SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
/ / Definitive Information Statement
The Preferred Group of Mutual Funds
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-
5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
THE PREFERRED SMALL CAP FUND
A SERIES OF THE PREFERRED GROUP OF MUTUAL FUNDS
December 10, 1999
INFORMATION STATEMENT
GENERAL INFORMATION
This information statement, which is first being mailed on or about
December 10, 1999, is distributed in connection with action to be taken by
written consent of the Majority Shareholders (as defined below) of the Preferred
Small Cap Fund (the "Fund"), a series of The Preferred Group of Mutual Funds
(the "Trust"), on or about January 1, 2000, 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 December 6, 1999 (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 record or
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 Limited is 3322 West End Avenue, Nashville Tennessee
37203-1031.
<PAGE>
PROPOSED AGREEMENT. As described more fully below, Caterpillar
Investment Management Ltd. ("CIML") has proposed that Turner Investment
Partners, Inc. ("Turner") serve as subadviser to the Fund pursuant to a
subadvisory agreement (the "Proposed Agreement") with respect to the Fund. In
order for Turner 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 a majority of the Trustees, including a majority of 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 November
29, 1999. 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 Turner is
set forth below under "Other Information."
AMENDED AGREEMENT. As described more fully below, Caterpillar
Investment Management Ltd. ("CIML") has proposed that its management contract
with respect to the Fund be amended to reflect a change in the advisory fee (as
amended, the "Amended Agreement"). In order for the Fund's management contract
to be amended, the 1940 Act requires approval of the Amended Agreement by both
the Trust's Board of Trustees and the Fund's shareholders.
The Amended Agreement was approved (to be effective upon shareholder
approval) by a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" or affiliates (as defined in the 1940 Act) of
any party to the Amended Agreement (the "Independent Trustees"), on November 29,
1999. The Trustees, including the Independent Trustees, have recommended
approval of the Amended 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 Amended Agreement and the services to be provided
thereunder is set forth below under "Description of Amended Agreement." Such
description is qualified in its entirety by reference to the form of the Amended
Agreement set forth in Appendix B to this Information Statement. Additional
information about CIML 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.
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<PAGE>
DESCRIPTION OF PROPOSED AGREEMENT
In order to assist it in carrying out its responsibilities as manager
of the Fund, CIML has proposed to retain Turner 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 Turner under the Proposed Agreement. Under
the Proposed Agreement, Turner receives a fee based on the Fund assets managed
or advised by Turner (the "Fund Assets") together with any other assets managed
or advised by Turner 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 0.75% of
Combined Assets. This amount is then allocated based upon the ratio of Fund
Assets to Combined Assets. If the Proposed Agreement had been in effect during
the fiscal year ended June 30, 1999, CIML would have paid Turner $843,965.
The Proposed Agreement provides that, subject to the supervision of the
Trustees and CIML, Turner 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 Turner 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 assistance in obtaining and verifying 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 is expected to be as
of January 1, 2000) 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 Turner, by CIML
on sixty days' written notice to Turner and by Turner 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).
-3-
<PAGE>
The Proposed Agreement provides that Turner 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 Turner.
AMENDED AGREEMENT
DESCRIPTION OF AMENDED AGREEMENT. CIML serves as manager of the Fund
pursuant to a management contract (the "Management Contract") dated as of
October 26, 1995. The sole initial shareholder of the Fund approved the
Management Contract on October 26, 1995, and the Trustees of the Trust last
approved the continuance of the Management Contract at a meeting held on May 2,
1999. The sole difference between the Management Contract and the Amended
Agreement is that the fee paid to CIML has changed.
Under both the Management Contract and the Amended Agreement, 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 and Amended Agreement expressly permit
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 year ended June 30, 1999, the Fund paid CIML $843,965.
Under the Amended Agreement, the Fund pays CIML a monthly fee based on average
net assets of the Fund at an annual rate of 1.00% of such average net assets. If
the proposed fee under the Amended Agreement had been in effect during the
fiscal year ended June 30, 1999, the Fund would have paid CIML $1,125,286. This
represents a 33% increase over the fee paid under the Management Contract. Under
the Management Contract and the Amended Agreement, the Fund bears all expenses
of the Fund not expressly assumed by CIML. CIML's compensation under the
Management Contract or Amended Agreement 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.
-4-
<PAGE>
The Management Contract and Amended Agreement provide 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.
COMPARATIVE EXPENSE INFORMATION. The following table summarizes the
actual and pro forma expenses borne by the Fund assuming each of the Management
Contract and Amended Agreement had been in effect during the fiscal year ended
June 30, 1999.
<TABLE>
<CAPTION>
Management Fees Other Expenses Total Fund Operating
Expenses
---------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C>
Management Contract .75% .17% .92%
---------------------- ----------------------- ---------------------- -----------------------
Amended Agreement 1.00% .17% 1.17%
---------------------- ----------------------- ---------------------- -----------------------
</TABLE>
The example that follows is intended to help you compare the cost of
investing in the Fund under the Management Contract and the Amended Agreement.
This example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------------------------- ------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Management Contract $94 $293 $509 $1,131
----------------------------- ------------- --------------- --------------- ----------------
Amended Agreement $119 $372 $644 $1,420
----------------------------- ------------- --------------- --------------- ----------------
</TABLE>
SHAREHOLDER CONSENT
Approval of each of the Proposed Agreement and the Amended 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 January 1, 2000, 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.
-5-
<PAGE>
OTHER INFORMATION
TRUSTEE REVIEW. The Trustees, including the Independent Trustees,
reviewed all material provided by Turner and CIML, and requested and received
all information which they deemed relevant to form a judgment as to whether the
Proposed Agreement and the Amended Agreement are in the best interests of the
Fund and its shareholders.
With respect to the Proposed Agreement, a primary consideration of the
Independent Trustees was CIML's representation that it expects no diminution in
the scope and quality of subadvisory and other services to be provided by CIML
and Turner under the Proposed and Amended Agreements from those provided by CIML
under the Management Contract. The Independent Trustees considered the fact that
the Proposed Agreement would, except with respect to the fee schedule, have
terms and conditions substantially identical to those of the subadviser
contracts with respect to other funds in the Trust. The Independent Trustees
also considered certain representations of Turner with respect to its plans for
managing the Fund.
With respect to the Amended Agreement, a primary consideration of the
Independent Trustees was CIML's representation that it expects no diminution in
the scope and quality of subadvisory and other services to be provided by CIML
and Turner together under the Proposed and Amended Agreements from those
provided by CIML under the Management Contract. The Independent Trustees also
considered the fact that the new fee would permit CIML a reasonable return for
the services it would provide under the Amended Agreement.
In their consideration of the Proposed Agreement and the Amended
Agreement, the Trustees noted that Turner and CIML 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 Turner and CIML in
advising other accounts that they advise. Conversely, research services
furnished to Turner and CIML in connection with other accounts Turner and CIML
advise may be used by such advisers in advising the Fund.
CATERPILLAR INVESTMENT MANAGEMENT LTD. The directors and principal
executive officer of CIML are: David L. Bomberger, President and Director; F.
Lynn McPheeters, Director; and Kenneth J. Zika, Director. The principal
occupation of each of CIML's directors and principal executive officer is as a
director and executive officer of CIML and certain of its corporate affiliates.
Mr. Bomberger also serves as President of the Trust. In addition, Mr. Fred
Kaufman, Treasurer of CIML, serves as Vice President and Treasurer of the Trust,
Richard P. Konrath, Esq., Clerk of CIML, serves as Clerk of the Trust, and F.
Lynn McPheeters, Vice President and Chief Financial Officer for Caterpillar
Inc., and Kenneth J. Zika, Treasurer 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, its directors and principal executive officer;
Caterpillar Securities Inc., the Trust's principal underwriter; and the Fund is
411 Hamilton Blvd., Suite 1200, Peoria, IL 61602. The address of the principal
executive offices of Caterpillar Inc. is 100 N.E. Adams Street, Peoria, Illinois
61629.
-6-
<PAGE>
TURNER INVESTMENT PARTNERS, INC. The directors and principal executive
officers of Turner are: Stephen J. Kneeley, Director, Chief Operating Officer,
President and Secretary; Thomas R. Trala, Chief Financial Officer and Treasurer;
Mark D. Turner, Director and Vice Chairman; and Robert E. Turner, Jr., Director,
Chairman and Chief Investment Officer. Mr. Kneeley is a Registered
Representative of SEI Investments Distribution Co. Otherwise, the principal
occupation of each of Turner's directors and principal executive officers is as
a director or executive officer of Turner. Turner is a Pennsylvania corporation,
and Robert E. Turner is the controlling shareholder of Turner. As of the Record
Date, Robert E. Turner and Mark D. Turner owned 64% and 17%, respectively, of
the outstanding voting securities of Turner. The address of the principal
executive offices of each of Turner and its directors and principal executive
officers is 1235 Westlakes Drive, Suite 350, Berwyn, PA
19312.
OTHER INVESTMENT COMPANIES. Turner also provides investment advisory
services to an investment company the investment objective of which might be
deemed similar to that of the Fund. Turner receives a fee at the annual rate of
1.00% of such fund's average net asset value. As of September 30, 1999, the
total assets of the Turner Small Cap Growth Fund, a series of the Turner Funds,
an open-end management investment company, were approximately $243.4 million.
Pursuant to its investment advisory contract with the Turner Small Cap Growth
Fund, Turner has agreed to waive its fees and/or reimburse expenses if the total
operating expenses of the Turner Small Cap Growth Fund exceed 1.25% in a given
year.
OTHER SERVICE PROVIDERS. The Fund's distributor is Caterpillar
Securities Inc., a wholly owned subsidiary of CIML, 411 Hamilton Blvd., Peoria,
IL 61602. The Fund's transfer agent and dividend-paying agent is Boston
Financial Data Services, Inc., The BFDS Building, Two Heritage Drive, Quincy, MA
02171. The Fund's custodian is State Street Bank and Trust Company, P.O. Box
1713, Boston, MA 02101. The Fund's independent accountants are
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110.
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 SMALL CAP FUND
SUBADVISER AGREEMENT
Subadviser Agreement executed as of January 1, 2000 between CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager"), and TURNER
INVESTMENT PARTNERS, INC., a Pennsylvania 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 Small Cap 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.
A-1
<PAGE>
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).
A-2
<PAGE>
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 January 1, 2000 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-3
<PAGE>
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 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.
A-4
<PAGE>
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 TURNER
INVESTMENT PARTNERS, 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:
TURNER INVESTMENT PARTNERS, INC.
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 of 0.75% 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.
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APPENDIX B
THE PREFERRED GROUP OF MUTUAL FUNDS
MANAGEMENT CONTRACT
Management Contract executed as of January 1, 2000, between THE
PREFERRED GROUP OF MUTUAL FUNDS, a Massachusetts business trust (the "Trust"),
on behalf of the Preferred Small Cap Fund (the "Fund"), and CATERPILLAR
INVESTMENT MANAGEMENT LTD., a Delaware corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the trustees of the Trust (the
"Trustees") and to such policies as the Trustees may determine, the Manager
will, at its expense, (i) furnish continuously an investment program for the
Fund and will make investment decisions on behalf of the Fund and place all
orders for the purchase and sale of its portfolio securities and (ii) furnish
all necessary office space and equipment, provide bookkeeping and clerical
services required to perform its duties hereunder and pay all salaries, fees and
expenses of the Trustees and officers of the Trust who are affiliated persons of
the Manager. In the performance of its duties, the Manager will comply with the
provisions of the Agreement and Declaration of Trust and By-laws of the Trust
and the Fund's stated investment objectives, policies and restrictions.
(b) In the selection of brokers, dealers or futures commissions
merchants (collectively, "brokers") and the placing of orders for the purchase
and sale of portfolio investments for the Fund, the Manager shall seek to obtain
the most favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and research
services as described below. In using its best efforts to obtain for the Fund
the most favorable price and execution available, the Manager, bearing in mind
the Fund's best interests at all times, shall consider all factors it deems
relevant, including, by way of illustration, the price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker
involved and the quality of service rendered by the broker in other
transactions. Subject to such policies as the Trustees may determine, the
Manager shall not be deemed to have acted unlawfully or to have breached any
duty created by this Contract or otherwise solely by reason of its having caused
the Trust to pay, on behalf of the Fund, a broker that provides brokerage and
research services to the Manager or any affiliated person of the
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Manager an amount of commission for effecting a portfolio investment transaction
in excess of the amount of commission another broker would have charged for
effecting that transaction, if the Manager determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed in terms of either that
particular transaction or the Manager's overall responsibilities with respect to
the Fund and to other clients of the Manager and any affiliated person of the
Manager as to which the Manager or any affiliated person of the Manager
exercises investment discretion. The Trust hereby agrees with the Manager and
with any Subadviser (as defined in Section 1(c) below) that any entity or person
associated with the Manager or Subadviser (or with any affiliated person of the
Manager or Subadviser) which is a member of a national securities exchange is
authorized to effect any transaction on such exchange for the account of the
Fund which is permitted by Section 11(a) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and Rule 11a2-2(T) thereunder, and the Trust hereby
consents to the retention of compensation for such transactions in accordance
with Rule 11a2-2(T)(2)(iv).
(c) Subject to the provisions of the Agreement and Declaration of Trust
of the Trust and the Investment Company Act of 1940, as amended (the "1940
Act"), the Manager, at its expense, may select and contract with one or more
investment advisers (the "Subadviser") for the Fund to perform some or all of
the services for which it is responsible pursuant to paragraph (a) of this
Section 1. The Manager will compensate any Subadviser of the Fund for its
services to the Fund. The Manager may terminate the services of any Subadviser
at any time in its sole discretion, and shall at such time assume the
responsibilities of such Subadviser unless and until a successor Subadviser is
selected. To the extent that more than one Subadviser is selected, the Manager
shall, in its sole discretion, determine the amount of the Fund's assets
allocated to each such Subadviser.
(d) The Manager shall not be obligated to pay any expenses of or for
the Trust or of or for the Fund not expressly assumed by the Manager pursuant to
this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, partner, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlling, controlled by or under common control with the Manager, and that
the Manager and any person controlling, controlled by or under common control
with the Manager may have an interest in the Trust. It is also understood that
the Manager and persons controlling, controlled by or under common control with
the manager have and may have advisory, management service, distribution or
other contracts with other organizations and persons, and may have other
interests and businesses.
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<PAGE>
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate (based on the number of days elapsed through the end of the month)
of 1.00% of the Fund's net asset value as of the last business day of the month.
Such fee shall be payable for each month within five (5) business days after the
end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Trust
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall bear the Fund's
expenses to the extent required by such expense limitation.
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved by the affirmative vote of a majority of the
outstanding shares of the Fund, and by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the Trustees
who are not interested persons of the Trust or of the Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract by not
more than sixty days' written notice delivered or mailed by registered mail,
postage prepaid, to the other party, or
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<PAGE>
(b) If (i) the Trustees or the shareholders of the Trust by the
affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a
majority of the Trustees who are not interested persons of the Trust or of the
Manager, by vote cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the continuance of
this Contract, then this Contract shall automatically terminate at the close of
business on the second anniversary of its execution, or upon the expiration of
one year from the effective date of the last such continuance, whichever is
later; provided, however, that if the continuance of this Contract is submitted
to the shareholders of the Fund for their approval and such shareholders fail to
approve such continuance of this Contract as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the 1940 Act and the
rules and regulations thereunder.
Action by the Trust under paragraph (a) of this Section 5 may be taken
either (i) by vote of a majority of the Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the Fund.
6. CERTAIN DEFINITIONS
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder; and the term "brokerage and research services"
shall have the meaning given in the 1934 Act and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, to
the Fund or to any shareholder, officer, director or Trustee thereof, for any
act or omission in the course of, or connected with, rendering services
hereunder.
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<PAGE>
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders individually
but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, THE PREFERRED GROUP OF MUTUAL FUNDS and CATERPILLAR
INVESTMENT MANAGEMENT LTD. have each caused this instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the day
and year first above written.
THE PREFERRED GROUP OF MUTUAL FUNDS
By__________________________________
Title:
CATERPILLAR INVESTMENT MANAGEMENT LTD.
By__________________________________
Title:
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