THE PREFERRED SHORT-TERM GOVERNMENT
SECURITIES FUND
A SERIES OF THE PREFERRED GROUP OF MUTUAL FUNDS
November 3, 1997
INFORMATION STATEMENT
GENERAL INFORMATION
This information statement, which is first being mailed on or about
November 3, 1997, is distributed in connection with action to be taken by
written consent of the Majority Shareholders (as defined below) of the Preferred
Value Fund (the "Fund), a series of The Preferred Group of Mutual Funds (the
"Trust"), on or about November 3, 1997, all as more fully described below. THIS
DOCUMENT IS REQUIRED UNDER THE FEDERAL SECURITIES LAWS AND IS PROVIDED SOLELY
FOR YOUR INFORMATION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
The Trustees have set October 23, 1997 (the "Record Date") as the
record date for determining the number of shares and the shareholders entitled
to give consent and to receive this information statement. On the Record Date,
5,505,974.139 shares of the Fund were outstanding, and the Trustees and
Officers of the Fund owned less than 1% of the Fund's outstanding shares.
Information concerning shareholders who were known to be the beneficial owners
of more than 5% of the Fund's shares as of the Record Date is set forth below.
<TABLE>
<CAPTION>
Amount and Percent
Name and Address Nature of of the
of Beneficial Owner Beneficial Ownership Fund
<S> <C> <C>
Caterpillar Investment Trust 401(k) Plan 1,460,524.399 25.44%
Caterpillar Inc. Supplemental Unemployment 1,844,215.337 32.13%
and Benefits Group Insurance Trust A
and Trust B (together with the Caterpillar
Investment Trust 401(k) Plan, the "Majority
Shareholders")
American Bankers Insurance Company of Florida 2,201,234.403 38.35%
</TABLE>
The address of each of the Majority Shareholders listed above is
100 N.E. Adams Street, Peoria, Illinois 61629 and the address of American
Bankers Insurance Company of Florida is 11222 Quail Roost Dr., Miami, FL
31357-6543.
As described more fully below, Caterpillar Investment Management Ltd.
("CIML") has proposed that J.P. Morgan Investment Management, Inc. ("Morgan")
serve as subadviser to the Fund pursuant to a subadvisory agreement (the
"Proposed Agreement") with respect to the
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Fund. In order for Morgan to serve as subadviser for the Fund, the Investment
Company Act of 1940, as amended (the "1940 Act"), requires approval of the
Proposed Agreement by both the Trust's Board of Trustees and the Fund's
shareholders.
The Proposed Agreement was approved (to be effective upon shareholder
approval) by all the Trustees, including those Trustees who are not "interested
persons" or affiliates (as defined in the 1940 Act) of any party to the Proposed
Agreement (the "Independent Trustees"), on October 23, 1997. The Trustees,
including the Independent Trustees, have recommended approval of the Proposed
Agreement by shareholders and the Majority Shareholders have indicated on a
preliminary basis that they intend to grant such approval by written consent.
A description of the Proposed Agreement, the services to be provided
thereunder, and the procedures for termination and renewal thereof is set forth
below under "Description of Proposed Agreement." Such description is qualified
in its entirety by reference to the form of the Proposed Agreement set forth in
Appendix A to this Information Statement. Additional information about Morgan is
set forth below under "Other Information."
FURTHER INFORMATION CONCERNING THE FUND IS CONTAINED IN ITS MOST RECENT
ANNUAL REPORT TO SHAREHOLDERS, WHICH MAY BE OBTAINED FREE OF CHARGE BY WRITING
TO THE PREFERRED GROUP, P.O. BOX 8320, BOSTON, MA 02266-8320 OR BY TELEPHONING
1-800-662- 4769.
DESCRIPTION OF PROPOSED AGREEMENT
In order to assist it in carrying out its responsibilities as manager
of the Fund, CIML has proposed to retain Morgan under the Proposed Agreement to
render subadvisory services to the Fund under the supervision of CIML and the
Trustees of the Trust.
CIML would pay the fees of Morgan under the Proposed Agreement. Under
the Proposed Agreement, Morgan would receive a fee based on the assets of the
Fund, calculated based on the average quarterly net asset value, determined as
of the last business day of each month in the calendar quarter, of the Fund
at the annual rate of 0.20%.
The Proposed Agreement provides that, subject to the supervision of the
Trustees and CIML, Morgan would furnish continuously an investment program for
the Fund, make investment decisions on behalf of the Fund and place all orders
for the purchase and sale of portfolio securities and all other investments in
accordance with its Prospectus and Statement of Additional Information. The
Proposed Agreement would also require Morgan to furnish, at its expense, (i) all
necessary investment and management facilities, including salaries of personnel,
required for it to execute its duties thereunder faithfully and (ii)
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the efficient
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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).
The Proposed Agreement provides that it will continue in effect for an
initial term of two years from its date of execution (which, in the case of the
Proposed Agreement, is expected to be as of November 3, 1997) and thereafter so
long as it is approved at least annually in accordance with the 1940 Act. The
1940 Act requires that, after the initial two-year term, all subadvisory
agreements be approved at least annually by (i) the vote, cast in person at a
meeting called for the purpose, of a majority of the Independent Trustees and
(ii) the majority vote of the full Board of Trustees or the vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund.
The Proposed Agreement terminates automatically in the event of its assignment,
and may be terminated without penalty by the Trust at any time, on written
notice to CIML and Morgan, by CIML on sixty days' written notice to Morgan and
by Morgan on ninety days' written notice to CIML and the Trust. The Proposed
Agreement generally may be amended only by the affirmative vote of the holders
of a "majority of the outstanding voting securities" of the Fund (as defined in
the 1940 Act).
The Proposed Agreement provides that Morgan shall not be subject to any
liability to the Trust, the Fund or CIML, or to any shareholder, officer,
director or Trustee thereof, for any act or omission in the course of, or
connected with, rendering services thereunder, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties by Morgan.
SHAREHOLDER CONSENT
Approval of the Proposed Agreement will require the consent of a
"majority of the outstanding voting securities" of the Fund (as defined in the
1940 Act), which means the affirmative vote of the lesser of (1) more than 50%
of the outstanding shares of the Fund or (2) 67% or more of the shares of the
Fund present at a meeting if more than 50% of the outstanding shares of the Fund
are represented at the meeting in person or by proxy. As stated above, the
Majority Shareholders have indicated that, as permitted by the Trust's by-laws,
they intend to execute a consent to be effective on or about November 3, 1997,
which would by itself constitute the necessary shareholder approval under the
1940 Act. NO ACTION IS REQUIRED TO BE TAKEN BY YOU AS A SHAREHOLDER OF THE FUND;
THIS INFORMATION STATEMENT IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY IN
LIGHT OF RELEVANT FEDERAL SECURITIES LAWS.
OTHER INFORMATION
TRUSTEE REVIEW. The Trustees, including the Independent Trustees,
reviewed all material provided by Morgan, and requested and received all
information which they deemed
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relevant to form a judgment as to whether the Proposed Agreement is in the best
interests of the Fund and its shareholders.
In their consideration of the Proposed Agreement, the Trustees noted
that Morgan may receive research services from brokers in connection with
portfolio securities transactions for the Fund. The Trustees realize that
research services furnished by brokers through which the Fund effects securities
transactions may be used by Morgan in advising other accounts that it advises.
Conversely, research services furnished to Morgan in connection with other
accounts Morgan advises may be used by Morgan in advising the Fund.
CATERPILLAR INVESTMENT MANAGEMENT LIMITED. CIML serves as manager of
the Fund pursuant to a management contract (the "Management Contract") dated as
of June 29, 1992. The sole initial shareholder of the Fund approved the
Management Contract on June 10, 1992, and the Trustees of the Trust last
approved the continuance of the Management Contract at a meeting held on April
27, 1997.
Under the Management Contract, subject to the control of the Trustees,
CIML has agreed to furnish continuously an investment program for the Fund, make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of portfolio securities and all other investments in accordance with
its Prospectus and Statement of Additional Information. The Management Contract
expressly permits advisory services to be delegated to and performed by a
subadviser. CIML also manages, supervises and conducts the other affairs and
business of the Trust, furnishes office space and equipment, provides
bookkeeping and certain clerical services and pays all salaries, fees and
expenses of the officers and Trustees of the Trust who are affiliated with CIML.
Under the Management Contract, the Fund pays CIML a monthly fee based
on average net assets of the Fund at an annual rate of 0.35% of such average net
assets. For the fiscal year ended June 30, 1997, the Fund paid CIML $187,517.
Under the Management Contract, the Fund bears all expenses of the Fund not
expressly assumed by CIML. CIML's compensation under the Management Contract is
subject to reduction to the extent that in any year the expenses of the Fund
exceed the limits on investment company expenses imposed by any statute or
regulatory authority of any jurisdiction in which shares of the Fund are
qualified for offer or sale.
The Management Contract provides that CIML shall not be subject to any
liability in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The directors and principal executive officers of CIML are: Ronald R.
Rossman, President and Director, and Robert C. Franz, Vice President and
Director. The principal occupation of each of CIML's directors and principal
executive officer is as a director or executive officer of CIML and certain of
its corporate affiliates. Mr. Rossman also serves as
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President of the Trust. In addition, Ms. Carol K. Burns, Manager of Marketing
for CIML, serves as Vice President and Assistant Clerk of the Trust, Mr. Fred
Kaufman, Vice President and Treasurer of CIML, serves as Vice President and
Treasurer of the Trust, Mr. Richard P. Konrath, Clerk of CIML, serves as Clerk
of the Trust, and James F. Masterson and F. Lynn McPheeters, Director, Investor
Relations and Treasurer, respectively, for Caterpillar Inc., serve as Trustees
of the Trust. CIML is a Delaware corporation and a wholly-owned subsidiary of
Caterpillar Inc., a Delaware corporation. The address of the principal executive
offices of each of CIML, and of its directors and principal executive officer;
Caterpillar Securities Inc., the Trust's principal underwriter; the Fund and
Caterpillar Inc. is 100 N.E. Adams Street, Peoria, Illinois 61629.
J. P. MORGAN INVESTMENT 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.
OTHER INVESTMENT COMPANIES. Morgan Guaranty Trust Company of New
York, an affiliate of Morgan ("Morgan Guaranty"), also provides investment
advisory service to an investment company the investment objective of which
might be deemed similar to that of the Fund. Morgan Guaranty receives a fee
at the annual rate of 0.25% of such fund's average net asset value. As of
June 30, 1997, the total assets of such fund were $____________.
AFFILIATED BROKERAGE AND FEES TO MORGAN. The Trust has been informed by
CIML that CIML paid fees of $240,532 and $143,165 to Morgan for the fiscal year
ended June 30, 1997 for its services as subadviser to the Preferred Fixed Income
Fund and the Preferred Money Market Fund, each a series of the Trust and an
affiliate of the Fund, respectively. During the fiscal year ended June 30, 1997,
the Preferred Growth Fund and the Preferred International Fund, each a series of
the Trust and an affiliate of the Fund, paid $5,835 and $322, respectively, in
brokerage commissions to J. P. Morgan Securities, Inc., an affiliate of Morgan.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
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<PAGE>
APPENDIX A
PREFERRED SHORT-TERM GOVERNMENT SECURITIES FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of ___________, 1997 between
CATERPILLAR INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"),
and J. P. MORGAN INVESTMENT MANAGEMENT, INC., 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 Short-Term Government
Securities 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.
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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).
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).
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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 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:
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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
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
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Subadviser within the meaning of the 1940 Act or (d) there is a material adverse
change in the business or financial position of the Subadviser.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" means the affirmative vote, at a duly called and held
meeting of shareholders, (a) of the holders of 67% or more of the shares of the
Fund present (in person or by proxy) and entitled to vote at such meeting, if
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting are present in person or by proxy, or (b) of the holders of
more than 50% of the outstanding shares of the Fund entitled to vote at such
meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research services"
shall have the meaning given in the 1934 Act and the rules and regulations
thereunder.
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.
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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:
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SCHEDULE A
1. For purposes of calculating the fee to be paid to the
Subadviser under this Agreement:
"Fund Assets" shall mean the net assets of the Fund;
"Average Quarterly Net Assets" shall mean the average of the
net asset value of the Fund 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 during the preceding calendar quarter. The fee payable for
the calendar quarter shall be calculated by applying the annual rate of 0.20% to
the Average Quarterly Net Assets 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.
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