THE PREFERRED ASSET ALLOCATION FUND
A SERIES OF THE PREFERRED GROUP OF MUTUAL FUNDS
January 12, 1998
INFORMATION STATEMENT
GENERAL INFORMATION
This Information Statement, which is first being mailed on or about
January 12, 1998, is distributed in connection with action to be taken by
written consent of the Majority Shareholders (as defined below) of the Preferred
Asset Allocation Fund (the "Fund"), a series of The Preferred Group of Mutual
Funds (the "Trust"), on or about February 1, 1998, 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 of the Trust (the "Trustees") have set December 22, 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, 8,840,628.863 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 Nature of
Name of Beneficial Owner Beneficial Ownership Percent of the Fund
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<S> <C> <C>
Caterpillar Investment Trust 401(k) Plan 3,668,796.8470 41.50%
Caterpillar Inc. Supplemental Unemployment and 2,833,346.4000 32.05%
Benefits Group Insurance Trust A and Trust B
(together with the Caterpillar Investment Trust
401(k) Plan, the "Majority Shareholders")
Gregory Poole Equipment 464,851.1700 5.26%
Company Retirement and Profit Sharing Plan
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</TABLE>
The address of each of the Majority Shareholders listed above is 100
N.E. Adams Street, Peoria, Illinois 61629. The address of Gregory Poole
Equipment Company Retirement and Profit Sharing Plan is P.O. Box 469, Raleigh,
NC 27602.
As described more fully below, a transaction (the "Transaction")
involving PanAgora Asset Management, Inc. ("PanAgora"), a subadviser to the
Fund, was entered into on November 25, 1997. Consummation of the Transaction may
constitute an "assignment," as that term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), of the existing subadvisory agreement
(the "Current Agreement") between PanAgora and Caterpillar Investment Management
Ltd. ("CIML") with respect to the Fund. As required by
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<PAGE>
the 1940 Act, the Current Agreement provides for its automatic termination in
the event of its assignment. In anticipation of the Transaction, a new
subadvisory agreement (the "New Agreement") between PanAgora and CIML is being
proposed for approval by shareholders of the Fund. The New Agreement for the
Fund is identical to the Current Agreement in all respects except for the date
on which the Agreement takes effect and the date on which the Agreement must
initially be renewed by the Trustees.
The Trustees, including the Trustees who are not parties to either
agreement and are not "interested persons" (as defined under the 1940 Act) (the
"Independent Trustees"), have recommended that shareholders of the Fund approve
the New Agreement 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 New 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."
FURTHER INFORMATION CONCERNING THE FUND IS CONTAINED IN ITS MOST RECENT
ANNUAL REPORT TO SHAREHOLDERS, WHICH MAY BE OBTAINED FREE OF CHARGE BY WRITING
TO THE PREFERRED GROUP, P.O. BOX 8320, BOSTON, MA 02266-8320 OR BY TELEPHONING
1-800-662-4769.
THE TRANSACTION
PanAgora is a registered investment adviser with approximately $15
billion in assets under management as of October 30, 1997. Fifty percent of
PanAgora's outstanding voting stock is owned by Nippon Life Insurance Company
("Nippon Life"), 2-2 Yurakucho 1-chrome Chiyoda-KU, Tokyo, 100, Japan, and the
remaining fifty percent is currently owned by Lehman Brothers, Inc. ("Lehman"),
3 World Financial Center, 200 Vesey Street, New York, New York 10285.
On November 25, 1997, Putnam Investments, Inc. ("Putnam"), One Post
Office Square, Boston, Massachusetts 02109 signed a purchase and sale agreement
with Lehman pursuant to which Putnam will purchase Lehman's entire holdings of
PanAgora stock, together with Lehman's 50% interest in an investment adviser
based in the United Kingdom and also jointly owned by Nippon Life. Pursuant to
the terms of the agreement, the Transaction is subject to certain conditions
being satisfied prior to closing, including the approval by clients whose
advisory contracts represent at least 85% of PanAgora's advisory fee revenues.
Putnam is a subsidiary of Marsh & McLennan Companies, Inc., 1166 Avenue
of the Americas, New York, New York 10036, a publicly-owned holding company
whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management, which owns
substantially all of Putnam's outstanding common stock.
If the Transaction is consummated, Putnam will acquire 50% of the
outstanding voting stock of PanAgora, which may be deemed to constitute a change
in control of PanAgora. A change in control of PanAgora would constitute an
"assignment" of the Current Agreement and would result in the automatic
termination of that Agreement. In order to eliminate any uncertainty as to the
effectiveness of the subadvisory arrangement for the Fund following the
Transaction, the Trustees have recommended that the shareholders of the Fund
approve the
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New Agreement. The Majority Shareholders have indicated on a preliminary basis
that they intend to grant such approval by written consent. It is expected that
the Trustees will approve the New Agreement at their meeting scheduled to be
held on January 22, 1998. If they do not approve the New Agreement, this
Information Statement and the written consent of the Majority Shareholders will
have no effect.
Putnam provides investment management services to mutual funds and
other institutional investors. As of November 1, 1997, Putnam's assets under
management were in excess of $200 billion.
Putnam has advised PanAgora and the Trustees that it does not expect
the Transaction to have an adverse effect on operations of PanAgora or on
PanAgora's ability to provide high quality advisory services to its clients. In
addition, Putnam has advised PanAgora and the Trustees that it anticipates that
all of PanAgora's investment advisory personnel and management team will
continue in their present capacities after the Transaction. All fees and
expenses incurred by the Fund relating to the New Agreement and this Information
Statement will be paid by Putnam and Lehman. None of the Trust, the Fund or its
shareholders will incur any related expenses.
DESCRIPTION OF CURRENT AND PROPOSED AGREEMENTS
In order to assist it in carrying out its responsibilities as manager
of the Fund, CIML has retained PanAgora under the Current Agreement to render
subadvisory services to the Fund under the supervision of CIML and the Trustees.
The sole initial shareholder of the Fund approved the Current Agreement, dated
June 29, 1992, on June 30, 1992. The Trustees last approved the continuance of
the Current Agreement, effective on and after June 29, 1997, at a meeting held
on April 27, 1997.
CIML pays the fees of PanAgora under the Current Agreement and, under
the New Agreement, will continue to pay such fees. Under both Agreements,
PanAgora receives a fee based on the Fund assets managed or advised by PanAgora
(the "Fund Assets") together with any other assets managed or advised by
PanAgora 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 $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. 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, 1997, PanAgora was paid $77,664 for its services
to the Fund.
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The Current and New Agreements provide that, subject to the supervision
of the Trustees and CIML, PanAgora 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 New Agreements also require PanAgora 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 New 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 New Agreement, is expected to be approximately the time of
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 New 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
PanAgora, by CIML on sixty days' written notice to PanAgora and by PanAgora on
ninety days' written notice to CIML and the Trust. Each of the Current and New
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 New Agreements provide that PanAgora 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.
SHAREHOLDER CONSENT
Approval of the New 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 February 1, 1998, which
would by
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itself constitute the necessary shareholder approval under the 1940 Act. NO
ACTION IS REQUIRED TO BE TAKEN BY YOU AS A SHAREHOLDER OF THE FUND; THIS
INFORMATION STATEMENT IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY IN LIGHT OF
RELEVANT FEDERAL SECURITIES LAWS. If the Transaction is not consummated, the
Current Agreement will remain in effect.
OTHER INFORMATION
TRUSTEE REVIEW. The Trustees, including the Independent Trustees,
reviewed all material provided by PanAgora and Putnam and its affiliates, and
requested and received all information which they deemed relevant to form a
judgment as to whether the New Agreement is in the best interests of the Fund
and its shareholders.
A primary consideration of the Independent Trustees was Putnam's
representation that it expects no diminution in the scope and quality of
subadvisory and other services to be provided by PanAgora under the New
Agreement from that provided by PanAgora under the Current Agreement. The
Independent Trustees considered the fact that the New Agreement would, except as
described herein, have terms and conditions identical to those of the Current
Agreement, and considered certain representations of Putnam, described above in
the section entitled "The Transaction," with respect to its plans for PanAgora.
In their consideration of the New Agreement, the Trustees noted that
PanAgora 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 PanAgora in advising other accounts that it advises.
Conversely, research services furnished to PanAgora in connection with other
accounts PanAgora advises may be used by PanAgora in advising the Fund. No
material change in brokerage arrangements is contemplated to result from the
approval of the New Agreement, however.
PANAGORA ASSET MANAGEMENT, INC. The principal executive officers and
directors of PanAgora are: Richard A. Crowell, Vice Chairman; Bruce Clarke,
President, Chief Operating Officer and a Director; Michael Turpin, Treasurer and
Director of Finance and Administration; and Peter Rathjens, Director of Global
Investments. Edgar Peters, Paul Samuelson, Rudolph Petralia, Karen Muller,
Haruaki Deguchi, Ian Lowitt, Masahiro Yamada and Hideichiro Kobayashi are all
Directors of PanAgora.
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 30, 1992, and the Trustees of the Trust last
approved the continuance of the Management Contract at a meeting held on April
27, 1997.
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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
the Fund's 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 Trustees and officers 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 0.70% of such average net
assets. For the fiscal year ended June 30, 1997, the Fund paid CIML $773,756.
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 of CIML are: Ronald R. Rossmann, President and Director
and Robert C. Frantz, Vice President and Director. The principal executive
officer of CIML is Mr. Rossmann. The principal occupation of each of CIML's
directors and of its principal executive officer is as a director or executive
officer of CIML and certain of its corporate affiliates. Mr. Rossmann also
serves as 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 L. 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, Mr. Rossmann, Caterpillar
Securities Inc., which is the Trust's principal underwriter, and the Fund is
First Financial Plaza, 411 Hamilton Boulevard, Suite 1200, Peoria, Illinois
61602. The address of the principal executive offices of Caterpillar Inc. and
Mr. Frantz is 100 N.E. Adams Street, Peoria, Illinois 61629.
OTHER INVESTMENT COMPANIES. PanAgora serves as the adviser to The
PanAgora Asset Allocation Fund, with net assets of approximately $37,700,000 as
of November 30, 1997. The PanAgora Asset Allocation Fund is a series of The
PanAgora Institutional Funds, a
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Massachusetts business trust and registered open-end investment company.
PanAgora receives fees for its services at the annual rate of 0.60% of the
fund's average net assets. PanAgora has voluntarily agreed to waive all or a
portion of its advisory fee and to limit the expenses of the PanAgora Asset
Allocation Fund to the extent necessary to limit Total Fund Operating Expenses
on an annualized basis to 0.90% of average daily net assets.
AFFILIATED BROKERAGE. During the fiscal year ended June 30, 1997, the
Preferred Growth Fund, a series of the Trust and an affiliate of the Fund, paid
$31,054 in brokerage commissions to Lehman.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY
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<PAGE>
EX. - A
PREFERRED ASSET ALLOCATION FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of January __, 1998 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
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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
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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
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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
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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 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:
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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;
"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 NEXT NEXT OVER
$10 $40 $50 $100
MILLION MILLION MILLION MILLION
------- ------- ------- -------
0.50% 0.40% 0.20% 0.10%
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