<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Solicitation Material Pursuant to (S)240.14a-11(c) or (S) 240.14a-12
FIRST MUTUAL FUNDS
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2) of
Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
................................................
2) Aggregate number of securities to which transaction applies:
................................................
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):
.....................................................
4) Proposed maximum aggregate value of transaction:
.....................................................
5) Total fee paid:
.....................................................
[X] Fee paid previously under 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>
FIRST MUTUAL FUNDS
================================================================================
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
AUGUST 8, 1996
================================================================================
To the Shareholders of First Mutual Funds:
Notice is hereby given that the Annual Meeting of Shareholders of First Mutual
Funds (the "Trust") will be held at Fund/Plan Services, Inc., 2 W. Elm Street,
Conshohocken, Pennsylvania 19428 on August 8, 1996 at 11:00 a.m. for the purpose
of considering and acting upon the following:
1. Election of eight Trustees;
2. Ratification or rejection of the selection by the Board of Trustees of
Tait, Weller & Baker to audit the accounts of the Trust for the fiscal
year ending June 30, 1996;
3. Approval or disapproval of the proposed amendments to the Investment
Advisory Agreement between the Trust and Trainer, Wortham & Co., Inc.
increasing the management fee payable by the Trust;
4. Transaction of such other business as may properly come before the
meeting.
The matters referred to above are discussed in detail in the Proxy Statement
attached to this Notice. Each shareholder is invited to attend the Annual
Meeting of Shareholders in person. Shareholders of record at the close of
business on June 10, 1996, have the right to vote at the meeting. If you cannot
be present at the meeting, we urge you to fill in, sign, and promptly return the
enclosed proxy in order that the meeting can be held and a maximum number of
shares may be voted.
By order of the Board of Trustees,
June 24, 1996 Debra L. Clark
New York, NY Secretary
================================================================================
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. IN ORDER TO AVOID THE
UNNECESSARY EXPENSE OF FURTHER SOLICITATION, WE URGE YOU TO INDICATE VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY, DATE AND SIGN IT, AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED.
================================================================================
<PAGE>
FIRST MUTUAL FUNDS
1 EAST PUTNAM AVENUE
3RD FLOOR
GREENWICH, CT 06830
================================================================================
PROXY STATEMENT
Annual Meeting of Shareholders to be held on
August 8, 1996
================================================================================
This proxy statement is furnished to the shareholders of First Mutual Funds (the
"Trust") in connection with the solicitation of proxies by the Board of Trustees
of the Trust for use at the Annual Meeting of Shareholders to be held at 11:00
a.m. (Eastern Time) on August 8, 1996 at Fund/Plan Services, Inc., 2 W. Elm
Street, Conshohocken, Pennsylvania (such meeting and any adjournments thereof
referred to as the "Meeting").
All proxies solicited by the Board of Trustees which are properly executed and
received by the Secretary prior to the Meeting will be voted at the Meeting in
accordance with the shareholders' instructions thereon. If no instruction is
given on a proxy, it will be voted FOR the election of each of the nominees for
trustee named below unless authority to vote for a particular nominee is
withheld, FOR ratification of the selection of Tait, Weller & Baker as
independent accountant, and FOR approval of proposed amendments to the
Investment Advisory Agreement between the Trust and Trainer, Wortham & Co., Inc.
increasing the investment advisory fee payable by the Trust on Trust assets over
$40,000,000. Proxies delivered pursuant to this solicitation may be revoked by
written notification to the Trust, the execution of a proxy with a later date,
or by attendance and voting at the Meeting in person, provided that notice of
the revocation has been given to the Secretary of the Trust. This Proxy
Statement and the enclosed Proxy are expected to first be distributed to
Shareholders on or about June 24, 1996.
The close of business on June 10, 1996 has been fixed as the record date for the
determination of shareholders entitled to receive notice of, and to vote at, the
Meeting. On that date there were 2,314,106.123 shares of the Trust issued and
outstanding. Each share is entitled to one vote. Fractional shares are entitled
to a proportionate fractional vote. Cumulative voting in election of trustees is
not permitted.
THE ANNUAL REPORT OF THE TRUST, CONTAINING FINANCIAL STATEMENTS FOR THE FISCAL
YEAR ENDED JUNE 30, 1995, AND THE MOST RECENT SEMI-ANNUAL REPORT ARE AVAILABLE
AT NO COST TO SHAREHOLDERS UPON REQUEST BY CONTACTING THE TRUST AT 1-800-257-
4414. IT IS NOT TO BE REGARDED AS PROXY SOLICITING MATERIAL.
As of June 10, 1996, those persons who are known to be the beneficial owners of
more than five percent of the Trust's shares of common stock are as follows:
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of
Name and Address of Beneficial Owner Shares Held Percentage
- --------------------------------------------------------------------------------
<S> <C> <C>
RONCOM PRODUCTIONS EMPLOYEES 141,093.001 6.09
DEFERRED PROFIT SHARING TRUST
845 Third Avenue, 6th Floor
New York, NY 10022
- --------------------------------------------------------------------------------
PERRY R. COMO 155,545.512 6.72
c/o TRAINER WORTHAM & CO., INC.
845 Third Avenue, 6th Floor
New York, NY 10022
- --------------------------------------------------------------------------------
TRAINER WORTHAM 406,770.230 17.55
PROFIT SHARING TRUST
c/o TRAINER, WORTHAM & CO., INC.
845 Third Ave., 6th Floor
New York, NY 10022
- --------------------------------------------------------------------------------
</TABLE>
The solicitation of proxies is being made primarily through mailing this Proxy
Statement and the accompanying Proxy. Additional solicitation may be made by the
officers or trustees of the Trust by mail, telephone or telegraph, or in person.
It is not anticipated that any solicitations will be made by specially engaged
employees or paid proxy solicitors. The cost of the preparation of this Proxy
Statement and Proxy and the costs of solicitations will be borne by the Trust.
A majority of the shares issued and outstanding and entitled to vote, present in
person or represented by proxy, constitute a quorum for the transaction of
business at the meeting. If a quorum is not present or represented at the
meeting, the holders of a majority of the shares present in person or by proxy
shall have the power to adjourn the meeting to a later date, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. Votes cast by proxy or in person at the meeting will be counted by
persons appointed by the Trust to act as election inspectors for the meeting.
With respect to the election of trustees (Proposal 1), the eight nominees
receiving the greatest number of votes will be elected. The affirmative vote of
the majority of the shares represented at the meeting, assuming a quorum is
present, is required to ratify the selection of independent auditors (Proposal
2). The affirmative vote of "a majority of the outstanding voting securities" of
the Trust, as defined in the Investment Company Act of 1940, (the "1940 Act")
represented at the meeting in person or by proxy is required to approve the
proposed amendments to the Investment Advisory Agreement (Proposal 3). Under
the 1940 Act, a "vote of a majority of the outstanding voting securities" of the
Trust means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Trust or (2) 67% or more of the shares present in
person or by proxy at a shareholders' meeting if more than 50% of the Trust's
outstanding shares are represented at the meeting in person or by proxy.
The election inspectors will count the total number of votes cast "for" approval
of the proposals for the purpose of determining whether sufficient affirmative
votes have been cast. The election inspectors will count shares represented by
proxies that withhold authority to vote for a nominee for election as a trustee
or that reflect abstentions or "broker non-votes" (i.e., shares held by brokers
or nominees as to which: (i) instructions have not been received from the
beneficial owners or persons entitled to vote; and (ii) the broker or nominee
does not have the discretionary voting power on a particular matter) as shares
that are present and entitled to vote on the matter for purposes of determining
the presence of a quorum. With respect to the election of trustees, the
ratification of auditors, and other proposals, withholding authority to vote,
abstentions, and broker non-votes have the effect of a negative vote on the
proposal.
<PAGE>
================================================================================
PROPOSAL NO. 1
ELECTION OF TRUSTEES
================================================================================
Eight trustees, constituting the entire Board of Trustees, are to be elected at
the Meeting. Each trustee so elected will hold office until the next Meeting of
Shareholders and until his/her successor is elected and qualifies, or until
his/her term as trustee is terminated as provided in the Trust's By-Laws. The
persons named as proxies in the accompanying proxy have been designated by the
Board of Trustees and intend to vote for the nominees named below, each of whom
has consented to serve if elected. All of the nominees, except Therese
Thibadeau, were most recently elected as trustees of the Trust at the Annual
Meeting of Shareholders held on January 17,1995. Ms. Thibadeau was elected by
the Board of Trustees on February 5, 1996. Should any nominee withdraw from the
election or otherwise be unable to serve, the named proxies will vote for the
election of such substitute nominee as the Board of Trustees may recommend,
unless a decision is made to reduce the number of trustees serving on the Board.
The following table sets forth certain information about the nominees:
<TABLE>
<CAPTION>
Nominee Principal Occupation Age Trustee Trust Shares
for Past Five Years Since Owned
Beneficially on
June 10, 1996/3/
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James F. Twaddell Chairman of the Board of the Trust; 56 1979 181.438
Investment Banker at Schneider
Securities, Inc. since June 1995;
Chairman of the Board, Director and
Registered Representative of Barclay
Investment, Inc. until June 1995.
David P. Como/1,2/ President of the Trust; Managing 49 1984 838.046
Director, Trainer, Wortham & Co., Inc.
since September, 1990; Managing
Director and Vice President of BIL,
Trainer, Wortham, Inc. from January,
1988 to September, 1990; Vice-
President and Investment Counselor for
Trainer, Wortham & Co., Inc. from
1970 to 1988.
Robert H. Breslin, Jr. Partner in law firm of Breslin & 67 1979 410.092
Sweeney, Warwick, RI.
Raymond Eisenberg Chairman of the Audit Committee of 72 1960 6,799.323
the Board; President of Raymond
Eisenberg & Associates, PC
Accountants and Auditors, New
Bedford, MA
David Elias/1/ President and Chief Investment Officer 50 1991 0.000
of Elias Asset Management, Inc.,
Buffalo, NY
Robert S. Lazar Member of the Audit committee of the 52 1976 599.345
Board; Retired; formerly an Engineer;
Director, Newport Federal Savings
Bank, Newport, RI.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Martin S. Levine Member of the Audit Committee of the 42 1994 0.000
Board; controller and Chief Financial
Officer, John P. Picone Inc.,
Contractors and Engineers, Lawrence,
N.Y. from 1984 to present.
Therese Thibadeau/1/ Private investor; Member of the Board 48 1995 15,432.099
of St. Edwards Church in Palm Beach.
</TABLE>
1 "Interested person" within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940. Mr. Como is an "interested person" by
reason of his affiliation with the Trust's investment advisor and as a
result of being an officer of the Trust. Mr. Elias may be regarded as an
"interested person" by reason of a material business relationship with the
Trust's investment advisor. Ms. Thibadeau is an "interested person" by
reason of her immediate family relationship with Mr. Como.
2 Mr. Como an officer of the Trust is a participant in the Trainer
Wortham Profit Sharing Trust, which held 406,770.230 shares, (17.57%), of
the Trust on the record date.
3 In aggregate, the trustees owned beneficially 24,260.343 shares (1.05%), of
the Trust on the record date.
David P. Como, a nominee for trustee, is an officer, employee, director, and
shareholder of the Trust's investment advisor, Trainer, Wortham & Co., Inc.
There have been no purchases or sales of the securities of the Trust's
investment advisor since July 1, 1994 by any trustee or nominee for trustee.
The Trust has a separate nominating committee, which consists of the Trust's
trustees who are not "interested persons" of the Trust (as that term is defined
in the Investment Company Act of 1940, as amended), whose members are Messrs.
Eisenberg, Breslin, Lazar, Levine and Twaddell. The trustees will, subject to
the provisions of the Investment Company Act of 1940, fill any vacancies on the
Board with the exception that: (i) the selection and nomination of trustees who
are not "interested persons" of the Trust will be at the discretion of the
disinterested trustees; and (ii) a majority of the trustees have been approved
by the shareholders. The Trust also has an Audit Committee of which Messrs.
Eisenberg, Lazar, Breslin and Levine are members. Mr. Como serves as an ex-
officio member of the Audit Committee pursuant to the Trust's By-Laws. The Board
of Trustees and the Audit Committee met four times during the Trust's last
fiscal year. All of the trustees who are also nominees attended all of the Board
meetings with the exception of Mr. Elias who was absent for the October 18, 1994
meeting. Each of the trustees who are also nominees attended at least 75% of the
number of meetings of the Board of Trustees during the last fiscal year. Each of
the members of the Audit Committee attended all of those meetings.
Each trustee, other than Messrs. Como and Elias, receives $200 per meeting of
the Board attended. Audit committee members also receive $200 for each committee
meeting attended. Trustees are also reimbursed for expenses, if any, that are
incurred in connection with attendance at meetings. The aggregate compensation
paid by the Trust to each of its trustees and executive officers serving during
the fiscal year ended June 30, 1995, is set forth in the compensation table
below.
<PAGE>
<TABLE>
<CAPTION>
Name of Trustee Aggregate Pension or Total Compensation
Compensation from Retirement Benefits from Trust and Trust
the Trust Accrued as Part of Complex
Trust's Expenses
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James F. Twaddell NONE NONE NONE
Trustee
Robert H. Breslin, Jr. $1,600 NONE $1,600
Trustee
David P. Como NONE NONE NONE
Trustee & President
Raymond Eisenberg $1,600 NONE $1,600
Trustee
David Elias NONE NONE NONE
Trustee
Robert S. Lazar $1,600 NONE $1,600
Trustee
H. Williamson Ghriskey, Jr. NONE NONE NONE
Treasurer
Martin S. Levine $1,600 NONE $1,600
Trustee
</TABLE>
No compensation is paid by the Trust to trustees or officers of the Trust who
are employees of Trainer, Wortham & Co., Inc.
EXECUTIVE OFFICERS OF THE TRUST
Information with respect to executive officers, other than Mr. Como, is as
follows:
<TABLE>
<CAPTION>
Name (Age) Position with Trust Aggregate Principal
Compensation from Occupation(s) during
Trust the past five years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
H. Williamson Ghriskey (51) Treasurer NONE Managing Director, Trainer,
Wortham & Co., Inc. from
October, 1990 to present;
Managing Director of BIL,
Trainer Wortham, Inc. and
Vice-President from January,
1988 to September, 1990;
Vice-President of Trainer,
Wortham & Co., Inc. from
September, 1978 to January,
1988; Director of Trainer,
Wortham & Co., Inc. from
1982 to 1988.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Debra L. Clark (37) Secretary NONE Mutual Fund and Marketing
Distribution Agent of First
Mutual Funds From 1993 to
present; Vice President
& Director of Fund/Plan
Broker Services 1987 TO 1993.
Charles H.G. Honey (25) Vice President NONE Equity Analyst, Woodward
and Associates from June, 1993
to May, 1994. Sr. Research
Analyst Trainer, Wortham &
Co., Inc. May, 1994 to present.
</TABLE>
THE BOARD OF TRUSTEES RECOMMENDS THAT THE TRUST'S SHAREHOLDERS VOTE "FOR" THE
ELECTION OF EACH OF THE NOMINEES FOR TRUSTEE.
================================================================================
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
================================================================================
At a meeting of the Trust's Board of Trustees held on October 17, 1995, upon the
recommendation of the Audit Committee, a majority of the Board of Trustees who
are not interested persons of the Trust (as defined in the Investment Company
Act of 1940) selected Tait, Weller & Baker as independent certified public
accountants for the Trust for the fiscal year ending June 30, 1996. The
ratification or rejection of that selection of Tait, Weller & Baker is to be
voted upon at the Meeting and it is intended that the persons named in the
accompanying proxy will vote for Tait, Weller & Baker, unless contrary
instructions are given. Representatives of Tait, Weller & Baker are not expected
to be present at the Meeting but will be available telephonically to respond to
appropriate questions.
The Trust's financial statements for the fiscal year ended June 30, 1995, were
examined by Tait, Weller & Baker and, in connection with its audit, that firm
reviewed for the fiscal year ended June 30, 1995, the accounting controls and
procedures used for handling the custody of the trust's securities.
THE BOARD OF TRUSTEES, INCLUDING ALL NON-INTERESTED TRUSTEES, RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE SELECTION OF TAIT, WELLER &
BAKER AS INDEPENDENT ACCOUNTANTS.
================================================================================
PROPOSAL NO. 3
APPROVAL OF PROPOSED AMENDMENTS TO THE TRUST'S INVESTMENT
ADVISORY AGREEMENT INCREASING THE MANAGEMENT FEE PAYABLE BY
THE TRUST
================================================================================
INTRODUCTION
- ------------
Shareholders of the Trust are being asked to approve amendments to the Trust's
Investment Advisory Agreement (the "Amendments"), which, if approved, will
change the management fee structure from a graduated to a flat fee, but will not
change the way the Trust is managed, advised or operated. The factors considered
by the Board of Trustees in determining the reasonableness and fairness of the
proposed management fee increase are described below under
<PAGE>
"Factors Considered by the Board of Trustees." Other proposed changes in certain
terms or conditions of the Investment Advisory Agreement are discussed below.
The Board of Trustees has determined that the Amendments are in the best
interest of the Trust and its shareholders. In the event the Amendments are not
approved, Trainer, Wortham & Co., Inc. will continue to provide investment
advisory services to the Trust under the existing Investment Advisory Agreement
and will be compensated at the current advisory fee rates.
A copy of the proposed, amended Investment Advisory Agreement is attached to
this proxy statement as Exhibit A. If approved by shareholders at the Meeting,
the proposed amendments to the Investment Advisory Agreement will become
effective on September 1996.
INFORMATION ABOUT THE ADVISOR
- -----------------------------
Trainer, Wortham & Co., Inc. ("Trainer Wortham" or the "Advisor"), 845 Third
Avenue, 6th Floor, New York, New York 10022, serves as investment advisor to the
Trust. Trainer Wortham continues an investment counseling business which began
in 1924 as Trainer & Associates. Trainer Wortham is registered as an investment
advisor under the 1940 Act and supervises approximately $1.5 billion in
investment accounts. Trainer Wortham provides investment management services to
the Trust under an Investment Advisory Agreement dated October 31, 1991 (the
"Advisory Agreement"). Trainer Wortham is owned entirely by the officers active
in the day-to-day management of portfolios. By reason of his stock ownership of
approximately 45% of Trainer Wortham, Charles V. Moore, the President of Trainer
Wortham, may be said to be a "controlling person" of that firm.
The name and principal occupation of the principal executive officer and each
managing director of Trainer Wortham is set forth below. Each individual owns
10% or more of the outstanding voting securities of Trainer Wortham. The address
for each of the persons named below is 845 Third Avenue, 6th Floor, New York,
New York 10022.
<TABLE>
<CAPTION>
Name Principal Occupation
- --------------------------------------------------------------------------------
<S> <C>
A. Alexander Arnold, III Managing Director, Trainer, Wortham &
Co., Inc.
David P. Como/1/ Managing Director, Trainer, Wortham &
Co., Inc
H. Williamson Ghriskey, Jr./1/ Managing Director, Trainer, Wortham &
Co., Inc
Charles V. Moore President and Managing Director, Trainer,
Wortham & Co., Inc
</TABLE>
____________________________________
1. Messrs. Como and Ghriskey are also officers of the Trust. Mr. Como is
President; Mr. Ghriskey is Treasurer.
<PAGE>
INFORMATION CONCERNING THE INVESTMENT ADVISORY CONTRACT
- -------------------------------------------------------
The Advisor manages the Trust under an Investment Advisory Agreement dated
October 31, 1991. Under the Advisory Agreement, it is the responsibility of the
Advisor to continuously provide the Trust with investment management services,
including investment research, advice and supervision, determining which
securities shall be purchased or sold by the Trust, making purchases and sales
of securities on behalf of the Trust and determining how any rights of the Trust
shall be exercised.
The Advisory Agreement provides that the Advisor will manage the Trust's
investment portfolio, subject to the general supervision of the Trust's Board of
Trustees and in accordance with the Trust's investment objectives, policies, and
restrictions. Pursuant to the Advisory Agreement, the Advisor is not liable for
any mistake of judgment, mistake of law, or other loss to the Trust in
connection with the performance of the Advisory Agreement except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for its services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Advisor in the performance of its
duties, or by reason of its reckless disregard of its obligations under the
Advisory Agreement.
Under the current Advisory Agreement, the Advisor receives an annual investment
advisory fee, accrued daily and paid quarterly, of 0.75% of the first
$40,000,000 of the average daily net assets of the Trust and 0.50% on average
daily net assets over $40,000,000. During the fiscal year ended June 30, 1995,
the Trust paid the Advisor investment advisory fees aggregating $139,966 (or
.69% of the average net assets of the Trust for that period).
The advisory fee payable by the Trust has not been changed since October 31,
1991 when the current advisory fee was approved by shareholders at a special
shareholders' meeting held on October 15, 1991. Continuance of the Advisory
Agreement in its present form has been approved by the Board of Trustees each
year since 1991. The terms of the Investment Advisory Agreement dated October
31, 1991, were last approved at an Annual Meeting of Shareholders held on
January 17, 1995; and by the Trust's Board of Trustees at a meeting held on
October 17, 1995. Any renewal thereof must be approved at least annually by (a)
the vote of the majority of the Trust's trustees who are not parties to the
agreement or "interested person" of any such party, cast in person at a meeting
called for the purpose of voting on such approval and (b) by the Trust's Board
of Trustees or by a vote of a majority of the outstanding shares of the Trust.
Under the Advisory Agreement, if the total expenses borne by the Trust in any
fiscal year exceed expense limitations imposed by applicable state securities
regulation, Trainer Wortham will reimburse the Trust for such excess. At the
present time, the most restrictive state expense limitation limits the Trust's
annual expenses (excluding interest, taxes, distribution expense, brokerage
commissions and extraordinary expenses, and other expenses subject to approval
by state securities administrators) to 2.5% of the first $30 million of its
average daily net assets and 1.5% of its average daily net assets in excess of
$100 million.
PROPOSED CHANGE TO THE ADVISORY FEE STRUCTURE
- ---------------------------------------------
The proposed amendments to the Advisory Agreement would increase the amount of
advisory fees paid by the Trust to Trainer Wortham on Trust assets exceeding
$40,000,000. The
<PAGE>
Amendments replace the current graduated investment advisory fee rate with a
flat fee rate of 0.75% of the Trust's average daily net assets. The effect of
this change will be that the Trust would pay the higher fee of 0.75% on Trust
assets over $40,000,000 rather than the reduced rate of 0.50% on such assets.
The proposed flat fee structure would not have increased the amount of
investment advisory fees paid by the Trust for the fiscal year ended June 30,
1995, nor would it have increased the fees payable in the current fiscal year,
because the Trust's average daily net assets have not exceeded $40,000,000.
However, shareholders should be aware that adoption of the Amendments may result
in higher future advisory fees, and in turn higher future total expenses, for
the Trust than are provided for under the current Advisory Agreement. However,
the Trust's expense ratio would not increase from its present level as a result
of the adoption of the Amendments since the higher advisory fee rate (0.75% of
average daily net assets) is already being paid by the Trust.
FACTORS CONSIDERED BY THE BOARD OF TRUSTEES
- -------------------------------------------
The Board of Trustees has considered various matters in determining the
reasonableness and fairness of the proposed change in the management fee payable
by the Trust. The Trust's legal counsel advised the Board of Trustees on the
nature of the matters to be considered and the standards to be used by the Board
of Trustees in reaching its decision.
In presenting the proposed advisory fee schedule to the Board of Trustees,
officers of the Trust stated that they believe that the current investment
advisory fee structure does not accurately reflect the complexity and related
costs of advising the Trust. In reaching its decision, the Board of Trustees
examined and weighed many factors, including: (1) the nature and quality of the
services rendered and the results achieved by the Advisor in the areas of
investment management (including investment performance comparisons with other
mutual funds and certain indices) and administrative services; (2) changes in
the mutual fund industry that have affected the Trust; (3) comparisons of the
proposed advisory fee schedule to the fee schedules of comparable mutual funds,
the impact of the proposed advisory fee increase on the Trust's expense ratio
and comparisons of the Trust's expense ratio to the expense ratios of comparable
mutual funds; (4) the costs borne by the Advisor in providing investment
advisory and management services to the Trust; (5) the payments received by the
Advisor from all sources involving the Trust; (6) financial, personnel and
structural information as to the Advisor's organization, including the costs
borne by, and profitability of, the Advisor in providing service of all types to
the Trust; (7) the organizational capabilities and financial condition of the
Advisor; and (8) an analysis of the proposed fee structure and the Trust's
expense ratio.
In deciding to approve the Amendments, the trustees relied in part on their
experience in overseeing, on an ongoing basis, the nature, quality and extent of
Trainer Wortham's services to the Trust. The trustees considered the performance
of the Trust as compared to the performance of other mutual funds with
comparable objectives and as compared to securities indices. The nature and
quality of the investment advice rendered by the Advisors as well as the
backgrounds of the managers and other executive personnel were also considered.
The trustees took into account the investment results of the Trust during the
last six months of 1995.
The trustees were provided with information prepared to assist them in their
consideration of this issue. In this regard, information was obtained from
Lipper Analytical Services, Inc. ("Lipper"), a third-party research
organization, unaffiliated with either Trainer Wortham or the Trust, which
<PAGE>
provides an independent analysis of the expenses of the Trust in comparison with
those of other capital appreciation funds, as classified by Lipper.
OTHER PROPOSED CHANGES TO THE ADVISORY AGREEMENT
- ------------------------------------------------
Besides increasing the investment advisory fee payable on Trust assets exceeding
$40,000,000, the Amendments provide for certain other changes to the Advisory
Agreement. Such changes would not affect the nature or quality of the investment
advisory services provided to the Trust. The Amendments would update certain
provisions of the Advisory Agreement to reflect changes that have occurred with
respect to the Trust since October 31, 1991, the effective date of the current
Advisory Agreement. Among these changes are the reorganization of the Trust from
a Rhode Island corporation to a Delaware business trust which occurred on
January 17, 1995. Upon reorganization, the Trust also changed from a non-
diversified investment company to a diversified investment company. Pursuant to
the Amendments, references to the Trust as a Rhode Island corporation and as a
non-diversified investment company would be deleted from the Advisory Agreement.
Instead the Trust would be referred to in the Advisory Agreement as a Delaware
business trust.
Another proposed change would affect the Advisor's termination rights under the
Advisory Agreement. Currently, Trainer Wortham is permitted to terminate the
Agreement upon sixty days written notice to the Trust. The Amendments would
require Trainer Wortham to provide ninety days written notice of termination to
the Trust.
Furthermore, the Amendments would modify the Trust's policies with regard to the
selection of broker-dealers by the Advisor, as discussed in greater detail
below.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
- ------------------------------------------------
It is the policy of the Trust to secure the execution of orders on its portfolio
transactions in an effective manner at the most favorable price. When the
execution and price offered by two or more brokers or dealers are comparable,
the Trust's investment advisor may, in its discretion, purchase and sell
portfolio securities to and from brokers and dealers who provide the investment
advisor with research advice and other services. It is not the policy of the
Trust to deal solely with one broker, but it is the Trust's intention to place
portfolio transactions with those brokers which provide the most favorable
combination of price, execution and services to the Trust. Currently research
services are a factor in selection of brokers, but payment in excess of
brokerage commissions charged by other brokers is not made in recognition of
research services. The Amendments, however, would permit such payments provided
certain conditions have been met. Pursuant to the Amendments, the Advisor would
be authorized, subject to applicable laws and regulations and with the prior
approval of the Trust's Board of Trustees, to pay a broker or dealer who
provides brokerage and research services a commission for executing a portfolio
transaction for the Trust which is in excess of the amount of commission another
broker or dealer would have charged for that transaction in such instances where
the Advisor determines in good faith that such commission was reasonable. In
making such determination, the Advisor would consider the value of the brokerage
and research services to that particular transaction or with respect to
the overall responsibilities of the Advisor to the Trust. The reasonableness of
such brokerage commissions also would be evaluated by comparisons to fees
charged by other brokers or dealers where the execution and services are
comparable.
In addition, the Amendments would allow Trainer Wortham to take into account the
sale of the Trust's shares in allocating purchase and sales orders for portfolio
securities to brokers or dealers (including affiliated brokers and dealers),
provided that Trainer Wortham believes that the quality of execution and the
commission are comparable to what they would be at other qualified firms.
Trainer Wortham believes that having the discretion to allocate purchase and
sales orders in such a manner may benefit the Trust by facilitating the sale of
its shares. This brokerage allocation policy might be an incentive for brokers
to sell Trust shares under future distribution arrangements that may be
undertaken by the Trust.
During the year ended June 30, 1995, the Trust paid a total of $135,000 in
brokerage commissions. The Trust's portfolio turnover rate for the fiscal year
ended June 30, 1995 was 197.60%
The Trust has in the past paid brokerage commissions to brokers which are
affiliated with officers and trustees of the Trust. For the year ended June 30,
1995, the Trust paid no such brokerage commissions.
<PAGE>
THE BOARD OF TRUSTEES, INCLUDING ALL NON-INTERESTED TRUSTEES, RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE PROPOSED AMENDMENTS TO THE
INVESTMENT ADVISORY AGREEMENT.
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ADDITIONAL INFORMATION
================================================================================
INFORMATION CONCERNING THE TRUST'S DISTRIBUTOR AND ADMINISTRATOR
- ----------------------------------------------------------------
Fund/Plan Broker Services, Inc. (the "Distributor") is the Distributor of the
Trust's shares pursuant to an Underwriting Agreement dated as of October 31,
1995, which was last approved at a meeting of the Trust's Board of Trustees held
on October 31, 1995. The Distributor is a Pennsylvania corporation formed on
April 19, 1989, and is a broker-dealer registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc. ("NASD"). The Distributor, located at 2 West Elm Street,
Conshohocken, PA 19428, is a wholly-owned subsidiary of Fund/Plan Services, Inc.
At the present time, the Distributor serves in such capacity for eight other
funds.
The Distributor serves as exclusive agent for the continuous sale of the Trust's
shares on a best efforts basis only, against purchase orders for the shares.
There are no sales charges or redemption charges.
Fund/Plan Services, Inc. ("FPS") serves as the Trust's administrator, transfer
agent and accounting/pricing agent. FPS is located at the same address as the
Distributor.
SHAREHOLDER PROPOSALS
- ---------------------
A shareholder proposal intended to be represented at any meeting hereafter
called must be received by the Trust within a reasonable time before the
solicitation relating thereto is made in order to be included in the notice of
meeting, proxy statement and form of proxy relating to such meeting. Under the
current By-Laws of the Trust, meetings of shareholders are required to be held
only when necessary under the 1940 Act. It is therefore unlikely that
shareholder meetings will be held on an annual basis. The submission by a
shareholder of a proposal for inclusion in the proxy statement does not
guarantee that it will be included. Shareholder proposals are subject to certain
regulations under federal law.
<PAGE>
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OTHER MATTERS
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Management of the Trust knows of no other matters which are to be brought before
the Meeting. However, if any other matters come before the Meeting, it is
intended that the persons named in the enclosed form of Proxy, or their
substitutes, will vote the Proxy in accordance with their judgment on such
matters.
DATE: June 24, 1996 By order of the Trustees,
Debra L. Clark
Secretary
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of September 30, 1996 between FIRST MUTUAL FUNDS,
a Delaware business trust (herein called the "Trust"), and TRAINER, WORTHAM &
CO., INC., a New York corporation with its principal offices at 845 Third
Avenue, 6th Floor, New York, NY 10022 ( "Investment Advisor").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Advisor to furnish
investment advisory and administrative services with respect thereto to the
Trust, and the Investment Advisor is willing to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Investment Advisor to act
-----------
as investment advisor to the Trust for the period and on the terms set forth in
this Agreement. The Investment Advisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Investment Advisor
-------- -- ---------
with copies of each of the following:
(a) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Advisor and approving this Agreement;
(b) The Trust's most recent prospectus and Statement of Additional
Information (such prospectus and Statement of Additional Information, as
presently in effect and all amendments and supplements thereto, are herein
called the "Prospectus").
The Trust will furnish the Investment Advisor from time to time with copies
of all amendments of or supplements to the foregoing.
3. Management. Subject to the supervision of the Trust's Board of
-----------
Trustees, the Investment Advisor will provide a continuous investment program
for the Trust, including investment research and day-to-day management of the
Trust's assets. The Investment Advisor will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Trust. The Investment Advisor will provide the services under this Agreement in
accordance with the Trust's investment objective, policies and restrictions as
stated in the Prospectus and resolutions of the Trust's Board of Trustees. The
Trust wishes to be informed of important developments materially affecting the
Trust and its shareholders, and the Investment Advisor agrees to furnish to the
Trust, from time to time, such information as may be appropriate for this
purpose. The Investment Advisor further agrees that it:
<PAGE>
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission;
(b) will place orders pursuant to its investment determinations for
the Trust either directly with the issuer or with any broker or dealer. In
executing portfolio transactions, the Investment Advisor will use its best
efforts to seek on behalf of the Trust the best overall terms available. In
assessing the best overall terms available for any transaction, the Investment
Advisor shall consider all factors that it deems relevant, including the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In evaluating the best overall terms available, and in
selecting the broker-dealer to execute a particular transaction, the Investment
Advisor may also consider the brokerage and research services (as those terms
are defined in Section 28 (e) of the Securities Exchange Act of 1934) provided
to the Trust and any other accounts over which the Investment Advisor exercises
investment discretion. The Investment Advisor is authorized, subject to
applicable laws and regulations and with the prior approval of the Trust's Board
of Trustees, to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Trust which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction in such instances where the Investment
Advisor determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided by such broker or
dealer as viewed in terms of that particular transaction or in terms of the
overall responsibilities of the Investment Advisor to the Trust. In addition,
the Investment Advisor may take into account the sale of the Trust's units in
allocating purchase and sale orders for portfolio securities to brokers or
dealers (including affiliated brokers and dealers that are affiliated with the
Trust, the Investment Advisor or the principal underwriter), provided that the
Investment Advisor believes that the quality of execution and the commission are
comparable to what they would be by other qualified firms. In no instance,
however, will portfolio securities be purchased from or sold to the Investment
Advisor, the principal underwriter or any affiliated person of either the Trust,
the Investment Advisor or the principal underwriter or any affiliated person of
the Trust, the Investment Advisor or the principal underwriter acting as
principal in the transaction except to the extent permitted by the Securities
and Exchange Commission and the National Association of Securities Dealers,
Inc.;
(c) will maintain all books and records with respect to the Trust's
securities transactions which the Trust is required to maintain under applicable
laws and will furnish the Trust's Board of Trustees such periodic and special
reports as the Board may request; and
(d) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and prior, present
or potential shareholders, and will not use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to, and approval in writing by, the Board of
Trustees of the Trust, which approval shall not be unreasonably withheld and may
not be withheld where the Investment Advisor may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Board
of Trustees of the Trust.
<PAGE>
4. Services Not Exclusive. The investment management services furnished
-------- --- ---------
by the Investment Advisor hereunder are not to be deemed exclusive, and the
Investment Advisor shall be free to furnish similar services to others whether
or not for compensation so long as its services under this Agreement are not
impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3
----- --- -------
under the 1940 Act, the Investment Advisor hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Advisor further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required by Rule 31a-1 to be
maintained under the 1940 Act.
6. Expenses. During the term of this Agreement, the Investment Advisor
--------
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Trust.
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, effective as of the date of the effectiveness of
this Agreement, the Trust will pay the Investment Advisor and the Investment
Advisor will accept as full compensation therefor a fee, accrued daily and paid
quarterly, at an annual rate of .75 of 1% of the daily net asset value of the
====
Trust.
If in any fiscal year the aggregate expenses of the Trust (as defined under
the securities regulations of any state having jurisdiction over the Trust)
exceed the expense limitations of any such state, the Investment Advisor will
reimburse the Trust for such excess expenses. The obligation of the Investment
Advisor to reimburse the Trust hereunder is limited in any fiscal year to the
amount of its fee hereunder for such fiscal year, provided, however, that
-----------------
notwithstanding the foregoing, the Investment Advisor shall reimburse the Trust
for such proportion of such excess expenses regardless of the amount of fees
paid to it during such fiscal year to the extent that the securities regulations
of any state having jurisdiction over the Trust so require. Such expense
reimbursement, if any, will be estimated daily and reconciled and paid on a
monthly basis.
8. Limitation of Liability. The Investment Advisor shall not be liable
---------- -- ---------
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Advisor in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. Duration and Termination. This Agreement will become effective at such
-------- --- -----------
time as shall have been approved by the shareholders of the Trust, in accordance
with the requirements under the 1940 Act, and the existing advisory contract
with Trainer, Wortham & Co., Inc. shall have been terminated, and, unless sooner
terminated as provided herein, shall continue in effect until September 30,
1997, and thereafter for successive periods of twelve months each ending on
September 30th of each year, provided such continuance is specifically approved
--------
at least annually (a) by the vote of a majority of those members of the Trust's
Board of Trustees who are not
<PAGE>
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Trust. Notwithstanding the foregoing, this
Agreement may be terminated at any time, without the payment of any penalty, by
the Trust (by vote of the Trust's Board of Trustees or by vote of a majority of
the outstanding voting securities of the Trust) on sixty days' written notice or
by the Investment Advisor on ninety days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning of such terms
in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may be
--------- -- ---- ---------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved by vote of a majority of the outstanding voting
securities of the Trust.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be affect
thereby. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by
Delaware law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
FIRST MUTUAL FUNDS
By_____________________________________
Title: President
TRAINER, WORTHAM & CO., INC.
By_____________________________________
Title: Managing Director
<PAGE>
PROXY THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES PROXY
OF FIRST MUTUAL FUNDS (THE "TRUST")
ANNUAL MEETING -- AUGUST 8, 1996 AT 11:00 A.M. EASTERN TIME
The undersigned hereby revokes all previous proxies for his shares and appoints
DAVID P. COMO and DEBRA L. CLARK, and each of them, with the power of
substitution, as Proxies, and hereby authorizes them to vote as designated
below, as effectively as the undersigned could do if personally present, all
the shares of FIRST MUTUAL FUNDS held of record by the undersigned on June 10,
1996, at the Annual Meeting of Shareholders, or any adjournment thereof, to be
held at 11:00 a.m. Eastern Time on August 8, 1996 at the offices of Fund/Plan
Services, Inc., 2 W. Elm Street, Conshohocken, Pennsylvania.
1. ELECTION OF A BOARD OF TRUSTEES.
<TABLE>
<S> <C>
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
<TABLE>
<S> <C> <C> <C>
James F. Twaddell David P. Como Robert H. Breslin, Jr. Raymond Eisenberg
David Elias Robert S. Lazar Martin S. Levine Therese Thibadeau
</TABLE>
2. RATIFICATION OF THE SELECTION OF TAIT, WELLER & BAKER AS THE TRUST'S
INDEPENDENT PUBLIC AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 1996.
[_] FOR [_] AGAINST [_] ABSTAIN
3. APPROVAL OF THE PROPOSED AMENDMENTS TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN THE TRUST AND TRAINER, WORTHAM & CO., INC.
[_] FOR [_] AGAINST [_] ABSTAIN
4. TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on reverse.)
<PAGE>
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY IMMEDIATELY IN THE POSTAGE-PAID
ENVELOPE PROVIDED.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES AND WHEN PROPERLY
EXECUTED WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE
UNDERSIGNED'S VOTE, AS A SHAREHOLDER OF FIRST MUTUAL FUNDS, WILL BE CAST FOR THE
ELECTION OF ALL TRUSTEES AND FOR PROPOSALS (2) AND (3). IF ANY OTHER MATTERS
PROPERLY COME BEFORE THE MEETING ABOUT WHICH THE PROXY HOLDERS WERE NOT AWARE
PRIOR TO THE TIME OF THE SOLICITATION OF THE TRUST, AUTHORIZATION IS GIVEN TO
THE PROXY HOLDERS TO VOTE IN ACCORDANCE WITH THEIR JUDGEMENT ON SUCH MATTERS.
MANAGEMENT IS NOT AWARE OF ANY SUCH MATTERS. THE UNDERSIGNED ACKNOWLEDGES
RECEIPT OF THE NOTICE OF MEETING AND PROXY STATEMENT DATED JUNE 10, 1996. PLEASE
SIGN EXACTLY AS NAME APPEARS BELOW. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH
SHOULD SIGN.
________________________________
________________________________
Signature*
Dated:_______________________, 1996
* PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY. IF SIGNING FOR AN
ESTATE, TRUST OR CORPORATION, TITLE OR CAPACITY SHOULD BE STATED.
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CHECK HERE [_] IF YOU PLAN TO ATTEND THE MEETING. (___ PERSON(S) WILL ATTEND.)
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