUM INITIAL INVESTMENT AND MINIMUM
ADDITIONAL INVESTMENT THROUGH REGULAR PAYROLL DEDUCTION IS $50. FOR MORE
INFORMATION ABOUT PURCHASING TRUST SHARES THROUGH REGULAR PAYROLL DEDUCTIONS,
PLEASE CALL INVESTOR SERVICES AT 1-800-662-GROW (1-800-662-4769).
HOW TO REDEEM
The procedures for redemption of Trust shares are summarized in the
text of the Prospectus UNDER the caption "Exchanging and Redeeming Shares."
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The Trust may suspend the right of redemption and may postpone payment
only when the New York Stock Exchange is closed for other than customary
weekends and holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted
or during any emergency which makes it impracticable for the Trust to dispose
of its securities or to determine fairly the value of its net assets, or during
any other period permitted by order of the Securities and Exchange Commission.
The Trust reserves the right to redeem shares and mail the proceeds to
the shareholder if at any time the net asset value of the shares in the
shareholder's account in any Fund falls below a specified level due to
redemptions, currently set at $1,000. Shareholders will be notified and will
have 60 days to bring the account up to the required level before any
redemption action will be taken by the Trust. The Trust also reserves the
right to redeem shares in a shareholder's account in excess of an amount set
from time to time by the Trustees. No such limit is presently in effect, but
such a limit could be established at any time and could be applicable to
existing as well as future shareholders.
HOW NET ASSET VALUE IS DETERMINED
As described in the text of the Prospectus following the caption
"Determination of Net Asset Value and Pricing," the net asset value of shares
of each Fund of the Trust will be determined once on each day on which the New
York Stock Exchange is open, as of the close of regular trading on the
Exchange. The Trust expects that the days, other than weekend days, that the
Exchange will not be open are New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities, options, futures and options on futures for which market
quotations are readily available are valued at market value, which is
determined by using the last reported sale price, or, if no sales are reported,
the last reported bid price. Over-the-counter options are valued at fair
value, as determined in good faith by the Trustees or by persons acting at
their direction, based on prices supplied by a broker, usually the option
counterparty. Obligations having remaining maturities of 60 days or less and
securities held in the Money Market Fund portfolio
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are valued at amortized cost. The amortized cost value of a security is
determined by valuing it at cost originally and thereafter amortizing any
discount or premium from its face value at a constant rate until maturity,
regardless of the effect of fluctuating interest rates on the market value of
the instrument. Although the amortized cost method provides certainty in
valuation, it may result at times in determinations of value that are higher or
lower than the price the Fund would receive if the instruments were sold.
Consequently, changes in the market value of portfolio instruments during
periods of rising or falling interest rates will not be reflected either in the
computation of the net asset value of the Fund's portfolio or, in the case of
the Money Market Fund, in the daily computation of net income.
As described in the Prospectus, certain securities and assets of the
Funds are valued at fair value as determined in good faith by the Trustees or
by persons acting at their direction. The fair value of any securities from
time to time held by any Fund of the Trust for which no ready market exists is
determined in accordance with procedures approved by the Trustees. The
Trustees, however, are ultimately responsible for such determinations. The
fair value of such securities is generally determined as the amount which the
Trust could reasonably expect to realize from an orderly disposition of such
securities over a reasonable period of time. The valuation procedures applied
in any specific instance are likely to vary from case to case, and may include
receiving a quote from a broker and the use of a pricing service.
Consideration may also be given to the financial position of the issuer and
other fundamental analytical data relating to the investment and to the nature
of the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Trust in connection with such
disposition). In addition, such specific factors may also be considered as the
cost of the investment, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Generally, trading in foreign securities, as well as corporate bonds,
U.S. Government Securities and money market instruments is substantially
completed each day at various times prior to the close of the Exchange. The
values of such securities used in determining the net asset value of a Fund's
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shares are computed as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of a Fund's
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by the Trustees.
CALCULATION OF YIELD AND TOTAL RETURN
Yield of the Money Market Fund. As summarized in the Prospectus under
the heading "Performance Information," the "Yield" of the Money Market Fund for
a seven-day period (the "base period") will be computed by determining the "net
change in value" (calculated as set forth below) of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by 365/7 with the resulting yield figure carried to the nearest
hundredth of one percent. Net changes in value of a hypothetical account will
include the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, but will not include realized gains or losses or unrealized
appreciation or depreciation on portfolio investments. Yield may also be
calculated on a compound basis (the "Effective Yield") which assumes that net
income is reinvested in Fund shares at the same rate as net income is earned by
the Fund for the base period.
The Money Market Fund's Yield and Effective Yield will vary in
response to fluctuations in interest rates. For comparative purposes the
current and Effective Yields should be compared to current and effective yields
offered by competing money market funds for that base period only and
calculated by the methods described above.
Yields of the Asset Allocation, Balanced, Fixed Income and Short-Term
Government Securities Funds. As summarized in the Prospectus under the heading
"Performance Information," Yields of these Funds will be computed by analyzing
net investment income
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for a recent 30-day period and dividing that amount by the maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. The Funds' Yields will vary from time to
time depending upon market conditions, the composition of the Funds' portfolios
and operating expenses of the Trust allocated to each Fund. These factors, and
possible differences in the methods used in calculating yield, should be
considered when comparing a Fund's Yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Funds' shares and to the
relative risks associated with the investment objectives and policies of the
Funds.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will continue.
Investors in these Funds are specifically advised that the net asset
value per share of each Fund will vary just as Yields for each Fund will vary.
An investor's focus on the Yield to the exclusion of the consideration of the
value of shares of that Fund may result in the investor's misunderstanding the
Total Return he or she may derive from that Fund.
Calculation of Total Return. As summarized in the Prospectus under
the heading "Performance Information," Total Return with respect to a Fund is a
measure of the change in value of an investment in such Fund over the period
covered, which assumes any dividends or capital gains distributions are
reinvested immediately rather than paid to the investor in cash. The formula
for Total Return used herein includes four steps: (1) adding to the total
number of shares purchased by a hypothetical $1,000 investment in the Fund all
additional shares which would have been purchased if all dividends and
distributions paid or distributed during the period had been immediately
reinvested; (2) calculating the value of the hypothetical initial investment of
$1,000 as of the end of the
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period by multiplying the total number of shares owned at the end of the period
by the net asset value per share on the last trading day of the period; (3)
assuming redemption at the end of the period; and (4) dividing this account
value for the hypothetical investor by the initial $1,000 investment.
PERFORMANCE COMPARISONS
Yield and Total Return. Each Fund may from time to time include the
Total Return of its shares in advertisements or in information furnished to
present or prospective shareholders. Each of the Asset Allocation, Balanced,
Fixed Income and Short-Term Government Securities Funds may from time to time
include the Yield and/or Total Return of its shares in advertisements or
information furnished to present or prospective shareholders. The Money Market
Fund may from time to time include its Yield and Effective Yield in
advertisements or information furnished to present or prospective shareholders.
Each Fund may from time to time include in advertisements or information
furnished to present or prospective shareholders (i) the ranking of performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services, Inc. as having the same investment objectives,(ii)
the rating assigned to the Fund by Morningstar, Inc. based on the Fund's
risk-adjusted performance relative to other mutual funds in its broad
investment class, and/or (iii) the ranking of performance figures relative to
such figures for mutual funds in its general investment category as determined
by CDA/Weisenberger's Management Results.
Performance information may also be used to compare the performance of
the Fund against certain widely acknowledged standards or indices for stock and
bond market performance.
EAFE Index. The Europe, Australia & Far East Index contains over 1000
stocks from 20 different countries with Japan (approximately 50%), United
Kingdom, France and Germany being the most heavily weighted.
55% S&P 500 INDEX/35% LEHMAN GOVERNMENT/CORPORATE BOND INDEX/
10% 90-DAY TREASURY BILLS. THE 55% S&P 500 INDEX/35%
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LEHMAN GOVERNMENT/CORPORATE BOND INDEX/10% 90-DAY TREASURY BILLS IS A BENCHMARK
REPRESENTING A HYPOTHETICAL PORTFOLIO 55% OF WHICH IS INVESTED IN THE S&P 500,
35% OF WHICH IS INVESTED IN THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX, AND 10%
OF WHICH IS INVESTED IN 90-DAY TREASURY BILLS
IBC's MONEY FUND REPORT AVERAGE -- TAXABLE (COMMONLY KNOWN AS
DONOGHUE'S TAXABLE MONEY MARKET FUND AVERAGE). AN AVERAGE OF APPROXIMATELY 750
TAXABLE MONEY MARKET FUNDS PUBLISHED BY IBC/DONOGHUE, INC.
Lehman Brothers Government/Corporate Bond Index. The Lehman Brothers
Government/Corporate Bond Index is an unmanaged list of publicly issued U.S.
Treasury obligations, debt obligations of the U. S. Government and its agencies
(excluding mortgage-backed securities), fixed-rate, non-convertible,
investment-grade corporate debt securities and U.S. dollar-denominated,
SEC-registered non-convertible debt issued by foreign governmental entities or
international agencies used as a general measure of the performance of fixed
income securities.
LEHMAN BROTHERS LONG-TERM TREASURY INDEX. THE LEHMAN BROTHERS
LONG-TERM TREASURY INDEX IS A MARKET WEIGHTED INDEX OF ALL PUBLICLY HELD
TREASURY ISSUES WITH MATURITIES GREATER THAN 10 YEARS.
Lipper Balanced Fund Index. The Lipper Balanced Fund Index is a
non-weighted index of the 30 largest "balanced" funds. The index is calculated
daily and reflects the reinvestment of all income dividends and capital gains
distributions.
MERRILL LYNCH 1-3 YEAR TREASURY INDEX. THE INDEX CONTAINS PRIMARILY
ALL U.S. TREASURY NOTES AND BONDS WITH REMAINING MATURITIES OF ONE TO THREE
YEARS.
90-DAY TREASURY BILL INDEX. THE INDEX IS CALCULATED USING A ONE-BILL
PORTFOLIO CONTAINING THE MOST RECENTLY AUCTIONED 90-DAY TREASURY BILL.
RUSSELL 2000 INDEX. THE INDEX CONTAINS THE 2000 SMALLEST OF THE 3000
LARGEST U.S.-DOMICILED CORPORATIONS, RANKED BY MARKET CAPITALIZATION.
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S&P 500 INDEX. THE S&P 500 IS THE MOST COMMON INDEX FOR THE OVERALL
U.S. STOCK MARKET. IT IS COMPRISED OF 500 OF THE LARGEST U.S. COMPANIES
REPRESENTING ALL MAJOR INDUSTRIES.
Salomon Brothers Broad Investment Grade Index. The Index contains 5000
U.S. Treasury, Agency, Mortgage and Corporate Bonds. Credit quality must be
investment grade (AAA-BBB by Standard & Poor's).
65% S&P INDEX/30% LEHMAN BROTHERS LONG-TERM TREASURY INDEX/5% 90-DAY
TREASURY BILLS. THE 65% S&P 500 INDEX/30% LEHMAN BROTHERS LONG-TERM TREASURY
INDEX/5% 90-DAY TREASURY BILLS is a benchmark representing a hypothetical
portfolio 65% of which is invested in the S&P 500, 30% of which is invested in
the Lehman BROTHERS LONG-TERM TREASURY Index, and 5% of which is invested in
90-day TREASURY BILLS.
From time to time, articles about the Funds regarding performance,
rankings and other characteristics of the Funds may appear in national
publications including, but not limited to, the Wall Street Journal, Forbes,
Fortune, CDA Investment Technologies and Money Magazine. In particular, some
or all of these publications may publish their own rankings or performance
reviews of mutual funds, including the Funds. References to or reprints of
such articles may be used in the Funds' promotional literature. References to
articles regarding personnel of the Manager or the Subadvisers who have
portfolio management responsibility may also be used in the Funds' promotional
literature.
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PERFORMANCE DATA
The manner in which Total Return and Yield of the Funds will be
calculated for public use is described above. The following table summarizes
the calculation of Total Return and Yield for the Funds, where applicable, (i)
for the one-year period ended DECEMBER 31, 1995, (ii) for the three-year period
ended DECEMBER 31, 1995 and (iii) since the commencement of operations (July 1,
1992 FOR ALL FUNDS OTHER THAN THE SMALL CAP AND BALANCED FUNDS, NOVEMBER 1,
1995 FOR THE SMALL CAP FUND, AND JULY 3, 1995 FOR THE BALANCED FUND) THROUGH
DECEMBER 31, 1995.
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PERFORMANCE DATA
<TABLE>
<CAPTION>
Average
Annual Average
Total Annual
Average Return Total
Annual for the Return
Total Return Three- FROM the
for the Year Commencement
Current SEC One-Year Period Period of Operations
Yield ended ended __ through __
FUND at 12/31/95 12/31/95 12/31/95 12/31/95
----- ------------ -------------- -------- -------------
<S> <C> <C> <C> <C>
Growth N/A 28.37% 13.79% 17.42%
Value N/A 37.71% 14.61% 15.42%
International N/A 9.93% 17.12% 9.00%
SMALL CAP* N/A N/A N/A 5.06%
Asset Allocation N/A 32.79% 12.69% 13.02%
BALANCED** N/A N/A N/A 7.44%
Fixed Income 5.37% 17.65% 8.20% 8.40%
Short-Term Government Securities 4.99% 9.08% 4.57% 4.67%
Money Market*** 5.21% 5.77% 4.10% 3.91%
</TABLE>
*REFLECTS CUMULATIVE, RATHER THAN AVERAGE ANNUAL, TOTAL RETURN. PERFORMANCE
FOR THE SMALL CAP FUND WOULD HAVE BEEN LOWER IF A PORTION OF THE MANAGEMENT FEE
HAD NOT BEEN WAIVED BY THE MANAGER. IN THE ABSENCE OF THIS FEE WAIVER, ACTUAL
PERFORMANCE WOULD HAVE BEEN 5.00% FOR THE PERIOD SINCE COMMENCEMENT OF
OPERATIONS (NOVEMBER 1, 1995).
**REFLECTS CUMULATIVE, RATHER THAN AVERAGE ANNUAL, TOTAL RETURN. PERFORMANCE
FOR THE BALANCED FUND WOULD HAVE BEEN LOWER IF AN EXPENSE LIMITATION HAD NOT
BEEN IN EFFECT. IN THE ABSENCE OF THIS EXPENSE LIMITATION, ACTUAL PERFORMANCE
WOULD HAVE BEEN 6.11% FOR THE PERIOD SINCE COMMENCEMENT OF OPERATIONS (JULY 3,
1995).
***Performance for the Money Market Fund would have been lower if a portion of
the management fee had not been waived by the Manager. In the absence of this
LIMITATION, actual performance would have been 5.65%, 3.96% and 3.79% for the
one-year period, the three-year period and the period SINCE commencement of
operations (July 1, 1992), respectively.
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TAXES
The tax status of the Trust and the distributions which it may make
are summarized in the Prospectus under the heading "Taxes." All dividends and
distributions of a Fund, whether received in shares or cash, are taxable for
U.S. federal income tax purposes to the shareholder who receives them and must
be reported by such shareholder on his federal income tax return. A dividend
or capital gains distribution received after the purchase of a Fund's shares
reduces the net asset value of the shares by the amount of the dividend or
distribution and will be subject to federal income taxes. A subsequent loss on
the sale of shares held for less than six months will be treated as a long-term
capital loss for Federal income tax purposes to the extent of any long-term
capital gain distribution made with respect to such shares.
Each Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code (the "Code"). In
order so to qualify, each Fund must, among other things, (a) derive at least
90% of its gross income from dividends, interest, payments with respect to
certain securities loans, and gains from the sale of stock, securities and
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (b) derive less than 30% of
its gross income from gains from the sale or other disposition of certain
assets held for less than three months; (c) each year distribute at least 90%
of its dividend, interest (including tax-exempt interest), certain other income
and the excess, if any, of its net short-term capital gains over its net
long-term capital losses; and (d) diversify its holdings so that, at the end of
each fiscal quarter (i) at least 50% of the market value of the Fund's assets
is represented by cash items, U.S. Government securities, securities of other
regulated investment companies, and other securities, limited in respect of any
one issuer to a value not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities
(other than those of the U.S. Government or other regulated investment
companies) of any one issuer or of two or more issuers which the Fund controls
and which are engaged in the same,
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similar or related trades or businesses. Under the 30% of gross income test
described above, the Fund will be restricted from selling certain assets held
(or considered under Code rules to have been held) for less than three months,
and in engaging in certain hedging transactions (including hedging transactions
in futures and options) that in some circumstances could cause certain Fund
assets to be treated as held for less than three months. By so qualifying,
each Fund will not be subject to federal income taxes to the extent that its
net investment income, net realized short- term capital gains and net realized
long-term capital gains are distributed to shareholders.
In years when a Fund distributes amounts in excess of its earnings and
profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of
reducing the shareholder's basis in the shares. To the extent such
distributions exceed a shareholder's basis in the shares the distributions will
be taxed to the shareholder as capital gain.
Hedging Transactions. If a Fund engages in transactions, including
hedging transactions, in options, futures contracts, and straddles, or other
similar transactions, it will be subject to special tax rules (including
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, and convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. A Fund engaging in such transactions will endeavor to make any
available elections pertaining to such transactions in a manner believed to be
in the best interests of the Fund.
Certain of a Fund's hedging activities (including its transactions in
foreign currencies) are likely to produce a difference between its book income
and its taxable income. If a Fund's book income exceeds its taxable income,
the distribution (if any) of such excess will be treated as a dividend to the
extent of the Fund's remaining earnings and profits, and thereafter as a return
of capital or as gain from the sale or exchange of a capital asset, as the case
may be. If the Fund's book income is less than its taxable income, the Fund
could be
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required to make distributions exceeding book income to qualify as a regulated
investment company that is accorded special tax treatment.
Foreign Currency-Denominated Securities and Related Hedging
Transactions. A Fund's transactions in foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts may give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in the value of the foreign currency concerned.
Distributions from Net Realized Capital Gains. As described in the
Prospectus, the Trust's policy is to distribute substantially all of the net
realized capital gain, if any, of each Fund, after giving effect to any
available capital loss carryover. Net realized capital gain for any Fund is
the excess of net realized long-term capital gain over net realized short-term
capital loss. Each Fund of the Trust is treated as a separate entity for
federal income tax purposes and accordingly its net realized gains or losses
will be determined separately, and capital loss carryovers will be determined
and applied on a separate Fund basis. Each of the Funds distributes its net
realized capital gains annually, although the Money Market Fund may distribute
any net realized long-term capital gains more frequently if necessary in order
to maintain a net asset value of $1.00 per share for the shares of that Fund.
Sixty percent of any gain or loss realized by any Fund (i) from net
premiums, from expired listed options and from closing purchase transactions,
(ii) with respect to listed options upon the exercise thereof, and (iii) from
transactions in futures contracts and listed options thereon generally will
constitute long-term capital gains or losses and the balance will be short-term
gains or losses. Distributions of long-term capital gains, if designated as
such by the Trust, are taxable to shareholders as long-term capital gain,
regardless of how long a shareholder has held his shares.
Since Funds which invest in zero-coupon securities will not receive
cash interest payments thereon, to the extent shareholders of these Funds elect
to take their distributions in cash, the relevant Fund may have to generate the
required cash
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from the disposition of non-zero-coupon securities, or possibly from the
disposition of some of its zero-coupon securities.
General. For federal income tax purposes, distributions paid from net
investment income and from any net realized short-term capital gain (including
premiums from expired options and gains from any closing purchase transactions
with respect to options written by the Trust for any Fund) are taxable to
shareholders as ordinary income, whether received in cash or in additional
shares.
Annually, shareholders will receive information as to the tax status
of distributions made by the Trust in each calendar year.
The Trust is required to withhold and remit to the U.S. Treasury 31%
of all dividend income earned by any shareholder account for which an incorrect
or no taxpayer identification number has been provided or where the Trust is
notified that the shareholder has under-reported income in the past (or the
shareholder fails to certify that he is not subject to such withholding). In
addition, the Trust will be required to withhold and remit to the U.S. Treasury
31% of the amount of the proceeds of any redemption of shares of a shareholder
account for which an incorrect or no taxpayer identification number has been
provided.
The foregoing relates to federal income taxation. Distributions from
investment income and capital gains may also be subject to state and local
taxes. The Trust is organized as a Massachusetts business trust. Under
current law, so long as each Fund qualifies for the federal income tax
treatment described above, it is believed that neither the Trust nor any Fund
will be liable for any income or franchise tax imposed by Massachusetts.
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<PAGE> 88
MANAGEMENT OF THE TRUST
Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
<TABLE>
<CAPTION>
==========================================================================================================
NAME, ADDRESS AND AGE POSITION(S) HELD WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING
PAST 5 YEARS
==========================================================================================================
<S> <C> <C>
P. Michael Pond*, 42, Trustee, Chairman and President President and Director,
100 N.E. Adams Street Caterpillar Investment
Peoria, IL 61629-5330 Management Ltd.; President and
Director, Caterpillar
Securities Inc.
Gary Michael Anna, 42, Trustee Vice President, Business Affairs,
1501 W. Bradley Avenue Bradley University
Peoria, IL 61625
William F. Bahl, 45, Trustee Chairman of the Board, Bahl &
212 E. Third Street Gaynor, Inc. (a registered
Suite 200 investment adviser)
Cincinnati, OH 45202
James F. Masterson*, 58, Trustee DIRECTOR, INVESTOR RELATIONS,
100 N.E. ADAMS STREET Caterpillar Inc.;
PEORIA, IL 61629- 5330 MANAGER, TREASURY/ORDERS,
CATERPILLAR INC., SEPTEMBER
1988 TO JANUARY 1995
Dixie Louise Mills, 48, Trustee Professor of Finance, Illinois
Illinois State University State University
15 Williams Hall
Normal, IL 61790-5500
Carol K. Burns, 50, Vice President and Assistant Clerk Manager of Marketing,
100 N.E. Adams Street Clerk Caterpillar Investment
Peoria, IL 61629-5330 Management Ltd.; Director,
Caterpillar Securities Inc.;
Marketing Consultant,
Caterpillar Financial Services
Corp., April 1987 to October
1991
Fred L. Kaufman, 48, Vice President and Treasurer Treasurer, Caterpillar
100 N.E. Adams Street Investment Management Ltd.;
Peoria, IL 61629-5330 Treasurer and Director,
Caterpillar Securities Inc.;
Corporate Auditor, Caterpillar
Inc., June 1988 to November
1991
Richard P. Konrath, 34, Clerk Securities Counsel, Caterpillar
100 N.E. Adams Street Inc.; Special Counsel and Staff Attorney,
Peoria, IL 61629-5330 Securities and Exchange
Commission, May 1987 to May
1993
</TABLE>
* Messrs. Pond and Masterson are each "interested PERSONS" (as defined
in the 1940 Act) of the Trust, the Manager and the Distributor and,
therefore, may benefit from the management fees paid to the Manager.
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<PAGE> 89
The mailing address of each of the officers and Trustees is c/o the
Trust, 100 N.E. Adams Street, Peoria, Illinois 61629.
The Trust's Agreement and Declaration of Trust provides that the Trust
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Trust, except if it is determined in the manner
specified in the Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in the best
interests of the Trust or that such indemnification would relieve any officer
or Trustee of any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of his
or her duties. The Trust, at its expense, will provide liability insurance for
the benefit of its Trustees and officers.
Trustees other than those who are interested persons of the Manager
receive an annual fee of $6,000 plus $1,000 for each Trustees' meeting
attended. The table below shows the compensation paid to the Trust's Trustees
and officers for the year ended June 30, 1995.
<TABLE>
<CAPTION>
=============================================================================================================
NAME OF PERSON, AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
POSITION COMPENSATION FROM RETIREMENT BENEFITS UPON COMPENSATION FROM
THE TRUST BENEFITS ACCRUED RETIREMENT THE TRUST AND
AS PART OF FUND FUND COMPLEX PAID
EXPENSES TO TRUSTEES
=============================================================================================================
<S> <C> <C> <C> <C>
P. Michael Pond, $0 $0 $0 $0
Trustee, Chairman
and President
Gary Michael Anna, $10,000 $0 $0 $10,000
Trustee
William F. Bahl, $10,000 $0 $0 $10,000
Trustee
James F. Masterson, $0 $0 $0 $0
Trustee
Dixie Louise Mills, $10,000 $0 $0 $10,000
Trustee
Carol K. Burns $0 $0 $0 $0
Vice President and
Assistant Clerk
</TABLE>
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<PAGE> 90
<TABLE>
<S> <C> <C> <C> <C>
Fred L. Kaufman $0 $0 $0 $0
Vice President and Treasurer
</TABLE>
At the date of this Statement, the Trust believes that the officers
and Trustees as a group own less than 1% of the outstanding shares of any Fund.
As of March 31, 1996, the following entities WERE the recordholders of the
following percentages of outstanding securities of the following Funds:
<TABLE>
<CAPTION> Percentage Ownership
as of March 31, 1996
----------------------------------------------------------------------
Caterpillar
Inc. SUPP-
LEMENTAL
UNEMPLOY-
MENt and
Caterpillar Benefits
Investment Group CATERPILLAR
Trust Insurance Caterpillar INVESTMENT
401(k) Trust A Insurance MANAGEMENT
Plan and Trust B Company Ltd. LIMITED
------ ----------- ---------- -------
FUND % TOTAL % TOTAL % TOTAL % TOTAL
- ---- ------- ------- -------- -------
<S> <C> <C> <C> <C>
GROWTH 40.88 7.82 8.17 --
VALUE 59.58 14.23 14.21 --
INTERNATIONAL 49.31 30.96 6.49 --
SMALL CAP 22.50 76.50 -- --
ASSET ALLOCATION 44.03 35.96 -- --
BALANCED -- -- -- 81.77
FIXED INCOME 26.14 33.36 --
Short-Term 89.63 52.48 -- --
Government
Securities
Money Market 89.95 -- -- --
</TABLE>
TO THE EXTENT EITHER CATERPILLAR INVESTMENT TRUST 401(K) PLAN OR
CATERPILLAR INC. SUPPLEMENTAL UNEMPLOYMENT AND BENEFITS GROUP INSURANCE TRUSTS
A OR B, EACH A TRUST FORMED UNDER THE LAWS OF ILLINOIS FOR THE BENEFIT OF
EMPLOYEES OF CATERPILLAR INC., BENEFICIALLY OWNS MORE THAN 25% OF A FUND, IT
MAY BE DEEMED TO "CONTROL" SUCH FUND. AS A RESULT, IT MAY NOT BE POSSIBLE FOR
MATTERS SUBJECT TO A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING SECURITIES OF
A FUND TO BE APPROVED WITHOUT THE AFFIRMATIVE VOTE OF SUCH SHAREHOLDERS, AND IT
MAY BE POSSIBLE FOR SUCH MATTERS TO BE APPROVED BY SUCH SHAREHOLDERS WITHOUT
THE AFFIRMATIVE VOTE OF
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<PAGE> 91
ANY OTHER SHAREHOLDERS.
The address of each of the recordholders listed above is 100 N.E.
Adams Street, Peoria, Illinois 61629, EXCEPT FOR CATERPILLAR INSURANCE COMPANY
LTD., THE ADDRESS OF WHICH IS 3322 WEST END AVENUE, NASHVILLE, TENNESSEE
37203-1031. AS OF MARCH 31, 1996, the trust believes that no person, other
THAN SRL MOTOR CARS INC., 1 COMAC LOOP, RONKONKOMA, NEW YORK 11779-6816, which
beneficially owns 6.17% of the outstanding shares of the Growth Fund, owns
beneficially more than 5% of the outstanding shares of any Fund.
The Manager and the Subadvisers
Under written Management Contracts between the Trust and the Manager
with respect to each Fund, subject to such policies as the Trustees of the
Trust may determine, the Manager, at its expense, will furnish continuously an
investment program for the Trust and will make investment decisions on behalf
of the Funds and place all orders for the purchase and sale of portfolio
securities subject always to applicable investment objectives, policies and
restrictions provided. In order to assist it in carrying out its
responsibilities, the Manager has retained Subadvisers to render advisory
services to each Fund other than the Short-Term Government Securities and Small
Cap Funds.
The Manager has advised the Funds since inception, and the Manager and
its subsidiaries have provided investment advisory services to other entities
since 1989. The Manager and the Subadvisers have managed assets for the
Caterpillar Inc. $4.6 billion pension fund. The Manager currently manages more
than $420 million of assets in various stock and bond portfolios for the
Caterpillar Inc. pension fund and Caterpillar Insurance Company Ltd. In
addition, the Manager manages more than $120 million in pension plan assets in
its pension group trust created in 1990 to serve the pension investment needs
of Caterpillar Inc. dealers AND suppliers. Other corporations, such as General
Electric Company, AMR Corporation AND Owens-Corning Fiberglass Corporation also
have investment subsidiaries that have sponsored mutual funds.
Subject to the control of the Trustees, the Manager also manages,
supervises and conducts the other affairs and business
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<PAGE> 92
of the Trust, furnishes office space and equipment, provides bookkeeping and
certain clerical services and pays all salaries, fees and expenses of officers
and Trustees of the Trust who are affiliated with the Manager. As indicated
under "Portfolio Transactions -- Brokerage and Research Services," the Trust's
portfolio transactions may be placed with broker-dealers which furnish the
Manager or the Subadvisers, without cost, certain research, statistical and
quotation services of value to them or their respective affiliates in advising
the Trust or their other clients. In so doing, a Fund may incur greater
brokerage commissions than it might otherwise pay.
The Manager's compensation under the Management Contract with respect
to a Fund is subject to reduction to the extent that in any year the expenses
of such Fund exceed the limits on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of such
Fund are qualified for offer and sale. The term "expenses" is subject to
interpretation by each of such jurisdictions, and, generally speaking, excludes
brokerage commissions, taxes, interest, distribution-related expenses and
extraordinary expenses. The most restrictive of such limitations as of the
date of this Statement is believed to be 2 1/2% of the first $30 million of net
assets, 2% of the next $70 million, and 1 1/2% of any excess over $100 million.
In order to limit expenses, the Manager has agreed (1) to bear
expenses (exclusive of brokerage, interest, taxes and deferred organizational
and extraordinary expenses, but including the management fee (0.75%)) of the
Balanced Fund in excess of 1.15% of average net assets, and (2) to waive a
portion (0.35%) of its management fees with respect to the Small Cap Fund. For
the purposes of determining the portion, if any, of the expenses of the
Balanced Fund to be borne by the Manager, expenses of the Balanced Fund shall
not reflect the application of commissions or cash management credits that may
reduce designated Fund expenses. This expense limitation and/or this waiver of
management fees may be terminated by the Manager at any time, in which event
shareholders of the relevant Fund would be notified and this Statement of
Additional Information would be revised.
Each Fund pays the Manager a monthly Management Fee based on the
average net assets of the Fund at the following annual rates
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<PAGE> 93
(after giving effect to fee WAIVER currently in effect with respect to the
Small Cap FUND of .35% of average net assets, as disclosed in the Prospectus):
-49-
<PAGE> 94
<TABLE>
<CAPTION>
Annual Percentage of
Fund Average Net Assets
---- ---------------------
<S> <C>
Growth . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Value . . . . . . . . . . . . . . . . . . . . . . . . . . .75
International . . . . . . . . . . . . . . . . . . . . . . .95
Small Cap . . . . . . . . . . . . . . . . . . . . . . . . .40
Asset Allocation . . . . . . . . . . . . . . . . . . . . . .70
Balanced . . . . . . . . . . . . . . . . . . . . . . . . . .75
Fixed Income . . . . . . . . . . . . . . . . . . . . . . . .65
Short-Term Government Securities . . . . . . . . . . . . . .35
Money Market . . . . . . . . . . . . . . . . . . . . . . . .30
===
For the fiscal years ended June 30, 1995, 1994 and 1993, the Funds
paid to the Manager the following amounts as Management Fees pursuant to the
relevant Management Contracts (no fees were paid with respect to the Small Cap
or Balanced Funds during such periods):
Fund Management Fees
----------------------------------------
Fiscal Year Ended June 30,
1995 1994 1993
--------- ---------- -----------
<S> <C> <C> <C>
Growth . . . . . . . . . . . . . . $ 1,916,870 $1,121,122 $ 738,835
Value . . . . . . . . . . . . . . 1,205,912 928,481 834,232
International . . . . . . . . . . 1,046,409 675,436 294,420
Asset Allocation . . . . . . . 450,971 388,646 298,994
Fixed Income . . . . . . . . . . . 325,238 273,104 207,004
Short-Term
Government . . . . . . . . . . .
Securities . . . . . . . . . . . 105,672 103,056 90,737
Money Market(1) . . . . . . . . . 90,767 40,263 36,691
=======
</TABLE>
___________________________
(1) The Manager waived $90,767, $40,263 and $11,901 in MANAGEMENT FEES during
the fiscal years ended June 30, 1995, 1994 and 1993, respectively.
Under the Subadviser Agreement for each Fund between the Manager and the
Subadviser for such Fund (the "Subadviser Agreements"), subject always to the
control of the Trustees of the Trust, each Subadviser's obligation is to
furnish
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<PAGE> 95
continuously an investment program for the Fund, to make investment decisions
on behalf of the Fund and to place all orders for the purchase and sale of
portfolio securities and all other investments for the Fund.
In performing their duties under the Subadviser Agreements, each Subadviser
is subject to the control of the Trustees, the policies determined by the
Trustees, the provisions of the Trust's Agreement and Declaration of Trust and
By-laws and any applicable investment objectives, policies and restrictions in
effect from time to time.
The Management Contracts for all of the Funds and the Subadviser Agreements
were approved by the Trustees of the Trust (including all of the Trustees who
are not "interested persons" of the Manager or the relevant Subadvisers). The
Management Contracts and the Subadviser Agreements continue in force with
respect to the relevant Fund for two years from their respective dates, and
from year to year thereafter, but only so long as their continuance is approved
at least annually by (i) vote, cast in person at a meeting called for that
purpose, of a majority of those Trustees who are not "interested persons" of
the Trust, the Manager or the relevant Subadviser, and by (ii) the majority
vote of either the full Board of Trustees or the vote of a majority of the
outstanding shares of that Fund. Each of the Management Contracts and the
Subadviser Agreements automatically terminates on assignment, and each is
terminable upon notice by the Trust. In addition, the Management Contracts may
be terminated on not more than 60 days' notice by the Manager to the Trust, and
the Subadviser Agreements may be terminated upon 60 days' notice by the Manager
or 90 days' notice by the Subadviser.
As described in the Prospectus under the caption "Management of the Trust,"
the Trust pays, in addition to the Management Fees described above, all
expenses not assumed by the Manager, including, without limitation, fees and
expenses of Trustees who are not "interested persons" of the Manager or the
Trust, interest charges, taxes, brokerage commissions, expenses of issue or
redemption of shares, fees and expenses of registering and qualifying the Trust
and shares of the respective Funds for distribution under federal and state
laws and regulations, charges of custodians, auditing and legal expenses,
expenses of determining the net asset value of the Trust's shares, reports to
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<PAGE> 96
shareholders, expenses of meetings of shareholders, expenses of printing and
mailing prospectuses, proxy statements and proxies to existing shareholders,
and insurance premiums and professional association dues or assessments. The
Trust is also responsible for such nonrecurring expenses as may arise,
including litigation in which the Trust may be a party, and other expenses as
determined by the Trustees. The Trust may have an obligation to indemnify its
officers and Trustees with respect to such litigation.
Each Management Contract provides that the Manager 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 Subadvisers. In order to assist it in carrying out its
responsibilities, the Manager has retained various Subadvisers to render
advisory services to the Funds, under the supervision of the Manager and the
Trust's Trustees. The Manager pays the fees of each of the Subadvisers. The
fee paid to the Subadvisers (other than J.P. Morgan Investment Management Inc.
("Morgan")) is based on the Fund assets managed or advised by such Subadviser
(the "Fund Assets") together with any other assets managed or advised by the
Subadviser 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 by applying the average
quarterly net asset value, as of the last business day of each month in the
calendar quarter, of the Combined Assets to the annual rates for each
Subadviser (other than Morgan), as set forth below. This amount is then
adjusted based upon the ratio of Fund Assets to Combined Assets. The
subadvisory fee paid to Morgan with respect to the Fixed Income and Money
Market Funds is based solely on the average net assets of the respective Funds.
Oppenheimer Capital ("Oppenheimer") is a Delaware general partnership
formed on July 1, 1987. Its address is Oppenheimer Tower, World Financial
Center, New York, New York 10281. Oppenheimer & Co., L.P. ("OpCo"), a New
York limited partnership, through various subsidiaries, owns 32.3% of
Oppenheimer. OpCo is owned by executive officers and other key employees of
both Oppenheimer and its affiliated broker/dealer, Oppenheimer & Co.,
-52-
<PAGE> 97
Inc. Oppenheimer Capital, L.P., a publicly-owned master limited partnership,
owns the remaining 67.7% of Oppenheimer. Oppenheimer provides investment
advice to individuals, state and local government agencies, pension and profit
sharing plans, trusts, estates, businesses and other organizations. The
Manager pays Oppenheimer for its subadvisory services with respect to the Value
Fund a fee, calculated as described above, at the annual rate of 0.50% of the
first $50 million of Combined Assets, 0.375% of the next $50 million of
Combined Assets and 0.25% of Combined Assets in excess of $100 million. The
Manager has informed the Trust that for the fiscal years ended June 30, 1995,
1994 and 1993 Oppenheimer earned $471,392, $358,332 and $326,789, respectively,
in subadvisory fees.
Jennison Associates Capital Corp. ("Jennison") provides investment advice
to mutual funds, institutional accounts and other entities. Its principal
place of business is 466 Lexington Avenue, New York, New York 10017. Jennison
is a wholly-owned subsidiary of The Prudential Insurance Company of America, a
mutual insurance company and a registered investment adviser. The Manager pays
Jennison for its subadvisory services with respect to the Growth and Balanced
Funds a fee, calculated as described above, at the annual rate of 0.75% of the
first $10 million of Combined Assets, 0.50% of the next $30 million of Combined
Assets, 0.35% of the next $25 million of Combined Assets, 0.25% of the next
$335 million of Combined Assets, 0.22% of the next $600 million of Combined
Assets and 0.20% of Combined Assets in excess of $1 billion. The Manager has
informed the Trust that for the fiscal years ended June 30, 1995, 1994 and 1993
Jennison earned $676,200, $400,334, and $268,559, respectively, in subadvisory
fees (no fees were paid with respect to the Balanced Fund during these
periods).
Mellon Capital Management Corporation ("Mellon"), a Delaware corporation,
is located at 595 Market Street, Suite 3000, San Francisco, California 94105.
Mellon was founded in 1983 and presently manages over $36 billion in funds.
Mellon is a wholly-owned, indirect subsidiary of Mellon Bank Corporation,
Pittsburgh, Pennsylvania, a bank holding company which engages in the
businesses of retail banking, wholesale banking, and service products. Mellon
serves as an investment adviser and manager for institutional clients. The
Manager pays Mellon for its subadvisory services with respect to the Asset
Allocation Fund a
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<PAGE> 98
fee, calculated as described above, at the annual rate of 0.50% of the first
$200 million of Combined Assets and 0.20% of Combined Assets in excess of $200
million. The Manager has informed the Trust that for the fiscal years ended
June 30, 1995, 1994 and 1993 Mellon earned $95,500, $81,001 and $61,278,
respectively, in subadvisory fees.
PanAgora Asset Management, Inc.'s ("PanAgora") principal place of business
is 260 Franklin Street, Boston, Massachusetts 02110. Fifty percent of the
outstanding voting stock of PanAgora is owned by each of Nippon Life Insurance
Company, a mutual life insurance company, and Lehman Brothers Inc., a brokerage
and investment advisory firm. PanAgora currently provides asset allocation,
indexing and related investment advisory services to a variety of endowment
funds, pension accounts, other institutions and investment companies, with
total assets under management in excess of $11 billion. The Manager pays
PanAgora for its subadvisory services with respect to the Asset Allocation Fund
a fee, calculated as described above, at the annual rate of 0.50% of the first
$10 million of Combined Assets, 0.40% of the next $40 million of Combined
Assets, 0.20% of the next $50 million of Combined Assets and 0.10% of Combined
Assets in excess of $100 million. The Manager has informed the Trust that for
the fiscal years ended June 30, 1995, 1994 and 1993 PanAgora earned $47,906,
$41,645 and $33,266, respectively, in subadvisory fees.
Mercator Asset Management, L.P. provides investment advice to mutual funds
and other entities. Its principal place of business is 2400 East Commercial
Blvd., Ft. Lauderdale, Florida 33308. Mercator ASSET MANAGEMENT, L.P. IS
LIMITED PARTNERSHIP A PORTION OF THE LIMITED PARTNERSHIP INTERESTS IN WHICH IS
OWNED BY The Prudential Insurance Company of America, a mutual insurance
company and a registered investment adviser. The Manager pays Mercator ASSET
MANAGEMENT, L.P. for its subadvisory services with respect to the International
Fund a fee, calculated as described above, at the annual rate of 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
Manager has informed the Trust that for the fiscal years ended June 30, 1995,
1994 and 1993, MERCATOR ASSET MANAGEMENT, INC., AN AFFILIATE OF MERCATOR ASSET
MANAGEMENT, L.P.
-54-
<PAGE> 99
THAT SERVED AS SUBADVISER TO THE INTERNATIONAL FUND PRIOR TO NOVEMBER 30, 1995,
earned $677,479, $460,355 and $199,712, respectively, in subadvisory fees.
Morgan provides investment advice to mutual funds and other entities. Its
principal place of business is 522 Fifth Avenue, New York, New York 10036.
Morgan is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated, an
international financial services corporation. The Manager pays Morgan for its
subadvisory services with respect to the Money Market Fund a fee computed and
paid quarterly at the annual rate of 0.15% of the average quarterly net assets,
as of the last business day of each month in the calendar quarter, of the Money
Market Fund. The Manager pays Morgan for its subadvisory services with respect
to the Fixed Income Fund a fee computed and paid quarterly at the annual rate
of 0.30% of the average quarterly net assets, as of the last business day of
each month in the calendar quarter, of the first $75 million of such assets,
0.25% of the next $75 million of such assets, 0.22% of the next $150 million of
such assets, and 0.15% of such assets in excess of $300 million. The Manager
has informed the Trust that for the fiscal years ended June 30, 1995, 1994 and
1993 Morgan earned $92,481, $41,402 and $23,713, respectively, in subadvisory
fees with respect to the Money Market Fund and $145,585, $122,469 and $97,775,
respectively, with respect to the Fixed Income Fund.
Each of the Subadvisers also serves as investment adviser to certain
separate accounts with minimum balances ranging from $10 million to $50
million. Jennison has informed the Trust that its separate account minimum
balance is typically $30 million.
The Subadvisers are registered as investment advisers with the Securities
and Exchange Commission. This registration does not involve supervision of
management or investment policy by any federal agency.
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<PAGE> 100
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS.
The Trust's independent accountants are Price Waterhouse LLP, 160 Federal
Street, Boston, MA 02110. Price Waterhouse LLP conducts an annual audit of
the Trust, assists in the preparation of each Fund's federal and state income
tax returns and consults with the Trust as to matters of accounting and federal
and state income taxation. The unaudited financial statements included in the
Trust's Semi-Annual Report for the period ended December 31, 1995, filed
electronically on March 8, 1996 (File No. 811-06602) are incorporated by
reference into this Statement of Additional Information.
OTHER SERVICES
Custodial Arrangements. State Street Bank and Trust Company ("State
Street"), P.O. Box 1713, Boston, MA 02101, is the custodian for all Funds of
the Trust. As such, State Street holds in safekeeping certificated securities
and cash belonging to the Trust and, in such capacity, is the registered owner
of securities in book-entry form belonging to the Trust. Upon instruction,
State Street receives and delivers cash and securities of the Trust in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street
also maintains certain accounts and records of the Trust. In addition, State
Street has contracted with various foreign banks and depositories to hold
portfolio securities outside of the United States on behalf of certain of the
Funds. State Street also calculates the total net asset value, total net
income and net asset value per share of each Fund on a daily basis (and as
otherwise may be required by the 1940 Act) and performs certain accounting
services for all Funds of the Trust.
Transfer Agent. State Street also acts as the Trust's transfer agent and
dividend disbursing agent.
As compensation for its services as custodian and transfer agent, the Funds
accrued expenses in the following amounts to be paid to State Street for the
periods indicated (no shares of the Small Cap or Balanced Funds were
outstanding during the periods shown):
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<PAGE> 101
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
===================
Fund 1995 1994 1993
==== ==== ==== ====
<S> <C> <C> <C>
GROWTH $138,000 $102,000 $ 89,000
VALUE $103,000 $ 80,000 $ 73,000
INTERNATIONAL $311,000 $231,000 $113,500
ASSET ALLOCATION $183,000 $200,000 $150,000
FIXED INCOME $ 86,000 $ 64,000 $ 46,500
SHORT-TERM $ 55,000 $ 47,000 $ 35,500
GOVERNMENT SECURITIES
MONEY MARKET $ 76,000 $ 50,000 $ 32,500
</TABLE>
Distributor. Caterpillar Securities Inc. ("CSI"), A WHOLLY-OWNED
SUBSIDIARY of CIML, is the Trust's principal underwriter. CSI is not obligated
to sell any specific amount of shares of the Trust and will purchase shares for
resale only against orders therefor.
PORTFOLIO TRANSACTIONS
Investment Decisions. Investment decisions for the Trust and for the other
investment advisory clients of the Manager and the Subadvisers are made with a
view to achieving their respective investment objectives. The Manager and the
Subadvisers operate independently in providing services to their respective
clients. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, for example, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one client may sell
a particular security to another client. It also
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<PAGE> 102
happens that two or more clients may simultaneously buy or sell the same
security, in which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such clients in a
manner which in the opinion of the Manager or the relevant Subadviser is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other
clients.
Brokerage and Research Services. Transactions on stock exchanges and other
agency transactions involve the payment by the Trust of brokerage commissions.
In the United States and certain foreign countries, such commissions vary among
different brokers. Also, a particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction. There
is generally no stated commission in the case of securities, such as U.S.
Government securities, traded in the over-the-counter markets, but the price
paid by the Trust usually includes an undisclosed dealer commission or mark-up.
It is anticipated that most purchases and sales of portfolio securities for the
Money Market Fund will be with the issuer or with major dealers in money market
instruments acting as principals. Accordingly, it is not anticipated that the
Short-Term Government Securities or Money Market Funds will pay significant
brokerage commissions. In underwritten offerings, the price paid includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
Securities firms may receive brokerage commissions on transactions involving
options, futures and options on futures and the purchase and sale of underlying
securities upon exercise of options. The brokerage commissions associated with
buying and selling options may be proportionately higher than those associated
with general securities transactions.
When the Manager or a Subadviser places orders for the purchase and sale of
portfolio securities for a particular Fund and buys and sells securities for
such Fund it is anticipated that such transactions will be effected through a
number of brokers and dealers. In so doing, the Manager or the relevant
Subadviser, as the case may be, intends to use its best efforts to obtain for
each Fund the most favorable price and execution available, except to the
extent that it may be permitted to pay
-58-
<PAGE> 103
higher brokerage commissions as described below. In seeking the most favorable
price and execution, the Manager or the relevant Subadviser, as the case may
be, considers 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 commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical and quotation services from broker-dealers
which execute portfolio transactions for the clients of such advisers.
Consistent with this practice, the Manager and the Subadvisers may receive
research, statistical and quotation services from many broker-dealers with
which the Trust's portfolio transactions are placed. These services, which in
some instances could also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Manager or the
Subadvisers in advising various of its clients (including the Trust), although
not all of these services are necessarily useful and of value in managing the
Trust or any particular Fund. The fees paid to the Manager and the Subadvisers
are not reduced because they receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Management Contracts and the Subadviser Agreements, the Manager and the
Subadvisers may cause a Fund to pay a broker-dealer which provides "brokerage
and research services" (as defined in the Securities Exchange Act of 1934) to
the Manager or the Subadvisers an amount of disclosed commission for effecting
a securities transaction for a Fund on an agency basis in excess of the
commission which another broker-dealer would have charged for effecting that
transaction. The authority of the Manager and the Subadvisers to cause the
Funds to pay any such greater commissions is subject to such policies as the
Trustees may adopt from time to time.
The aggregate brokerage commissions paid by the Funds during
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<PAGE> 104
the fiscal years ended June 30, 1995, 1994 and 1993 and the amounts of
brokerage commissions allocated to persons or firms supplying research,
statistical and quotation services during such fiscal years are set forth below
(no brokerage commissions were paid by the Small Cap or Balanced Funds during
such periods):
Fiscal year ended June 30, 1995:
<TABLE>
<CAPTION>
Transactions Brokerage
Directed to a Commissions
Broker Because of Allocated to
Aggregate Research and Research
Fund Brokerage Commissions Other Services and Other Services
---- --------------------- -------------- ------------------
<S> <C> <C> <C>
Growth $ 464,696 $125,565,541 $ 232,620
Value 168,461 53,634,091 88,191
International 227,812 0 0
Asset Allocation 5,379 0 0
Fixed Income 0 0 0
Short-Term
Gov't Securities 0 0 0
Money Market 0 0 0
</TABLE>
Fiscal year ended June 30, 1994:
<TABLE>
<CAPTION>
Transactions Brokerage
Directed to a Commissions
Broker Because of Allocated to
Aggregate Research and Research
Fund Brokerage Commissions Other Services and Other Services
---- --------------------- -------------- ------------------
<S> <C> <C> <C>
Growth $196,151 $63,046,000 $ 94,854
Value 32,847 13,694,815 18,533
International 128,337 0 0
Asset Allocation 10,984 0 1,795
Fixed Income 0 0 0
Short-Term
Government Securities 0 0 0
Money Market 0 0 0
</TABLE>
Fiscal year ended June 30, 1993:
<TABLE>
<S> <C> <C> <C>
Growth $220,361 $69,507,725 $106,673
Value 178,454 43,605,000 80,800
International 147,529 0 0
Asset Allocation 19,797 12,357,924 8,560
Fixed Income 0 0 0
</TABLE>
-60-
<PAGE> 105
<TABLE>
<S> <C> <C> <C>
Short-Term
Government Securities 0 0 0
Money Market 0 0 0
</TABLE>
The Funds may from time to time place orders for the purchase or sale
of securities with brokers that may be affiliated with the Manager or a
Subadviser. In such instances, the placement of orders with such brokers would
be consistent with the Funds' objective of obtaining the best execution and
could not be dependent upon the fact that such brokers are affiliates of the
Manager or a Subadviser. With respect to orders placed with affiliated brokers
for execution on a national securities exchange, commissions received must
conform to Section 17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which
permit an affiliated person of a registered investment company (such as the
Trust), or any affiliated person of such person, to receive a brokerage
commission from such registered investment company provided that such
commission is reasonable and fair compared to the commissions received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time.
During the fiscal year ended June 30, 1995, the Value Fund placed
orders for the purchase or sale of securities with Oppenheimer & Co., Inc., an
affiliate of Oppenheimer, Lehman Brothers, Inc., an affiliate of PanAgora, and
Prudential Securities Incorporated, an affiliate of Jennison and Mercator, and
the Growth Fund placed orders for the purchase or sale of securities with J.P.
Morgan Securities, Inc., an affiliate of Morgan, Oppenheimer & Co., Inc., an
affiliate of Oppenheimer, and Lehman Brothers, an affiliate of PanAgora. These
brokerage transactions are set forth below.
-61-
<PAGE> 106
Fiscal year ended June 30, 1995
<TABLE>
<CAPTION>
% of Fund's % of Fund's
Amount of Aggregate Aggregate
Affiliated Brokerage Brokerage Dollar Amount
Fund Broker Commissions Commissions of Transactions
- ---- ---------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Value Fund Oppenheimer $15,036 8.93% .13%
& Co.
Lehman 1,500 .89% .08%
Brothers,
Inc.
Prudential 3,918 2.33% .08%
Securities
Incorporated
Growth Fund J.P. Morgan 4,688 .98% .22%
Securities,
Inc.
Oppenheimer 767 .17% .21%
& Co.
Lehman 12,063 2.58% .21%
Brothers,
Inc.
</TABLE>
During the fiscal year ended June 30, 1994, the Value Fund placed orders
for the purchase and sale of securities with Oppenheimer & Co. and Prudential
Securities, an affiliate of Mercator, and the Growth Fund placed orders for the
purchase and sale of securities with J.P. Morgan, Lehman Brothers Inc. and
Oppenheimer & Co. These brokerage transactions are set forth below.
-62-
<PAGE> 107
Fiscal year ended June 30, 1994
<TABLE>
<CAPTION>
% of Fund's % of Fund's
Amount of Aggregate Aggregate
Affiliated Brokerage Brokerage Dollar Amount
Fund Broker Commissions Commissions of Transactions
- ---- ---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Value Fund Prudential $ 750 2.3% 1.2%
Securities
Oppenheimer $ 300 0.9% 2.2%
& Co.
Growth Fund J.P. Morgan $ 3,503 1.79% 1.24%
Lehman $15,400 7.85% 7.17%
Brothers Inc.
Oppenheimer $ 2,745 1.4% 1.10%
& Co.
</TABLE>
Fiscal year ended June 30, 1993
<TABLE>
<S> <C> <C> <C> <C>
Value Fund Lehman $24,046 12.7% 11.6%
Brothers Inc.
Oppenheimer $ 8,364 4.5% 6.0%
& Co.
</TABLE>
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the
laws of Massachusetts by an Agreement and Declaration of Trust dated November
19, 1991. A copy of the Agreement and Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Trust's fiscal
year ends on June 30.
As described in the Prospectus following the caption "Description of
The Preferred Group," shares of the Trust are each entitled to one vote per
share (with proportional voting for fractional shares) on such matters as
shareholders are entitled to vote. Shareholders vote by individual Fund on all
matters except (i) when required by the law, shares shall be voted as a
-63-
<PAGE> 108
single class, and (ii) when the Trustees have determined that the matter
affects only the interests of one or more Funds, then only shareholders of such
Funds affected shall be entitled to vote thereon. There will normally be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees have been elected by the
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. In addition, Trustees may
be removed from office by a written consent signed by the holders of two-thirds
of the outstanding shares of the Trust and filed with the Trust's custodian or
by a vote of the holders of two-thirds of the outstanding shares of the Trust
at a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten or more shareholders, who have been such for at
least six months, and who hold shares constituting 1% of the outstanding
shares, stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a Trustee, the Trust has undertaken to provide a
list of shareholders or to disseminate appropriate materials (at the expense of
the requesting shareholders). Except as set forth above, the Trustees shall
continue to hold office and may appoint their successors.
Shareholder Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Trust or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of a Fund's property for all loss and expense of any
shareholder of that Fund held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Fund
of which he is or was a shareholder would be unable to meet its obligations.
-64-
<PAGE> 109
PAST PERFORMANCE OF JENNISON
JENNISON HAS ACTED AND ACTS AS INVESTMENT ADVISER TO A NUMBER OF
BALANCED INVESTMENT ACCOUNTS (THE "BALANCED ACCOUNTS," AND, COLLECTIVELY, THE
"BALANCED ACCOUNT COMPOSITE") WITH INVESTMENT OBJECTIVES, POLICIES AND
STRATEGIES SUBSTANTIALLY SIMILAR TO THOSE OF THE BALANCED FUND. (1) AS INDICATED
IN THE MONTH-END ASSET ALLOCATION CHART BELOW, HOWEVER, THE BALANCED ACCOUNTS
HELD ONLY 23.73%, 22.72%, 21.83% AND 24.88% OF THEIR ASSETS IN FIXED INCOME
SECURITIES (INCLUDING BOTH DEBT SECURITIES AND SHORT-TERM FIXED INCOME
SECURITIES) ON JANUARY 30, 1981, MARCH 31, 1981, APRIL 30, 1981, AND OCTOBER
31, 1986, RESPECTIVELY, WHILE THE BALANCED FUND WILL AT ALL TIMES HOLD AT LEAST
25% OF ITS ASSETS IN FIXED INCOME SECURITIES. DATA SHOWN IN THE ASSET
ALLOCATION CHART BELOW IS AS OF EACH MONTH-END. ASSET ALLOCATION MAY HAVE
VARIED DURING THE MONTH, BUT ONLY MONTH-END ASSET ALLOCATION DATA IS AVAILABLE.
JENNISON HAS REPRESENTED THAT TO THE BEST OF ITS KNOWLEDGE, THE BALANCED FUND
CAN BE MANAGED IN A WAY THAT IS CONSISTENT WITH THE WAY IN WHICH THE BALANCED
ACCOUNTS WERE MANAGED DURING THE PERIODS SHOWN BELOW, NOTWITHSTANDING THE
AFOREMENTIONED LEVELS OF FIXED INCOME SECURITIES AND THE DIFFERENT TAX RULES
THAT WILL BE APPLICABLE TO, AND RESTRICTIONS THAT WILL BE IMPOSED BY THE
INVESTMENT COMPANY ACT OF 1940 ON, THE BALANCED FUND (ALTHOUGH NO ASSURANCE CAN
BE GIVEN WITH RESPECT TO THE FUTURE PERFORMANCE OF THE BALANCED FUND). THE
FOLLOWING TABLES SET FORTH FOR THE PERIODS INDICATED TIME-WEIGHTED AVERAGE
TOTAL RETURN OF THE BALANCED ACCOUNT COMPOSITE, WEIGHTED BY MARKET VALUE. THE
PERFORMANCE INFORMATION FOR THE BALANCED ACCOUNT COMPOSITE HAS BEEN ADJUSTED TO
GIVE ANNUAL EFFECT TO THE ESTIMATED EXPENSES OF THE BALANCED FUND DURING ITS
FIRST FISCAL YEAR (1.15% OF AVERAGE NET ASSETS) AND ASSUMES REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS. ALSO SHOWN BELOW FOR THE PERIODS INDICATED ARE
THE S&P 500, THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX (THE LEHMAN
GOV'T/CORP. BOND INDEX), THE LIPPER BALANCED FUND INDEX AND THE 55% S&P 500/35%
LEHMAN LONG-TERM TREASURY INDEX/10% T-BILL INDEX
__________________________________
(1) Not included in the Balanced Account Composite are certain balanced
investment accounts managed by Jennison with substantially different investment
objectives, policies and strategies, including, but not limited to, balanced
investment accounts that are subject to asset allocation limitations or fixed
income maturity or duration restrictions, and, formerly, balanced accounts that
were subject to restrictions on investment in South Africa.
-65-
<PAGE> 110
(the "55%/35%/10% Index")2.
IN 1981, JENNISON BEGAN MANAGING A SINGLE BALANCED ACCOUNT OF
APPROXIMATELY $12.5 MILLION. FROM 1982 TO 1987, TOTAL BALANCED ACCOUNT ASSETS
UNDER JENNISON'S MANAGEMENT RANGED FROM $68.6 MILLION TO $186.3 MILLION. SINCE
1988, JENNISON'S TOTAL BALANCED ACCOUNT ASSETS UNDER MANAGEMENT HAVE STEADILY
INCREASED, AND AS OF DECEMBER 31, 1995, JENNISON MANAGED SEVENTEEN BALANCED
ACCOUNTS TOTALING APPROXIMATELY $1.37 BILLION.(3)
THE INFORMATION SET FORTH ABOVE RELATES TO JENNISON'S PAST MANAGEMENT
OF THE BALANCED ACCOUNT COMPOSITE, AND SHOULD NOT BE CONSIDERED A PREDICTION OF
FUTURE PERFORMANCE OF THE FUND. THE FUND'S PERFORMANCE MAY BE BETTER OR WORSE
THAN THE PAST OR FUTURE PERFORMANCE OF THE BALANCED ACCOUNT COMPOSITE.
__________________________________
(2)The T-Bill Index is calculated by Ibbotson Associates using a one-bill
portfolio containing the shortest-term Treasury bill having no less than one
month to maturity.
(3)As of December 31, 1995, total Balanced Account assets represent
approximately 84% of all balanced account assets managed by Jennison, totaling
approximately $1.62 billion, and approximately 5% of all assets managed by
Jennison, totaling approximately $28.9 billion.
-66-
<PAGE> 111
JENNISON BALANCED ACCOUNT COMPOSITE PERFORMANCE (1)
<TABLE>
<CAPTION>
ANNUAL
PERIODS ENDING DECEMBER 31,
1995 1994 1993 1992 1991 1990 1989 1988
% % % % % % % %
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JENNISON BALANCED ACCOUNT 23.71 (3.53) 12.15 6.63 25.23 4.49 24.49 12.52
S&P 500 37.58 1.31 10.07 7.62 30.46 (3.13) 31.69 16.59
LEHMAN GOV'T/CORP. BOND 19.24 (3.51) 11.03 7.58 16.13 8.28 14.23 7.58
LIPPER BALANCED FUND INDEX 24.61 (2.21) 11.67 7.40 26.16 (0.60) 21.35 7.86
55%/35%/10% INDEX 27.54 (0.06) 9.72 7.25 22.95 2.10 23.12 12.41
1987 1986 1985 1984 1983 1982 1981
% % % % % % %
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JENNISON BALANCED ACCOUNT 17.61 15.31 31.41 7.80 14.24 35.60 4.15
S&P 500 5.23 18.71 31.84 6.30 22.51 21.61 (4.97)
LEHMAN GOV'T/CORP. BOND 2.29 15.62 21.30 15.02 7.99 31.10 7.26
LIPPER BALANCED FUND INDEX 2.03 19.02 27.45 4.88 16.94 26.68 (2.81)
55%/35%/10% INDEX 5.64 16.65 25.67 9.87 15.95 24.06 1.20
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED
PERIODS ENDING DECEMBER 31, 1995
SINCE
3 Years 5 Years 10 Years INCEPTION
% % % %
----------------------------------------------------
<S> <C> <C> <C> <C>
JENNISON BALANCED ACCOUNT COMPOSITE 10.20 12.31 13.49 14.96
S&P 500 15.34 16.58 14.87 14.80
LEHMAN GOV'T/CORP. BOND INDEX 8.51 9.80 9.64 11.78
LIPPER BALANCED FUND INDEX 10.81 13.01 11.28 12.17
55%/35%/10% INDEX 11.83 13.01 12.37 13.23
</TABLE>
__________________________
(1) See accompanying text for a discussion of the Balanced Account Composite and
the indices.
(2) 12/30/80.
<PAGE> 112
Asset Allocation of
Jennison Balanced Account Composite (1)
December 31, 1980 - December 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
SHORT-TERM
FIXED INCOME
STOCKS BONDS SECURITIES
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
1980 65.12 19.62 15.26
01/30/81 76.27 20.24 3.49
02/27/81 73.22 25.02 1.77
03/31/81 77.28 21.82 0.9
04/30/81 78.17 18.45 3.38
05/29/81 71.34 25.5 3.16
06/30/81 67.7 32.07 0.24
07/31/81 57.39 21.17 21.44
08/31/81 55.4 28.05 16.55
09/30/81 48.51 30.17 21.31
10/30/81 54.4 29.86 15.74
11/30/81 61.47 28.11 10.42
1981 60.08 25.69 14.23
01/29/82 57.8 28.97 13.23
02/26/82 52.63 32.43 14.94
03/31/82 56.61 28.71 14.68
04/30/82 62.79 21.75 15.45
05/28/82 63.53 20.7 15.77
06/30/82 55.13 31.37 13.5
07/30/82 62.21 31.46 6.33
08/31/82 65.82 32.98 1.2
09/30/82 63.53 33.43 3.04
10/29/82 60.76 35.98 3.25
11/30/82 65.55 31.71 2.74
1982 63.64 31.02 5.34
01/31/83 70.27 28.79 0.94
02/28/83 71.02 27.27 1.71
03/31/83 68.67 25.81 5.52
04/29/83 60.66 33.59 5.76
05/31/83 63.5 30.6 5.89
06/30/83 62.13 28.94 8.93
07/29/83 57.38 28.01 14.61
08/31/83 56.56 30.67 12.77
09/30/83 54.2 34.37 11.43
10/31/83 50.1 38.68 11.23
11/30/83 56.32 38.56 5.12
1983 55.06 37.59 7.35
01/31/84 49.37 37.35 13.28
02/29/84 49.16 37.47 13.37
03/30/84 52.23 40 7.77
04/30/84 56.01 38.94 5.06
05/31/84 47.43 45.2 7.37
06/29/84 48.65 46.52 4.83
07/31/84 46.09 49.04 4.86
08/31/84 51.09 45.92 2.99
09/28/84 50.68 46.71 2.61
10/31/84 50.69 47.96 1.36
11/30/84 58.79 37.95 3.26
1984 60.84 37.18 1.98
01/31/85 60.1 35.94 3.96
02/28/85 62.33 34.14 3.53
03/29/85 53.63 41.2 5.17
04/30/85 50.43 42.09 7.48
05/31/85 57.22 40.83 1.95
06/28/85 55.05 36.7 8.25
07/31/85 52.03 36.51 11.46
08/30/85 53.45 36.69 9.86
09/30/85 53.13 37.34 9.53
10/31/85 59.43 36.85 3.72
11/29/85 59.71 34.81 5.48
1985 54.17 28.34 17.49
01/31/86 58.06 27.7 14.24
02/28/86 58.71 27.85 13.43
03/31/86 57.93 23.86 18.2
04/30/86 56.48 24.09 19.44
05/30/86 63.72 21.77 14.51
06/30/86 65.13 22.81 12.06
07/31/86 62.39 23.76 13.85
08/29/86 73.44 18.57 7.99
09/30/86 66.48 19.31 14.21
10/31/86 75.12 18.7 6.18
11/28/86 74.57 0 25.43
1986 72.1 0 27.9
01/30/87 71.91 0 28.09
02/27/87 71.23 0 28.77
03/31/87 67.67 0 32.33
04/30/87 69.19 18.87 11.94
05/29/87 69.16 17.99 12.85
06/30/87 59.1 17.86 23.04
07/31/87 53.04 17.05 29.91
08/31/87 53.97 28.29 17.74
09/30/87 49 37.2 13.8
10/30/87 47.34 49.56 3.1
11/30/87 45.95 49.67 4.38
1987 50.34 47.64 2.02
01/29/88 49.38 49.31 1.31
02/29/88 49.37 47.86 2.77
03/31/88 50 47.87 2.13
04/29/88 52.15 47.79 0.07
05/31/88 53.88 30.67 15.44
06/30/88 58.67 23.98 17.35
07/31/88 56.49 28.16 15.36
08/31/88 46.44 45.11 8.45
09/30/88 45.05 46.91 8.04
10/31/88 42.32 47.93 9.74
11/30/88 41.02 27.3 31.68
1988 45.79 27.43 26.78
01/31/89 46.59 34.74 18.68
02/28/89 47.79 35.56 16.65
03/31/89 45.92 37.65 16.42
04/30/89 49.35 37.03 13.62
05/31/89 45.1 39.95 14.95
06/30/89 43.48 44.73 11.78
07/31/89 47.07 43.57 9.36
08/31/89 49.83 42.29 7.89
09/29/89 44.58 44.7 10.72
10/31/89 39.71 48.81 11.48
11/30/89 47.48 47.38 5.14
1989 46.16 47.38 6.46
01/31/90 40.22 39.88 19.9
02/28/90 42.61 39.71 17.68
03/30/90 42.19 39.91 17.9
04/30/90 39.35 44.93 15.73
05/31/90 44.51 43.21 12.29
06/29/90 45.41 45.08 9.51
07/31/90 44.89 45.69 9.43
08/31/90 41.36 35.89 22.75
09/28/90 46.7 37 16.29
10/31/90 47.42 42.65 9.93
11/30/90 45.68 41.95 12.37
1990 44.82 42.85 12.33
01/31/91 43.03 53.41 3.56
02/28/91 42.72 50.42 6.86
03/28/91 42.76 49.67 7.57
04/30/91 41.5 50.05 8.45
05/31/91 43.46 52.51 4.03
06/28/91 40.6 53.97 5.44
07/31/91 40.81 53.27 5.92
08/30/91 41.97 52.05 5.98
09/30/91 41.52 53.69 4.79
10/31/91 44.17 53.09 2.74
11/29/91 41.78 54.4 3.82
1991 44.26 41.95 13.79
01/31/92 42.98 41.38 15.64
02/28/92 43.78 37.12 19.1
03/31/92 42.84 37.95 19.21
04/30/92 45.71 37.98 16.31
05/29/92 44.98 38.15 16.87
06/30/92 42.38 48.79 8.83
07/31/92 50.83 33.76 15.41
08/31/92 44.62 28.07 27.31
09/30/92 43.51 28.42 28.07
10/30/92 43.36 37.9 18.74
11/30/92 45.8 36.31 17.89
1992 42.94 36.69 20.37
01/31/93 43.79 37.35 18.87
02/28/93 43.82 27.65 28.53
03/31/93 44.49 27.61 27.89
04/30/93 44.44 27.8 27.76
05/31/93 44.94 27 28.07
06/30/93 42.52 27.69 29.79
07/30/93 42.14 26.19 31.67
08/31/93 43.25 27.71 29.04
09/30/93 42.71 27.96 29.33
10/31/93 45.81 28.05 26.14
11/30/93 43.6 27.12 29.28
1993 43.89 31.68 24.43
01/31/94 43.58 31.17 25.25
02/28/94 41.67 30.31 28.01
03/31/94 39.11 39.76 21.13
04/29/94 40.41 45.74 13.84
05/31/94 40.62 44.64 14.74
06/30/94 39.75 43.95 16.28
07/29/94 41.42 44.07 14.5
08/31/94 41.9 42.72 15.37
09/30/94 40.36 38.57 21.07
10/31/94 40.68 42.81 16.5
11/30/94 39.53 42.68 17.79
1994 41.29 43.26 15.45
01/31/95 40.48 43.95 15.57
02/28/95 40.82 39.4 19.78
03/31/95 42.7 35.66 21.64
04/30/95 43.59 35.56 20.85
05/31/95 44.65 35.92 19.43
06/30/95 47.08 33.6 19.32
07/31/95 47.72 35.76 16.52
08/31/95 46.19 35.15 18.66
09/30/95 47.34 35.29 17.37
10/31/95 46.26 36.22 17.52
11/30/95 48.07 35.69 16.24
1995 47.66 35.85 16.49
</TABLE>
(1) See accompanying text for a discussion of the Balanced Account
Composite and the asset allocation thereof.
-68-
<PAGE> 113
Market Cycle Performance (1)
Jennison Balanced Account Composite (2)
As of June 30, 1995
<TABLE>
<CAPTION>
Rising Markets (3)
S&P 500 Jennison Balanced Account Composite
<S> <C> <C>
90Q4-Open 17.63 13.55
88Q1-90Q2 20.17 15.81
82Q3-87Q3 27.96 24.47
Falling Markets (3) S&P 500 Jennison Balanced Account Composite
90Q3-90Q3 -13.76 -7.04
87Q4-87Q4 -22.55 -6.65
</TABLE>
(1) See accompanying text for a discussion of the Balanced Account Composite
and the indices.
(2) Because the Balanced Accounts typically invest in equity
securities, debt securities and short-term fixed income securities,
while the S&P 500 represents exclusively equity securities, the Balanced
Account Composite has tended to underperform the S&P 500 in rising
markets (i.e. markets in which equities increase in value) and
outperform the S&P 500 in falling markets (i.e. markets in which
equities decrease in value).
(3) Market cycles as determined by Frank Russell Company by reference to
equity markets.
-69-
<PAGE> 114
Variability of Return/Return Profile (1)
Annualized Monthly Returns
December 31, 1980 - December 31, 1995
<TABLE>
<CAPTION>
Jennison
Lehman Balanced Lipper
Gov't/Corp 55%/35%/10 Account Balanced
T-Bills Bond Index % Index Composite Fund Index S&P 500
------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
0
0.843 7.107
2
3
4
5
6
6.108 11.783
8
9
9.089 13.229
11.121 14.964
11.144 12.171
13
14
14.589 14.804
16
17
18
</TABLE>
Variability of Return % (2)
(1) See accompanying text for a discussion of the Balanced Account
Composite and the indices.
(2) Standard deviation of annualized monthly
returns since 12/30/80.
-70-
<PAGE> 115
APPENDIX A
TAX EXEMPT BOND, CORPORATE BOND AND COMMERCIAL PAPER RATINGS
Tax Exempt and Corporate Bond Ratings
Description of Moody's Investors Service, Inc.'s Corporate Bond Ratings:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Description of Standard & Poor's Corporate Bond Ratings:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
<PAGE> 116
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC-C -- Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
D -- Bonds rated D are in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D
rating also will be used on the filing of a bankruptcy petition if debt service
payments are jeopardized.
Ratings of Commercial Paper
Description of Moody's Investors Service, Inc.'s Commercial Paper Ratings:
Moody's Investors Service, Inc. evaluates the salient features that affect
a Commercial Paper issuer's financial and competitive position. Its appraisal
includes, but is not limited to, the review of such factors as: quality of
management, industry strengths and risks, vulnerability to business cycles,
competitive position, liquidity measurements, debt structure, operating trends
and access to capital markets. Differing degrees of weight are applied to
these factors as deemed appropriate for individual situations. Commercial
Paper issuers rated "Prime-1" are judged to be of the best quality. Their
short-term debt obligations carry the smallest degree of investment risk.
Margins of support for current indebtedness are large or stable with cash flow
and asset protection well assured. Current liquidity provides ample coverage of
near-term liabilities and unused alternative financing arrangements are
generally available. While protective elements may change over the
intermediate or longer term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations. Issuers in the
Commercial Paper market rated "Prime-2" are of high quality. Protection for
short-term note holders is assured with liquidity and value of current assets
as well as cash generation in sound relationship to current indebtedness. They
are rated lower than the best commercial paper issuers because margins of
protection may not be as large or because fluctuations of protective elements
over the near or intermediate term may be of greater amplitude. Temporary
increases in relative short and overall debt load may occur. Alternate means
of financing remain assured. Issuers rated Prime-1 and Prime-2 categories are
judged to be investment grade.
Description of Standard & Poor's Commercial Paper Ratings:
Standard & Poor's describes its highest ("A") rating for commercial paper
as follows, with numbers 1, 2 and 3 being used to denote relative strength
within the "A" classification: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt rating should be "A" or better; in some
instances "BBB" credits may be allowed if other factors outweigh the "BBB".
The issuer should be well-
<PAGE> 117
established and the issuer should have a strong position within its industry.
The reliability and quality of management should be unquestioned.
<PAGE> 118
APPENDIX B
DESCRIPTION OF MONEY MARKET FUND INVESTMENTS
Obligations Backed by Full Faith and Credit of the U.S. Government --
are bills, certificates of indebtedness, notes and bonds issued by (i) the U.S.
Treasury or (ii) agencies, authorities and instrumentalities of the U.S.
Government or other entities and backed by the full faith and credit of the
U.S. Government. Such obligations include, but are not limited to, obligations
issued by the Government National Mortgage Association, Farmers' Home
Administration and the Small Business Administration.
Other U.S. Government Obligations -- are bills, certificates of
indebtedness, notes, and bonds issued by agencies, authorities and
instrumentalities of the U.S. Government which are supported by the right of
the issuer to borrow from the U.S. Treasury or by the credit of the agency,
authority or instrumentality itself. Such obligations include, but are not
limited to, obligations issued by the Tennessee Valley Authority, the Bank for
Cooperatives, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks and the Federal National Mortgage Association.
Repurchase Agreements -- are agreements by which a Fund purchases a
U.S. Treasury or agency obligation and obtains a simultaneous commitment from
the seller (a domestic commercial bank or, to the extent permitted by the 1940
Act, a recognized securities dealer) to repurchase the security at an agreed
upon price and date. The resale price is in excess of the purchase price and
reflects an agreed upon market rate unrelated to the coupon rate on the
purchased security. Such transactions afford an opportunity for the Fund to
earn a return on temporarily available cash at no market risk, although the
Fund may be subject to various delays and risks of loss if the seller is unable
to meet its obligation to repurchase.
Certificates of Deposit -- are certificates issued against funds
deposited in a bank, are for a definite period of time, earn a specified rate
of return, and are normally negotiable.
Bankers' Acceptances -- are short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are term
"accepted" when a bank guarantees their payment at maturity.
Eurodollar Obligations -- obligations of foreign branches of U.S.
banks.
Yankeedollar Obligations -- obligations of domestic branches of
foreign banks.
Commercial Paper -- refers to promissory notes issued by corporations
in order to finance their short-term credit needs.
Corporate Obligations -- include bonds and notes issued by corporations
in order to finance longer term credit needs.
<PAGE> 119
THE PREFERRED GROUP OF MUTUAL FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
STATEMENTS of assets and liabilities --
DECEMBER 31, 1995 (UNAUDITED) (a).
STATEMENTS of operations -- SIX MONTHS ended
DECEMBER 31, 1995 (UNAUDITED) (a).
STATEMENTS of changes in net assets -- SIX MONTHS ENDED
DECEMBER 31, 1995 AND YEAR ended June 30, 1995 (a).
Financial Highlights (a)(b).
Notes to financial statements (a).
Supporting Schedules:
Schedule I -- Portfolio of investments owned --
DECEMBER 31, 1995(a).
Schedules II through IX omitted because the required
matter is not present.
- --------------------
(a) Incorporated by reference into Parts
A and B
(b) Included in Part A.
(b) Exhibits:
1(a). Agreement and Declaration of Trust.
1(B). AMENDMENT NO. 1 to Agreement and Declaration of
Trust.
<PAGE> 120
1(C). AMENDMENT NO. 2 TO AGREEMENT AND DECLARATION OF
TRUST.
1(D). AMENDMENT NO. 3 TO AGREEMENT AND DECLARATION OF
TRUST.
1(E). AMENDMENT NO. 4 TO AGREEMENT AND DECLARATION OF
TRUST.
2. BY-LAWS.
3. None.
4. Portions of the Registrant's Agreement and
Declaration of Trust and By-laws pertaining to
shareholder's rights.
5(a). Form of Management Contract between The Preferred
Group of Mutual Funds (the "Trust") and Caterpillar
Investment Management Ltd. (the "Manager" or "CIML")
with respect to the Preferred GROWTH FUND.
5(b). Form of Management Contract between the Trust and the
Manager with respect to the Preferred VALUE FUND.
5(c). Form of Management Contract between the Trust and the
Manager with respect to the Preferred International
Fund.
5(D). Form of Management Contract between the Trust and the
Manager with respect to the Preferred Small Cap Fund.
5(E). FORM OF MANAGEMENT CONTRACT BETWEEN THE TRUST AND THE
MANAGER with respect to the Preferred ASSET
ALLOCATION FUND.
5(F). FORM OF MANAGEMENT CONTRACT BETWEEN THE TRUST AND THE
MANAGER WITH RESPECT TO THE PREFERRED BALANCED FUND.
-2-
<PAGE> 121
5(G). FORM OF MANAGEMENT CONTRACT BETWEEN THE TRUST AND THE
MANAGER WITH RESPECT TO THE PREFERRED FIXED INCOME
FUND.
5(H). FORM OF MANAGEMENT CONTRACT BETWEEN THE TRUST AND THE
MANAGER WITH RESPECT TO THE PREFERRED SHORT-TERM
GOVERNMENT SECURITIES FUND.
5(I). FORM OF MANAGEMENT CONTRACT BETWEEN THE TRUST AND THE
MANAGER WITH RESPECT TO THE PREFERRED MONEY MARKET
FUND.
5(J). Form of Subadviser Agreement between the Manager and
JENNISON ASSOCIATES CAPITAL CORP. ("JENNISON")
WITH RESPECT TO THE PREFERRED GROWTH FUND.
5(K). Form of Subadviser Agreement between the Manager and
OPPENHEIMER CAPITAL ("OPPENHEIMER").
5(L). Form of Subadviser Agreement between the Manager and
Mercator Asset Management, L.P. ("MERCATOR").
5(M). FORM OF SUBADVISER AGREEMENT BETWEEN THE MANAGER AND
MELLON CAPITAL MANAGEMENT CORPORATION ("MELLON").
5(N). FORM OF SUBADVISER AGREEMENT BETWEEN THE MANAGER AND
PANAGORA ASSET MANAGEMENT, INC. ("PANAGORA").
5(O). FORM OF SUBADVISER AGREEMENT BETWEEN THE MANAGER AND
JENNISON WITH RESPECT TO THE PREFERRED BALANCED FUND.
5(P). FORM OF SUBADVISER AGREEMENT BETWEEN THE MANAGER AND
J.P. MORGAN INVESTMENT MANAGEMENT INC.("MORGAN") WITH
RESPECT TO THE PREFERRED FIXED INCOME FUND.
-3-
<PAGE> 122
5(Q). FORM OF SUBADVISER AGREEMENT BETWEEN THE MANAGER AND
MORGAN WITH RESPECT TO THE PREFERRED MONEY MARKET
FUND.
6. Form of Distributor's Contract between the Trust and
Caterpillar Securities Inc.
7. None.
8. Form of Custodian Contract between the Trust and
State Street Bank and Trust Company ("State
Street").
9. Form of Transfer Agency and Service Agreement between
the Trust and State Street.
10. Opinion and Consent of Ropes & Gray.
11. Consent of Price Waterhouse.
12. None.
13. Form of Initial Capital Agreement.
14. None.
15. None.
16. Calculation of Performance Information and Yield.
17(A). FINANCIAL DATA SCHEDULE FOR THE PREFERRED GROWTH
FUND.
17(B). FINANCIAL DATA SCHEDULE FOR THE PREFERRED VALUE FUND.
17(C). FINANCIAL DATA SCHEDULE FOR THE PREFERRED
INTERNATIONAL FUND.
17(D). FINANCIAL DATA SCHEDULE FOR THE PREFERRED SMALL CAP
FUND.
-4-
<PAGE> 123
17(E). FINANCIAL DATA SCHEDULE FOR THE PREFERRED ASSET
ALLOCATION FUND.
17(F). FINANCIAL DATA SCHEDULE FOR THE PREFERRED BALANCED
FUND.
17(G). FINANCIAL DATA SCHEDULE FOR THE PREFERRED FIXED
INCOME FUND.
17(H). FINANCIAL DATA SCHEDULE FOR THE PREFERRED SHORT-TERM
GOVERNMENT SECURITIES FUND.
17(I). FINANCIAL DATA SCHEDULE FOR THE PREFERRED MONEY
MARKET FUND.
18. NONE.
Item 25. Persons Controlled by or Under Common Control with Registrant
THE REGISTRANT MAY BE DEEMED TO BE CONTROLLED BY CATERPILLAR INC.,
WHICH OWNS 100% OF THE OUTSTANDING VOTING SECURITIES OF CIML AND CATERPILLAR
INSURANCE COMPANY LTD., EACH OF WHICH MAY BE DEEMED TO CONTROL ONE OR MORE
SERIES OF THE REGISTRANT, AND FOR THE BENEFIT OF THE EMPLOYEES OF WHICH
CATERPILLAR INVESTMENT TRUST AND CATERPILLAR SUPPLEMENTAL UNEMPLOYMENT AND
BENEFITS GROUP INSURANCE TRUSTS A AND B, WHICH MAY BE DEEMED TO CONTROL ONE OR
MORE SERIES OF THE REGISTRANT, WERE ESTABLISHED. TO THE EXTENT ANY OF THESE
ENTITIES MAY BE DEEMED TO CONTROL THE REGISTRANT, THE VARIOUS ENTITIES LISTED
IN EXHIBIT 21 TO THE MOST RECENT ANNUAL REPORT ON FORM 10-K UNDER THE
SECURITIES EXCHANGE ACT OF 1934 OF CATERPILLAR INC. (FILE NO. 33-46194) MAY BE
DEEMED TO BE UNDER COMMON CONTROL WITH THE REGISTRANT.
-5-
<PAGE> 124
Item 26. Number of Holders of Securities
(As of MARCH 15, 1996)
<TABLE>
<CAPTION>
(1) (2)
Number of
Name of Fund Recordholders
<S> <C>
Growth Fund 3,074
Value Fund 2,251
International Fund 2,649
Small Cap Fund 93
Asset Allocation Fund 1,783
Balanced Fund 88
Fixed Income Fund 1,703
Short-Term Government 353
Securities Fund
Money Market Fund 1,216
</TABLE>
Item 27. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust
provides as follows:
Section 1. Trustees, Officers, Etc. The Trust shall indemnify each
of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise) (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any Covered Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person
may be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to
-6-
<PAGE> 125
any matter as to which such Covered Person shall have been finally adjudicated
in any such action, suit or other proceeding to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to time by Trust
in advance of the final disposition of any such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article,
provided, however, that either (a) such Covered Person shall have provided
appropriate security for such undertaking, (b) the Trust shall be insured
against losses arising from any such advance payments or (c) either a majority
of the disinterested Trustees acting on the matter (provided that a majority of
the disinterested Trustees then in office act on the matter), or independent
legal counsel in a written opinion, shall have determined, based upon a review
of readily available facts (as opposed to a full trial type inquiry) that there
is reason to believe that such Covered Person will be found entitled to
indemnification under this Article.
Section 2. Compromise Payment. As to any matter disposed of (whether
by a compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved, after notice that it
involves such indemnification, by at least a majority of the disinterested
Trustees acting on the matter (provided that a majority of the disinterested
Trustees then in office act on the matter) upon a determination, based upon a
review of readily available facts (as opposed to a full trial type inquiry)
that such Covered Person is not liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, or (b)
there has been obtained an opinion in writing of independent legal counsel,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) to the effect that such indemnification would not
-7-
<PAGE> 126
protect such Person against any liability to the Trust to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office. Any approval pursuant to this Section shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which such Covered Person may be entitled. As used in this Article
VIII, the term "Covered Person" shall include such person's heirs, executors
and administrators and a "disinterested Trustee" is a Trustee who is not an
"interested person" of the Trust as defined in Section 2(a)(19) of the 1940 Act
(or who has been exempted from being an "interested person" by any rule,
regulation or order of the Commission), and against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on the
same or similar grounds is then or has been pending. Nothing contained in this
Article shall affect any rights to indemnification to which personnel of the
Trust, other than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person; provided, however,
that the Trust shall not purchase or maintain any such liability insurance in
contravention of applicable law, including without limitation the 1940 Act.
* * *
The Trust, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
* * *
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Trust pursuant to the foregoing provisions or otherwise, the
Trust has been advised that in the
-8-
<PAGE> 127
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a Trustee, officer or controlling person of the Trust in
the successful defense of any action, suit or proceeding) is asserted against
the Trust by such Trustee, officer or controlling person in connection with the
securities being registered, the Trust will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) The Manager is the investment adviser to the Trust and its
business is summarized under the caption "Management of The Preferred Group" in
the Prospectus constituting Part A of this Registration Statement, which
summary is incorporated herein by reference.
The directors and officers of the Manager have been engaged during the
last two fiscal years in no business, vocation or employment of a substantial
nature other than as directors or officers of the Manager or certain of its
corporate affiliates. Certain officers of the investment adviser serve as
officers of the Trust. The address of the Manager, its corporate affiliates
and the Trust is 100 N.E. Adams Street, Peoria, Illinois 61629.
NAME AND POSITION
WITH MANAGER
P. Michael Pond
President, Director
Robert C. Frantz
Vice President, Director
Richard P. Konrath
Clerk
-9-
<PAGE> 128
FRED L. KAUFMAN
TREASURER
(b) JENNISON IS THE SUBADVISER TO THE PREFERRED GROWTH FUND AND
THE PREFERRED BALANCED FUND AND ITS BUSINESS IS SUMMARIZED UNDER THE CAPTION
"MANAGEMENT OF THE PREFERRED GROUP" IN THE PROSPECTUS CONSTITUTING PART A OF
THIS REGISTRATION STATEMENT, WHICH SUMMARY IS INCORPORATED HEREIN BY REFERENCE.
OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT OF A SUBSTANTIAL
NATURE IN WHICH EACH DIRECTOR OR OFFICER OF JENNISON IS OR HAS BEEN, AT ANY
TIME DURING THE PAST TWO FISCAL YEARS, ENGAGED FOR HIS OWN ACCOUNT OR IN THE
CAPACITY OF DIRECTOR, OFFICER, EMPLOYEE, PARTNER OR TRUSTEE IS AS FOLLOWS:
<TABLE>
<CAPTION>
NAME AND POSITION BUSINESS AND
WITH JENNISON OTHER CONNECTIONS
<S> <C>
BLAIR A. BOYER NONE
SENIOR VICE PRESIDENT,
DIRECTOR
CECILIA M. BRANCATO NONE
SENIOR VICE PRESIDENT
ERIK BROWN NONE
ASSISTANT VICE PRESIDENT
KEVIN B. CANTOR ASSISTANT VICE PRESIDENT OF JACC SERVICES
ASSISTANT VICE PRESIDENT CORP. ("JACC SERVICES")
DAVID CHAN NONE
VICE PRESIDENT
ROBERT B. CORMAN NONE
SENIOR VICE PRESIDENT,
DIRECTOR
MICHAEL A. DEL BALSO NONE
SENIOR VICE PRESIDENT, DIRECTOR OF
INTERNAL RESEARCH, DIRECTOR
</TABLE>
-10-
<PAGE> 129
<TABLE>
<S> <C>
THOMAS F. DOYLE NONE
EXECUTIVE VICE PRESIDENT, DIRECTOR
STACY M. DUTTON NONE
SENIOR VICE PRESIDENT
JOHN FEINGOLD NONE
SENIOR VICE PRESIDENT, DIRECTOR
JOSEPH P. FERRUGIO DIRECTOR OF JACC SERVICES
SENIOR VICE PRESIDENT, DIRECTOR
ANNLOIS FREEDMAN NONE
VICE PRESIDENT
BRADLEY L. GOLDBERG DIRECTOR OF JACC SERVICES
EXECUTIVE VICE PRESIDENT, DIRECTOR
HARRY E. KNAPP DIRECTOR AND PRESIDENT, EQUITY AND FIXED
DIRECTOR INCOME, PRUDENTIAL ASSET MANAGEMENT GROUP;
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR, THE PRUDENTIAL INVESTMENT
CORPORATION
KATHLEEN P. HAUSNER ASSISTANT VICE PRESIDENT OF JACC SERVICES
ASSISTANT VICE PRESIDENT
JOHN H. HOBBS PRESIDENT OF JACC SERVICES
CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE
BOARD OF DIRECTORS
CAROLINE R. HOVEY NONE
VICE PRESIDENT
JAMES N. KANNRY SENIOR VICE PRESIDENT, TREASURER, DIRECTOR
SENIOR VICE PRESIDENT, TREASURER, DIRECTOR OF JACC SERVICES CORP.
</TABLE>
-11-
<PAGE> 130
<TABLE>
<S> <C>
RICHARD A. KLEMMER NONE
VICE PRESIDENT
KAREN E. KOHLER SENIOR VICE PRESIDENT, SECRETARY,
SENIOR VICE PRESIDENT, SECRETARY & ASSISTANT TREASURER & CHIEF COMPLIANCE
ASSISTANT TREASURER OFFICER OF JACC SERVICES CORP.
JONATHAN R. LONGLEY NONE
EXECUTIVE VICE PRESIDENT, DIRECTOR
ALBERT MANN NONE
ASSISTANT VICE PRESIDENT
PHILLIP H.B. MOSS NONE
EXECUTIVE VICE PRESIDENT,
DIRECTOR
MINDY NEWMAN NONE
ASSISTANT VICE PRESIDENT
DAVID POIESZ NONE
SENIOR VICE PRESIDENT, DIRECTOR
MICHAEL H. PORRECA NONE
SENIOR VICE PRESIDENT, DIRECTOR
ERIN PLUNKETT NONE
ASSISTANT VICE PRESIDENT
PETER H. REINEMANN NONE
SENIOR VICE PRESIDENT
STEPHEN L. RENTSCHLER ASSISTANT VICE PRESIDENT OF
ASSISTANT VICE PRESIDENT JACC SERVICES CORP.
CHARLES RINGHEL NONE
VICE PRESIDENT
ROSEMARY SAMMARCO VICE PRESIDENT OF JACC SERVICES
VICE PRESIDENT
</TABLE>
-12-
<PAGE> 131
<TABLE>
<S> <C>
SPIROS SEGALAS DIRECTOR OF JACC SERVICES
PRESIDENT, DIRECTOR
KERRY A. SHANLEY NONE
ASSISTANT VICE PRESIDENT
CHRIS VATIS NONE
ASSISTANT VICE PRESIDENT
LULU C. WANG NONE
EXECUTIVE VICE PRESIDENT, DIRECTOR
MICHAEL WILBURN NONE
ASSISTANT VICE PRESIDENT
STEPHANIE D. WILLIS NONE
ASSISTANT VICE PRESIDENT
CATHERINE D. WOOD NONE
SENIOR VICE PRESIDENT, DIRECTOR
</TABLE>
THE PRINCIPAL BUSINESS ADDRESS OF JACC SERVICES IS 466 LEXINGTON
AVENUE, NEW YORK, NEW YORK 10017.
THE PRINCIPAL BUSINESS ADDRESS OF BOTH PRUDENTIAL ASSET MANAGEMENT
GROUP AND THE PRUDENTIAL INVESTMENT CORPORATION IS 751 BROAD STREET, PRUDENTIAL
PLAZA, NEWARK, NEW JERSEY 07102.
(C) Oppenheimer is the subadviser to the Preferred Value Fund and
its business is summarized under the caption "Management of The Preferred
Group" in the Prospectus constituting Part A of this Registration Statement,
which summary is incorporated herein by reference.
Other business, profession, vocation or employment of a substantial
nature in which each director or officer of Oppenheimer is or has been, at any
time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee is as follows:
<TABLE>
<S> <C>
NAME AND POSITION BUSINESS AND
WITH OPPENHEIMER OTHER CONNECTIONS
</TABLE>
[/R]
-13-
<PAGE> 132
<TABLE>
<S> <C>
Robert J. Bluestone None
Managing Director
Eugene D. Brody None
Managing Director
Charles H. Brunie None
Chairman
Denise Cusick None
Senior Vice President
Thomas E. Duggan Assistant Secretary of
Secretary, General Oppenheimer Financial Corp.
Counsel
Linda S. Ferrante None
Senior Vice President
Herbert S. Fitz Gibbon None
Managing Director
Richard J. Glasebrook, II None
Managing Director
Colin Glinsman None
SENIOR Vice President
Jonathan K. Greenberg None
Senior Vice President
Matthew Greenwald None
Vice President
ALAN GUTMAN None
Vice President
Joseph M. LaMotta None
President, Chief Executive
Officer
</TABLE>
-14-
<PAGE> 133
<TABLE>
<S> <C>
FRANK LECATES MANAGING DIRECTOR, INSTITUTIONAL EQUITY
MANAGING DIRECTOR, DIRECTOR OF RESEARCH DIVISION, DONALDSON, LUFKIN & JENRETTE
PRIOR TO SEPTEMBER, 1995
John G. Lindenthal None
Managing Director
George A. Long None
Managing Director, Chief Investment
Officer
Robert D. Martin None
Senior Vice President
William P. McDaniel None
Senior Vice President
Kenneth H. Mortenson None
Managing Director
Julius A. Nicolai None
MANAGING DIRECTOR
John Rowley None
Vice President
Philip T. Rodilosso None
Managing Director
Eileen Rominger None
Managing Director
David Santry Director of Equity Research, The Boston
Senior Vice President Company, prior to August, 1994
Kurt Schansinger None
Senior Vice President
Sheldon M. Siegel None
Chief Financial Officer, Treasurer
</TABLE>
-15-
<PAGE> 134
<TABLE>
<S> <C>
Jeffrey Tarnoff None
Senior Vice President
Eugene Vesell None
Managing Director
Jeffrey Whittington Senior Vice President, Neuberger & Berman,
Senior Vice President prior to August, 1994
</TABLE>
The principal business address of Oppenheimer Financial Corp. is
Oppenheimer Tower, World Financial Center, New York, New York 10281.
(d) Mercator is the subadviser to the Preferred International Fund
and its business is summarized under the caption "Management of The Preferred
Group" in the Prospectus constituting Part A of this Registration Statement,
which summary is incorporated herein by reference.
Other business, profession, vocation or employment of a substantial
nature in which each director or officer of Mercator is or has been, at any
time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee is as follows:
<TABLE>
<CAPTION>
NAME AND POSITION BUSINESS AND
WITH MERCATOR OTHER CONNECTIONS
<S> <C>
John G. Thompson None
President, JZT CORP., GENERAL PARTNER
Peter F. Spano None
President, PXC CORP., GENERAL PARTNER
Kenneth B. Brown None
President, KXB CORP., GENERAL PARTNER
Michael A. Williams NONE
</TABLE>
-16-
<PAGE> 135
PRESIDENT, MXW CORP.,
GENERAL PARTNER
(E) MELLON IS A SUBADVISER TO THE PREFERRED ASSET ALLOCATION FUND
AND ITS BUSINESS IS SUMMARIZED UNDER THE CAPTION "MANAGEMENT OF THE PREFERRED
GROUP" IN THE PROSPECTUS CONSTITUTING PART A OF THIS REGISTRATION STATEMENT,
WHICH SUMMARY IS INCORPORATED HEREIN BY REFERENCE.
OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT OF A SUBSTANTIAL
NATURE IN WHICH EACH DIRECTOR OR OFFICER OF MELLON IS OR HAS BEEN, AT ANY TIME
DURING THE PAST TWO FISCAL YEARS, ENGAGED FOR HIS OWN ACCOUNT OR IN THE
CAPACITY OF DIRECTOR, OFFICER, EMPLOYEE, PARTNER OR TRUSTEE IS AS FOLLOWS:
<TABLE>
<CAPTION>
NAME AND POSITION BUSINESS AND
WITH MELLON OTHER CONNECTIONS
<S> <C>
BERNEDETTE L. BOLGER VICE PRESIDENT AND COUNSEL OF THE BANK OF
VICE PRESIDENT AND CHIEF COUNSEL CALIFORNIA, N.A. FROM AUGUST, 1987 TO MAY,
1994
ROBERT M. BOYLES EXECUTIVE VICE PRESIDENT OF BOSTON SAFE
DIRECTOR, PRESIDENT, CHIEF OPERATING DEPOSIT AND TRUST COMPANY; DIRECTOR OF
OFFICER MGIC-UK, LTD.; PARTNER REPRESENTATIVE OF
CCF-MELLON PARTNERS; OFFICER OF MELLON
BANK, N.A.
SUSAN A. CHEW OFFICER OF MELLON BANK, N.A.
VICE PRESIDENT AND MANAGER
CHRISTOPHER M. CONDRON DIRECTOR/PRESIDENT/CHIEF OPERATING OFFICER OF THE DREYFUS CORPORATION NEW
DIRECTOR YORK, N.Y.; PARTNER REPRESENTATIVE OF PARETO PARTNERS LONDON; TRUSTEE OF
FRANKLIN PORTFOLIO ASSOCIATES TRUST; DIRECTOR OF CERTUS ASSET ADVISORS
CORPORATION; CHIEF EXECUTIVE OFFICER/DIRECTOR OF THE BOSTON COMPANY OF
SOUTHERN CALIFORNIA; DIRECTOR/PRESIDENT OF BOSTON SAFE ADVISORS, INC.;
</TABLE>
-17-
<PAGE> 136
<TABLE>
<S> <C>
TRUSTEE OF MELLON BOND ASSOCIATES;
TRUSTEE OF MELLON EQUITY ASSOCIATES;
DIRECTOR OF ACCESS CAPITAL
STRATEGIES CORPORATION;
CHAIRMAN/CHIEF EXECUTIVE
OFFICER/DIRECTOR/ PRESIDENT OF THE
BOSTON COMPANY ASSET MANAGEMENT,
INC.; VICE CHAIRMAN/EXECUTIVE VICE
PRESIDENT OF MELLON BANK, N.A.; VICE
CHAIRMAN OF MELLON BANK CORPORATION;
PRESIDENT/DIRECTOR OF THE BOSTON
COMPANY FINANCIAL SERVICES, INC.;
VICE CHAIRMAN/DIRECTOR OF THE BOSTON
COMPANY, INC.; TRUSTEE OF LAUREL
CAPITAL ADVISORS; CHAIRMAN/CHIEF
EXECUTIVE OFFICER/DIRECTOR OF BOSTON
SAFE DEPOSIT AND TRUST COMPANY OF
CALIFORNIA; PRESIDENT/DIRECTOR OF
MY, INC.; PRESIDENT/DIRECTOR OF
RECO, INC.; CHAIRMAN/DIRECTOR OF
BOSTON SAFE DEPOSIT AND TRUST
COMPANY OF NEW YORK;
PRESIDENT/DIRECTOR OF BOSTON SAFE
DEPOSIT AND TRUST COMPANY OF BOSTON;
PRESIDENT/DIRECTOR OF THE BOSTON
COMPANY FINANCIAL STRATEGIES, INC.;
PRESIDENT/DIRECTOR OF THE BOSTON
COMPANY FINANCIAL STRATEGIES GROUP,
INC.; PRESIDENT/DIRECTOR OF THE
BOSTON FINANCE COMPANY
BARBARA W. DAUGHERTY OFFICER OF MELLON BANK, N.A.
SENIOR VICE PRESIDENT AND
DIRECTOR OF CLIENT SERVICES
DOUGLAS F. DOOLEY OFFICER OF MELLON BANK, N.A.
</TABLE>
-18-
<PAGE> 137
<TABLE>
<S> <C>
SENIOR VICE PRESIDENT AND
DIRECTOR OF SYSTEMS
SUSAN M. ELLISON OFFICER OF MELLON BANK, N.A.
SENIOR VICE PRESIDENT AND
DIRECTOR OF EQUITY PORTFOLIO
MANAGEMENT
RICHARD J. FORSTER OFFICER OF MELLON BANK, N.A.;
VICE PRESIDENT AND SENIOR ASSISTANT TREASURER OF DEL
CLIENT SERVICE OFFICER MONTE FOODS COMPANY FROM MAY,
1991 TO APRIL, 1995
WILLIAM L. FOUSE OFFICER OF MELLON BANK, N.A.
CHAIRMAN OF EXECUTIVE
COMMITTEE, DIRECTOR
JOAN A. GREENE CONTROLLER, GLOBAL ASSET
TREASURER MANAGEMENT GROUP OF MELLON
TRUST (MELLON BANK, N.A.)
THOMAS B. HAZUKA OFFICER OF MELLON BANK, N.A.
EXECUTIVE VICE PRESIDENT AND
CHIEF INVESTMENT OFFICER
ALEXANDER C. HUBERTS OFFICER OF MELLON BANK, N.A.
SENIOR VICE PRESIDENT AND
DIRECTOR OF INVESTMENT
RESEARCH
CHARLES J. JACKLIN OFFICER OF MELLON BANK, N.A.
SENIOR VICE PRESIDENT AND
DIRECTOR OF ASSET ALLOCATION
STRATEGIES
DAVID C. KWAN OFFICER OF MELLON BANK, N.A.
VICE PRESIDENT AND MANAGER
THOMAS F. LOEB OFFICER OF MELLON BANK, N.A.
CHAIRMAN, CHIEF EXECUTIVE
OFFICER, DIRECTOR
BRENDA J. OAKLEY OFFICER OF MELLON BANK, N.A.
</TABLE>
-19-
<PAGE> 138
<TABLE>
<S> <C>
EXECUTIVE VICE PRESIDENT,
CHIEF ADMINISTRATIVE OFFICER
MARIA RIDDLE OFFICER OF MELLON BANK, N.A.
VICE PRESIDENT AND MANAGER
PHILIP R. ROBERTS DIRECTOR OF CERTUS
DIRECTOR ASSET ADVISORS
CORPORATION; DIRECTOR OF
ACCESS CAPITAL
STRATEGIES CORPORATION;
EXECUTIVE VICE PRESIDENT OF
MELLON BANK, N.A.; DIRECTOR
OF THE BOSTON COMPANY ASSET
MANAGEMENT, INC.; TRUSTEE OF
FRANKLIN PORTFOLIO
ASSOCIATES TRUST; DIRECTOR
OF MELLON ASIA LIMITED;
EXECUTIVE VICE PRESIDENT OF
THE BOSTON COMPANY, INC.;
EXECUTIVE VICE PRESIDENT OF
BOSTON SAFE DEPOSIT AND
TRUST COMPANY; PARTNER
REPRESENTATIVE OF CCF-
MELLON PARTNERS; DIRECTOR,
CHAIRMAN, PRESIDENT & CHIEF
EXECUTIVE OFFICER OF
MELLON-FRANCE CORPORATION;
TRUSTEE AND VICE PRESIDENT
OF LAUREL CAPITAL ADVISORS;
TRUSTEE AND CHAIRMAN OF
MELLON EQUITY ASSOCIATES;
TRUSTEE AND CHAIRMAN OF
MELLON BOND ASSOCIATES;
DIRECTOR, CHAIRMAN,
PRESIDENT AND CEO OF MELLON
GLOBAL INVESTING
CORPORATION; DIRECTOR OF
MGIC-UK LIMITED; PARTNER
REPRESENTATIVE OF PARETO
PARTNERS
MARY C. SHOUSE OFFICER OF MELLON BANK, N.A.
EXECUTIVE VICE PRESIDENT
W. KEITH SMITH VICE CHAIRMAN AND DIRECTOR
DIRECTOR OF THE DREYFUS CORPORATION;
</TABLE> DIRECTOR OF ACCESS CAPITAL
-20-
<PAGE> 139
<TABLE>
<S> <C>
STRATEGIES CORP.;
DIRECTOR/CHAIRMAN/CHIEF
EXECUTIVE OFFICER/PRESIDENT OF
SHEARSON SUMMIT EUROMANAGEMENT
INC.; DIRECTOR/CHAIRMAN/CHIEF
EXECUTIVE OFFICER/PRESIDENT OF
SHEARSON SUMIT EUROPARTNERS
INC.; DIRECTOR/CHAIRMAN CHIEF
EXECUTIVE OFFICER/PRESIDENT OF
SHEARSON SUMMIT MANAGEMENT
INC.; DIRECTOR/CHAIRMAN/CHIEF
EXECUTIVE OFFICER/PRESIDENT OF
SHEARSON SUMMIT PARTNERS INC.;
DIRECTOR/CHAIRMAN/CHIEF
EXECUTIVE OFFICER/PRESIDENT OF
SHEARSON VENTURE CAPITAL INC.;
DIRECTOR OF THE BOSTON COMPANY
ADVISORS, INC.; DIRECTOR OF
THE BOSTON COMPANY ASSET
MANAGEMENT, INC.; PRESIDENT OF
THE BOSTON COMPANY OVERSEAS
BANKING CORP.; PRESIDENT &
DIRECTOR OF WELLINGTON-MEDFORD
II PRPERTIES, INC.; PRESIDENT
& DIRECTOR OF FIRST BOYLSTON
CORPORATION; PRESIDENT &
DIRECTOR OF TBC SECURITIES
CO., INC,; CHAIRMAN OF THE
BOARD/CHIEF EXECUTIVE
OFFICER/CHAIRMAN OF THE
EXECUTIVE COMMITTEE/DIRECTOR
OF THE BOSTON COMPANY, INC.;
DIRECTOR/CHAIRMAN/CHIEF
EXECUTIVE OFFICER/CHAIRMAN OF
THE EXECUTIVE COMMITTEE OF
BOSTON SAFE DEPOSIT AND TRUST
COMPANY; DIRECTOR/CHAIRMAN OF
BOSTON GROUP HOLDINGS, INC.;
DIRECTOR OF MELLON EUROPE
LIMITED; TRUSTEE OF LAUREL
CAPITAL ADVISORS; TRUSTEE OF
MELLON BOND ASSOCIATES;
TRUSTEE OF MELLON EQUITY
ASSOCIATES; DIRECTOR OF MELLON
GLOBAL INVESTING CORP.;
</TABLE>
-21-
<PAGE> 140
CHAIRMAN AND DIRECTOR OF
MELLON FINANCIAL SERVICES
CORP. #17; DIRECTOR OF MELLON
ACCOUNTING SERVICES, INC.;
DIRECTOR OF MGIC-UK LTD.;
PARTNER REPRESENTATIVE OF
PARETO PARTNERS; TRUSTEE OF
FRANKLIN PORTFOLIO ASSOCIATES
TRUST; DIRECTOR AND CHAIRMAN
OF MELLON FINANCIAL COMPANY;
VICE CHAIRMAN AND DIRECTOR OF
MELLON BANK CORPORATION; VICE
CHAIRMAN AND DIRECTOR OF
MELLON BANK, N.A.
ROGER A. WHARTON SENIOR VICE PRESIDENT OF
SENIOR VICE PRESIDENT MELLON BANK, N.A.
CAROL C. WISE SECRETARY OR ASSISTANT
SECRETARY SECRETARY TO 86 OTHER
AFFILIATES OF MELLON CAPITAL
MANAGEMENT CORPORATION
BARBARA WHITEMAN SECRETARY OR ASSISTANT
SECRETARY SECRETARY OF APT HOLDING
CORPORATION, ALLOMON
CORPORATION, BEAVER VALLEY
LEASING CORPORATION, BOSTON
GROUP HOLDINGS, INC., CERTUS
ASSET ADVISORS CORPORATION,
DREYFUS INVESTMENT SERVICES
CORPORATION, FRANKLIN
PORTFOLIO ASSOCIATES TRUST,
KATRENA CORPORATION, LAUREL
CAPITAL ADVISORS, MFS LEASING
CORP., MMIP, INC., MELLON
ACCOUNTING SERVICES, INC.,
MELLON BANK COMMUNITY
DEVELOPMENT CORPORATION,
MELLON BOND ASSOCIATES, MELLON
EFT SERVICES CORPORATION,
MELLON EQUITY ASSOCIATES,
MELLON ESCROW COMPANY, MELLON
FINANCIAL COMPANY, MELLON
FINANCIAL SERVICES CORPORATION
-22-
<PAGE> 141
(NOS. 2, 3, 4, 13 & 17), MELLON
INSURANCE AGENCY, INC., MELLON
INTERNATIONAL LEASING COMPANY,
MELLON OVERSEAS INVESTMENT
CORPORATION, MELLON SECURITIES
LIMITED, MELLON SECURITIES TRUST
COMPANY, MELLON VENTURES, INC., NSD
HOLDINGS CORPORATION, PONTUS, INC.,
RECR, INC.
THE PRINCIPAL BUSINESS ADDRESS OF BOSTON SAFE DEPOSIT AND TRUST
COMPANY IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02106.
THE PRINCIPAL BUSINESS ADDRESS OF MGIC-UK LTD. IS 6 DEVONSHIRE SQUARE,
LONDON EC2M 4LR, ENGLAND.
THE PRINCIPAL BUSINESS ADDRESS OF CCF-MELLON PARTNERS IS ONE MELLON
BANK CENTER, SUITE 4150, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON BANK, N.A. IS ONE MELLON BANK
CENTER, SUITE 4700, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON EQUITY ASSOCIATES IS ONE
MELLON BANK CENTER, SUITE 3715, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF THE DREYFUS CORPORATION IS 200 PARK
AVENUE, NEW YORK, NEW YORK 10166.
THE PRINCIPAL BUSINESS ADDRESS OF PARETO PARTNERS LONDON IS 271 REGENT
STREET, LONDON WIR8PP.
THE PRINCIPAL BUSINESS ADDRESS OF FRANKLIN PORTFOLIO ASSOCIATES TRUST
IS 1 POST OFFICE SQUARE, SUITE 3660, BOSTON, MASSACHUSETTS 02109.
THE PRINCIPAL BUSINESS ADDRESS OF CERTUS ASSET ADVISORS CORPORATION IS
ONE BUSH STREET, SUITE 450, SAN FRANCISCO, CALIFORNIA 94104.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY OF SOUTHERN
CALIFORNIA IS ONE CALIFORNIA, 300 GRAND AVENUE, LOS ANGELES, CALIFORNIA 90071.
THE PRINCIPAL BUSINESS ADDRESS OF BOSTON SAFE ADVISORS, INC. IS ONE
BOSTON PLACE, BOSTON, MASSACHUSETTS 02108-4402.
-23-
<PAGE> 142
THE PRINCIPAL BUSINESS ADDRESS OF BOSTON SAFE ADVISORS, INC. IS ONE
BOSTON PLACE, BOSTON, MASSACHUSETTS 02108- 4402.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON BOND ASSOCIATES IS ONE MELLON
BANK CENTER, SUITE 4135, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON EQUITY ASSOCIATES IS ONE
MELLON BANK CENTER, SUITE 3715, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF ACCESS CAPITAL STRATEGIES
CORPORATION IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02108.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY ASSET MANAGEMENT,
INC. IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02106.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON BANK CORPORATION IS ONE
MELLON BANK CENTER, 500 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY FINANCIAL
SERVICES, INC. IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02108-4402.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY, INC. IS ONE
BOSTON PLACE, BOSTON, MASSACHUSETTS 02106.
THE PRINCIPAL BUSINESS ADDRESS OF LAUREL CAPITAL ADVISORS IS ONE
MELLON BANK CENTER, SUITE 3935, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF BOSTON SAFE DEPOSIT AND TRUST
COMPANY OF CALIFORNIA IS 300 S. GRAND AVENUE., SUITE 1200, LOS ANGELES,
CALIFORNIA 90071.
THE PRINCIPAL BUSINESS ADDRESS OF MY, INC. IS ONE BOSTON PLACE,
BOSTON, MASSACHUSETTS 02108-4402.
THE PRINCIPAL BUSINESS ADDRESS OF RECO, INC. IS ONE BOSTON PLACE,
BOSTON, MASSACHUSETTS 02108-4402.
-24-
<PAGE> 143
THE PRINCIPAL BUSINESS ADDRESS OF BOSTON SAFE DEPOSIT AND TRUST
COMPANY OF NEW YORK IS 1301 AVENUE OF THE AMERICAS, 41ST FL., NEW YORK, NEW
YORK 10019.
THE PRINCIPAL BUSINESS ADDRESS OF BOSTON SAFE DEPOSIT AND TRUST
COMPANY OF BOSTON IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02108-4402.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY FINANCIAL
STRATEGIES, INC. IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02108-4402.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY FINANCIAL
STRATEGIES GROUP, INC. IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02108-4402.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON FINANCE COMPANY IS ONE
BOSTON PLACE, BOSTON, MASSACHUSETTS 02108- 4402.
THE PRINCIPAL BUSINESS ADDRESS OF GLOBAL ASSET MANAGEMENT GROUP OF
MELLON TRUST (MELLON BANK, N.A.) IS ONE MELLON BANK CENTER, SUITE 1935,
PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON ASIA LIMITED IS PLAZA
BUSINESS CENTER, 35/F HARBOR ROAD, HONG KONG.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON-FRANCE CORPORATION IS ONE
MELLON BANK CENTER, SUITE 4000, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON GLOBAL INVESTING CORP. IS ONE
MELLON BANK CENTER, SUITE 1935, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF PARETO PARTNERS IS ONE MELLON BANK
CENTER, SUITE 4040, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF SHEARSON SUMMIT EUROMANAGEMENT INC.
IS ONE MELLON BANK CENTER, SUITE 1935, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF SHEARSON SUMMIT EUROPARTNERS INC. IS
ONE MELLON BANK CENTER, SUITE 1935, PITTSBURGH, PENNSYLVANIA 15258.
-25-
<PAGE> 144
THE PRINCIPAL BUSINESS ADDRESS OF SHEARSON SUMMIT MANAGEMENT INC. IS
ONE MELLON BANK CENTER, SUITE 1935, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF SHEARSON SUMMIT PARTNERS INC. IS ONE
MELLON BANK CENTER, SUITE 1935, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF SHEARSON VENTURE CAPITAL INC. IS ONE
MELLON BANK CENTER, SUITE 1935, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY ADVISORS, INC. IS
ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02106.
THE PRINCIPAL BUSINESS ADDRESS OF THE BOSTON COMPANY OVERSEAS BANKING
CORP. IS 1301 AVENUE OF THE AMERICAS, 41ST FL., NEW YORK, NEW YORK 10019.
THE PRINCIPAL BUSINESS ADDRESS OF WELLINGTON-MEDFORD II PROPERTIES,
INC. IS ONE BOSTON PLACE, BOSTON, MASSACHUSETTS 02106.
THE PRINCIPAL BUSINESS ADDRESS OF FIRST BOYLSTON CORPORATION IS ONE
BOSTON PLACE, BOSTON, MASSACHUSETTS 02106.
THE PRINCIPAL BUSINESS ADDRESS OF TBC SECURITIES CO., INC. IS ONE
BOSTON PLACE, BOSTON, MASSACHUSETTS 02106.
THE PRINCIPAL BUSINESS ADDRESS OF BOSTON GROUP HOLDINGS, INC. IS ONE
MELLON BANK CENTER, SUITE 1820, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON EUROPE LIMITED IS 6
DEVONSHIRE SQUARE, LONDON EC2M 4LR, ENGLAND.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON FINANCIAL SERVICES
CORPORATION #17 IS ONE EXECUTIVE DRIVE, FORT LEE, NEW JERSEY 07024.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON ACCOUNTING SERVICES, INC. IS
THREE MELLON BANK CENTER, SUITE 3102, PITTSBURGH, PENNSYLVANIA 15259.
-26-
<PAGE> 145
THE PRINCIPAL BUSINESS ADDRESS OF MELLON FINANCIAL COMPANY IS ONE
MELLON BANK CENTER, SUITE 747, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF APT HOLDING CORPORATION IS
PIKE CREEK OPERATIONS CENTER, 4500 NEW LINDEN HILL ROAD, WILMINGTON, DELAWARE
19808.
THE PRINCIPAL BUSINESS ADDRESS OF ALLOMON CORPORATION IS SUITE 329,
TWO MELLON BANK CENTER, PITTSBURGH, PENNSYLVANIA 15259.
THE PRINCIPAL BUSINESS ADDRESS OF BEAVER VALLEY LEASING CORPORATION IS
SUITE 4444. ONE MELLON BANK CENTER, PITTSBURGH, PENNSYLVANIA 115258.
THE PRINCIPAL BUSINESS ADDRESS OF KATRENA CORPORATION IS
4500 NEW LINDEN HILL ROAD, SUITE 210, WILMINGTON, DELAWARE 19808.
THE PRINCIPAL BUSINESS ADDRESS OF MFS LEASING CORP. IS
SUITE 4444, ONE MELLON BANK CENTER, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MMIP, INC. IS
4500 NEW LINDEN HILL ROAD, SUITE 210, WILMINGTON, DELAWARE 19808.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON BANK COMMUNITY DEVELOPMENT
CORPORATION IS THREE MELLON BANK CENTER, 153-BF00, PITTSBURGH,PENNSYLVANIA
15259.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON EFT SERVICES CORPORATION IS
MELLON BANK CENTER, 8TH FLOOR, LEGAL AFFAIRS, 1735 MARKET STREET, PHILADELPHIA,
PENNSYLVANIA 19103.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON ESCROW COMPANY IS
1300 TRANNIS STREET, HOUSTON, TEXAS 77006.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON FINANCIAL SERVICES
CORPORATION #2 IS MELLON BANK CENTER, 8TH FLOOR, LEGAL AFFAIRS,
1735 MARKET STREET, PHILADELPHIA, PENNSYLVANIA 19103.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON FINANCIAL SERVICES
CORPORATION 3, 4, AND 13 IS SUITE 4444, ONE MELLON BANK CENTER, PITTSBURGH,
PENNSYLVANIA 15258-0001.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON INSURANCE AGENCY, INC. IS
SUITE 2890, ONE MELLON BANK CENTER, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON INTERNATIONAL LEASING COMPANY
IS 4500 NEW LINDEN HILL ROAD, SUITE 210, WILMINGTON, DELAWARE 19808.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON OVERSEAS INVESTMENT
CORPORATION IS 10TH AND MARKET STREET, SECOND FLOOR, WILMINGTON, DELAWARE
19801.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON SECURITIES LIMITED IS
SUITE 400, ONE MELLON BANK CENTER, PITTSBURGH, PENNSYLVANIA 15258-0001.
-27-
<PAGE> 146
THE PRINCIPAL BUSINESS ADDRESS OF MELLON SECURITIES TRUST COMPANY IS
120 BROADWAY, NEW YORK, NEW YORK 10271.
THE PRINCIPAL BUSINESS ADDRESS OF MELLON VENTURES, INC. IS
SUITE 1820, ONE MELLON BANK CENTER, PITTSBURGH, PENNSYLVANIA 15258.
THE PRINCIPAL BUSINESS ADDRESS OF NSD HOLDINGS IS
1735 MARKET STREET, 8TH FLOOR, LEGAL AFFAIRS, PITTSBURGH, PENNSYLVANIA
19103-7501335.
THE PRINCIPAL BUSINESS ADDRESS OF PONTUS, INC. IS
SUITE 4444, ONE MELLON BANK CENTER, PITTSBURGH, PENNSYLVANIA 15258-0001.
THE PRINCIPAL BUSINESS ADDRESS OF RECR, INC. IS
MELLON BANK CENTER, 8TH FLOOR, LEGAL AFFAIRS, 1735 MARKET STREET, PHILADELPHIA,
PENNSYLVANIA 19103.
(F) PANAGORA IS A SUBADVISER TO THE PREFERRED ASSET ALLOCATION
FUND AND ITS BUSINESS IS SUMMARIZED UNDER THE CAPTION "MANAGEMENT OF THE
PREFERRED GROUP" IN THE PROSPECTUS CONSTITUTING PART A OF THIS REGISTRATION
STATEMENT, WHICH SUMMARY IS INCORPORATED HEREIN BY REFERENCE.
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<PAGE> 147
OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT OF A SUBSTANTIAL
NATURE IN WHICH EACH DIRECTOR OR OFFICER OF PANAGORA IS OR HAS BEEN, AT ANY
TIME DURING THE PAST TWO FISCAL YEARS, ENGAGED FOR HIS OWN ACCOUNT OR IN THE
CAPACITY OF DIRECTOR, OFFICER, EMPLOYEE, PARTNER OR TRUSTEE IS AS FOLLOWS:
<TABLE>
<CAPTION>
NAME AND POSITION BUSINESS AND
WITH PANAGORA OTHER CONNECTIONS
<S> <C>
BRUCE E. CLARKE CHIEF EXECUTIVE OFFICER AND DIRECTOR,
PRESIDENT AND CHIEF EXECUTIVE OFFICER, PANAGORA ASSET MANAGEMENT LIMITED; PRIOR
DIRECTOR TO JULY, 1995, VICE PRESIDENT OF BOSTON
SAFE DEPOSIT AND TRUST CO.
HARUAKI DEGUCHI GENERAL MANAGER OF NIPPON LIFE INSURANCE
DIRECTOR COMPANY; DIRECTOR, PANAGORA ASSET
MANAGEMENT LIMITED; PRIOR TO MARCH, 1995,
MANAGING DIRECTOR, NLI INTERNATIONAL
LIMITED
KATHLEEN I. DEVIVO PRIOR TO JULY, 1995, VICE PRESIDENT OF
SECRETARY, SENIOR MANAGER BOSTON SAFE DEPOSIT & TRUST CO.
AND COMPLIANCE OFFICER
RICHARD S. FULD, JR. CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
DIRECTOR LEHMAN BROTHERS HOLDINGS, INC.; DIRECTOR,
PANAGORA ASSET MANAGEMENT LIMITED
BRUCE R. LAKEFIELD CHAIRMAN AND CHIEF EXECUTIVE OFFICER --
DIRECTOR, CHAIRMAN EUROPE, LEHMAN BROTHERS INTERNATIONAL;
DIRECTOR, PANAGORA ASSET MANAGEMENT
LIMITED; PRIOR TO FEBRUARY, 1995, DIRECTOR
OF MTV DIVISION, LEHMAN BROTHERS, INC.
</TABLE>
-29-
<PAGE> 148
<TABLE>
<S> <C>
TORU MORISHIGE DIRECTOR, PANAGORA ASSET MANAGEMENT
MANAGING DIRECTOR, DIRECTOR, LIMITED; PRIOR TO APRIL, 1995, PRESIDENT,
VICE CHAIRMAN NLI INTERNATIONAL CANADA, INC.
EDGAR E. PETERS PRIOR TO JULY, 1995, VICE PRESIDENT OF
DIRECTOR OF ASSET BOSTON SAFE DEPOSIT AND TRUST CO.
ALLOCATION, DIRECTOR
RANDOLPH S. PETRALIA FIRST VICE PRESIDENT, LEHMAN BROTHERS,
DIRECTOR INC., EQUITY DIVISION; DIRECTOR, PANAGORA
ASSET MANAGEMENT LIMITED; PRIOR TO
JANUARY, 1995, FIRST VICE PRESIDENT,
LEHMAN BROTHERS, INC., FINANCIAL SERVICES
DIVISION
PAUL R. SAMUELSON NONE
DIRECTOR OF EQUITY AND FIXED
INCOME INVESTMENTS, DIRECTOR
MASATAKA SHIMASAKI DIRECTOR OF NLI INTERNATIONAL, INC. LIFE
DIRECTOR INSURANCE COMPANY; DIRECTOR, PANAGORA
ASSET MANAGEMENT LIMITED
MAKOTO TODA MANAGING DIRECTOR OF NIPPON LIFE INSURANCE
DIRECTOR COMPANY; DIRECTOR, PANAGORA ASSET
MANAGEMENT LIMITED
MICHAEL H. TURPIN NONE
TREASURER, SENIOR MANAGER,
CONTROLLER
</TABLE>
THE PRINCIPAL BUSINESS ADDRESS OF LEHMAN BROTHERS HOLDINGS, INC. IS
AMERICAN EXPRESS TOWER, WORLD FINANCIAL CENTER, NEW YORK, NEW YORK.
THE PRINCIPAL BUSINESS ADDRESS OF PANAGORA ASSET MANAGEMENT LIMITED IS
3 FINSBURY AVENUE, LONDON, ENGLAND EC2M 2PA.
-30-
<PAGE> 149
THE PRINCIPAL BUSINESS ADDRESS OF NIPPON LIFE INSURANCE COMPANY AND
NLI INTERNATIONAL, INC. LIFE INSURANCE COMPANY IS 5-12, IMBASHI, 3-CHOME,
CHUO-KU, OSAKA, JAPAN.
THE PRINCIPAL BUSINESS ADDRESS OF LEHMAN BROTHERS INTERNATIONAL IS ONE
BROADGATE, LONDON EC2M 7HA, ENGLAND.
(G) Morgan is the subadviser to the Preferred Fixed Income Fund and
the Preferred Money Market Fund and its business is summarized under the
caption "Management of The Preferred Group" in the Prospectus constituting Part
A of this Registration Statement, which summary is incorporated herein by
reference.
Other business, profession, vocation or employment of a substantial
nature in which each director or officer of Morgan is or has been, at any time
during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee is as follows:
<TABLE>
<CAPTION>
NAME AND POSITION BUSINESS AND
WITH MORGAN OTHER CONNECTIONS
<S> <C>
Kenneth W. Anderson Managing Director, Morgan Guaranty Trust
Managing Director, Company of New York
Director
Robert A. Anselmi Managing Director, Assistant Secretary,
Managing Director, Morgan Guaranty Trust Company of New York
Director, General Counsel,
Secretary
Jean Louis Pierre Brunel Managing Director, Morgan Guaranty Trust
Director Company of New York
William L. Cobb, Jr. Managing Director, Morgan Guaranty Trust
Vice Chairman, Managing Company of New York
Director, Director
Michael R. Granito Managing Director, Morgan Guaranty Trust
Managing Director, Company of New York
Director
</TABLE>
-31-
<PAGE> 150
<TABLE>
<S> <C>
Keith M. Schappert Managing Director, Morgan Guaranty Trust
President, Managing Company of New York
Director, Director
John R. Thomas President, Managing Director, Director,
Director J.P. Morgan Trust Bank Ltd.
Thomas M. Luddy Managing Director, Morgan Guaranty Trust
Managing Director, Company of New York
Director
C. Nicholas Potter Managing Director, Morgan Guaranty Trust
Chairman of the Board, Company of New York
Director
Milan S. Soltis Managing Director, Morgan Guaranty Trust
Managing Director, Company of New York
Chief Administrative
and Financial Officer,
Director
Michael E. Patterson Chief Administrative Officer, J.P. Morgan
Director & Co. Incorporated and Morgan Guaranty
Trust Company of New York
</TABLE>
The principal business address of Morgan Guaranty Trust Company of New
York, J.P. Morgan Trust Bank Ltd. and J.P. Morgan & Co. Incorporated is 60 Wall
Street, New York, New York 10260-0060.
Item 29. Principal Underwriter
(a) Caterpillar Securities Inc., the Registrant's Principal
Underwriter, does not serve as underwriter for any other investment companies.
(b) Information with respect to directors and officers of the
Principal Underwriter is as follows:
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<PAGE> 151
<TABLE>
<CAPTION>
Positions and Offices Positions and
Names and Principal with Principal Offices with
Business Addresses Underwriter Registrant
- ------------------ --------------------- ---------------
<S> <C> <C>
P. Michael Pond President, Director President,
Trustee
Frederick L. Kaufman Treasurer, Director Vice President,
Treasurer
Carol K. Burns Director Vice President,
Assistant Clerk
</TABLE>
(c) The Registrant has no principal underwriter that is not an
affiliated person of the Registrant or an affiliated person of such an
affiliated person.
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder include Registrant's Clerk,
Richard P. Konrath; Registrant's investment adviser, CIML; Registrant's
Custodian, State Street; Registrant's Transfer Agent and Shareholder Servicing
Agent, State Street; and each of the Registrant's subadvisers. The address of
the Clerk and investment adviser is 100 N.E. Adams Street, Peoria, Illinois
61629; the address of the Custodian, Transfer Agent and Shareholder Servicing
Agent is P.O. Box 1713, Boston, Massachusetts 02110; and the addresses of the
Registrant's subadvisers are as follows: Oppenheimer, Oppenheimer Tower, World
Financial Center, New York, New York 10281; Jennison, 466 Lexington Avenue, New
York, New York 10017; Mellon, 595 Market Street, Suite 3000, San Francisco,
California 94105; PanAgora, 260 Franklin Street, Boston, Massachusetts 02110;
Mercator, 2400 East Commercial Boulevard, Fort Lauderdale, Florida 33308; and
Morgan, 522 Fifth Avenue, New York, New York 10036.
Item 31. Management Services
None.
-33-
<PAGE> 152
Item 32. Undertakings
(a) The undersigned Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the removal of a Trustee or Trustees
when requested in writing to do so by the holders of at least 10% of the
Registrant's outstanding voting securities and in confirmation with the
provisions of Section 16(c) of the Investment Company Act of 1940 relating to
shareholder communications.
(b) The undersigned Registrant hereby undertakes to provide to
shareholders a copy of its Annual Report without charge upon request.
NOTICE
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 Trust by an
officer of the Trust as an officer and not individually and the obligations of
or arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
each of the respective constituent series of the Trust.
-34-
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Peoria and the State of Illinois on the
8th day of April, 1996.
THE PREFERRED GROUP OF MUTUAL FUNDS
By: P. Michael Pond*
Title: President
Pursuant to the Securities Act of 1933, this Amendment has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
P. Michael Pond* Trustee and President April 8, 1996
- ------------------ (Chief Executive Officer)
P. Michael Pond
William F. Bahl* Trustee April 8, 1996
- ------------------
William F. Bahl
Dixie L. Mills* Trustee April 8, 1996
- -----------------
Dixie L. Mills
Gary M. Anna* Trustee April 8, 1996
- ---------------
Gary M. Anna
James F. Masterson* Trustee April 8, 1996
- ---------------------
James F. Masterson
Fred L. Kaufman* Treasurer and Vice April 8, 1996
- ------------------ President (Principal
Fred L. Kaufman Financial and Principal
Accounting Officer)
</TABLE>
*By: Fred L. Kaufman
-------------------------------
Fred L. Kaufman
Attorney-in-Fact Pursuant to
Powers of Attorney Filed
-35-
<PAGE> 154
Previously and for Himself
-36-
<PAGE> 155
THE PREFERRED GROUP OF MUTUAL FUNDS
Index to Exhibits
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
<S> <C> <C>
1(A). Agreement and
Declaration of Trust
1(B). AMENDMENT NO. 1 TO
AGREEMENT AND
DECLARATION OF TRUST
1(C). AMENDMENT NO. 2 TO
AGREEMENT AND
DECLARATION OF TRUST
1(D). AMENDMENT NO. 3 TO
AGREEMENT AND
DECLARATION OF TRUST
1(E). AMENDMENT NO. 4 TO
AGREEMENT AND
DECLARATION OF TRUST
2. BY-LAWS
4. PORTIONS OF THE
REGISTRANT'S AGREEMENT
AND DECLARATION OF TRUST
AND BY-LAWS PERTAINING
TO SHAREHOLDER'S RIGHTS
5(A) Form of Management
</TABLE>
-37-
<PAGE> 156
<TABLE>
<S> <C> <C>
Contract between
THE Trust and
CIML with respect
to the Preferred
GROWTH FUND
5(B). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER with
respect to the
Preferred VALUE FUND
5(C). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER WITH
RESPECT TO THE
PREFERRED
INTERNATIONAL FUND
5(D). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER WITH
RESPECT TO THE
PREFERRED SMALL CAP
FUND
5(E). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER WITH RESPECT TO THE
PREFERRED ASSET ALLOCATION FUND
5(F). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER WITH
RESPECT TO THE
PREFERRED BALANCED FUND
</TABLE>
-38-
<PAGE> 157
<TABLE>
<S> <C> <C>
5(G). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER WITH
RESPECT TO THE
PREFERRED FIXED
INCOME FUND
5(H). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER WITH RESPECT TO
THE PREFERRED SHORT-
TERM GOVERNMENT
SECURITIES FUND
5(I). FORM OF MANAGEMENT
CONTRACT BETWEEN
THE TRUST AND THE
MANAGER WITH
RESPECT TO THE PREFERRED
MONEY MARKET FUND
5(J). FORM OF SUBADVISER
AGREEMENT BETWEEN
THE MANAGER AND JENNISON
WITH RESPECT TO THE
PREFERRED GROWTH FUND
5(K). FORM OF SUBADVISER
AGREEMENT BETWEEN
THE MANAGER AND
OPPENHEIMER
5(L). FORM OF SUBADVISER
AGREEMENT BETWEEN
THE MANAGER AND MERCATOR
5(M). FORM OF SUBADVISER
</TABLE>
-39-
<PAGE> 158
<TABLE>
<S> <C>
AGREEMENT BETWEEN
THE MANAGER AND MELLON
5(N). FORM OF SUBADVISER
AGREEMENT BETWEEN
THE MANAGER AND PANAGORA
5(O). FORM OF SUBADVISER
AGREEMENT BETWEEN THE MANAGER
AND JENNISON WITH
RESPECT TO THE PREFERRED
BALANCED FUND
5(P). FORM OF SUBADVISER
AGREEMENT BETWEEN
THE MANAGER AND
MORGAN WITH RESPECT
TO THE PREFERRED
FIXED INCOME FUND
5(Q). FORM OF SUBADVISER
AGREEMENT BETWEEN
THE MANAGER AND
MORGAN WITH RESPECT
TO THE PREFERRED
MONEY MARKET FUND
6. FORM OF
DISTRIBUTOR'S
CONTRACT BETWEEN
THE TRUST AND
CATERPILLAR SECURITIES INC.
7. NONE
8. FORM OF CUSTODIAN
CONTRACT BETWEEN
THE TRUST AND STATE STREET
9. FORM OF TRANSFER
</TABLE>
-40-
<PAGE> 159
<TABLE>
<S> <C> <C>
AGENCY AND SERVICE
AGREEMENT BETWEEN
THE TRUST AND STATE
STREET
10. OPINION AND CONSENT
OF ROPES & GRAY
11. CONSENT OF PRICE
WATERHOUSE
13. FORM OF INITIAL
CAPITAL AGREEMENT
16. CALCULATION OF
PERFORMANCE
INFORMATION AND
YIELD
17(A). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED GROWTH
FUND.
17(B). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED
VALUE FUND.
17(C). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED
INTERNATIONAL FUND.
17(D). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED SMALL CAP
FUND.
17(E). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED ASSET
ALLOCATION FUND.
17(F). FINANCIAL DATA
SCHEDULE FOR THE
</TABLE>
-41-
<PAGE> 160
<TABLE>
<S> <C> <C>
PREFERRED BALANCED
FUND.
17(G). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED FIXED
INCOME FUND.
17(H). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED SHORT-
TERM GOVERNMENT
SECURITIES FUND.
17(I). FINANCIAL DATA
SCHEDULE FOR THE
PREFERRED
MONEY MARKET FUND.
</TABLE>
-42-
<PAGE> 1
EX. - 99.1(a)
AGREEMENT AND DECLARATION OF TRUST
OF
CATERPILLAR INVESTMENT TRUST
THIS AGREEMENT AND DECLARATION OF TRUST made in Boston, Massachusetts
this 19th day of November, 1991 by the Trustee hereunder and the holders of
shares of beneficial interest issued hereunder and to be issued hereunder as
hereinafter provided:
WITNESSETH that
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with
the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filled with the Secretary of State of The Commonwealth
of Massachusetts and with the Clerk of every city or town where such
association or trust has a usual place of business, and do hereby declare that
they will hold all cash, securities and other assets, which they may from time
to time acquire in any manner as Trustees hereunder IN TRUST to manage and
dispose of the same upon the following terms and conditions for the pro rata
benefit of the holders from time to time of Shares in this trust as hereinafter
set forth.
ARTICLE I
Name and Definitions
Section 1. This Trust shall be known as Caterpillar Investment Trust,
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided
(a) "Trust" refers to the Massachusetts business trust established
by this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in
Article IV hereof or elected in accordance with such Article;
<PAGE> 2
(c) "Shares" means the equal proportionate units or interest into
which the beneficial interest in the Trust or in the Trust property belonging
to any Series of the Trust (or in the property belonging to any Series
allocable to any Class of that Series) (as the context may require) shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "principal underwriter" shall have
the meanings given them in the 1940 Act;
(g) "Declaration of Trust" and "this Declaration" shall mean this
Agreement and Declaration of Trust, as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from
time to time;
(i) "Series Company" refers to the form of registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or in any
successor statutory provision;
(j) "Series" refers to Series of Shares established and designated
under or in accordance with the provisions of Article III; and
(k) "Class" refers to any Class of Shares of a Series established
and designated under or in accordance with the provisions of Article III. The
Shares of a Class shall represent a subset of Shares of a Series and the Shares
of each Class, together with the Shares of all other Classes of the same
Series, shall constitute all Shares of that Series.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities (including options), debt instruments, money market
instruments, commodities, commodity contracts and options thereon.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest
in the Trust shall at all times be divided into an unlimited number of Shares,
without par value. Subject to the provisions of Section 6 of this Article III,
each Share shall have the voting rights as provided in Article V hereof, and
holders of the Shares of any Series or Class shall be entitled to
-2-
<PAGE> 3
receive dividends, when and as declared with respect thereto in the manner
provided in Article VI, Section 1 hereof. No Share shall have any priority or
preference over any other Share of the same Series and Class with respect to
dividends or distributions upon termination of the Trust or of such Series or
Class made pursuant to Article IX, Section 4 hereof. Unless the Trustees have
authorized the issuance of Shares of a Series in two or more Classes, all
dividends and distributions shall be made ratably among all Shareholders of a
particular Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by such Shareholders on the
record date for any dividend or on the date of termination, as the case may be.
The Trustees may from time to time divide or combine the Shares of any
particular Series or Class into a greater or lesser number of Shares of that
Series or Class without thereby changing the proportionate beneficial interest
of the Shares of that Series or Class in the assets belonging to that Series
(or allocable to the Shares of that Class) or in any way affecting the rights
of Shares of any other Series or Class.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each
Series. No certificates certifying the ownership of Shares shall be issued
except as the Trustees may otherwise determine from time to time. The Trustees
may make such rules as they consider appropriate for the transfer of Shares of
each Series and Class and similar matters. The record books of the Trust as
kept by the Trust or any transfer or similar agent, as the case may be, shall
be conclusive as to who are the Shareholders of each Series and Class and as to
the number of Shares of each Series and Class held from time to time by each.
Section 3 . Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and for such
consideration as they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in
or to the whole or any part of the Trust property or right to call for a
partition or division of the same or for an accounting, nor shall the ownership
of Shares constitute the Shareholders partners of each other. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholders, nor except as specifically
provided herein to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay.
-3-
<PAGE> 4
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as
provided elsewhere herein, the Trustees shall have the power to amend this
Declaration of Trust, at any time and from time to time, in such manner as the
Trustees may determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust for
the purpose of (i) responding to or complying with any regulations, orders,
rulings or interpretations of any governmental agency or any laws, now or
hereafter applicable to the Trust, or (ii) designating and establishing Series
or Classes in addition to the Series or Classes established in Section 6 of
this Article III; provided that before adopting any such amendment in clause
(i) without Shareholder approval the Trustees shall determine that it is
consistent with the fair and equitable treatment of all Shareholders. The
establishment and designation of any Series or Class of Shares in addition to
the Series or Classes established and designated in Section 6 of this Article
III shall be effective upon the execution by a majority of the then Trustees of
an amendment to this Declaration of Trust, taking the form of a complete
restatement or otherwise, setting forth such establishment and designation and
the relative rights and preferences of such Series or Class, or as otherwise
provided in such instrument.
Without limiting the generality of the foregoing, the Trustees may,
for the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or Classes of shares (with respect
to or in addition to any Series or Classes already existing or otherwise) with
such rights and preferences and such eligibility requirements for investment
therein as the Trustees shall determine, and reclassify any or all outstanding
Shares as shares of particular Series or Classes in accordance with such
eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a)
through (j) of Section 6 of this Article III;
(c) combine one or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall determine:
(d) change or eliminate any eligibility requirements for
investment in Shares of any Series or Class, including without limitation the
power to provide for the issue of Shares of any Series or Class in connection
with any merger or consolidation of the Trust with another trust or company or
any acquisition by the Trust of part or all of the assets of another trust or
company;
(e) change the designation of any Series or Class of Shares;
-4-
<PAGE> 5
(f) change the method of allocating dividends among the various
Series and Classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or
any specific items of income or expense of the Trust to one or more Series or
Classes of Shares;
(h) specifically allocate assets to any or all Series or Classes
of Shares or create one or more additional Series or Classes of Shares which
are preferred over all other Series or Classes of Shares in respect of assets
specifically allocated thereto or any dividends paid by the Trust with respect
to any net income, however determined, earned from the investment and
reinvestment of any assets so allocated or otherwise and provide for any
special voting or other rights with respect to such Series or Classes; or
(i) divide one or more Series of Shares into one or more Classes
on such terms and conditions as the Trustees may determine.
Section 6. Establishment and Designation of Series. 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 "Foreign Equity Fund", "U.S. Value
Equity Fund", "U.S. Growth Equity Fund", "Tactical Asset Allocation Fund",
"Fixed Income Fund", "Money Market Fund", and "Investment Contract Fund" shall
be, and are hereby, established and designated.
Shares of each Series established in this Section 6 shall have the
following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the
Trust for the issue or sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source derived,
including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
Such consideration, assets, income, earnings, profits and proceeds thereof,
from whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets belonging to" that Series. In
the event that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as belonging to
any particular Series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or among any one or more of the Series
established and designated from time to time in such manner and on such basis
as they, in their sole discretion, deem fair and equitable, and any General
Asset so allocated to a
-5-
<PAGE> 6
particular Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all Series
for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged solely with the liabilities of the Trust in
respect to that Series, expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series but which are allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in a manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are herein referred to as
"liabilities belonging to" that Series. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration, including, without
limitation, Article VI, no dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any
Series) with respect to, nor any redemption or repurchase of, the Shares of any
Series shall be effected by the Trust other than from the assets belonging to
such Series, nor shall any Shareholder of any particular Series otherwise have
any right or claim against the assets belonging to any other Series except to
the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series or Class shall not be entitled to vote on
any matters as to which such Series or Class is not affected. On any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall be voted by individual Series, unless otherwise required by the 1940
Act or other applicable law or as specifically required under this Declaration
or the Bylaws or as otherwise determined by the Trustees.
(e) Equality. All the Shares of each particular Class of a Series
shall represent an equal proportionate interest in the assets and liabilities
belonging to that Series allocable to that Class and all Shares of each
particular Series shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities belonging to that Series),
and each Share of any particular Series shall be equal to each other Share of
that Series.
(f) Fractions. Any fractional Share of a Series or Class shall
carry proportionately all the rights and obligations of a whole share of that
Series or Class, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.
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(g) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(h) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless
otherwise required by applicable law, to combine the assets and liabilities
belonging to any two or more Series or Classes into assets and liabilities
belonging to a single Series or Class.
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that Series and to
rescind the establishment and designation thereof, such amendment to be
effected in the manner provided in Section 5 of this Article III.
(j) Assets and Liabilities Allocable to a Class. The assets and
liabilities belonging to a Series shall be fully allocated among all the
Classes of that Series. For purposes of determining the assets and liabilities
belonging to a Series which are allocable to a Class of that Series, subject to
the provisions of paragraph (f) of Section 5 of this Article III, the
provisions of paragraphs (a) and (b) of this Section 6 shall apply, mutatis
mutandis, as if each Class were a Series.
Section 7. Indemnification of Shareholders. In case any Shareholder
or former Shareholder shall be held to be personally liable solely by reason of
his or her being or having been a Shareholder of the Trust or of a particular
Series and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled
out of the assets of the Series of which he is a Shareholder or former
Shareholder to be held harmless from and indemnified against all loss and
expense arising from such liability.
Section 8. No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 9. Derivative Claims. No Shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of this Trust
or any Series without first making demand on the Trustees requesting the
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or Series would otherwise result. Such demand
shall be mailed to the Clerk of the Trust at the Trust's principal office and
shall set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the Shareholder to
support the allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole
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discretion, the Trustees may submit the matter to a vote of Shareholders of the
Trust or Series, as appropriate. Any decision by the Trustees to bring,
maintain or settle (or not to bring, maintain or settle) such court action,
proceeding or claim, or to submit the matter to a vote of Shareholders shall be
made by the Trustees in their business judgment and shall be binding upon the
Shareholders. Any decision by the Trustees to bring or maintain a court
action, proceeding or suit on behalf of the Trust or a Series shall be subject
to the right of the Shareholders under Article V, Section 1 hereof to vote on
whether or not such court action, proceeding or suit should or should not be
brought or maintained.
ARTICLE IV
The Trustees
Section 1. Election and Tenure. The initial Trustee shall be Michael
Pond. Trustees may fix the number of Trustees, fill vacancies in the Trustees,
including vacancies arising from an increase in the number of Trustees, or
remove Trustees with or without cause. Each Trustee shall serve during the
continued lifetime of the Trust until he dies, resigns or is removed, or, if
sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his successor.
Any Trustee may resign at any time by written instrument signed by him and
delivered to any officer of the Trust or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee resigning and no Trustee removed shall
have any right to any compensation for any period following his resignation or
removal, or any right to damages on account of such removal. The Shareholders
may fix the number of Trustees and elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose.
Section 2. Effect of Death, Resignation, Etc. of a Trustee. The
death, declination, resignation, retirement, removal or incapacity of the
Trustees, or any of them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all kinds on behalf
of the Trust. Without limiting the foregoing, the Trustees may adopt Bylaws
not inconsistent with this Declaration of Trust providing for the regulation
and management of the affairs of the Trust and may amend and repeal them to the
extent that such Bylaws do not reserve that right to the Shareholders; they may
fill vacancies in or remove from their number (including any vacancies created
by an increase in the number of Trustees); they may remove from their number
with or without cause; they may elect and remove such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number and terminate one or more committees consisting of two or more
Trustees which may exercise the powers and authority of the Trustees to the
extent that the
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Trustees determine; they may employ one or more custodians of the assets of the
Trust and may authorize such custodians to employ subcustodians and to deposit
all or any part of such assets in a system or systems for the central handling
of securities or with a Federal Reserve Bank; they may retain a transfer agent
or a shareholder servicing agent, or both; they may provide for the
distribution of Shares by the Trust, through one or more principal underwriters
or otherwise; they may set record dates for the determination of Shareholders
with respect to various matters; and in general they may delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease,
or write options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the Trustees
shall deem proper, granting to such person or persons such power and discretion
with relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer of any
security which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer; and to
pay calls or subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of
the expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper:
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(h) To compromise, arbitrate or otherwise adjust claims in favor
of or against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(i) To enter into joint ventures, general or limited partnerships
and any other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
liability; and
(m) To pay pensions as deemed appropriate by the Trustees and to
adopt, establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit plans,
trusts and provisions, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any
or all of the Trustees, officers, employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present
or future law or custom in regard to investments by Trustees. The Trustees
shall not be required to obtain any court order to deal with any assets of the
Trust or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of principal and partly out of income, as they deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including but not limited to, the Trustee's compensation and such expenses and
charges for the services of the Trust's officers, employees, investment adviser
or manager, principal underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or
proper to incur.
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Section 5. Payment of Expenses by Shareholders. The Trustees shall
have the power, as frequently as they may determine, to cause each Shareholder,
or each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder
servicing or similar agent, an amount fixed from time to time by the Trustees,
by setting off such charges due from such Shareholder from declared but unpaid
dividends owed such Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trustees.
Section 7. Advisory, Management and Distribution Contracts. Subject
to such requirements and restrictions as may be set forth in the Bylaws, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services for the Trust or for any
Series with Caterpillar Investment Management Ltd. or any other partnership,
corporation, trust, association or other organization (the "Manager"); and any
such contract may contain such other terms as the Trustees may determine,
including without limitation, authority for a Manager to determine from time to
time without prior consultation with the Trustees what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time,
contract with the Manager or any other partnership, corporation, trust,
association or other organization, appointing it exclusive or nonexclusive
distributor or principal underwriter for the Shares, every such contract to
comply with such requirements and restrictions as may be set forth in the
Bylaws; and any such contract may contain such other terms as the Trustees may
determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager, adviser,
principal underwriter, distributor or affiliate or agent of or for any
partnership, corporation, trust, association, or other organization, or of or
for any parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other agency contract may have been or may
hereafter be made, or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which an advisory or management contract or principal
underwriter's or distributor's contract, or transfer, shareholder servicing or
other agency contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's or distributor's
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contract, or transfer, shareholder servicing or other agency contract
with one or more other corporations, trusts, associations, or other
organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its
Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article IV, Section 1,
(ii) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Article IX, Section 8, (iii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iv) with respect to the termination of the Trust or any Series to the extent
and as provided in Article IX, Section 4, and (v) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the Bylaws or any registration of the Trust with the Commission (or
any successor agency) or any state, or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter
on which it is entitled to vote and each fractional Share shall be entitled to
a proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. At any time when no Shares of
a Series or Class are outstanding the Trustees may exercise all rights of
Shareholders of that Series or Class with respect to matters affecting that
Series or Class and may with respect to that Series or Class take any action
required by law, this Declaration of Trust or the Bylaws to be taken by the
Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders
may be called by the Trustees for the purpose of electing Trustees as provided
in Article IV, Section 1 and for such other purposes as may be prescribed by
law, by this Declaration of Trust or by the Bylaws. Meetings of the
Shareholders may also be called by the Trustees from time to time for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders
shall be given or caused to be given by the Trustees by mailing such notice at
least seven days before such meeting, postage prepaid, stating the time and
place of the meeting, to each Shareholder at the Shareholder's address as it
appears on the records of the Trust. Whenever notice of a meeting is required
to be given to
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a Shareholder under this Declaration of Trust or the Bylaws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, by the Bylaws or by this Declaration of Trust, 10% of the
Shares entitled to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series or Class is to vote as a single class separate from
any other Shares which are to vote on the same matters as a separate class or
classes, 10% of the Shares of each such class entitled to vote shall constitute
a quorum at a Shareholder's meeting of that class. Any meeting of Shareholders
may be adjourned from time to time by a majority of the votes properly cast
upon the question, whether or not a quorum is present, and the meeting may be
held as adjourned within a reasonable time after the date set for the original
meeting without further notice. When a quorum is present at any meeting, a
majority of the Shares voted shall decide any questions and a plurality shall
elect a Trustee, except when a larger vote is required by any provision of this
Declaration of Trust or the Bylaws or by law. If any question on which the
Shareholders are entitled to vote would adversely affect the rights of any
Series or Class of Shares, the vote of a majority (or such larger vote as is
required as aforesaid) of the Shares of such Series or class which are entitled
to vote, voting separately, shall be required to decide such question.
Section 4. Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if Shareholders holding a majority
of the Shares entitled to vote on the matter (or such larger proportion thereof
as shall be required by any express provision of this Declaration of Trust or
by the Bylaws) and/or holding a majority (or such larger proportion as
aforesaid) of the Shares of any Series or Class entitled to vote separately on
the matter consent to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series or Class who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to time fix a
time as the record date for determining the Shareholders of such Series or
Class having the right to notice of and to vote at such a meeting and any
adjournment thereof, and in such case only Shareholders of record on such
record date shall have such right, notwithstanding any transfer of Shares on
the books of the Trust after the record date. For the purpose of determining
the Shareholders of any Series or Class who are entitled to receive payment of
any dividend or of any other distribution, the Trustees may from time to time
fix a date, which shall be before the date for the payment of such dividend or
such other payment, as the record date for determining the Shareholders of such
Series or Class having the right to receive such dividend or distribution.
Without fixing a record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more Series or Class
for all or any part of the period between a record date and a
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meeting of shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series or Classes.
Section 6. Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees shall each
year, or more frequently if they so determine in their sole discretion,
distribute to the Shareholders of each Series or Class, in shares of that
Series or Class, cash or otherwise, an amount approximately equal to the net
income attributable to the assets belonging to such Series or Class and may
from time to time distribute to the Shareholders of each Series or Class, in
shares of that Series or Class, cash or otherwise, such additional amounts, but
only from the assets belonging to such Series (or allocable to such Class), as
they may authorize. All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rata to the holders of that Series or
Class in proportion to the number of Shares of that Series or Class held by
such holders and recorded on the books of the Trust at the date and time of
record established for that payment of such dividend or distributions.
The manner of determining net income, income, asset values, capital
gains, expenses, liabilities and reserves of any Series or Class may from time
to time be altered as necessary or desirable in the judgment of the Trustees to
conform such manner of determination to any other method prescribed or
permitted by applicable law. Net income shall be determined by the Trustees or
by such person as they may authorize at the times and in the manner provided in
the Bylaws. Determinations of net income of any Series or Class and
determination of income, asset values, capital gains, expenses, and liabilities
made by the Trustees, or by such person as they may authorize, in good faith,
shall be binding on all parties concerned. The foregoing sentence shall not be
construed to protect any Trustee, officer or agent of the Trust against any
liability to the Trust or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
If, for any reason, the net income of any Series or Class determined at
any time is a negative amount, in the discretion of the Trustees the pro rata
share of such negative amount allocable to each Shareholder of such Series or
Class may constitute a liability of such Shareholder to that Series or Class
which shall be paid out of such Shareholder's account at such times and in such
manner as the Trustees may from time to time determine (x) out of the accrued
dividend account of such Shareholder, (y) by reducing the number of Shares of
that Series or Class in the account of such Shareholder, or (z) otherwise.
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Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as offered by any Shareholder for redemption, upon the presentation of a
proper instrument of transfer together with a request directed to the Trust or
a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the Bylaws, the 1940 Act and the
rules of the Commission. Payment for said Shares shall be made by the Trust to
the Shareholder within seven days after the date on which the request is made
or in accordance with such other procedures, consistent with the 1940 Act and
the rules of the Commission, as the Trustees may from time to time authorize.
The obligation set forth in this Section 2 is subject to the provision that in
the event that at any time the New York Stock Exchange (the "Exchange") is
closed for other than weekends or holidays, or if permitted by the rules of the
Commission during periods when trading on the Exchange is restricted or during
any emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the
net assets belonging to such Series or during any other period permitted by
order of the Commission for the protection of investors, such obligations may
be suspended or postponed by the Trustees. The Trust may also purchase or
repurchase Shares at a price not exceeding the net asset value of such Shares
in effect when the purchase or repurchase or any contract to purchase or
repurchase is made.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the
interests of the remaining Shareholders of the Series or Class the Shares of
which are being redeemed. In making any such payment wholly or partly in kind,
the Trust shall, so far as may be practicable, deliver assets which approximate
the diversification of all of the assets belonging at the time to the Series or
Class the Shares of which are being redeemed. Subject to the foregoing, the
fair value, selection and quantity of securities or other property so paid or
delivered as all or part of the redemption price may be determined by or under
authority of the Trustees. In no case shall the Trust be liable for any delay
of any corporation or other person in transferring securities selected for
delivery as all or part of any payment in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i)
if at such time such Shareholder owns Shares of any Series or Class having an
aggregate net asset value of less than an amount determined from time to time
by the Trustees; or (ii) to the extent that such Shareholder owns Shares equal
to or in excess of a percentage determined from time to time by the Trustees of
the outstanding Shares of the Trust or of any Series or Class.
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ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or
other services and payment of the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, Manager or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
but nothing herein contained shall protect any Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, Etc. The Trust shall indemnify each of
its Trustees and officers (including persons who serve at the Trust's request
as directors, officers or trustees of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise) (hereinafter referred
to as a "Covered Person") against all liabilities and expenses, including but
not limited to amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any Covered Person
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification
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of such expenses is not authorized under this Article, provided, however, that
either (a) such Covered Person shall have provided appropriate security for
such undertaking, (b) the Trust shall be insured against losses arising from
any such advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the disinterested
Trustees then in office act on the matter), or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that there is reason
to believe that such Covered Person will be found entitled to indemnification
under this Article.
Section 2. Compromise Payment. As to any matter disposed of (whether by
a compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved, after notice that it
involves such indemnification, by at least a majority of the disinterested
Trustees acting on the matter (provided that a majority of the disinterested
Trustees then in office act on the matter) upon a determination, based upon a
review of readily available facts (as opposed to a full trial type inquiry)
that such Covered Person is not liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, or (b)
there has been obtained an opinion in writing of independent legal counsel,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) to the effect that such indemnification would not protect such Person
against any liability to the Trust to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. Any
approval pursuant to this Section shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with
this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to which
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and
administrators and a "disinterested Trustee" is a Trustee who is not an
"interested person" of the Trust as defined in Section 2(a)(19) of the 1940 Act
(or who has been exempted from being an "interested person" by any rule,
regulation or order of the Commission), and against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on the
same or similar grounds is then or has been pending. Nothing contained in this
Article shall affect any rights to indemnification to which personnel of the
Trust, other than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance
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<PAGE> 18
on behalf of any such person; provided, however, that the Trust shall not
purchase or maintain any such liability insurance in contravention of
applicable law, including without limitation the 1940 Act.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or her being or
having been a Shareholder and not because of his or her acts or omissions or
for some other reason, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other general successor)
shall be entitled to be held harmless from and indemnified against all loss and
expense arising from such liability, but only out of the assets of the
particular Series of Shares of which he or she is or was a Shareholder.
ARTICLE IX
Miscellaneous
Section 1. Trustees, Shareholders, etc., Not Personally Liable; Notice.
All persons extending credit to, contracting with or having any claim against
the Trust or any Series shall look only to the assets of the Trust or to the
assets of that particular Series for payment under such credit, contract or
claim; and neither Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee.
Every note, bond, contract, instrument, certificate or undertaking
made or issued on behalf of the Trust by the Trustees, by any officers or
officer or otherwise shall give notice that this Declaration of Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts and shall
recite that the same was executed or made by or on behalf of the Trust or by
them as Trustee or Trustees or as officer or officers or otherwise and not
individually and that the obligations of such instrument are not binding upon
any of them or the shareholders individually but are binding only upon the
assets and property of the Trust or upon the assets belonging to the Series for
the benefit of which the Trustees have caused the note, bond, contract,
instrument, certificate or undertaking to be made or issued, and may contain
such further recital as he or they may deem appropriate, but the omission of
any such recital shall not operate to bind any Trustee or Trustees or officer
or officers or Shareholders or any other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his
or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office
-18-
<PAGE> 19
of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take advice of counsel
or other experts with respect to the meaning and operation of this Declaration
of Trust, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall not
be required to give any bond as such, nor any surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
Section 4. Termination of Trust or Series. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The
Trust may be terminated at any time by vote of at least 66-2/3% of the Shares
of each Series entitled to vote and voting separately by Series or by the
Trustees by written notice to the Shareholders. Any Series may be terminated
at any time by vote of at least 66-2/3% of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses and
liabilities belonging, severally, to each Series (or the applicable Series, as
the case may be), whether due or accrued or anticipated as may be determined by
the Trustees, the Trust shall in accordance with such procedures as the
Trustees consider appropriate reduce the remaining assets belonging, severally,
to each Series (or the applicable Series, as the case may be), to distributable
form in cash or shares or other securities, or any combination thereof, and
distribute the proceeds belonging to each Series (or the applicable Series, as
the case may be), to the Shareholders of that Series, as a Series, ratably
according to the number of Shares of that Series held by the several
Shareholders on the date of termination.
Section 5. Merger and Consolidation. The Trustees may cause the Trust
to be merged into or consolidated with another trust or company or its shares
exchanged under or pursuant to any state or federal statute, if any, or
otherwise to the extent permitted by law, if such merger or consolidation or
share exchange has been authorized by vote of a majority of the outstanding
Shares, as such phrase is defined in the 1940 Act; provided that in all
respects not governed by statute or applicable law, the Trustees shall have
power to prescribe the procedure necessary or appropriate to accomplish a sale
of assets, merger or consolidation.
Section 6. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each amendment hereto shall be kept at the
office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each amendment hereto shall be filed by the Trust with
the Secretary of State of The Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be required.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to
-19-
<PAGE> 20
whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the Trust to be a
copy of this instrument or of any such amendments. In this instrument and in
any such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder" shall be deemed to refer to this instrument
as amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
Section 7. Applicable Law. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be amended at
any time by an instrument in writing signed by a majority of the then Trustees
when authorized so to do by vote of a majority of the Shares entitled to vote,
except that amendments described in Article III, Section 5 hereof or having the
purpose of changing the name of the Trust or of supplying any omission, curing
any ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained herein shall not require authorization by
Shareholder vote.
IN WITNESS WHEREOF, the initial Trustee as aforesaid does hereto set
his hand this 19th day of November, 1991.
P. MICHAEL POND
-------------------------------
P. Michael Pond, Initial Trustee
Registered Agent -
CT Corporation System
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<PAGE> 21
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
Then personally appeared before me P. Michael Pond who acknowledged the
foregoing instrument to be his free act and deed.
Dated November 19, 1991 CATHLEEN A. DANNER
--------------------------
Notary Public
My commission expires: 1/17/92
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<PAGE> 1
EX. - 99.1(b)
CATERPILLAR INVESTMENT TRUST
AMENDMENT NO. 1
TO
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being the sole trustee of Caterpillar Investment
Trust, a Massachusetts business trust created and existing under an Agreement
and Declaration of Trust dated November 19, 1991 (the "Agreement"), a copy of
which is on file in the Office of the Secretary of State of The Commonwealth of
Massachusetts (the "Trust"), does hereby direct that this Amendment No. 1 be
filed with the Secretary of State of The Commonwealth of Massachusetts and does
hereby amend to read in its entirety Section 1 of Article I of the Agreement as
follows:
"Section 1. This Trust shall be known as The Preferred Group of
Funds, and the Trustees shall conduct the business of the Trust under that name
or any other name as they may from time to time determine."
In addition, the undersigned does 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", and "Preferred Short-Term Government Securities Fund" shall
be, and are hereby established and designated."
The foregoing amendments shall become effective as of the time they are
filed with the Secretary of State of The Commonwealth, of Massachusetts.
<PAGE> 2
IN WITNESS WHEREOF, I have hereunto set my hand for myself and for my
successors and assigns this 5th day of February, 1992.
P. MICHAEL POND
P. Michael Pond, Sole Trustee
100 N.E. Adams Street
Peoria, IL 61629
STATE OF ILLINOIS )
)
) SS.
COUNTY OF PEORIA )
Then personally appeared before me P. Michael Pond who acknowledged the
foregoing instrument to be his free act and deed.
Dated: - February 5, 1992 PATRICIA L. AUDO
Notary Public
My commission expires: 1-5-93
-2-
<PAGE> 1
EX.-99.1(c)
THE PREFERRED GROUP OF FUNDS
AMENDMENT NO. 2
TO
AGREEMENT AND DECLARATION OF TRUST
The undersigned, being the sole trustee of The Preferred Group of
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 (the "Trust"), does hereby direct that this
Amendment No. 2 be filed with the Secretary of State of The Commonwealth of
Massachusetts and does hereby amend to read in its entirety Section 1 of
Article I of the Agreement as follows:
"Section 1. This Trust shall be known as The Preferred Group of
Mutual Funds, and the Trustees shall conduct the business of the Trust
under that name or any other name as they may from time to time
determine."
In addition, the undersigned does hereby amend the second and third
sentences of Section 4 of Article IX of the Agreement to read as follows:
"The Trust may be terminated at any time by vote of at least
50% of the Shares of each Series entitled to vote and voting
separately by Series or by the Trustees by written notice to the
Shareholders. Any Series may be terminated at any time by vote of at
least 50% of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series."
The foregoing amendments shall become effective as of the date hereof.
<PAGE> 2
IN WITNESS WHEREOF, I have hereunto set my hand for myself and for my
successors and assigns this 2nd day of June, 1992.
P. MICHAEL POND
-----------------------------
P. Michael Pond, Sole Trustee
100 N.E. Adams Street
Peoria, IL 61629
STATE OF ILLINOIS )
) SS.
COUNTY OF PEORIA )
Then personally appeared before me P. Michael Pond who acknowledged
the foregoing instrument to be his free act and deed.
Dated: June 2, 1992 PATRICIA L. AUDO
----------------
Notary Public
My commission expires: 1-5-93
-2-
<PAGE> 1
EX. - 99.1(d)
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."
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of The Commonwealth of Massachusetts.
<PAGE> 2
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
-2-
<PAGE> 3
STATE OF ILLINOIS )
) ss:
COUNTY OF PEORIA )
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
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<PAGE> 1
EX. - 99.1(e)
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> 2
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> 3
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 DEBORAH L. SELBURG
-----------------------------
Notary Public
My Commission Expires: 3/22/99
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<PAGE> 1
EX. - 99.2
BYLAWS
of
THE PREFERRED GROUP OF MUTUAL FUNDS
ARTICLE 1
Agreement and Declaration of Trust and
Principal Office
1.1. Agreement and Declaration of Trust. These Bylaws shall be
subject to the Agreement and Declaration of Trust, as from time to time in
effect (the "Declaration of Trust"), of Caterpillar Investment Trust, the
Massachusetts business trust established by the Declaration of Trust (the
"Trust").
1.2. Principal Office of the Trust. The initial principal office
of the Trust shall be located in Peoria, Illinois. The Trust may have such
other offices within or without Massachusetts as the Trustee may determine or
as they may authorize.
ARTICLE 2
Meetings of Trustees
2.1. Regular Meetings. Regular meetings of the Trustees may be
held without call or notice at such places and at such times as the Trustees
may from time to time determine, provided that notice of the first regular
meeting following any such determination shall be given to absent Trustees.
2.2. Special Meetings. Special meetings of the Trustees may be
held at any time and at any place designated in the call of the meeting when
called by the Chairman of the Trustees, the President or the Treasurer or by
two or more Trustees, sufficient notice thereof being given to each Trustee by
the Clerk or an Assistant Clerk or by the officer or the Trustees calling the
meeting.
2.3. Notice. It shall be sufficient notice to a Trustee of a
special meeting to send notice by mail at least forty-eight hours or by
telegram, telex or telecopy or other electronic facsimile transmission method
at least twenty-four hours before the meeting addressed to the Trustee at his
or her usual or last known business or residence address or to give notice to
him or her in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him or her before the meeting, is filed with the
records of the meeting, or to any Trustee who attends the
<PAGE> 2
meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
2.4. Quorum. At any meeting of the Trustees a majority of the
Trustees then in office shall constitute a quorum. Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.
2.5. Action by Vote. When a quorum is present at any meeting, a
majority of Trustees present may take any action, except when a larger vote is
expressly required by law, by the Declaration of Trust or by these Bylaws.
2.6. Action by Writing. Except as required by law, any action
required or permitted to be taken at any meeting of the Trustees may be taken
without a meeting if a majority of the Trustees (or such larger proportion
thereof as shall be required by any express provision of the Declaration of
Trust or these Bylaws) consent to the action in writing and such written
consents are filed with the records of the meetings of Trustees. Such consent
shall be treated for all purposes as a vote taken at a meeting of Trustees.
2.7. Presence through Communications Equipment. Except as required
by law, the Trustees may participate in a meeting of Trustees by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1. Enumeration; Qualification. The officers of the Trust shall
be a President, a Treasurer, a Clerk, and such other officers, including a
Chairman of the Trustees and a Controller, if any, as the Trustees from time to
time may in their discretion elect. The Trust may also have such agents as the
Trustees from time to time may in their discretion appoint. The Chairman of
the Trustees, if one is elected, shall be a Trustee and may but need not be a
Shareholder; and any other officer may but need not be a Trustee or a
Shareholder. Any two or more offices may be held by the same person.
3.2. Election. The President, the Treasurer, and the Clerk shall
be elected annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at such or any other time. Vacancies in any office
may be filled at any time.
3.3. Tenure. The Chairman of the Trustees, if one is elected, the
President, the Treasurer and the Clerk shall hold office until their respective
successors are chosen and
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<PAGE> 3
qualified, or in each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office and each agent
shall retain authority at the pleasure of the Trustees.
3.4. Powers. Subject to the provisions of these Bylaws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5. Chairman; President. Unless the Trustees otherwise provide,
the Chairman of the Trustees or, if there is none or in the absence of the
Chairman, the President shall preside at all meetings of the Shareholders and
of the Trustees. The President shall be the chief executive officer.
3.6. Treasurer and Controller. The Treasurer shall be the chief
financial officer and, if no Controller is elected, chief accounting officer of
the Trust, and shall, subject to the provisions of the Declaration of Trust and
to any arrangement made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers and, if no Controller is elected, the books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
The Controller, if any, shall be the chief accounting officer of the
Trust and shall be in charge of its books of account and accounting records.
The Controller shall be responsible for preparation of financial statements of
the Trust and shall have such other duties and powers as may be designated from
time to time by the Trustees or the President.
3.7. Clerk. The Clerk shall record all proceedings of the
Shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the
absence of the Clerk from any meeting of the Shareholders or Trustees, an
assistant clerk or, if there be none or if he or she is absent, a temporary
clerk chosen at such meeting shall record the proceedings thereof in the
aforesaid books.
3.8. Resignations. Any officer may resign at any time by written
instrument signed by him or her and delivered to the Chairman, the President or
the Clerk or to a meeting of the Trustees. Such resignation shall be effective
upon receipt unless specified to be effective at some other time. Except to
the extent expressly provided in a written agreement with the Trust, no officer
resigning and no officer removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal.
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<PAGE> 4
ARTICLE 4
Committees
4.1. Quorum; Voting. A majority of the members of any Committee of
the Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may participate in
a meeting of such Committee by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
ARTICLE 5
Reports
5.1. General. The Trustees and officers shall render reports at
the time and in the manner required by the Declaration of Trust or any
applicable law. Officers and Committees shall render such additional reports
as they may deem desirable or as may from time to time be required by the
Trustees.
ARTICLE 6
Fiscal Year
6.1. General. Except as from time to time otherwise provided by
the Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1. General. The Trust shall have no seal.
ARTICLE 8
Execution of Papers
8.1. General. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, contracts, notes and other obligations made by the Trustees
shall be signed by the President or by the Treasurer.
-4-
<PAGE> 5
ARTICLE 9
Share Certificates
9.1. Share Certificates. No certificates certifying the ownership
of Shares shall be issued except as the Trustee may otherwise authorize. In
the event that the Trustees authorize the issuance of Share certificates,
subject to the provisions of Section 9.3, each Shareholder shall be entitled to
a certificate stating the number of Shares and the series or class owned by him
or her, in such form as shall be prescribed from time to time by the Trustees.
Such certificates shall be signed by the President or any Vice-President and by
the Treasurer or any Assistant Treasurer. Such signatures may be facsimiles if
the certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he or she were such officer at the time of its
issue.
In lieu of issuing certificates for Shares, the Trustees or the
transfer agent may either issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such Shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of certificates
for such Shares as if they had accepted such certificates and shall be held to
have expressly assented and agreed to the terms hereof.
9.2. Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
9.3. Discontinuance of Issuance of Certificates. The Trustees may
at any time discontinue the issuance of Share certificates and may, by written
notice to each Shareholder, require the surrender of Share certificates to the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of Shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1. Determination of Net Asset Value Per Share. Net asset value
per Share of each series or class of Shares of the Trust shall mean: (i) the
value of all the assets of such series or class of Shares; (ii) less total
liabilities of such series or class of Shares; (iii) divided by the number of
Shares of such series or class of Shares outstanding, in each case at the time
of each determination. The net asset value per Share of each series or class
of Shares shall be determined as of the primary close of trading on the New
York Stock Exchange on each day on which such Exchange is open. As of any time
other than the primary close of trading on such Exchange, the Trustees may
cause the net asset value per Share last determined to be determined again in a
similar manner or adjusted to reflect changes in market values of securities in
the portfolio, such adjustment to be made on the basis of changes in selected
-5-
<PAGE> 6
securities prices determined by the Trustees to be relevant to the portfolio of
such series or class of Shares or in averages or in other standard and readily
ascertainable market data, and the Trustees may fix the time when such
redetermination or adjusted net asset value per Share of each series or class
of Shares shall become effective.
In valuing the portfolio investments of any series or class of Shares
for determination of net asset value per Share of such series, securities for
which market quotations are readily available shall be valued at prices which,
in the opinion of the Trustees or the person designated by the Trustees to make
the determination, most nearly represent the market value of such securities,
and other securities and asset shall be valued at their fair value as
determined by or pursuant to the direction of the Trustees, which in the case
of short-term debt obligations, commercial paper and repurchase agreements may,
but need not, be on the basis of quoted yields for securities of comparable
maturity, quality and type, or on the basis of amortized cost. Expenses and
liabilities of the Trust shall be accrued each day. Liabilities may include
such reserves for taxes, estimated accrued expenses and contingencies as the
Trustees or their designates may in their sole discretion deem fair and
reasonable under the circumstances. No accruals shall be made in respect of
taxes on unrealized appreciation of securities owned unless the Trustees shall
otherwise determine. Dividends payable by the Trust shall be deducted as at
the time of but immediately prior to the determination of net asset value per
Share on the record date thereof.
10.2. Derivative Claims. No Shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of this Trust
or any series without first making demand on the Trustees requesting the
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or Series would otherwise result. Such demand
shall be mailed to the Clerk of the Trust at the Trust's principal office and
shall set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the Shareholder to
support the allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole discretion,
the Trustees may submit the matter to a vote of Shareholders of the Trust or
series, as appropriate. Any decision by the Trustees to bring, maintain or
settle (or not to bring, maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of Shareholders shall be made by the
Trustees in their business judgment and shall be binding upon the Shareholders.
Any decision by the Trustees to bring or maintain a court action, proceeding or
suit on behalf of the Trust or a series shall be subject to the right of the
Shareholders under Article V, Section 1 of the Declaration of Trust to vote on
whether or not such court action, proceeding or suit should or should not be
brought or maintained.
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10.3. Securities and Cash of the Trust to be held by Custodian
Subject to Certain Terms and Conditions.
(a) All securities and cash owned by this Trust shall be
held by or deposited with one or more banks or trust companies
having (according to its last published report) not less than
$5,000,000 aggregate capital, surplus and undivided profits
(any such bank or trust company being hereby designated as
"Custodian"), provided such a Custodian can be found ready and
willing to act; subject to such rules, regulations and orders,
if any, as the Securities and Exchange Commission may adopt,
this Trust may, or may permit any Custodian to, deposit all or
any part of the securities owned by this Trust in a system for
the central handling of securities pursuant to which all
securities of any particular class or series of any issue
deposited within the system may be transferred or pledged by
bookkeeping entry, without physical delivery. The Custodian
may appoint, subject to the approval of the Trustees, one or
more subcustodians.
(b) The Trust shall enter into a written contract with each
Custodian regarding the powers, duties and compensation of
such Custodian with respect to the cash and securities of the
Trust held by such Custodian. Such contract and all
amendments thereto shall be approved by the Trustees.
(c) The Trust shall upon the resignation or inability to
serve of any Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to
serve, use its best efforts to obtain a successor
Custodian;
(ii) require that the cash and securities owned by
the Trust be delivered directly to the successor
Custodian; and
(iii) in the event that no successor Custodian can be
found, submit to the Shareholders, before permitting
delivery of the cash and securities owned by the
Trust to a successor Custodian, the question whether
the Trust shall be liquidated or shall function
without a Custodian.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article IV, Section 1 of the
Declaration of Trust, provided, however, that no meeting of Shareholders is
required to be called for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in
Article IV,
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Section 6 of the Declaration of Trust to the extent required by the 1940 Act,
(iii) with respect to any plan of distribution adopted by the Trustees with
respect to one or more series or classes pursuant to Rule 12b-1 under the 1940
Act, (iv) with respect to any termination of this Trust to the extent and as
provided in Article IX, Section 4 of the Declaration of Trust, (v) with respect
to any amendment of the Declaration of Trust to the extent and as provided in
Article IX, Section 7 of the Declaration of Trust, (vi) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vii) with respect to such additional matters relating to the Trust as may
be required by law, the Declaration of Trust, these Bylaws or any registration
of the Trust with the Commission (or any successor agency) or any state, or as
the Trustees may consider necessary or desirable. Annual meetings of
Shareholders are not required by these Bylaws. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote. The
Shareholders of any particular series or class shall not be entitled to vote on
any matters as to which such series or class is not affected. Except with
respect to matters as to which the Trustees have determined that only the
interests of one or more particular series or classes are affected or as
required by law, all of the Shares of each series or class shall, on matters as
to which such series or class is entitled to vote, vote with other series or
classes so entitled as a single class. Notwithstanding the foregoing, with
respect to matters which would otherwise be voted on by two or more series or
classes as a single class, the Trustees may, in their sole discretion, submit
such matters to the Shareholders of any or all such series or classes,
separately. There will be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. The placing of a Shareholder's name on a proxy
pursuant to telephonic or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such instructions
have been authorized by such Shareholder shall constitute execution of such
proxy by or on behalf of such Shareholder. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take action required
by law, the Declaration of Trust or these Bylaws to be taken by Shareholders.
11.2. Voting Power and Meetings. Meetings of the Shareholders of
the Trust or of one or more series or classes of Shares may be called by the
Trustees for the purpose of electing Trustees as provided in Article IV,
Section 1 of the Declaration of Trust and for such other purposes as may be
prescribed by law, by the Declaration of Trust or by these Bylaws. Meetings of
the Shareholders of the Trust or of one or more series or classes of Shares may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by
the Trustees. Written notice of any meeting of
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Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time and place of the meeting, to each Shareholder at the Shareholder's
address as it appears on the record of the Trust. Whenever notice of a meeting
is required to be given to a Shareholder under the Declaration of Trust or
these Bylaws, a written waiver thereof, executed before or after the meeting by
such Shareholder or his attorney thereunto authorized and filed with the
records of the meeting, shall be deemed equivalent to such notice.
11.3. Quorum and Required Vote. Ten percent (10%) of Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of the
Declaration of Trust or these Bylaws permits or requires that holders of any
series or class of Shares shall vote as a series or class, as the case may be,
then ten percent (10%) of the aggregate number of Shares of that series or that
class entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that series or class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of law or the Declaration of Trust or these Bylaws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law or of the Declaration of Trust or
these Bylaws permits or requires that the holders of any series or class shall
vote as a series or class, as the case may be, then a majority of the Shares of
that series or that class voted on the matter (or a plurality with respect to
the election of a Trustee) shall decide that matter insofar as that series or
class is concerned.
11.4. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if a majority of Shareholders entitled to vote
on the matter (or such larger proportion thereof as shall be required by any
express provision of law or the Declaration of Trust or these Bylaws) consent
to the action in writing and such written consents are filed with the records
of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
11.5. Record Dates. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a time, which shall be not
more than 60 days before the date of any meeting of Shareholders or the date
for the payment of any dividend or of any other distribution, as the record
date for determining the Shareholders having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only Shareholders of record on such
record date shall have such right notwithstanding any transfer of Shares on the
books of the Trust after the record date; or without fixing such record date
the Trustees may for any of such purposes close the register or transfer books
for all or any part of such period.
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ARTICLE 12
Amendments to the Bylaws
12.1. General. These Bylaws may be amended or repealed, in whole or
in part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
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<PAGE> 1
EX.-99.4
PORTIONS OF
AGREEMENT AND DECLARATION OF TRUST
OF
THE PREFERRED GROUP OF MUTUAL FUNDS
RELATING TO SHAREHOLDERS' RIGHTS
(c) "Shares" means the equal proportionate units or interest into
which the beneficial interest in the Trust or in the Trust property belonging
to any Series of the Trust (or in the property belonging to any Series
allocable to any Class of that Series) (as the context may require) shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(k) "Class" refers to any Class of Shares of a Series established
and designated under or in accordance with the provisions of Article III. The
Shares of a Class shall represent a subset of Shares of a Series and the Shares
of each Class, together with the Shares of all other Classes of the same
Series, shall constitute all Shares of that Series.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest
in the Trust shall at all times be divided into an unlimited number of Shares,
without par value. Subject to the provisions of Section 6 of this Article III,
each Share shall have the voting rights as provided in Article V hereof, and
holders of the Shares of any Series or Class shall be entitled to receive
dividends, when and as declared with respect thereto in the manner provided in
Article VI, Section 1 hereof. No Share shall have any priority or preference
over any other Share of the same Series and Class with respect to dividends or
distributions upon termination of the Trust or of such Series or Class made
pursuant to Article IX, Section 4 hereof. Unless the Trustees have authorized
the issuance of Shares of a Series in two or more Classes, all dividends and
distributions shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the number of
Shares of such Series held of record by such Shareholders on the record date
for any dividend or on the date of termination, as the case may be. The
Trustees may from time to time divide or combine the Shares of any particular
Series or Class into a greater or lesser number of Shares of that Series or
Class without thereby changing the proportionate beneficial interest of the
Shares of that Series or Class in the assets belonging to that Series (or
allocable to the Shares of that Class) or in any way affecting the rights of
Shares of any other Series or Class.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each
Series. No certificates certifying the ownership of Shares
<PAGE> 2
shall be issued except as the Trustees may otherwise determine from time to
time. The Trustees may make such rules as they consider appropriate for the
transfer of Shares of each Series and Class and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as
the case may be, shall be conclusive as to who are the Shareholders of each
Series and Class and as to the number of Shares of each Series and Class held
from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and for such
consideration as they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in
or to the whole or any part of the Trust property or right to call for a
partition or division of the same or for an accounting, nor shall the ownership
of Shares constitute the Shareholders partners of each other. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholders, nor except as specifically
provided herein to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as
provided elsewhere herein, the Trustees shall have the power to amend this
Declaration of Trust, at any time and from time to time, in such manner as the
Trustees may determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust for
the purpose of (i) responding to or complying with any regulations, orders,
rulings or interpretations of any governmental agency or any laws, now or
hereafter applicable to the Trust, or (ii) designating and establishing Series
or Classes in addition to the Series or Classes established in Section 6 of
this Article III; provided that before adopting any such amendment in clause
(i) without Shareholder approval the Trustees shall determine that it is
consistent with the fair and equitable treatment of all Shareholders. The
establishment and designation of any Series or Class of Shares in addition to
the Series or Classes established and designated in Section 6 of this Article
III shall be effective upon the execution by a majority of the then Trustees of
an amendment to this Declaration of Trust, taking the form of a complete
restatement or
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otherwise, setting forth such establishment and designation and the relative
rights and preferences of such Series or Class, or as otherwise provided in
such instrument.
Without limiting the generality of the foregoing, the Trustees may,
for the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or Classes of shares (with respect
to or in addition to any Series or Classes already existing or otherwise) with
such rights and preferences and such eligibility requirements for investment
therein as the Trustees shall determine, and reclassify any or all outstanding
Shares as shares of particular Series or Classes in accordance with such
eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a)
through (j) of Section 6 of this Article III;
(c) combine one or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall determine:
(d) change or eliminate any eligibility requirements for
investment in Shares of any Series or Class, including without limitation the
power to provide for the issue of Shares of any Series or Class in connection
with any merger or consolidation of the Trust with another trust or company or
any acquisition by the Trust of part or all of the assets of another trust or
company;
(e) change the designation of any Series or Class of Shares;
(f) change the method of allocating dividends among the various
Series and Classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or
any specific items of income or expense of the Trust to one or more Series or
Classes of Shares;
(h) specifically allocate assets to any or all Series or Classes
of Shares or create one or more additional Series or Classes of Shares which
are preferred over all other Series or Classes of Shares in respect of assets
specifically allocated thereto or any dividends paid by the Trust with respect
to any net income, however determined, earned from the investment and
reinvestment of any assets so allocated or otherwise and provide for any
special voting or other rights with respect to such Series or Classes; or
(i) divide one or more Series of Shares into one or more Classes
on such terms and conditions as the Trustees may determine.
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<PAGE> 4
Section 6. Establishment and Designation of Series. 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 "Foreign Equity Fund", "U.S. Value
Equity Fund", "U.S. Growth Equity Fund", "Tactical Asset Allocation Fund",
"Fixed Income Fund", "Money Market Fund", and "Investment Contract Fund" shall
be, and are hereby, established and designated.
Shares of each Series established in this Section 6 shall have the
following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the
Trust for the issue or sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source derived,
including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
Such consideration, assets, income, earnings, profits and proceeds thereof,
from whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets belonging to" that Series. In
the event that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as belonging to
any particular Series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or among any one or more of the Series
established and designated from time to time in such manner and on such basis
as they, in their sole discretion, deem fair and equitable, and any General
Asset so allocated to a particular Series shall belong to that Series. Each
such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged solely with the liabilities of the Trust in
respect to that Series, expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series but which are allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in a manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are herein referred to as
"liabilities belonging to" that Series. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration, including, without
limitation, Article VI, no dividend or
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distribution (including, without limitation, any distribution paid upon
termination of the Trust or of any Series) with respect to, nor any redemption
or repurchase of, the Shares of any Series shall be effected by the Trust other
than from the assets belonging to such Series, nor shall any Shareholder of any
particular Series otherwise have any right or claim against the assets
belonging to any other Series except to the extent that such Shareholder has
such a right or claim hereunder as a Shareholder of such other Series.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series or Class shall not be entitled to vote on
any matters as to which such Series or Class is not affected. On any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall be voted by individual Series, unless otherwise required by the 1940
Act or other applicable law or as specifically required under this Declaration
or the Bylaws or as otherwise determined by the Trustees.
(e) Equality. All the Shares of each particular Class of a Series
shall represent an equal proportionate interest in the assets and liabilities
belonging to that Series allocable to that Class and all Shares of each
particular Series shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities belonging to that Series),
and each Share of any particular Series shall be equal to each other Share of
that Series.
(f) Fractions. Any fractional Share of a Series or Class shall
carry proportionately all the rights and obligations of a whole share of that
Series or Class, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(h) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless
otherwise required by applicable law, to combine the assets and liabilities
belonging to any two or more Series or Classes into assets and liabilities
belonging to a single Series or Class.
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that Series and to
rescind the establishment and designation thereof, such amendment to be
effected in the manner provided in Section 5 of this Article III.
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<PAGE> 6
(j) Assets and Liabilities Allocable to a Class. The assets and
liabilities belonging to a Series shall be fully allocated among all the
Classes of that Series. For purposes of determining the assets and liabilities
belonging to a Series which are allocable to a Class of that Series, subject to
the provisions of paragraph (f) of Section 5 of this Article III, the
provisions of paragraphs (a) and (b) of this Section 6 shall apply, mutatis
mutandis, as if each Class were a Series.
Section 7. Indemnification of Shareholders. In case any Shareholder
or former Shareholder shall be held to be personally liable solely by reason of
his or her being or having been a Shareholder of the Trust or of a particular
Series and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled
out of the assets of the Series of which he is a Shareholder or former
Shareholder to be held harmless from and indemnified against all loss and
expense arising from such liability.
Section 8. No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 9. Derivative Claims. No Shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of this Trust
or any Series without first making demand on the Trustees requesting the
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or Series would otherwise result. Such demand
shall be mailed to the Clerk of the Trust at the Trust's principal office and
shall set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the Shareholder to
support the allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole discretion,
the Trustees may submit the matter to a vote of Shareholders of the Trust or
Series, as appropriate. Any decision by the Trustees to bring, maintain or
settle (or not to bring, maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of Shareholders shall be made by the
Trustees in their business judgment and shall be binding upon the Shareholders.
Any decision by the Trustees to bring or maintain a court action, proceeding or
suit on behalf of the Trust or a Series shall be subject to the right of the
Shareholders under Article V, Section 1 hereof to vote on whether or not such
court action, proceeding or suit should or should not be brought or maintained.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article IV, Section 1,
(ii) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Article IX, Section 8, (iii) to the
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same extent as the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, (iv) with respect to the termination of the Trust or any
Series to the extent and as provided in Article IX, Section 4, and (v) with
respect to such additional matters relating to the Trust as may be required by
this Declaration of Trust, the Bylaws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person
or by proxy. A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
At any time when no Shares of a Series or Class are outstanding the Trustees
may exercise all rights of Shareholders of that Series or Class with respect to
matters affecting that Series or Class and may with respect to that Series or
Class take any action required by law, this Declaration of Trust or the Bylaws
to be taken by the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders
may be called by the Trustees for the purpose of electing Trustees as provided
in Article IV, Section 1 and for such other purposes as may be prescribed by
law, by this Declaration of Trust or by the Bylaws. Meetings of the
Shareholders may also be called by the Trustees from time to time for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders
shall be given or caused to be given by the Trustees by mailing such notice at
least seven days before such meeting, postage prepaid, stating the time and
place of the meeting, to each Shareholder at the Shareholder's address as it
appears on the records of the Trust. Whenever notice of a meeting is required
to be given to a Shareholder under this Declaration of Trust or the Bylaws, a
written waiver thereof, executed before or after the meeting by such
Shareholder or his attorney thereunto authorized and filed with the records of
the meeting, shall be deemed equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, by the Bylaws or by this Declaration of Trust, 10% of the
Shares entitled to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series or Class is to vote as a single class separate from
any other Shares which are to vote on the same matters as a separate class or
classes, 10% of the Shares of each such class entitled to vote shall constitute
a quorum at a Shareholder's meeting of that class. Any meeting of Shareholders
may be adjourned from time to time by a majority of the votes properly cast
upon the question, whether or not a quorum is present, and the meeting may be
held as adjourned within a reasonable time after the date set for the original
meeting without further notice.
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When a quorum is present at any meeting, a majority of the Shares voted shall
decide any questions and a plurality shall elect a Trustee, except when a
larger vote is required by any provision of this Declaration of Trust or the
Bylaws or by law. If any question on which the Shareholders are entitled to
vote would adversely affect the rights of any Series or Class of Shares, the
vote of a majority (or such larger vote as is required as aforesaid) of the
Shares of such Series or class which are entitled to vote, voting separately,
shall be required to decide such question.
Section 4. Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if Shareholders holding a majority
of the Shares entitled to vote on the matter (or such larger proportion thereof
as shall be required by any express provision of this Declaration of Trust or
by the Bylaws) and/or holding a majority (or such larger proportion as
aforesaid) of the Shares of any Series or Class entitled to vote separately on
the matter consent to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series or Class who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to time fix a
time as the record date for determining the Shareholders of such Series or
Class having the right to notice of and to vote at such a meeting and any
adjournment thereof, and in such case only Shareholders of record on such
record date shall have such right, notwithstanding any transfer of Shares on
the books of the Trust after the record date. For the purpose of determining
the Shareholders of any Series or Class who are entitled to receive payment of
any dividend or of any other distribution, the Trustees may from time to time
fix a date, which shall be before the date for the payment of such dividend or
such other payment, as the record date for determining the Shareholders of such
Series or Class having the right to receive such dividend or distribution.
Without fixing a record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more Series or Class
for all or any part of the period between a record date and a meeting of
shareholders or the payment of a distribution. Nothing in this section shall
be construed as precluding the Trustees from setting different record dates for
different Series or Classes.
Section 6. Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as offered by any Shareholder for redemption, upon the presentation of a
proper instrument of transfer together with a request directed to the Trust or
a person designated by the Trust that
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<PAGE> 9
the Trust purchase such Shares or in accordance with such other procedures for
redemption as the Trustees may from time to time authorize; and the Trust will
pay therefor the net asset value thereof, as determined in accordance with the
Bylaws, the 1940 Act and the rules of the Commission. Payment for said Shares
shall be made by the Trust to the Shareholder within seven days after the date
on which the request is made or in accordance with such other procedures,
consistent with the 1940 Act and the rules of the Commission, as the Trustees
may from time to time authorize. The obligation set forth in this Section 2 is
subject to the provision that in the event that at any time the New York Stock
Exchange (the "Exchange") is closed for other than weekends or holidays, or if
permitted by the rules of the Commission during periods when trading on the
Exchange is restricted or during any emergency which makes it impracticable for
the Trust to dispose of the investments of the applicable Series or to
determine fairly the value of the net assets belonging to such Series or during
any other period permitted by order of the Commission for the protection of
investors, such obligations may be suspended or postponed by the Trustees. The
Trust may also purchase or repurchase Shares at a price not exceeding the net
asset value of such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the
interests of the remaining Shareholders of the Series or Class the Shares of
which are being redeemed. In making any such payment wholly or partly in kind,
the Trust shall, so far as may be practicable, deliver assets which approximate
the diversification of all of the assets belonging at the time to the Series or
Class the Shares of which are being redeemed. Subject to the foregoing, the
fair value, selection and quantity of securities or other property so paid or
delivered as all or part of the redemption price may be determined by or under
authority of the Trustees. In no case shall the Trust be liable for any delay
of any corporation or other person in transferring securities selected for
delivery as all or part of any payment in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall
have the right at its option and at any time to redeem Shares of any
Shareholder at the net asset value thereof as described in Section 1 of this
Article VI: (i) if at such time such Shareholder owns Shares of any Series or
Class having an aggregate net asset value of less than an amount determined
from time to time by the Trustees; or (ii) to the extent that such Shareholder
owns Shares equal to or in excess of a percentage determined from time to time
by the Trustees of the outstanding Shares of the Trust or of any Series or
Class.
ARTICLE VIII
Indemnification
Section 4. Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his or
her being or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal
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<PAGE> 10
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled to be held harmless from and
indemnified against all loss and expense arising from such liability, but only
out of the assets of the particular Series of Shares of which he or she is or
was a Shareholder.
ARTICLE IX
Miscellaneous
Section 1. Trustees, Shareholders, etc., Not Personally Liable;
Notice. All persons extending credit to, contracting with or having any claim
against the Trust or any Series shall look only to the assets of the Trust or
to the assets of that particular Series for payment under such credit, contract
or claim; and neither Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee.
Every note, bond, contract, instrument, certificate or undertaking
made or issued on behalf of the Trust by the Trustees, by any officers or
officer or otherwise shall give notice that this Declaration of Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts and shall
recite that the same was executed or made by or on behalf of the Trust or by
them as Trustee or Trustees or as officer or officers or otherwise and not
individually and that the obligations of such instrument are not binding upon
any of them or the shareholders individually but are binding only upon the
assets and property of the Trust or upon the assets belonging to the Series for
the benefit of which the Trustees have caused the note, bond, contract,
instrument, certificate or undertaking to be made or issued, and may contain
such further recital as he or they may deem appropriate, but the omission of
any such recital shall not operate to bind any Trustee or Trustees or officer
or officers or Shareholders or any other person individually.
PORTIONS OF BYLAWS OF
THE PREFERRED GROUP OF MUTUAL FUNDS
RELATING TO SHAREHOLDER'S RIGHTS
ARTICLE 9
Share Certificates
9.1. Share Certificates. No certificates certifying the ownership
of Shares shall be issued except as the Trustee may otherwise authorize. In
the event that the Trustees authorize the issuance of Share certificates,
subject to the provisions of Section 9.3, each Shareholder shall be entitled to
a certificate stating the number of Shares and the series or class owned by
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him or her, in such form as shall be prescribed from time to time by the
Trustees. Such certificates shall be signed by the President or any
Vice-President and by the Treasurer or any Assistant Treasurer. Such
signatures may be facsimiles if the certificate is signed by a transfer agent,
or by a registrar, other than a Trustee, officer or employee of the Trust. In
case any officer who has signed or whose facsimile signature has been placed on
such certificate shall cease to be such officer before such certificate is
issued, it may be issued by the Trust with the same effect as if he or she were
such officer at the time of its issue.
In lieu of issuing certificates for Shares, the Trustees or the
transfer agent may either issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such Shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of certificates
for such Shares as if they had accepted such certificates and shall be held to
have expressly assented and agreed to the terms hereof.
9.2. Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
9.3. Discontinuance of Issuance of Certificates. The Trustees may
at any time discontinue the issuance of Share certificates and may, by written
notice to each Shareholder, require the surrender of Share certificates to the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of Shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1. Determination of Net Asset Value Per Share. Net asset value
per Share of each series or class of Shares of the Trust shall mean: (i) the
value of all the assets of such series or class of Shares; (ii) less total
liabilities of such series or class of Shares; (iii) divided by the number of
Shares of such series or class of Shares outstanding, in each case at the time
of each determination. The net asset value per Share of each series or class
of Shares shall be determined as of the primary close of trading on the New
York Stock Exchange on each day on which such Exchange is open. As of any time
other than the primary close of trading on such Exchange, the Trustees may
cause the net asset value per Share last determined to be determined again in a
similar manner or adjusted to reflect changes in market values of securities in
the portfolio, such adjustment to be made on the basis of changes in selected
securities prices determined by the Trustees to be relevant to the portfolio of
such series or class of Shares or in averages or in other standard and readily
ascertainable market data, and the Trustees may fix the time when such
redetermination or adjusted net asset value per Share of each series or class
of Shares shall become effective.
In valuing the portfolio investments of any series or class of Shares
for determination of net asset value per Share of such series, securities for
which market quotations are readily
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available shall be valued at prices which, in the opinion of the Trustees or
the person designated by the Trustees to make the determination, most nearly
represent the market value of such securities, and other securities and asset
shall be valued at their fair value as determined by or pursuant to the
direction of the Trustees, which in the case of short- term debt obligations,
commercial paper and repurchase agreements may, but need not, be on the basis
of quoted yields for securities of comparable maturity, quality and type, or on
the basis of amortized cost. Expenses and liabilities of the Trust shall be
accrued each day. Liabilities may include such reserves for taxes, estimated
accrued expenses and contingencies as the Trustees or their designates may in
their sole discretion deem fair and reasonable under the circumstances. No
accruals shall be made in respect of taxes on unrealized appreciation of
securities owned unless the Trustees shall otherwise determine. Dividends
payable by the Trust shall be deducted as at the time of but immediately prior
to the determination of net asset value per Share on the record date thereof.
10.2. Derivative Claims. No Shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of this Trust
or any series without first making demand on the Trustees requesting the
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or Series would otherwise result. Such demand
shall be mailed to the Clerk of the Trust at the Trust's principal office and
shall set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the Shareholder to
support the allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole discretion,
the Trustees may submit the matter to a vote of Shareholders of the Trust or
series, as appropriate. Any decision by the Trustees to bring, maintain or
settle (or not to bring, maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of Shareholders shall be made by the
Trustees in their business judgment and shall be binding upon the Shareholders.
Any decision by the Trustees to bring or maintain a court action, proceeding or
suit on behalf of the Trust or a series shall be subject to the right of the
Shareholders under Article V, Section 1 of the Declaration of Trust to vote on
whether or not such court action, proceeding or suit should or should not be
brought or maintained.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article IV, Section 1 of the
Declaration of Trust, provided, however, that no meeting of Shareholders is
required to be called for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in
Article IV, Section 6 of the Declaration of Trust to the extent required by the
1940 Act, (iii) with respect to any plan of distribution adopted by the
Trustees with respect to one or more series or classes pursuant to Rule 12b-1
under the 1940 Act, (iv) with respect to any termination of this
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<PAGE> 13
Trust to the extent and as provided in Article IX, Section 4 of the Declaration
of Trust, (v) with respect to any amendment of the Declaration of Trust to the
extent and as provided in Article IX, Section 7 of the Declaration of Trust,
(vi) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders, and (vii) with respect to such additional
matters relating to the Trust as may be required by law, the Declaration of
Trust, these Bylaws or any registration of the Trust with the Commission (or
any successor agency) or any state, or as the Trustees may consider necessary
or desirable. Annual meetings of Shareholders are not required by these
Bylaws. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. The Shareholders of any particular series or
class shall not be entitled to vote on any matters as to which such series or
class is not affected. Except with respect to matters as to which the Trustees
have determined that only the interests of one or more particular series or
classes are affected or as required by law, all of the Shares of each series or
class shall, on matters as to which such series or class is entitled to vote,
vote with other series or classes so entitled as a single class.
Notwithstanding the foregoing, with respect to matters which would otherwise be
voted on by two or more series or classes as a single class, the Trustees may,
in their sole discretion, submit such matters to the Shareholders of any or all
such series or classes, separately. There will be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. The placing of a
Shareholder's name on a proxy pursuant to telephonic or electronically
transmitted instructions obtained pursuant to procedures reasonably designed to
verify that such instructions have been authorized by such Shareholder shall
constitute execution of such proxy by or on behalf of such Shareholder. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take action required by law, the Declaration of Trust or these Bylaws to be
taken by Shareholders.
11.2. Voting Power and Meetings. Meetings of the Shareholders of
the Trust or of one or more series or classes of Shares may be called by the
Trustees for the purpose of electing Trustees as provided in Article IV,
Section 1 of the Declaration of Trust and for such other purposes as may be
prescribed by law, by the Declaration of Trust or by these Bylaws. Meetings of
the Shareholders of the Trust or of one or more series or classes of Shares may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by
the Trustees. Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at least seven days
before such meeting, postage prepaid, stating the time and place of the
meeting, to each Shareholder at the Shareholder's address as it appears on the
record of the
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Trust. Whenever notice of a meeting is required to be given to a Shareholder
under the Declaration of Trust or these Bylaws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
11.3. Quorum and Required Vote. Ten percent (10%) of Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of the
Declaration of Trust or these Bylaws permits or requires that holders of any
series or class of Shares shall vote as a series or class, as the case may be,
then ten percent (10%) of the aggregate number of Shares of that series or that
class entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that series or class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of law or the Declaration of Trust or these Bylaws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law or of the Declaration of Trust or
these Bylaws permits or requires that the holders of any series or class shall
vote as a series or class, as the case may be, then a majority of the Shares of
that series or that class voted on the matter (or a plurality with respect to
the election of a Trustee) shall decide that matter insofar as that series or
class is concerned.
11.4. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if a majority of Shareholders entitled to vote
on the matter (or such larger proportion thereof as shall be required by any
express provision of law or the Declaration of Trust or these Bylaws) consent
to the action in writing and such written consents are filed with the records
of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
11.5. Record Dates. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a time, which shall be not
more than 60 days before the date of any meeting of Shareholders or the date
for the payment of any dividend or of any other distribution, as the record
date for determining the Shareholders having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only Shareholders of record on such
record date shall have such right notwithstanding any transfer of Shares on the
books of the Trust after the record date; or without fixing such record date
the Trustees may for any of such purposes close the register or transfer books
for all or any part of such period.
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<PAGE> 1
EX. - 99.5(a)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June __, 1992, between THE PREFERRED
GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"), on behalf
of the Preferred Growth Fund (the "Fund"), and CATERPILLAR INVESTMENT
MANAGEMENT LTD., a Delaware corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the Trust (the
"Trustees") and to such policies as the Trustees may determine, the Manager
will, at its expense, (i) furnish continuously an investment program for the
Fund and will make investment decisions on behalf of the Fund and place all
orders for the purchase and sale of its portfolio securities and (ii) furnish
all necessary office space and equipment, provide bookkeeping and clerical
services required to perform its duties hereunder and pay all salaries, fees
and expenses of the Trustees and officers of the Trust who are affiliated
persons of the Manager. In the performance of its duties, the Manager will
comply with the provisions of the Agreement and Declaration of Trust and By-
laws of the Trust and the Fund's stated investment objectives, policies and
restrictions.
(b) In the selection of brokers, dealers or futures
commissions merchants (collectively, "brokers") and the placing of orders for
the purchase and sale of portfolio investments for the Fund, the Manager shall
seek to obtain the most favorable price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions for brokerage
and research services as described below. In using its best efforts to obtain
for the Fund the most favorable price and execution available, the Manager,
bearing in mind the Fund's best interests at all times, shall consider all
factors it deems relevant, including, by way of illustration, price, the size
of the transaction, the
<PAGE> 2
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved and the
quality of service rendered by the broker in other transactions. Subject to
such policies as the Trustees may determine, the Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this contract or
otherwise solely by reason of its having caused the trust to pay, on behalf of
the Fund, a broker that provides brokerage and research services to the Manager
or any affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
manager and any affiliated person of the Manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. The Trust
hereby agrees with the Manager and with any Subadviser (as defined in section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the manager or subadviser) which is a member
of a national securities exchange is authorized to effect any transaction on
such exchange for the account of the fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and Declaration of
Trust of the Trust and the Investment Company Act of 1940, as amended (the
"1940 Act"), the Manager, at its expense, may select and contract with one or
more investment advisers (the "Subadviser") for the fund to perform some or all
of the services for which it is responsible pursuant to paragraph (a) of this
section 1. The Manager will compensate any Subadviser of the fund for its
services to the fund. The Manager may terminate the services of any subadviser
at any time in its sole discretion, and shall at such time assume the
responsibilities of such subadviser unless and until a successor subadviser is
selected. To the extent that more than one Subadviser is selected, the Manager
shall, in its sole discretion, determine the amount of the Fund's assets
allocated to each such Subadviser.
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<PAGE> 3
(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 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.
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<PAGE> 4
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 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.
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<PAGE> 5
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be without
the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a
majority of the outstanding shares" of the Fund means the affirmative vote, at
a duly called and held meeting of shareholders, (a) of the holders of 67% or
more of the shares of the Fund present (in person or by proxy) and entitled to
vote at such meeting, if the holders of more than 50% of the outstanding shares
of the Fund entitled to vote at such meeting are present in person or by proxy,
or (b) of the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the 1934 Act and the rules and
regulations thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Trust, to the Fund or to any shareholder, officer, director or Trustee thereof,
for any act or omission in the course of, or connected with, rendering services
hereunder.
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<PAGE> 6
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> 1
EX. - 99.5(b)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June __, 1992, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred Value Fund (the "Fund"), and CATERPILLAR INVESTMENT
MANAGEMENT LTD., a Delaware corporation (the "Manager").
Witnesseth:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the Trust
(the "Trustees") and to such policies as the Trustees may determine, the
Manager will, at its expense, (i) furnish continuously an investment program
for the Fund and will make investment decisions on behalf of the Fund and place
all orders for the purchase and sale of its portfolio securities and (ii)
furnish all necessary office space and equipment, provide bookkeeping and
clerical services required to perform its duties hereunder and pay all
salaries, fees and expenses of the Trustees and officers of the Trust who are
affiliated persons of the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objectives,
policies and restrictions.
(b) In the selection of brokers, dealers or futures commissions
merchants (collectively, "brokers") and the placing of orders for the purchase
and sale of portfolio investments for the Fund, the Manager shall seek to
obtain the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager, bearing
in mind the Fund's best interests at all times, shall consider all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the
<PAGE> 2
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved and the
quality of service rendered by the broker in other transactions. Subject to
such policies as the Trustees may determine, the Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this Contract or
otherwise solely by reason of its having caused the Trust to pay, on behalf of
the Fund, a broker that provides brokerage and research services to the Manager
or any affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
Manager and any affiliated person of the Manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. The Trust
hereby agrees with the Manager and with any Subadviser (as defined in Section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the Manager or Subadviser) which is a member
of a national securities exchange is authorized to effect any transaction on
such exchange for the account of the Fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and Declaration of
Trust of the Trust and the Investment Company Act of 1940, as amended (the
"1940 Act"), the Manager, at its expense, may select and contract with one or
more investment advisers (the "Subadviser") for the Fund to perform some or all
of the services for which it is responsible pursuant to paragraph (a) of this
Section 1. The Manager will compensate any Subadviser of the Fund for its
services to the Fund. The Manager may terminate the services of any Subadviser
at any time in its sole discretion, and shall at such time assume the
responsibilities of such Subadviser unless and until a successor Subadviser is
selected. To the extent that more than one Subadviser is selected, the Manager
shall, in its sole discretion, determine the amount of the Fund's assets
allocated to each such Subadviser.
-2-
<PAGE> 3
(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 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.
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the 1934 Act and the rules and
regulations thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
-5-
<PAGE> 6
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> 1
EX. - 99.5(c)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June __, 1992, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred International Fund (the "Fund"), and CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the Trust
(the "Trustees") and to such policies as the trustees may determine, the
Manager will, at its expense, (i) furnish continuously an investment program
for the Fund and will make investment decisions on behalf of the fund and place
all orders for the purchase and sale of its portfolio securities and (ii)
furnish all necessary office space and equipment, provide bookkeeping and
clerical services required to perform its duties hereunder and pay all
salaries, fees and expenses of the Trustees and officers of the Trust who are
affiliated persons of the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objectives,
policies and restrictions.
(b) In the selection of brokers, dealers or futures commissions
merchants (collectively, "brokers") and the placing of orders for the purchase
and sale of portfolio investments for the Fund, the Manager shall seek to
obtain the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. in using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager, bearing
in mind the fund's best interests at all times, shall consider all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the
<PAGE> 2
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 Ffnd, a broker that provides brokerage and research services to the manager
or any affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
manager and any affiliated person of the manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. the trust
hereby agrees with the Manager and with any Subadviser (as defined in Section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the Manager or Subadviser) which is a member
of a national Securities Exchange is authorized to effect any transaction on
such exchange for the account of the Fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and Declaration of
Trust of the Trust and the Investment Company Act of 1940, as amended (the
"1940 act"), the Manager, at its expense, may select and contract with one or
more investment advisers (the "Subadviser") for the Fund to perform some or all
of the services for which it is responsible pursuant to paragraph (a) of this
Section 1. The Manager will compensate any subadviser of the Fund for its
services to the fund. The Manager may terminate the services of any Subadviser
at any time in its sole discretion, and shall at such time assume the
responsibilities of such Subadviser unless and until a successor Subadviser is
selected. To the extent that more than one Subadviser is selected, the Manager
shall, in its sole discretion, determine the amount of the Fund's assets
allocated to each such Subadviser.
-2-
<PAGE> 3
(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 0.95% of the Fund's net asset value as of the last business day of the
month. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the
Trust are qualified for offer and sale, the compensation due the Manager for
such fiscal year shall be reduced by the amount of such excess by a reduction
or refund thereof. In the event that the expenses of the Fund exceed any
expense limitation which the Manager may, by written notice to the Trust,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Manager may prescribe in such notice, the
compensation due the Manager shall be reduced, and, if necessary, the Manager
shall bear the Fund's expenses to the extent required by such expense
limitation.
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the 1934 Act and the rules and
regulations thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
-5-
<PAGE> 6
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> 1
EX. - 99.5(d)
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
<PAGE> 2
at all times, shall consider all factors it deems relevant, including,
by way of illustration, the price, the size of the transaction, the nature of
the market for the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker involved and the quality of
service rendered by the broker in other transactions. Subject to such policies
as the Trustees may determine, the Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Contract or otherwise
solely by reason of its having caused the Trust to pay, on behalf of the Fund,
a broker that provides brokerage and research services to the Manager or any
affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
Manager and any affiliated person of the Manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. The Trust
hereby agrees with the Manager and with any Subadviser (as defined in section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the Manager or Subadviser) which is a member
of a national Securities Exchange is authorized to effect any transaction on
such exchange for the account of the Fund which is permitted by section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(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.
-2-
<PAGE> 3
sole discretion, and shall at such time assume the responsibilities of such
Subadviser unless and until a successor Subadviser is selected. To the extent
that more than one Subadviser is selected, the Manager shall, in its sole
discretion, determine the amount of the Fund's assets allocated to each such
Subadviser.
(d) The Manager shall not be obligated to pay any expenses of or
for the Trust or of or for the Fund not expressly assumed by the Manager
pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, partner, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the Manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate (based on the number of days elapsed through the end of the month)
of 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
-3-
<PAGE> 4
shall be reduced by the amount of such excess by a reduction or refund thereof.
In the event that the expenses of the Fund exceed any expense limitation which
the Manager may, by written notice to the Trust, voluntarily declare to be
effective with respect to the Fund, subject to such terms and conditions as the
Manager may prescribe in such notice, the compensation due the Manager shall be
reduced, and, if necessary, the Manager shall bear the Fund's expenses to the
extent required by such expense limitation.
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of
any penalty, in the event of its assignment; and 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
-4-
<PAGE> 5
continuance of this Contract, then this Contract shall automatically
terminate at the close of business on the second anniversary of its execution,
or upon the expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the continuance of
this Contract is submitted to the shareholders of the Fund for their approval
and such shareholders fail to approve such continuance of this Contract as
provided herein, the Manager may continue to serve hereunder in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
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.
-5-
<PAGE> 6
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, THE PREFERRED GROUP OF MUTUAL FUNDS and CATERPILLAR
INVESTMENT MANAGEMENT LTD. have each caused this instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the
day and year first above written.
THE PREFERRED GROUP OF MUTUAL FUNDS
By__________________________________
Title:
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By__________________________________
Title:
-6-
<PAGE> 1
EX. - 99.5(e)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June __, 1992, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred Asset Allocation Fund (the "Fund"), and CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the Trust
(the "Trustees") and to such policies as the Trustees may determine, the
Manager will, at its expense, (i) furnish continuously an investment program
for the Fund and will make investment decisions on behalf of the Fund and place
all orders for the purchase and sale of its portfolio securities and (ii)
furnish all necessary office space and equipment, provide bookkeeping and
clerical services required to perform its duties hereunder and pay all
salaries, fees and expenses of the Trustees and officers of the Trust who are
affiliated persons of the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objectives,
policies and restrictions.
(b) In the selection of brokers, dealers or futures commissions
merchants (collectively, "brokers") and the placing of orders for the purchase
and sale of portfolio investments for the Fund, the Manager shall seek to
obtain the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager, bearing
in mind the Fund's best interests at all times, shall consider all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the
<PAGE> 2
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved and the
quality of service rendered by the broker in other transactions. Subject to
such policies as the Trustees may determine, the Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this Contract or
otherwise solely by reason of its having caused the Trust to pay, on behalf of
the Fund, a broker that provides brokerage and research services to the Manager
or any affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
Manager and any affiliated person of the Manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. The Trust
hereby agrees with the Manager and with any Subadviser (as defined in Section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the Manager or Subadviser) which is a member
of a national Securities Exchange is authorized to effect any transaction on
such exchange for the account of the Fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and Declaration of
Trust of the Trust and the Investment Company Act of 1940, as amended (the
"1940 Act "), the Manager, at its expense, may select and contract with one or
more investment advisers (the "Subadviser") for the Fund to perform some or all
of the services for which it is responsible pursuant to paragraph (a) of this
Section 1. The Manager will compensate any Subadviser of the Fund for its
services to the Fund. The Manager may terminate the services of any Subadviser
at any time in its sole discretion, and shall at such time assume the
responsibilities of such Subadviser unless and until a successor Subadviser is
selected. To the extent that more than one Subadviser is selected, the Manager
shall, in its sole discretion, determine the amount of the Fund's assets
allocated to each such Subadviser.
-2-
<PAGE> 3
(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 0.70% of the Fund's net asset value as of the last business day of the
month. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the
Trust are qualified for offer and sale, the compensation due the Manager for
such fiscal year shall be reduced by the amount of such excess by a reduction
or refund thereof. In the event that the expenses of the Fund exceed any
expense limitation which the Manager may, by written notice to the Trust,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Manager may prescribe in such notice, the
compensation due the Manager shall be reduced, and, if necessary, the Manager
shall bear the Fund's expenses to the extent required by such expense
limitation.
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the 1934 Act and the rules and
regulations thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
-5-
<PAGE> 6
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> 1
EX. - 99.5(f)
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
<PAGE> 2
at all times, shall consider all factors it deems relevant, including, by way
of illustration, the price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker involved and the quality of
service rendered by the broker in other transactions. Subject to such policies
as the Trustees may determine, the Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Contract or otherwise
solely by reason of its having caused the Trust to pay, on behalf of the Fund,
a broker that provides brokerage and research services to the Manager or any
affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
Manager and any affiliated person of the Manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. The Trust
hereby agrees with the Manager and with any Subadviser (as defined in Section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the Manager or Subadviser) which is a member
of a national securities exchange is authorized to effect any transaction on
such exchange for the account of the Fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(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
-2-
<PAGE> 3
sole discretion, and shall at such time assume the responsibilities of such
Subadviser unless and until a successor Subadviser is selected. To the extent
that more than one Subadviser is selected, the Manager shall, in its sole
discretion, determine the amount of the Fund's assets allocated to each such
Subadviser.
(d) The Manager shall not be obligated to pay any expenses of or
for the Trust or of or for the Fund not expressly assumed by the Manager
pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, partner, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate (based on the number of days elapsed through the end of the month)
of 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
-3-
<PAGE> 4
shall be reduced by the amount of such excess by a reduction or refund thereof.
In the event that the expenses of the Fund exceed any expense limitation which
the Manager may, by written notice to the Trust, voluntarily declare to be
effective with respect to the Fund, subject to such terms and conditions as the
Manager may prescribe in such notice, the compensation due the Manager shall be
reduced, and, if necessary, the Manager shall bear the Fund's expenses to the
extent required by such expense limitation.
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of
any penalty, in the event of its assignment; and 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
-4-
<PAGE> 5
continuance of this Contract, then this Contract shall automatically terminate
at the close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the continuance of
this contract is submitted to the shareholders of the Fund for their approval
and such shareholders fail to approve such continuance of this Contract as
provided herein, the Manager may continue to serve hereunder in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
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.
-5-
<PAGE> 6
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, THE PREFERRED GROUP OF MUTUAL FUNDS and
CATERPILLAR INVESTMENT MANAGEMENT LTD. have each caused this instrument to be
signed in duplicate on its behalf by its duly authorized representative, all as
of the day and year first above written.
THE PREFERRED GROUP OF MUTUAL FUNDS
By__________________________________
Title:
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By__________________________________
Title:
-6-
<PAGE> 1
EX. - 99.5(g)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June __, 1992, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred Fixed Income Fund (the "Fund"), and CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the Trust
(the "Trustees") and to such policies as the Trustees may determine, the
Manager will, at its expense, (i) furnish continuously an investment program
for the Fund and will make investment decisions on behalf of the Fund and place
all orders for the purchase and sale of its portfolio securities and (ii)
furnish all necessary office space and equipment, provide bookkeeping and
clerical services required to perform its duties hereunder and pay all
salaries, fees and expenses of the Trustees and officers of the Trust who are
affiliated persons of the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objectives,
policies and restrictions.
(b) In the selection of brokers, dealers or futures commissions
merchants (collectively, "brokers") and the placing of orders for the purchase
and sale of portfolio investments for the Fund, the Manager shall seek to
obtain the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager, bearing
in mind the Fund's best interests at all times, shall consider all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the
<PAGE> 2
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved and the
quality of service rendered by the broker in other transactions. Subject to
such policies as the Trustees may determine, the Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this Contract or
otherwise solely by reason of its having caused the Trust to pay, on behalf of
the Fund, a broker that provides brokerage and research services to the Manager
or any affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
Manager and any affiliated person of the Manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. The Trust
hereby agrees with the Manager and with any Subadviser (as defined in Section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the Manager or Subadviser) which is a member
of a national securities exchange is authorized to effect any transaction on
such exchange for the account of the Fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and
Declaration of Trust of the Trust and the Investment Company Act of 1940, as
amended (the "1940 Act"), the Manager, at its expense, may select and contract
with one or more investment advisers (the "Subadviser") for the Fund to perform
some or all of the services for which it is responsible pursuant to paragraph
(a) of this Section 1. The Manager will compensate any Subadviser of the Fund
for its services to the Fund. The Manager may terminate the services of any
Subadviser at any time in its sole discretion, and shall at such time assume
the responsibilities of such Subadviser unless and until a successor Subadviser
is selected. To the extent that more than one Subadviser is selected, the
Manager shall, in its sole discretion, determine the amount of the Fund's
assets allocated to each such Subadviser.
-2-
<PAGE> 3
(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 0.65% of the Fund's net asset value as of the last business day of the
month. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the
Trust are qualified for offer and sale, the compensation due the Manager for
such fiscal year shall be reduced by the amount of such excess by a reduction
or refund thereof. In the event that the expenses of the Fund exceed any
expense limitation which the Manager may, by written notice to the Trust,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Manager may prescribe in such notice, the
compensation due the Manager shall be reduced, and, if necessary, the Manager
shall bear the Fund's expenses to the extent required by such expense
limitation.
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the 1934 Act and the rules and
regulations thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
-5-
<PAGE> 6
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> 1
EX. - 99.5(h)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June __, 1992, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred Short-Term Government Securities 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
<PAGE> 2
it deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker
involved and the quality of service rendered by the broker in other
transactions. Subject to such policies as the Trustees may determine, the
Manager shall not be deemed to have acted unlawfully or to have breached any
duty created by this Contract or otherwise solely by reason of its having
caused the Trust to pay, on behalf of the Fund, a broker that provides
brokerage and research services to the Manager or any affiliated person of the
Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker would have
charged for effecting that transaction, if the Manager determines in good faith
that such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or the Manager's overall responsibilities
with respect to the Fund and to other clients of the Manager and any affiliated
person of the Manager as to which the Manager or any affiliated person of the
Manager exercises investment discretion. The Trust hereby agrees with the
Manager and with any Subadviser (as defined in Section 1(c) below) that any
entity or person associated with the Manager or Subadviser (or with any
affiliated person of the Manager or Subadviser) which is a member of a national
securities exchange is authorized to effect any transaction on such exchange
for the account of the Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule 11a2-
2(T) thereunder, and the Trust hereby consents to the retention of compensation
for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and Declaration of
Trust of the Trust and the Investment Company Act of 1940, as amended (the
"1940 Act"), the Manager, at its expense, may select and contract with one or
more investment advisers (the "Subadviser") for the Fund to perform some or all
of the services for which it is responsible pursuant to paragraph (a) of this
Section 1. The Manager will compensate any Subadviser of the Fund for its
services to the Fund. The Manager may terminate the services of any Subadviser
at any time in its sole discretion, and shall at such time assume the
responsibilities of such Subadviser unless and until a successor Subadviser is
selected. To the extent that more than one Subadviser is selected, the manager
shall, in its sole discretion, determine the amount of the Fund's assets
allocated to each such Subadviser.
-2-
<PAGE> 3
(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 0.35% of the Fund's net asset value as of the last business day of the
month. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the
Trust are qualified for offer and sale, the compensation due the Manager for
such fiscal year shall be reduced by the amount of such excess by a reduction
or refund thereof. In the event that the expenses of the Fund exceed any
expense limitation which the Manager may, by written notice to the Trust,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Manager may prescribe in such notice, the
compensation due the Manager shall be reduced, and, if necessary, the Manager
shall bear the Fund's expenses to the extent required by such expense
limitation.
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the 1934 Act and the rules and
regulations thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
-5-
<PAGE> 6
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> 1
EX. - 99.5(i)
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of June __, 1992, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred Money Market Fund (the "Fund"), and CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the
Trust (the "Trustees") and to such policies as the Trustees may determine, the
Manager will, at its expense, (i) furnish continuously an investment program
for the Fund and will make investment decisions on behalf of the Fund and place
all orders for the purchase and sale of its portfolio securities and (ii)
furnish all necessary office space and equipment, provide bookkeeping and
clerical services required to perform its duties hereunder and pay all
salaries, fees and expenses of the Trustees and officers of the Trust who are
affiliated persons of the Manager. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and By-laws of the Trust and the Fund's stated investment objectives,
policies and restrictions.
(b) In the selection of brokers, dealers or futures
commissions merchants (collectively, "brokers") and the placing of orders for
the purchase and sale of portfolio investments for the Fund, the Manager shall
seek to obtain the most favorable price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions for brokerage
and research services as described below. In using its best efforts to obtain
for the Fund the most favorable price and execution available, the Manager,
bearing in mind the Fund's best interests at all times, shall consider all
factors it deems relevant, including, by way of illustration, price, the size
of the transaction, the
<PAGE> 2
nature of the market for the security, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved and the
quality of service rendered by the broker in other transactions. Subject to
such policies as the Trustees may determine, the Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this Contract or
otherwise solely by reason of its having caused the Trust to pay, on behalf of
the Fund, a broker that provides brokerage and research services to the Manager
or any affiliated person of the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Fund and to other clients of the
Manager and any affiliated person of the Manager as to which the Manager or any
affiliated person of the Manager exercises investment discretion. The Trust
hereby agrees with the Manager and with any Subadviser (as defined in Section
1(c) below) that any entity or person associated with the Manager or Subadviser
(or with any affiliated person of the Manager or Subadviser) which is a member
of a national securities exchange is authorized to effect any transaction on
such exchange for the account of the Fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and
Declaration of Trust of the Trust and the Investment Company Act of 1940, as
amended (the "1940 Act"), the Manager, at its expense, may select and contract
with one or more investment advisers (the "Subadviser") for the Fund to perform
some or all of the services for which it is responsible pursuant to paragraph
(a) of this Section 1. The Manager will compensate any Subadviser of the Fund
for its services to the Fund. The Manager may terminate the services of any
Subadviser at any time in its sole discretion, and shall at such time assume
the responsibilities of such Subadviser unless and until a successor Subadviser
is selected. To the extent that more than one Subadviser is selected, the
Manager shall, in its sole discretion, determine the amount of the Fund's
assets allocated to each such Subadviser.
-2-
<PAGE> 3
(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 0.30% of the Fund's net asset value as of the last business day of the
month. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the
Trust are qualified for offer and sale, the compensation due the Manager for
such fiscal year shall be reduced by the amount of such excess by a reduction
or refund thereof. In the event that the expenses of the Fund exceed any
expense limitation which the Manager may, by written notice to the Trust,
voluntarily declare to be effective with respect to the Fund, subject to such
terms and conditions as the Manager may prescribe in such notice, the
compensation due the Manager shall be reduced, and, if necessary, the Manager
shall bear the Fund's expenses to the extent required by such expense
limitation.
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the 1934 Act and the rules and
regulations thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
-5-
<PAGE> 6
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> 1
EX. - 99.5(j)
PREFERRED GROWTH FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of June __, 1992 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 Growth 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> 2
(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> 3
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 __, 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> 4
(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
-4-
<PAGE> 5
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.
-5-
<PAGE> 6
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, all as of the
day and year first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By: _______________________________
Title:
JENNISON ASSOCIATES CAPITAL CORP.
By: _______________________________
Title:
The foregoing is accepted by:
THE PREFERRED GROUP OF MUTUAL FUNDS
By: _______________________________
Title:
-6-
<PAGE> 7
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) and 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 Next Next Next Over
$10 $30 $25 $335 $600 $1,000
Million Million Million Million Million Million
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
0.75% 0.50% 0.35% 0.25% 0.22% 0.20%
</TABLE>
<PAGE> 1
EX. - 99.5(k)
PREFERRED VALUE FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of June __, 1992 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"), and
OPPENHEIMER CAPITAL, a Delaware general 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 Value 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> 2
(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> 3
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 __, 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> 4
(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
-4-
<PAGE> 5
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.
-5-
<PAGE> 6
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and
OPPENHEIMER CAPITAL have each caused this instrument to be signed in duplicate
on its behalf by its duly authorized representative, all as of the day and year
first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By: _______________________________
Title:
OPPENHEIMER CAPITAL
By: _______________________________
Title:
The foregoing is accepted by:
THE PREFERRED GROUP OF MUTUAL FUNDS
By: ______________________________
Title:
-6-
<PAGE> 7
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) and 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 $50 $100
Million Million Million
------- ------- -------
<S> <C> <C> <C>
0.50% 0.375% 0.25%
</TABLE>
<PAGE> 1
EX. - 99.5(1)
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,
<PAGE> 2
including oversight of the pricing of the Fund's portfolio and assistance in
obtaining prices for portfolio securities (but excluding determination of net
asset value, shareholder accounting services and fund accounting services).
(c) In the selection of brokers, dealers or futures commissions
merchants (collectively, "brokers") and the placing of orders for the purchase
and sale of portfolio investments for the Fund, the Subadviser shall 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
-2-
<PAGE> 3
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 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
-3-
<PAGE> 4
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.
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
-4-
<PAGE> 5
granted by the Securities and Exchange Commission under the 1940 Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the 1934
Act and the rules and regulations thereunder.
8. NONLIABILITY OF SUBADVISER.
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Subadviser, or reckless disregard of its obligations and
duties hereunder, the Subadviser shall not be subject to any liability to the
Manager, to the Trust, to the Fund, or to any shareholder, officer, director or
Trustee thereof, for any act or omission in the course of, or connected with,
rendering services hereunder.
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> 6
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> 7
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> 1
EX-99.5(M)
PREFERRED ASSET ALLOCATION FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of June __, 1992 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"), and MELLON
CAPITAL MANAGEMENT CORPORATION, a Delaware corporation (the "Subadviser").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST.
(a) Subject always to the control of the trustees of The Preferred
Group of Mutual Funds (the "Trustees"), a Massachusetts business trust (the
"Trust"), the Subadviser, at its expense, will furnish continuously an
investment program for the Preferred Asset Allocation 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> 2
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
-2-
<PAGE> 3
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 __, 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
-3-
<PAGE> 4
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
-4-
<PAGE> 5
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.
-5-
<PAGE> 6
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and MELLON
CAPITAL MANAGEMENT CORPORATION have each caused this instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the
day and year first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By: _______________________________
Title:
MELLON CAPITAL MANAGEMENT CORPORATION
By: _______________________________
Title:
The foregoing is accepted by:
THE PREFERRED GROUP OF MUTUAL FUNDS
By: _________________________________
Title:
-6-
<PAGE> 7
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)
and 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 Over
$200 $200
Million Million
------- -------
0.50% 0.20%
<PAGE> 1
EX. - 99.5(n)
PREFERRED ASSET ALLOCATION FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of June __, 1992 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"), and
PANAGORA ASSET MANAGEMENT, INC., a Delaware corporation (the "Subadviser").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST.
(a) Subject always to the control of the trustees of The Preferred
Group of Mutual Funds (the "Trustees"), a Massachusetts business trust (the
"Trust"), the Subadviser, at its expense, will furnish continuously an
investment program for the Preferred Asset Allocation 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> 2
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
-2-
<PAGE> 3
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 __, 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
-3-
<PAGE> 4
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
-4-
<PAGE> 5
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.
-5-
<PAGE> 6
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and PANAGORA
ASSET MANAGEMENT, INC. have each caused this instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the
day and year first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By:
-----------------------------------
Title:
PANAGORA ASSET MANAGEMENT, INC.
By:
-----------------------------------
Title:
The foregoing is accepted by:
THE PREFERRED GROUP OF MUTUAL FUNDS
By:
-----------------------------------
Title:
6
<PAGE> 7
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) and 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 Next Over
$10 $40 $50 $100
Million Million Million Million
------- ------- ------- -------
<S> <C> <C> <C>
0.50% 0.40% 0.20% 0.10%
</TABLE>
<PAGE> 1
EX. - 99.5(o)
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
<PAGE> 2
portfolio securities (but excluding determination of net asset value,
shareholder accounting services and fund accounting services).
(c) In the selection of brokers, dealers or futures commissions
merchants (collectively, "brokers") and the placing of orders for the purchase
and sale of portfolio investments for the Fund, the Subadviser shall seek to
obtain for the Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In using its best efforts
to obtain for the Fund the most favorable price and execution available, the
Subadviser, bearing in mind the Fund's best interests at all times, shall
consider all factors it deems relevant, including, by way of illustration, the
price, the size of the transaction, the nature of the market for the security,
the amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker involved and the quality of service rendered by the broker in other
transactions. Subject to such policies as the Trustees may determine and
communicate to the Subadviser in writing, the Subadviser shall not be deemed to
have acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Fund to pay a broker that
provides brokerage and research services to the Subadviser or any affiliated
person of the Subadviser an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another broker
would have charged for effecting that transaction, if the Subadviser determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker, viewed in
terms of either that particular transaction or the Subadviser's overall
responsibilities with respect to the Fund and to other clients of the
Subadviser and any affiliated person of the Subadviser as to which the
Subadviser or any affiliated person of the Subadviser exercises investment
discretion. The Trust agrees that any entity or person associated with the
Subadviser or any affiliated person of the Subadviser which is a member of a
national securities exchange is authorized to effect any transaction on such
exchange for the account of the Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule
11a2-2(T) thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2- 2(T)(2)(iv).
(d) The Subadviser shall not be obligated to pay any expenses of
or for the Trust or of or for the Fund not expressly assumed by the Subadviser
pursuant to this Section 1.
-2-
<PAGE> 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 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> 4
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> 5
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> 6
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> 7
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> <C>
0.75% 0.50% $0.35% $0.25% $0.22% 0.20%
</TABLE>
-7-
<PAGE> 1
EX. - 99.5(p)
PREFERRED FIXED INCOME FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of June __, 1992 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"), and J.P.
MORGAN INVESTMENT MANAGEMENT INC., a Delaware corporation (the "Subadviser").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST.
(a) Subject always to the control of the trustees of The
Preferred Group of Mutual Funds (the "Trustees"), a Massachusetts business
trust (the "Trust"), the Subadviser, at its expense, will furnish continuously
an investment program for the Preferred Fixed Income Fund series of the Trust
(the "Fund") and will make investment decisions on behalf of the Fund and place
all orders for the purchase and sale of portfolio securities and all other
investments. In the performance of its duties, the Subadviser (i) will comply
with the provisions of the Trust's Agreement and Declaration of Trust and
By-laws, including any amendments thereto (upon receipt of such amendments by
the Subadviser), and the investment objectives, policies and restrictions of
the Fund as set forth in its current Prospectus and Statement of Additional
Information (copies of which will be supplied to the Subadviser upon filing
with the Securities and Exchange Commission), (ii) will use its best efforts to
safeguard and promote the welfare of the Fund, (iii) will comply with other
policies which the Trustees or the Manager, as the case may be, may from time
to time determine as promptly as practicable after such policies have been
communicated to the Subadviser in writing, and (iv) shall exercise the same
care and diligence expected of the Trustees. The Subadviser and the Manager
shall each make its officers and employees available to the other from time to
time at reasonable times to review investment policies of the Fund and to
consult with each other regarding the investment affairs of the Fund.
(b) The Subadviser, at its expense, will furnish (i) all
necessary investment and management facilities, including salaries of
personnel, required for it to execute its duties hereunder faithfully and (ii)
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the efficient conduct of the investment affairs of the
Fund, including oversight of the pricing of the Fund's portfolio and assistance
in obtaining prices for
<PAGE> 2
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
-2-
<PAGE> 3
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 __, 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
-3-
<PAGE> 4
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
-4-
<PAGE> 5
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.
-5-
<PAGE> 6
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and J.P.
MORGAN INVESTMENT MANAGEMENT INC. have each caused this instrument to be signed
in duplicate on its behalf by its duly authorized representative, all as of the
day and year first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By:
----------------------------
Title:
J.P. MORGAN INVESTMENT MANAGEMENT INC.
By:
------------------------------
Title:
The foregoing is accepted by:
THE PREFERRED GROUP OF MUTUAL FUNDS
By:
--------------------------------
Title:
-6-
<PAGE> 7
SCHEDULE A
1. The Manager shall pay the Subadviser a fee based on an annual
percentage of the Average Quarterly Net Assets (as defined below) of the Fund
as follows:
<TABLE>
<CAPTION>
First Next Next Over
$75 $75 $150 $300
Million Million Million Million
------- ------- ------- -------
<S> <C> <C> <C> <C>
0.30% 0.25% 0.22% 0.15%
</TABLE>
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 Fund during the preceding calendar quarter.
The term Average Quarterly Net Assets shall mean the average of the net asset
value of the Fund as of the last business day of each month in the calendar
quarter. The fee payable for the calendar quarter shall be calculated by
applying the annual rate set forth above to the Average Quarterly Net Assets of
the Fund, and dividing by four. 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.
<PAGE> 1
EX. - 99.5(q)
PREFERRED MONEY MARKET FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of June __, 1992 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"), and J.P.
MORGAN INVESTMENT MANAGEMENT INC., a Delaware corporation (the "Subadviser").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is agreed as
follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST.
(a) Subject always to the control of the trustees of The Preferred
Group of Mutual Funds (the "Trustees"), a Massachusetts business trust (the
"Trust"), the Subadviser, at its expense, will furnish continuously an
investment program for the Preferred Money Market 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> 2
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
-2-
<PAGE> 3
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 __, 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
-3-
<PAGE> 4
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
4
<PAGE> 5
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.
-5-
<PAGE> 6
IN WITNESS WHEREOF, CATERPILLAR INVESTMENT MANAGEMENT LTD. and J.P.
MORGAN INVESTMENT MANAGEMENT INC. have each caused this instrument to be signed
in duplicate on its behalf by its duly authorized representative, all as of the
day and year first above written.
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By:
-------------------------------------
Title:
J.P. MORGAN INVESTMENT MANAGEMENT INC.
By:
-------------------------------------
Title:
The foregoing is accepted by:
THE PREFERRED GROUP OF MUTUAL FUNDS
By:
-------------------------------------
Title:
-6-
<PAGE> 7
SCHEDULE A
The Manager shall pay the Subadviser a fee based on an annual rate of
0.15% of the Average Quarterly Net Assets (as defined below) of the Fund. The
Subadviser fee shall be paid in arrears (within 10 days of receipt by the
Manager of an invoice from the Subadviser) during the preceding calendar
quarter. The term Average Quarterly Net Assets shall mean the average of the
net asset value of the Fund as of the last business day of each month in the
calendar quarter. The fee payable for the calendar quarter shall be calculated
by applying the annual rate of 0.15% to the Average Quarterly Net Assets of the
Fund, and dividing by four. 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.
<PAGE> 1
EX. - 99.6
DISTRIBUTOR'S CONTRACT
Distributor's Contract dated June __, 1992, by and between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
and CATERPILLAR SECURITIES INC., a Delaware corporation ("CSI").
WHEREAS, the Trust and CSI are desirous of entering into an agreement
providing for the distribution by CSI of shares of the Trust;
NOW, THEREFORE, in consideration of the mutual agreements contained in
the Terms and Conditions of Distributor's Contract attached to and forming a
part of this Contract (the "Terms and Conditions"), the Trust hereby appoints
CSI as a distributor of shares of the Trust, and CSI hereby accepts such
appointment, all as set forth in the Terms and Conditions.
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 (the "Trustees") as Trustees and not individually, and
that the obligations of or arising out 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 Trust.
IN WITNESS WHEREOF, THE PREFERRED GROUP OF MUTUAL FUNDS and
CATERPILLAR SECURITIES INC. have each caused this Distributor's Contract to be
signed in duplicate on its behalf, all as of the day and year first above
written.
THE PREFERRED GROUP OF MUTUAL FUNDS
By:
-------------------------------
Title:
CATERPILLAR SECURITIES INC.
By:
-------------------------------
Title:
<PAGE> 2
TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT
1. Sale of Shares to CSI and Sales by CSI. CSI will have the
right, as agent, to sell shares of beneficial interest ("shares") of each
portfolio of the Trust represented by a separate series of shares (a "Fund") to
broker dealers or directly to investors against orders therefor at net asset
value.
Upon receipt of registration instructions in proper form and payment
for such shares, CSI will transmit such instructions to the Trust or its agent
for registration of the shares purchased.
On every sale the Trust shall receive the net asset value of the
shares. The net asset value of shares shall be determined in the manner
provided in the Agreement and Declaration of Trust and By-laws of the Trust as
then amended.
2. Reservation of Right Not to Sell. The Trust reserves the
right to refuse at any time or times to sell any of its shares for any reason
deemed adequate by it.
3. Exclusive Distributorship; Sales of Shares by the Trust. The
rights granted to CSI hereunder shall be exclusive; provided, however, that CSI
may employ such sub-agents, including one or more broker dealers, for this
purpose as CSI, in its sole discretion, shall deem advisable or desirable, and
provided further that the Trust reserves the right to sell its shares directly
to investors (but not through any securities dealer, financial institution or
other organization) on applications received and processed by the Trust or its
transfer agent. The Trust also reserves the right to issue shares at any time
directly to its shareholders as a stock dividend or stock split.
CSI may enter into similar arrangements with other issuers.
4. Repurchase of Shares. CSI will act as agent for the Trust in
connection with repurchase and redemption of shares by the Trust upon the terms
and conditions set forth in the then current prospectus or statement of
additional information of the Trust (collectively, the "prospectus") or as the
Trust acting through the Trustees may otherwise direct. CSI may employ such
sub-agents, including one or more broker dealers, for this purpose as CSI, in
its sole discretion, shall deem to be advisable or desirable.
5. Basis of Purchases and Sales of Shares. CSI's obligation to
sell shares hereunder shall be on a best efforts basis only and CSI shall not
be obligated to sell any specific number of shares. Shares will be sold by CSI
only again orders therefor. CSI will not purchase shares
<PAGE> 3
from anyone other than the Trust except in accordance with Section 4, and will
not take "long" or "short" positions in shares contrary to the Agreement and
Declaration of Trust of the Trust.
6. Rules of NASD, etc. CSI will conform to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. and the
securities laws of any jurisdiction in which it sells, directly or indirectly,
any shares. CSI also agrees to furnish to the Trust sufficient copies of any
agreements or plans it intends to use in connection with any sales of shares in
adequate time for the Trust to file and clear them with the proper authorities
before they are put in use, and not to use them until so filed and cleared.
7. Registration and Qualification of Shares. The Trust agrees to
execute such papers and to do such acts and things as shall from time to time
be reasonably requested by CSI for the purpose of qualifying and maintaining
qualification of the shares for sale under the so-called "Blue Sky" laws of any
state or for maintaining the registration of the Trust and of the shares under
the Securities Act of 1933, as amended (the "1933 Act") and the Investment
Company Act of 1940, as amended (the "1940 Act"), to the end that there will be
available for sale from time to time such number of shares as CSI may
reasonably be expected to sell. The Trust shall advise CSI promptly of (a) any
action of the Securities and Exchange Commission or any authorities of any
Securities and Exchange Commission or any authorities of any state or
territory, of which it may be advised, affecting registration or qualification
of the Trust or the shares, or rights to offer the shares for sale, and (b) the
happening of any event which makes untrue any statement, or which requires the
making of any change, in the Registration Statement or prospectus in order to
make the statements therein not misleading.
8. Independent Contractor. CSI shall be an independent
contractor and neither CSI nor any of its officers or employees as such is or
shall be an employee of the Trust. CSI is responsible for its own conduct and
the employment, control and conduct of its agents and employees and for injury
to such agents or employees or to others through its agents or employees. CSI
assumes full responsibility for its agents and employees under applicable
statutes and agrees to pay all employer taxes thereunder.
9. Expenses. The Trust will pay or reimburse CSI for all expenses
of qualifying shares of the Trust for sale under the securities or so-called
"Blue Sky" laws of any state. CSI will pay all expenses of preparing, printing
and distributing advertising and sales literature (apart from expenses of
registering shares under the 1933 Act and the 1940 Act and the preparation and
printing of prospectuses and reports as required by said Acts and the direct
expenses of the issues of shares, except that CSI will pay the cost of the
preparation and printing of prospectuses and shareholders' reports used by it
in the sale of Trust shares).
10. Securities Transactions. The Trust agrees that any entity or
person associated with CSI or any affiliated person of CSI may effect a
transaction on any national securities exchange of which it is a member for the
account of the Trust and any Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and
-2-
<PAGE> 4
the Trust hereby consents to the retention of compensation by CSI and such
other person for such transactions in accordance with Rule 11a2-2(T)(iv).
11. Indemnification of Trust. CSI agrees to indemnify and hold
harmless the Trust and each person who has been, is, or may hereafter be a
Trustee against expenses reasonably incurred by any of them in connection with
any claim or in connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise out of any
breach of this Contract or any misrepresentation or omission to state a
material fact, or out of any alleged misrepresentation or omission to state a
material fact, on the part of CSI or any agent or employee of CSI or any other
person for whose acts CSI is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust, provided that in no event shall anything
contained in this agreement be construed to protect the Trust or any such
person against any liability to which the Trust or such person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties under this Agreement. CSI also agrees likewise
to indemnify and hold harmless the Trust and each such person in connection
with any claim or in connection with any action, suit or proceeding which
arises out of or is alleged to arise out of CSI's failure to exercise
reasonable care and diligence with respect to its services rendered in
connection with investment, reinvestment, employee benefit and other plans for
shares. The term "expenses" includes amounts paid in satisfaction of judgments
or in settlements which are made with CSI's consent. The foregoing rights of
indemnification shall be in addition to any other rights to which the Trust or
a Trustee may be entitled as a matter of law.
12. Indemnification of CSI. The Trust agrees to indemnify and
hold harmless CSI, its several officers, employees and directors, and any
person who controls CSI within the meaning of Section 15 of the 1933 Act,
against expenses reasonably incurred by any of them in connection with any
claim or in connection with any action, suit or proceeding to which any of them
may be a party, which arises out of or is alleged to arise out of any
misrepresentation or omission to state a material fact, or out of any alleged
misrepresentation or omission to state a material fact in the Registration
Statement or prospectus, provided that in no event shall anything contained in
this Agreement be construed so as to protect CSI again any liability to the
Trust or its shareholders to which CSI would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties under this Agreement.
13. 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. This Contract may be amended with
respect to the Trust or a particular Fund, as the case may be, only if such
amendment be approved either by action of the Trustees or by the affirmative
vote of a majority of the outstanding shares of the Trust or such Fund, as the
case may be, and by a majority of the Trustees who are not interested persons
of the Trust by vote cast in person at a meeting called for the purpose of
voting on such approval.
-3-
<PAGE> 5
14. Effective Period and Termination of this Contract. This
Contract shall take effect upon the date first above written and shall remain
in full force and effect continuously as to a Fund (unless terminated
automatically as set forth in Section 13) until terminated:
a. Either by such Fund or CSI by not more than sixty (60) days'
nor less than ten (10) days' written notice delivered or
mailed by registered mail, postage prepaid, to the other
party; or
b. Automatically as to any Fund at the close of business on the
second anniversary of the execution of this Contract, or upon
the expiration of one year from the effective date of the last
continuance of this Contract, whichever is later, if the
continuance of this Contract is not specifically approved at
least annually by the Trustees or the shareholders of such
Fund by the affirmative vote of a majority of the outstanding
shares of such Fund, and by a majority of the Trustees who are
not interested persons of the Trust by vote cast in person at
a meeting called for the purpose of voting on such approval.
Action by a Fund under paragraph (a) above may be taken either (i) by
vote of the Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of such Fund. The requirement under paragraph (b) above
that continuance of this Contract be "specifically approved at least annually"
shall be construed in a manner consistent with the 1940 Act and the Rules and
Regulations thereunder.
Termination of this Contract pursuant to this Section 14 shall be
without the payment of any penalty.
If this Contract is terminated or not renewed with respect to one or
more Funds, it may continue in effect with respect to any Fund as to which it
has not been terminated (or has not been renewed).
15. Certain Definitions. For the purpose of this Contract, 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 Trust or the Fund, as the case may
be, 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 Trust or the
Fund, as the case may be, 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 Trust or the Fund, as the case may be, entitled to vote at such
meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"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 Securities
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<PAGE> 6
and Exchange Commission under said Act. Certain other items used herein that
are not otherwise defined have the meaning given in the current prospectus or
constituent agreements or documents of the Trust.
16. Separate Contract. The Trust, on behalf of each Fund, shall
be deemed to have entered into a wholly separate Contract relating exclusively
to each such Fund. Any amendment to or termination of this Contract explicitly
relating to one or more Funds shall have no affect on, and shall not be
considered to amend or terminate this Contract with respect to, any other Fund.
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<PAGE> 1
EX. - 99.8
CUSTODIAN CONTRACT
Between
THE PREFERRED GROUP OF MUTUAL FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
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Page
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1. Employment of Custodian and Property to be Held By It . . . . 1
2. Duties of the Custodian with Respect to Property of the Fund
Held by the Custodian in the United States . . . . . . . . . 2
2.1 Holding Securities . . . . . . . . . . . . . . . . . 3
2.2 Delivery of Securities . . . . . . . . . . . . . . . 3
2.3 Registration of Securities . . . . . . . . . . . . .7
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . 7
2.5 Availability of Federal Funds . . . . . . . . . . . .8
2.6 Collection of Income . . . . . . . . . . . . . . . . 8
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . 9
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . . . . . 12
2.9 Appointment of Agents . . . . . . . . . . . . . . . 12
2.10 Deposit of Fund Assets in Securities Systems . . . .12
2.10A Fund Assets Held in the Custodian's Direct Paper
System . . . . . . . . . . . . . . . . . . . . . . .14
2.11 Segregated Account . . . . . . . . . . . . . . . . .16
2.12 Ownership Certificates for Tax Purposes . . . . . . 17
2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . 17
2.14 Communications Relating to Portfolio Securities. . 17
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States . . . . . . . . . . . . . 18
3.1 Appointment of Foreign Sub-Custodians . . . . . . . 18
3.2 Assets to be Held . . . . . . . . . . . . . . . . . 18
3.3 Foreign Securities Depositories. . . . . . . . . . .19
3.4 Segregation of Securities . . . . . . . . . . . . . 19
3.5 Agreements with Foreign Banking Institutions . . . .19
3.6 Access of Independent Accountants of the Fund . . . 20
3.7 Reports by Custodian . . . . . . . . . . . . . . . 20
3.8 Transactions in Foreign Custody Account . . . . . . 21
3.9 Liability of Foreign Sub-Custodians . . . . . . . . 22
3.10 Liability of Custodian. . . . . . . . . . . . . . . 22
3.11 Reimbursement for Advances . . . . . . . . . . . . 23
3.12 Monitoring Responsibilities . . . . . . . . . . . . 23
3.13 Branches of U.S. Banks. . . . . . . . . . . . . . 24
3.14 Tax Law . . . . . . . . . . . . . . . . . . . . . 24
<PAGE> 3
4. Payments for Sales or Repurchase or Redemptions of Shares of
the Fund . . . . . . . . . . . . . . . . . . . . . . . . . .25
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . .26
6. Actions Permitted Without Express Authority . . . . . . . . .26
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . 27
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income . . . . . . . 27
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10. Opinion of Fund's Independent Accountants . . . . . . . . . .28
11. Reports to Fund by Independent Public Accountants . . . . . .29
12. Compensation of Custodian . . . . . . . . . . . . . . . . . .29
13. Responsibility of Custodian . . . . . . . . . . . . . . . . .29
14. Effective Period, Termination and Amendment . . . . . . . . .31
15. Successor Custodian . . . . . . . . . . . . . . . . . . . . .33
16. Interpretive and Additional Provisions . . . . . . . . . . . 34
17. Additional Funds . . . . . . . . . . . . . . . . . . . . . . 34
18. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . 35
19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . .35
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<PAGE> 4
CUSTODIAN CONTRACT
This Contract between The Preferred Group of Mutual Funds, a business
trust organized and existing under the laws of Massachusetts, having its
principal place of business at 100 N.E. Adams Street, Peoria, Illinois 61629
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in seven series,
the Caterpillar U.S. Value Fund, Caterpillar U.S. Growth Fund, Caterpillar
International Fund, Caterpillar Fixed Income Fund, Caterpillar Tactical Asset
Allocation Fund, Caterpillar Short-Term Government Securities Fund and
Caterpillar Money Market Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by it
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Fund, including securities which the fund, on behalf
of the applicable Portfolio desires
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<PAGE> 5
to be held in places within the United States ("domestic securities") and
securities it desires to be held outside the United States ("foreign
securities") pursuant to the provisions of the Declaration of Trust. The Fund
on behalf of the Portfolio(s) agrees to deliver to the Custodian all securities
and cash of the Portfolios, and all payments of income, payments of principal
or capital distributions received by it with respect to all securities owned by
the Portfolio(s) from time to time, and the cash consideration received by it
for such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios, ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or receiving by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States
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<PAGE> 6
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such Portfolio,
other than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively referred to
herein as "Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and
deliver domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct Paper
book entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
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<PAGE> 7
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into
the name of the Portfolio or into the name of any nominee
or nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.9 or into the
name or nominee name of any sub-custodian appointed to Article
1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to
the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such
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<PAGE> 8
securities, or pursuant to any deposit agreement; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member
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<PAGE> 9
of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipts of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
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<PAGE> 10
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by
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<PAGE> 11
it from or for the account of the Portfolio, other than cash
maintained by the Portfolio in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940.
Funds held by the Custodian for a Portfolio may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian or
in such other banks or trust companies as it may in its discretion
deem necessary or desirable; provided, however, that every such bank
or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
-8-
<PAGE> 12
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose)
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<PAGE> 13
registered in the name of the Portfolio or in the name
of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance
with the conditions set forth in Section 2.10 hereof; (c) in
the case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.10A; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
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<PAGE> 14
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the
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<PAGE> 15
Custodian shall be absolutely liable to the Fund for such securities
to the same extent as if the securities had been received by the
Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
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<PAGE> 16
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System
of transfers of securities for the account of the Portfolio
shall identify the Portfolio, be maintained for the Portfolio
by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf
of the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of
the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal
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<PAGE> 17
accounting control and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against
the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to
the extent that the Portfolio has not been made whole for any
such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject
to the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are
represented in an account ("Account") of the
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<PAGE> 18
Custodian in the Direct Paper System which shall not
include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account of
the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
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2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified
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by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such
securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
the Portfolio all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from
the party (or his agents) making the tender or
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<PAGE> 21
exchange offer. If the Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign sub-
custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of
the Fund's Board of Trustees, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to
act as sub-custodian. Upon receipt of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or more
such sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions.
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<PAGE> 22
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books
as belonging to each applicable Portfolio of the Fund, the foreign
securities of such Portfolios held by each foreign sub-custodian.
Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish a
custody account for the Custodian on behalf of the Fund for each
applicable Portfolio of the Fund and physically segregate in each
account, securities and other assets of the Portfolios, and, in the
event that such institution deposits the securities of one or more of
the Portfolios in a foreign securities depository, that it shall
identify on its books as belonging to the Custodian, as agent for each
applicable Portfolio, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely
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<PAGE> 23
transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to each applicable Portfolio; (d)
officers of or auditors employed by, or other representatives of the
Custodian, including to the extent permitted under applicable law the
independent public accountants for the Fund, will be given access to
the books and records of the foreign banking institution relating to
its actions under its agreement with the Custodian; and (e) assets of
the Portfolios held by the foreign sub-custodian will be subject only
to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
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3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section
3.8, the provision of Sections 2.2 and 2.7 of this Contract
shall apply, mutatis mutandis to the foreign securities of the
Fund held outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for
the account of each applicable Portfolio and delivery of
securities maintained for the account of each applicable
Portfolio may be effected in accordance with the customary
established securities trading or securities processing
practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss,
damage,
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cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
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<PAGE> 26
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolios assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
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3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios
assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of
the Investment Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The appointment of
any such branch as a sub-custodian shall be governed by
paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established
for the Fund with the Custodian's London branch, which account
shall be subject to the direction of the Custodian, State
Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be
the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the fund has provided such
information.
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4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund on behalf of each such Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of such
Portfolio.
For such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon
from time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used through this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction
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<PAGE> 29
involved, including a specific statement of the purpose for which such action
is requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund
shall cause all oral instructions to be confirmed in writing. Upon receipt of
a certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Trustees
and the Custodian are satisfied that such procedures afford adequate safeguards
for the Portfolios' assets. For purposes of this Section, Proper Instructions
shall include instructions received by the Custodian pursuant to any three -
party agreement which requires a segregated asset account in accordance with
section 2.11.
6. Actions Permitted Without Express Authority
The Custodian may in its direction, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
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4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer
and other dealings with the securities and property of the Portfolio
except as otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the Declaration of Trust as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such
Portfolio and shall advise the Fund and the
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Transfer Agent daily of the total amounts of such net income and, if instructed
in writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of each
Portfolio shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountants
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the
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Securities and Exchange Commission and with respect to any other requirements
of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with respect by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so
state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any
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futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the
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Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian
to take such action, shall provide indemnity to the Custodian in an amount and
form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) for the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by
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such Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of such Securities System, as required in each case by Rule 17f-4
under the Investment Company Act of 1940, as amended and that the Custodian
shall not with respect to a Portfolio act under Section 2.10A hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has approved the initial use of the Direct
Paper System by such Portfolio and the receipt of an annual certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has reviewed the
use by such Portfolio of the Direct Paper System; provided further, however,
that the Fund shall not amend or terminate this Contract in contravention of
any applicable federal or state regulations, or any provision of the
Declaration of Trust, and further provided, that the Fund on behalf of one or
more of the Portfolios may at any time by action of its Board of Trustees (i)
substitute another bank or trust company for the Custodian by giving notice as
described above tot the Custodian, or (ii) immediately terminate this Contract
in the event of the appointment of a conservator or receiver for the Custodian
by the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver
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<PAGE> 36
to such successor custodian at the office of the Custodian, duly endorsed and
in the form for transfer, all securities of each applicable Portfolio then held
by it hereunder and shall transfer to an account of the successor custodian all
of the securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of
each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the
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certified copy of the vote referred to or of the Board of Trustees to appoint a
successor custodian, the Custodian shall be entitled to fair compensation for
its services during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this Contract
relating to the duties and obligations of the Custodian shall remain in full
force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of
the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Caterpillar U.S. Value Fund, Caterpillar U.S. Growth Fund,
Caterpillar International Fund, Caterpillar Fixed Income Fund, Caterpillar
Tactical Asset Allocation Fund, Caterpillar Short-Term Government Securities
Fund and Caterpillar Money Market Fund with respect to which is desires to have
the Custodian render services as custodian under the terms hereof, it shall so
-34-
<PAGE> 38
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio
hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
-35-
<PAGE> 39
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the __________ day of __________, 1992.
ATTEST THE PREFERRED GROUP OF MUTUAL FUNDS
By
- -------------------------- --------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- -------------------------- --------------------------
Assistant Secretary Vice President
-36-
<PAGE> 40
Schedule A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of The Preferred Group
of Mutual Funds for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
__________________________
Fund's Authorized Officer
Date:_______________
-37-
<PAGE> 1
EX. - 99.9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE PREFERRED GROUP OF MUTUAL FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
Article 1. Terms of Appointment; Duties of the Bank . . . . . . . . . . 2
Article 2. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 5
Article 3. Representations and Warranties of the Bank . . . . . . . . . 6
Article 4. Representations and Warranties of the Fund . . . . . . . . . 7
Article 5. Data Access and Proprietary Information . . . . . . . . . . .7
Article 6. Indemnification . . . . . . . . . . . . . . . . . . . . . . .10
Article 7. Standard of Care . . . . . . . . . . . . . . . . . . . . . . 12
Article 8. Covenants of the Fund and the Bank . . . . . . . . . . . . . 12
Article 9. Termination of Agreement . . . . . . . . . . . . . . . . . . 14
Article 10. Additional Funds . . . . . . . . . . . . . . . . . . . . . . 14
Article 11. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 14
Article 12. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . .15
Article 13. Massachusetts Law to Apply . . . . . . . . . . . . . . . . .16
Article 14. Merger of Agreement . . . . . . . . . . . . . . . . . . . . .16
Article 15. Limitations of Liability of the Trustees and the
Shareholders . . . . . . . . . . . . . . . . . . . . . . . 16
Article 16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 16
-i-
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the _______day of________, 1992, by and between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust, having its
principal office and place of business at 100 N.E. Adams Street, Peoria,
Illinois 61629 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business
at 225 Franklin Street , Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in seven series, the
Caterpillar U.S. Value Fund, Caterpillar U.S. Growth Fund, Caterpillar
International Fund, Caterpillar Fixed Income Fund, Caterpillar Tactical Asset
Allocation Fund, Caterpillar Short-Term Government Securities Fund and
Caterpillar Money Market Fund (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 8, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank
as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
-1-
<PAGE> 4
Article 1. Terms of Appointment; Duties of the Bank
----------------------------------------
1.01. Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the authorized and
issued shares of beneficial interest of the Fund representing interests in each
of the respective Portfolios ("Shares"), dividend disbursing agent, custodian
of certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus") of
the Fund on behalf of the applicable Portfolio, including without limitation
any periodic investment plan or periodic withdrawal program.
1.02. The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to
time by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation thereof to
the Custodian of the Fund authorized pursuant to the Declaration of
Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate documentation thereof
to the Custodian;
-2-
<PAGE> 5
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed our on
receipt by the Bank of indemnification satisfactory to the
Bank and protecting the Bank and the Fund, and the Bank at
its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and
without such indemnity;
(ix) Maintain records of amount for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total
number of Shares which are authorized, based upon data
provided to it by the Fund, and issued and
-3-
<PAGE> 6
outstanding. The Bank shall also provide the Fund on a
regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take cognizance
of any laws relate to the issue or sale of such Shares,
which functions shall be the sole responsibility of the
Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend disbursing
agent, custodian of certain retirement plans and, as relevant, agent in
connection with accumulation, open- account or similar plans (including
without limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts, preparing and
filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing confirmation forms
and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system which
will enable the Fund to monitor the total number of Shares sold in each
State.
-4-
<PAGE> 7
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each
State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Bank for the Fund's
blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund
and the reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the
Fund on behalf of each Portfolio and the Bank per the attached service
responsibility schedule. The Bank may at times perform only a portion of
these services and the Fund or its agent may perform these services on the
Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between
the Fund and Bank.
Article 2. Fees and Expenses
2.01. For performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
-5-
<PAGE> 8
2.02. In addition to the fee paid under Section 2.01 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the consent of the Fund, will be reimbursed by the Fund
on behalf of the applicable Portfolio.
2.03. The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses within five days following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Bank by the Fund at least seven (7) days prior to the mailing date of such
materials.
Article 3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01. It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02. It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03. It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
-6-
<PAGE> 9
3.05. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01. It is a business trust duly organized and existing and
in good standing under the laws of Massachusetts.
4.02. It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03. All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04. It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05. A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and
will remain effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all Shares of the
Fund being offered for sale.
Article 5. Data Access and Proprietary Information
5.01. The Fund acknowledges that the data bases, computer programs,
screen format, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of the
Fund's ability to access certain related data ("Customer Data") maintained
by the Bank on data bases under the control and ownership of the Bank
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information
-7-
<PAGE> 10
(collectively, "Proprietary Information") of substantial value to the
Bank. The Fund agrees to treat all Proprietary Information as
proprietary to the Bank and further agrees that it shall no divulge any
Proprietary Information to any person or organization except as may be provided
hereunder. Without limiting the foregoing, the Fund agrees for itself and its
employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's applicable
user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained, to
inform in a timely manner of such fact and dispose of such information in
accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data required
hereunder from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary Information at
common law, under federal copyright law and under other federal or state
law.
-8-
<PAGE> 11
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.02. If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible for
the contents of such data and the Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED
ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03. If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash of Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
-9-
<PAGE> 12
Article 6. Indemnification
6.01 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or
willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents or services
which (i) are received or relied upon by the Bank or its agents or
subcontractors and/or furnished to it or performed by or on behalf
of the Fund, and (ii) have been prepared, maintained and/or
performed by the Fund or any other person or firm on behalf of the
Fund.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the
Fund on behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares be
registered in such state or in violation of any stop order or other
-10-
<PAGE> 13
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
6.02. At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable
and shall be indemnified by the Fund on behalf of the applicable Portfolio for
any action taken or omitted by it in reliance upon such instructions or upon
the opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction, information,
data, records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank,
its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.03. In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall
-11-
<PAGE> 14
not be liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
6.04. Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for
any consequential damages arising out of any act or failure to act hereunder.
6.05. In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim
or make any compromise in any case in which the Fund may be required to
indemnify the Bank except with the Fund's prior written consent.
Article 7. Standard of Care
7.01. The Bank shall at all times act in good faith and agrees to use
its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and
shall not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct of that of its
employees.
Article 8. Covenants of the Fund and the Bank
8.01. The Fund shall on behalf of each of the Portfolios promptly
furnish to the Bank the following:
-12-
<PAGE> 15
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and
all amendments thereto.
8.02. The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03. The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be performed by
the Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered promptly to the Fund on and in accordance with its request.
8.04. The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
8.05. In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to
-13-
<PAGE> 16
exhibit the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 9. Termination of Agreement
9.01. This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.02. Should the Fund exercise its right to terminate, all out-
of-pocket expenses associated with the movement of records and material
will be borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
Article 10. Additional Funds
10.01. In the event that the Fund establishes one or more series of
Shares in addition to Caterpillar U.S. Value Fund, Caterpillar U.S.
Growth Fund, Caterpillar International Fund, Caterpillar Fixed Income
Fund, Caterpillar Tactical Asset Allocation Fund, Caterpillar Short-Term
Government Securities Fund and Caterpillar Money Market Fund with respect
to which it desires to have the Bank render services as transfer agent
under the terms hereof, it shall so notify the Bank in writing, and if the
Bank agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
Article 11. Assignment
11.01. Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by
either party without the written consent of the other party.
-14-
<PAGE> 17
11.02. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
11.03. The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 12. Amendment
12.01. This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Trustees of the Fund.
-15-
<PAGE> 18
Article 13. Massachusetts Law to Apply
13.01. This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14. Merger of Agreement
14.01. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 15. Limitations of Liability of the Trustees and the
Shareholders
15.01. A copy of the Declaration of Trust of the Trust is on file
with the Secretary 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 or Shareholders
individually but are binding only upon the assets and property of the
Fund.
Article 16. Counterparts
16.01. This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
-16-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
THE PREFERRED GROUP OF MUTUAL FUNDS
By:
--------------------------------
ATTEST:
- ------------------------
STATE STREET BANK & TRUST COMPANY
By:
------------------------------
Vice President
ATTEST:
- -------------------
Assistant Secretary
-17-
<PAGE> 20
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the
purchase of Shares.
2. Issue Shares and hold
Shares in Shareholders
accounts.
3. Receive redemption
requests.
4. Effect transactions 1-3
above directly with broker-
dealers.
5. Pay over monies to
redeeming Shareholders.
6. Effect transfers of
Shares.
7. Prepare and transmit
dividends and distributions.
8. Issue Replacement
Certificates.
9. Reporting of abandoned
property.
10. Maintain records of
account.
11. Maintain and keep a
current and accurate control
book for each issue of
securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to
current Shareholders.
15. Withhold taxes on U.S.
resident and non-resident
alien accounts.
-18-
<PAGE> 21
16. Prepare and file U.S.
Treasury Department forms.
17. Prepare and mail account
and confirmation statements
for Shareholders.
18. Provide Shareholders
account information.
19. Blue sky reporting.
* Such services are more
fully described in Article
1.02(a), (b) and
(c) of the Agreement.
BY:___________________________
ATTEST:
____________________________
STATE STREET BANK & TRUST COMPANY
BY:___________________________
Vice President
ATTEST:
____________________________
Assistant Secretary
-19-
<PAGE> 1
EX.-99.10
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX: (617) 951-7050
June 11, 1992
The Preferred Group of Mutual Funds
100 N.E. Adams Street
Peoria, Illinois 61629-5330
Ladies and Gentlemen:
We are furnishing this opinion in connection with the Registration
Statement on Form N-1A filed under the Securities Act of 1933, as amended, by
The Preferred Group of Mutual Funds (the "Trust") for the registration of an
indefinite number of shares of beneficial interest of the constituent series
(each, a "Fund") of the Trust (the "Shares"). The Shares are proposed to be
sold pursuant to a Distributor's Contract (the "Distributor's Contract")
between the Trust and Caterpillar Securities Inc.
We have acted as counsel for the Trust since its organization. We are
familiar with the action taken by its Trustees to authorize this issuance of
the Shares. We have examined its records of Trustee action, its Bylaws, and
its Agreement and Declaration of Trust, as amended, on file at the office of
the Secretary of State of The Commonwealth of Massachusetts. We have examined
executed copies of such Registration Statement, in the form filed or to be
filed with the Securities and Exchange Commission, and such other documents as
we deem necessary for the purpose of this opinion.
We assume that upon sale of the Shares the Trust will receive the net
asset value thereof.
Based upon the foregoing, we are of the opinion that the Trust is
authorized to issue an unlimited number of Shares, and that when the Shares are
issued and sold pursuant to the Distributor's Contract, they will be validly
issued, fully paid and nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of
<PAGE> 2
The Preferred Group of Mutual Funds June 11, 1992
Trust disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the
Trustees. The Agreement and Declaration of Trust provides for indemnification
out of the relevant Fund's property for all loss and expense of any shareholder
held personally liable solely by reason of his being or having been a
shareholder of such Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the fund itself would be unable to meet its obligations.
We consent to the filing of this opinion as an exhibit to such
Registration Statement and the references to us as counsel for the Trust in the
Registration Statement.
Very truly yours,
ROPES & GRAY
-2-
<PAGE> 1
EX. - 99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
and Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 11 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated August 18, 1995, relating to the
financial statements and financial highlights appearing in the June 30, 1995
Annual Report to Shareholders of The Preferred Group of Mutual Funds, which are
also incorporated by reference into the Registration Statement. We also
consent to the references to us under the heading "Financial Highlights" in the
Prospectus and under the heading "Independent Accountants and Financial
Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 9, 1996
<PAGE> 1
EX. - 99.13
June __, 1992
The Preferred Group of
Mutual Funds
100 N.E. Adams Street
Peoria, Illinois 61629
Gentlemen:
In connection with your sale to us today of __________ shares of
beneficial interest (the "Shares") in [Name of Fund] (the "Fund"), we
understand that: (i) the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"); (ii) your sale of the Shares to us is
in reliance on the sale being exempt under Section 4(2) of the 1933 Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment and for our own account as the sole
beneficial owner hereof, and not with a view to or in connection with any
resale or distribution of any or all of the Shares or of any interest therein.
We hereby agree that we will not sell, assign or transfer the Shares or any
interest therein except upon repurchase or redemption by the Fund unless and
until the Shares have been registered under the 1933 Act or you have received
an opinion of your counsel indicating to your satisfaction that such sale,
assignment or transfer will not violate the provisions of the 1933 Act or any
rules and regulations promulgated thereunder.
We further agree, pursuant to the requirements of the Staff of the
Securities and Exchange Commission, that if any of the Shares are redeemed
during the first five years of the Fund's operations by any holder thereof, the
redemption proceeds will be reduced by the amount of the then unamortized
organizational expenses in the same ratio as the number of Shares redeemed
bears to the number of Shares held at the time of redemption.
This letter is intended to take effect as an instrument under seal,
shall be construed under the laws of Massachusetts, and is delivered at Boston,
Massachusetts, as of the date above written.
Very truly yours,
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By:
------------------------------
P. Michael Pond, President
<PAGE> 1
EXHIBIT 99.16
THE PREFERRED GROUP OF MUTUAL FUNDS
PERFORMANCE CALCULATION
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Short-Term
Small Asset Fixed Government Money
Growth Value Int'l Cap Allocation Balanced Income Securities Market
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial NAV $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $1.00
Initial 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 1,000.00
Shares
Shares 3.872 10.043 7.780 0.149 23.328 2.321 25.371 18.891 143.808
from
Distributions
End of Period $16.90 $15.02 $12.55 $10.49 $12.45 $10.50 $10.58 $9.87 $1.00
NAV
Total Return 17.42% 15.42% 9.00% 5.06%* 13.02% 7.44%* 8.40% 4.67% 3.91%
</TABLE>
*Represents cumulative, rather than average annual, total return.
<PAGE> 2
THE PREFERRED GROUP OF MUTUAL FUNDS
PERFORMANCE CALCULATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Asset Short Term Money
Growth Value Int'l Allocation Fixed Government Market
Fund Fund Fund Fund Income Fund Securities Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Initial NAV $11.91 $10.87 $8.39 $10.45 $10.09 $9.92 $1.00
Initial 83.963 91.996 119.19 95.694 99.108 100.806 1,000.00
Shares
Shares from 3.212 8.223 8.832 19.237 20.627 15.061 128.006
Distributions
End of Period $16.90 $15.02 $12.55 $12.45 $10.58 $9.87 $1.00
NAV
Total Return 13.79% 14.61% 17.12% 12.69% 8.20% 4.57% 4.10%
</TABLE>
-2-
<PAGE> 3
THE PREFERRED GROUP OF MUTUAL FUNDS
PERFORMANCE CALCULATION
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Asset Short Term Money
Growth Value Int'l Allocation Fixed Government Market
Fund Fund Fund Fund Income Fund Securities Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Initial NAV $13.59 $11.27 $11.58 $10.32 $9.58 $9.57 $1.00
Initial 73.584 88.731 86.356 96.899 104.384 104.493 1,000.00
Shares
Shares from 2.375 2.956 1.239 9.756 6.818 6.022 57.710
Distributions
End of $16.90 $15.02 $12.55 $12.45 $10.58 $9.87 $1.00
Period NAV
Total Return 28.37% 37.71% 9.93% 32.79% 17.65% 9.08% 5.77%
</TABLE>
-3-
<PAGE> 4
THE PREFERRED GROUP OF MUTUAL FUNDS
MONEY MARKET FUND
YIELD COMPUTATION SCHEDULE
Account Balance - 1 share at $1.00 $1.00
Dividend Declaration
December 25, 1995 .000142891
December 26, 1995 .000142143
December 27, 1995 .000142730
December 28, 1995 .000142651
December 29, 1995 .000142828
December 30, 1995 .000142829
December 31, 1995 .000142829
----------
Total .000998901
Ending Account Balance 1.000998901
Less: Beginning Account Balance 1.00
-----------
Difference .000998901
Base Period Return
(Difference/Beginning Account Balance) .000998901
Yield Quotation
(Base Period Return *365/7) 5.21%
Effective Yield Quotation
365/7
[(Base Period Return + 1) ] - 1=5.34%
These quotations were computed based on
the seven days ending December 31, 1995.
-4-
<PAGE> 5
FUND YIELD CALCULATION
(CALENDAR MONTH - END METHOD)
30-DAY BASE PERIOD ENDED DECEMBER 31, 1995
( a-b ) 6
FUND YIELD = 2 [ ( ----- +1 ) -1]
( cd )
<TABLE>
<CAPTION>
Short-Term
Government
Fixed Income Fund Securities Fund
----------------- ---------------
<S> <C> <C>
a = dividends and interest earned $338,306.62 $149,876.99
during the month
b = expenses accrued during the $49,570.98 $17,330.59
month
c = average dividend shares $6,162,695.231 $3,263,243.21
outstanding during the month
d = net asset value price per share $10.58 $9.87
on the last day of the month
FUND YIELD 5.37% 4.99%
</TABLE>
-4-
<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> 1
<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>
<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> 2
<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> 1,092,034
<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
</TABLE>
<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>
<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 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>
<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> 55,065
<OTHER-ITEMS-ASSETS> 850
<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>
<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 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>
<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 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>
<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 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>
<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 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>
