THE PREFERRED VALUE FUND
A SERIES OF THE PREFERRED GROUP OF MUTUAL FUNDS
April __, 1997
INFORMATION STATEMENT
GENERAL INFORMATION
This information statement, which is first being mailed on or about
April __, 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 ________ __, 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 April __, 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,
_____________ 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 ___________ ______%
Caterpillar Inc. Supplemental Unemployment ___________ ______%
and Benefits Group Insurance Trust A
and Trust B (together with the Caterpillar
Investment Trust 401(k) Plan, the "Majority
Shareholders")
Caterpillar Insurance Company Limited __________ ______%
</TABLE>
The address of each of the Majority Shareholders listed above is
100 N.E. Adams Street, Peoria, Illinois 61629 and the address of Caterpillar
Insurance Company Ltd. is 3322 West End Avenue, Nashville, Tennessee 37203.
As described more fully below, a transaction (the "Transaction")
involving a change in control of Oppenheimer Capital ("Oppenheimer") is expected
to take place before the end of [August] 1997 and under relevant law will result
in termination of the existing subadvisory agreement (the "Current Agreement")
dated as of [June 29, 1992], between Oppenheimer and
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Caterpillar Investment Management Ltd. ("CIML") with respect to the Fund. In
order for Oppenheimer to continue to serve as subadviser for the Fund after the
Transaction, the Investment Company Act of 1940, as amended (the "1940 Act"),
requires approval of a new subadvisory agreement between Oppenheimer and CIML
with respect to the Fund (the "Proposed Agreement") by both the Trust's Board of
Trustees and the Fund's shareholders.
The Proposed Agreement was approved (to be effective upon consummation
of the Transaction or shareholder approval, whichever is later) by all the
Trustees, including those Trustees who are not "interested persons" or
affiliates (as defined in the 1940 Act) of any party to the Proposed Agreement
(the "Independent Trustees"), on [April 27], 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 Current Agreement and the Proposed Agreement, the
services provided and to be provided thereunder, and the procedures for
termination and renewal thereof is set forth below under "Description of Current
and Proposed Agreements." Such description is qualified in its entirety by
reference to the form of the Proposed Agreement set forth in Appendix A to this
Information Statement. Additional information about the corporation merging with
Oppenheimer's managing general partner, Thomson Advisory Group Inc. ("TAG") and
its affiliates, is set forth below under "Other Information."
FURTHER INFORMATION CONCERNING THE FUND IS CONTAINED IN ITS MOST RECENT
SEMIANNUAL AND ANNUAL REPORTS TO SHAREHOLDERS, WHICH MAY BE OBTAINED FREE OF
CHARGE BY WRITING TO THE PREFERRED GROUP, P.O. BOX 8320, BOSTON, MA 02266-8320
OR BY TELEPHONING 1-800-662-4769.
THE TRANSACTION
Oppenheimer is a registered investment adviser with approximately $49.4
billion in assets under management on March 31, 1997. Oppenheimer Financial
Corp. ("Opfin") holds a one-third managing general partner interest in
Oppenheimer, and Oppenheimer Capital, L.P., a Delaware limited partnership whose
units are traded on the New York Stock Exchange and of which Opfin is the sole
1.0% general partner, owns the remaining two-thirds interest in Oppenheimer.
On February 13, 1997, PIMCO Advisors L.P. ("PIMCO Advisors") a
registered investment adviser with approximately $110 billion in assets under
management through various subsidiaries, signed an Agreement and Plan of Merger
with Oppenheimer Group, Inc. ("OGI") and its subsidiary Opfin pursuant to which
PIMCO Advisors and its affiliate, TAG, will acquire OpFin's one-third managing
general partner interest in Oppenheimer and its 1.0% general partnership
interest in Oppenheimer Capital L.P., as well as OpFin's interest in certain
other affiliates, and OGI will be merged with and into TAG. The aggregate
purchase price is
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<PAGE>
approximately $265 million, including the issuance of convertible preferred
stock of TAG and assumption of certain indebtedness. The amount of TAG preferred
stock comprising the purchase price is subject to reduction in certain
circumstances. The Transaction is subject to certain conditions being satisfied
prior to closing, including consents from certain lenders, approvals from
regulatory authorities, including a favorable tax ruling from the Internal
Revenue Service, and consents of certain clients of Oppenheimer, including the
Fund, which are expected to take up to six months to obtain. If the Transaction
is consummated, it will involve a change in control of Oppenheimer.
The principal business address of Oppenheimer and its affiliates is
Oppenheimer Tower, 200 Liberty Street, One World Financial Center, New York, New
York 10281. The principal address of Oppenheimer would not change following the
Transaction. Joseph La Motta is Chairman of Oppenheimer. George Long is
President of Oppenheimer.
Upon consummation of the Transaction, Oppenheimer will be controlled by
PIMCO Advisors. PIMCO Advisors has advised OGI that it anticipates that the
senior portfolio management team of Oppenheimer will continue in their present
capacities; that the eligibility of Oppenheimer to serve as a subadviser will
not be affected by the Transaction and that Oppenheimer will be able to continue
to provide advisory and management services with no material changes in
operating conditions. PIMCO Advisors has further advised OGI that it currently
anticipates that the Transaction will not affect the ability of Oppenheimer to
fulfill its obligations under the subadvisory agreement relating to the Fund.
Section 15(f) of the Investment Company Act of 1940 (the "1940 Act") is
available to OGI in connection with PIMCO Advisors' acquisition of a controlling
interest in Oppenheimer. Section 15(f) provides, in pertinent part, that an
investment adviser and its affiliates may receive any amount or benefit in
connection with a sale of an interest in such investment adviser which results
in an assignment of an investment advisory contract if (1) for a period of three
years after the time of such event, 75% of the members of the Board of Trustees
or Directors of the investment company which it advises are not "interested
persons" (as defined in the 1940 Act) of the new or old investment adviser, and
(2) during the two-year period after the date on which the transaction occurs,
there is no "unfair burden" imposed on the investment company as a result of the
transaction. For this purpose, "unfair burden" is defined to include any
arrangement during the two-year period after the transaction whereby the
investment adviser or predecessor or successor investment advisers, or any
interested person of such adviser, receives or is entitled to receive any
compensation directly or indirectly (i) from any person in connection with the
purchase or sale of securities or other property to, from, or on behalf of the
investment company other than bona fide ordinary compensation as principal
underwriter for such company, or (ii) from the investment company or its
security holders for other than bona fide investment advisory or other services.
No compensation arrangements of the types described above are contemplated in
the Transaction. The Fund has been advised that Oppenheimer, PIMCO Advisors and
their respective affiliates, after due inquiry, are not aware of any express or
implied term, condition, arrangement or
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<PAGE>
understanding which would impose an "unfair burden" on the Fund as a result of
the Transaction. PIMCO Advisors has agreed with OGI that they will use
commercially reasonable efforts to insure that no unfair burden will be imposed
on the Fund by or as a result of the Transaction during such two-year period.
The Fund's compliance with or exemption from the 75% disinterested board
requirement is a condition to consummation of the Transaction, and PIMCO
Advisors has entered into related agreements with OGI with respect to such
requirement during such three-year period. The composition of the Board of
Trustees presently is in compliance with the 75% requirement and the Fund has
joined in an application with the Securities and Exchange Commission requesting
exemption from the 75% disinterested board requirement described above. All fees
and expenses incurred by the Fund relating to the new subadvisory agreement and
this Information Statement will be paid by parties other than the Fund and its
shareholders.
DESCRIPTION OF CURRENT AND PROPOSED AGREEMENTS
In order to assist it in carrying out its responsibilities as manager
of the Fund, CIML has retained Oppenheimer under the Current Agreement to render
advisory services to the Fund under the supervision of CIML and the Trustees of
the Trust. The sole initial shareholder of the Fund approved the Current
Agreement on [June 30, 1992]. The Trustees of the Trust last approved the
continuance of the Current Agreement, effective on and after June [29], 1997, at
a meeting held on [April 27, 1997].
EXCEPT FOR ITS DATE OF EFFECTIVENESS, THE PROPOSED AGREEMENT IS
IDENTICAL IN ALL RESPECTS TO THE CURRENT AGREEMENT.
CIML pays the fees of Oppenheimer under the Current Agreement and,
under the Proposed Agreement, will continue to pay such fees. Under both
Agreements, Oppenheimer receives a fee based on the Fund assets managed or
advised by Oppenheimer (the "Fund Assets") together with any other assets
managed or advised by Oppenheimer relating to Caterpillar Inc. or any of its
affiliates. (The Fund Assets together with such other assets are collectively
referred to as the "Combined Assets.") The subadvisory fee is calculated based
on the average quarterly net asset value, determined as of the last business day
of each month in the calendar quarter, of the Combined Assets at the annual rate
of 0.50% 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. This amount is then allocated based upon the ratio of Fund Assets to
Combined Assets. CIML has informed the Trust that for the fiscal year ended June
30, 1996, Oppenheimer was paid $679,488.
The Current and Proposed Agreements provide that, subject to the
supervision of the Trustees and CIML, Oppenheimer will furnish continuously an
investment program for the Fund, make investment decisions on behalf of the Fund
and place all orders for the purchase and sale of portfolio securities and all
other investments in accordance with its Prospectus and Statement of Additional
Information. The Current and Proposed Agreements also require
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<PAGE>
Oppenheimer 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 conduct of the investment affairs of the Fund, including oversight of
the pricing of the Fund's portfolio and assistance in obtaining prices for
portfolio securities (but excluding determination of net asset value,
shareholder accounting services and fund accounting services).
Each of the Current and Proposed Agreements provides that it will
continue in effect for an initial term of two years from its date of execution
(which, in the case of the Proposed Agreement, is expected to be approximately
the time of the consummation of the Transaction) and thereafter so long as it is
approved at least annually in accordance with the 1940 Act. The 1940 Act
requires that, after the initial two-year term, all subadvisory agreements be
approved at least annually 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. Each of the Current
and Proposed Agreements terminates automatically in the event of its assignment,
and may be terminated without penalty by the Trust at any time, on written
notice to CIML and the relevant subadviser, by CIML on sixty days' written
notice to the relevant subadviser and by the relevant subadviser on ninety days'
written notice to CIML and the Trust. Each of the Current and Proposed
Agreements 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 Current and Proposed Agreements provide that Oppenheimer 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 Oppenheimer.
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 ________, 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. If the Transaction is not
consummated, the Current Agreement will remain in effect.
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<PAGE>
OTHER INFORMATION
TRUSTEE REVIEW. The Trustees, including the Independent Trustees,
reviewed all material provided by PIMCO Advisors and Oppenheimer and their
affiliates, and requested and received all information which they deemed
relevant to form a judgment as to whether the Proposed Agreement is in the best
interests of the Fund and its shareholders.
A primary consideration of the Independent Trustees was PIMCO Advisors'
representation that it expects no diminution in the scope and quality of
subadvisory and other services to be provided by Oppenheimer under the Proposed
Agreement from that provided by Oppenheimer under the Current Agreement. The
Independent Trustees considered the fact that the Proposed Agreement would,
except as described herein, have terms and conditions identical to those of the
Current Agreement, and considered certain representations of PIMCO Advisors (and
its affiliates), described above in the section entitled "The Transaction," with
respect to its plans for the Fund.
In their consideration of the Proposed Agreement, the Trustees noted
that Oppenheimer 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 Oppenheimer in advising other accounts that it
advises. Conversely, research services furnished to Oppenheimer in connection
with other accounts Oppenheimer advises may be used by Oppenheimer in advising
the Fund. No material change in brokerage arrangements is contemplated to result
from the approval of Proposed Agreement, however.
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 0.75% of such average net
assets. For the fiscal
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year ended June 30, 1996, the Fund paid CIML $1,799,524. 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 Trustee,
Chairman and President of the Trust]. In addition, Ms. Carol K. Burns,
Manager of Marketing for CIML, serves as Vice President and Assistant Clerk of
the Trust, Mr. Fred Kaufman, Vice President and Treasurer of CIML, serves as
Vice President and Treasurer of the Trust, Mr. Richard P. Konrath, Clerk of
CIML, serves as Clerk of the Trust, and James F. Masterson, Director, Investor
Relations for Caterpillar Inc., serves as Trustee of the Trust. CIML is a
Delaware corporation and a wholly-owned subsidiary of Caterpillar Inc., a
Delaware corporation. The address of the principal executive offices of each
of CIML, and of its directors and principal executive officer; Caterpillar
Securities Inc., the Trust's principal underwriter; the Fund and Caterpillar
Inc. is 100 N.E. Adams Street, Peoria, Illinois 61629.
PIMCO ADVISORS. PIMCO Advisors, with approximately $110 billion in
assets under management as of December 31, 1996, is one of the largest publicly
traded money management firms in the United States. PIMCO Advisors' address is
800 Newport Center Drive, Suite 100, Newport Beach, California 92660.
PIMCO Partners, G.P. ("PIMCO GP") owns approximately 42.83% and 66.37%,
respectively (and will at the closing of the Transaction own a majority of the
voting stock of TAG which owns approximately 14.94% and 25.06%, respectively),
of the total outstanding Class A and Class B units of limited partnership
interest ("Units") of PIMCO Advisors and is PIMCO Advisors' sole general
partner. PIMCO GP is a California general partnership with two general partners.
The first of these is an indirect wholly-owned subsidiary of Pacific Mutual Life
Insurance Company ("Pacific Mutual").
PIMCO Partners L.L.C. ("PPLLC"), a California limited liability
company, is the second, and managing, general partner of PIMCO GP. PPLLC's
members are the Managing Directors (the "PIMCO Managers") of Pacific Investment
Management Company, a subsidiary of PIMCO Advisors (the "PIMCO
Subpartnership"). The PIMCO Managers are: William H. Gross, Dean S. Meiling,
James F. Muzzy, William F. Podlich, III, Frank B. Rabinovitch,
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Brent R. Harris, John L. Hague, William S. Thompson Jr., William C. Powers,
David H. Edington, Benjamin Trosky, William R. Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by an Operating Board and an Equity Board.
Governance matters are allocated generally to the Operating Board and the
Operating Board delegates to the Operating Committee the authority to manage
day-to-day operations of PIMCO Advisors. The Operating Board is composed of
twelve members, including the chief executive officer of the PIMCO
Subpartnership as Chairman and six PIMCO Managers designated by the PIMCO
Subpartnership.
The authority of PIMCO Advisors' Operating Board and Operating
Committee to take certain specified actions is subject to the approval of PIMCO
Advisors' Equity Board. Equity Board approval is required for certain major
transactions (e.g., issuance of additional PIMCO Advisors Units and appointment
of PIMCO Advisors' chief executive officer). In addition, the Equity Board has
jurisdiction over matters such as actions which would have a material effect
upon PIMCO Advisors' business taken as a whole and (after an appeal from an
Operating Board decision) matters likely to have a material adverse economic
effect on any subpartnership of PIMCO Advisors. The Equity Board is composed of
twelve members, including the chief executive officer of PIMCO Advisors, three
members designated by a subsidiary of Pacific Mutual, the chairman of the
Operating Board and two members designated by PPLLC.
Because of its power to appoint (directly or indirectly) seven of the
twelve members of the Operating Board as described above, the PIMCO Advisors
subpartnership may be deemed to control PIMCO Advisors. Because of the direct or
indirect power to appoint 25% of the members of the Equity Board, (i) Pacific
Mutual and (ii) the PIMCO Managers and/or the PIMCO Subpartnership may each be
deemed, under applicable provisions of the 1940 Act, to control PIMCO Advisors.
Pacific Mutual, PIMCO Subpartnership and the PIMCO Managers disclaim such
control.
AFFILIATED BROKERAGE AND FEES TO OPPENHEIMER. For the fiscal year ended
June 30, 1996, the Fund paid brokerage commissions in the amount of $5,650 to
Oppenheimer & Co., Inc., an affiliate of Oppenheimer, and the Fund paid no fees
directly to Oppenheimer. The Trust has been informed by CIML that CIML paid fees
of $679,488 to Oppenheimer for the fiscal year ended June 30, 1996. During the
fiscal year ended June 30, 1996, the Preferred Growth Fund and the Preferred
Balanced Fund, other series of the Trust and affiliates of the Fund, paid $584
and $52, respectively, in brokerage commissions to Oppenheimer & Co., Inc., an
affiliate of Oppenheimer.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
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APPENDIX A
PREFERRED VALUE FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of ___________, 1997 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
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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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<PAGE>
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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<PAGE>
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:
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<PAGE>
SCHEDULE A
1. For purposes of calculating the fee to be paid to the
Subadviser under this Agreement:
"Fund Assets" shall mean the net assets of the Fund;
"Plan Assets" shall mean the net assets of the portion of
assets managed by the Subadviser, excluding the Fund, (i) of any
constituent fund of the Caterpillar Investment Management Ltd. Tax
Exempt Group Trust, (ii) 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>
0.50% 0.375% 0.25%
</TABLE>
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