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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 15
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<PAGE> PAGE 19
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<PAGE> PAGE 20
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<PAGE> PAGE 21
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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<PAGE> PAGE 24
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<PAGE> PAGE 25
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<PAGE> PAGE 26
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<PAGE> PAGE 27
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<PAGE> PAGE 28
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<PAGE> PAGE 29
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<PAGE> PAGE 30
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<PAGE> PAGE 31
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<PAGE> PAGE 32
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<PAGE> PAGE 34
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<PAGE> PAGE 37
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<PAGE> PAGE 39
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072CC010800 4509
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072DD020800 0
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073 A010800 0.3002
073 A020800 0.0000
073 B000800 0.1527
073 C000800 0.0000
074 A000800 1
074 B000800 6718
074 C000800 0
074 D000800 16372
074 E000800 248
074 F000800 23967
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074 H000800 0
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<PAGE> PAGE 40
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074 Y000800 0
075 A000800 0
075 B000800 40590
076 000800 0.00
008 A000901 CATERPILLAR INVESTMENT MANAGEMENT LTD.
008 B000901 A
008 C000901 801-34522
008 D010901 PEORIA
008 D020901 IL
008 D030901 61629
008 D040901 5330
024 000900 N
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028 D010900 1342
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028 F010900 1847
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028 F040900 1593
028 G010900 10647
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045 000900 Y
046 000900 N
047 000900 Y
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<PAGE> PAGE 41
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048 B020900 0.000
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048 C020900 0.000
048 D010900 0
048 D020900 0.000
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048 F010900 0
048 F020900 0.000
048 G010900 0
048 G020900 0.000
048 H010900 0
048 H020900 0.000
048 I010900 0
048 I020900 0.000
048 J010900 0
048 J020900 0.000
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062 A000900 N
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062 C000900 0.0
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062 E000900 0.0
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<PAGE> PAGE 42
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<PAGE> PAGE 43
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SIGNATURE FRED KAUFMAN
TITLE VICE PRES/TREASURER
Item 77(B)
To the Shareholders and
Trustees of
The Preferred Group of Mutual Funds
In planning and performing our audits of the financial statements of each of the
nine funds constituting the Preferred Group of Mutual Funds (the "Trust"), for
the year ended June 30, 1997, we considered its internal control, including
control activities for safeguarding securities, in order to determine our
auditing procedures for the purpose of expressing our opinion on the financial
statements and to comply with the requirements of Form N-SAR, not to provide
assurance on internal control.
The management of the Trust is responsible for establishing and maintaining
internal control. In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
control activities. Generally, control activities that are relevant to an audit
pertain to the entity's objective of preparing financial statements for external
purposes that are fairly presented in conformity with generally accepted
accounting principles. Those control activities include the safeguarding of
assets against unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or irregularities
may occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of any
specific internal control components does not reduce to a relatively low level
the risk that errors or irregularities in amounts that would be material in
relation to the financial statements being audited may occur and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving internal control,
including control activities for safeguarding securities, that we consider to be
material weaknesses as defined above as of June 30, 1997.
This report is intended solely for the information and use of management and the
Trustees of the Trust and the Securities and Exchange Commission.
Price Waterhouse LLP
August 15, 1997
-1-
3235103.01
Item 77(C)
Pursuant to the written consent of holders of a majority of the
outstanding shares of the Preferred Value Fund dated July 7, 1997, the new
subadviser agreement between Caterpillar Investment Management Ltd. and
Oppenheimer Capital described in the Registrant's Information Statement filed
with the Securities and Exchange Commission on June 17, 1997, which is
incorporated herein by reference, was approved.
-1-
3234581.01
Item 77(O)
The Preferred Group of Mutual Funds
Record of Securities Purchased
under the Trust's Rule 10f-3 Procedures
1. Subadviser: JENNISON ASSOCIATES CAPITAL CORP.
2. Fund: PREFERRED BALANCED FUND
3. Securities are: (Select one)
"Municipal securities" Part of an issue
as defined in Section registered under the
3(a) (29) of the Securities Act of
Securities Exchange 1933 which is being
Act of 1934 offered to the public
Yes ____ No ____ Yes ____ No ____
4. Issuer: THE HERTZ CORPORATION
5. Description of Security: COMMON STOCK
6. Date of Purchase: 04/25/97
7. Underwriter from whom purchased: J.P. MORGAN SECURITIES
8. Name of Affiliated Underwriter managing
or participating in syndicate
(attach list of all members of
syndicate): PRUDENTIAL SECURITIES INCORPORATED
other members of the syndicate.* PLEASE SEE ATTACHED LIST
* Please note the underwriters used a "severally" form of agreement.
9. Aggregate principal amount of
purchase [this amount, when
added to purchases by other
investment companies for whom
Preferred and the relevant
Subadviser act as adviser, may
not exceed (A) the greater of
4% of (10) or $500,000, or
(B) 10% of (11)]: $184,800.00
10. Aggregate principal amount of
class of securities being
offered (i.e., existing securities
plus current offering, both of
which are the same class of
securities: $2,598,408,600.00
11. Aggregate principal amount of offering: $480,240,000.00
<PAGE>
-1-
3234572.01
<PAGE>
12. Purchase price, net of fees and
expenses [may not exceed (14)]: 24.00
13. Date offering commenced: 04/25/97
14. a. Public offering price: 24.00
b. Was it purchased prior to
close of first full business
day after offering commenced? YES
15. Commission, spread or profit: 5.25 % $1.26
16. Have the following conditions been satisfied? YES NO
a. The purchase price did not exceed the
offering price prior to the close of the first
full business day after the first day of the
offering (or, if a rights offering, the
securities were purchased on the fourth day
preceding the day on which the offering
terminated)? X
b. The underwriting was a firm commitment
underwriting? X
c. The commission, spread or profit was
reasonable and fair in relation to that being
received by others for underwriting
similar securities during the same period? X
d. (FOR SECURITIES THAT ARE NOT MUNICIPAL
SECURITIES) The issuer has been in continuous
operation for not less than three years, including
the operations of any predecessors? X
e. (FOR MUNICIPAL SECURITIES ONLY) The issue
of securities has received an investment
grade rating from a nationally recognized
statistical rating organization or, if the
issuer or entity supplying the revenues from
which the issue is to be paid shall have been
in existence less than three years (including
any predecessors), it has received one of
the three highest ratings from at least one
such rating service?
f. The amount of such securities purchased by
all of the investment companies advised by
Preferred and the Subadviser(s) to the Fund
purchasing such securities did not exceed
-2-
3234572.01
<PAGE>
10% of the principal amount of the offering
AND did not exceed the greater of (I) 4% of
the principal amount of the cash of securities
being offered, or (ii) $500,000?
*With regard to the Preferred Balance Fund only X*
g. The purchase price was less than 3% of the
value of the total assets of the Fund for
which the securities were purchased? X
h. No Affiliated Underwriter was a direct or
indirect participant in the sale? X**
** Prudential Securities Incorporated, an affiliate of Jennison, did not
participate in the Hertz Corporation sale to Jennison.
-3-
3234572.01
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 2,730,618
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<EXPENSES-NET> 3,422,041
<NET-INVESTMENT-INCOME> (524,651)
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<TOTAL-LIABILITIES> 2,536,151
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<SHARES-COMMON-PRIOR> 11,488,707
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<NAME> PREFERRED MONEY MARKET FUND
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<CIK> 0000885414
<NAME> THE PREFFERED GROUP OF MUTUAL FUNDS
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<NAME> PREFERRED BALANCED FUND
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<CIK> 0000885414
<NAME> THE PREFERRED GROUP OF MUTUAL FUNDS
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<NAME> PREFERRED SMALL CAP FUND
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