FREMONT MUTUAL FUNDS, INC.
FREMONT U.S. MICRO-CAP FUND
333 Market Street, 26th Floor
San Francisco, CA 94105
July 15, 1997
Dear Shareholder:
Currently, the portfolio management of the Fremont U.S. Micro-Cap Fund
(the "Fund") is handled directly and completely by Fremont Investment Advisors,
Inc. (the "Investment Manager"). Mr. Robert E. Kern is responsible for the
day-to-day portfolio management of the Fund. Mr. Kern, who currently performs
this role as an employee of the Investment Manager, has organized, and is in the
process of registering with the Securities and Exchange Commission, a new
investment advisory organization called Kern Capital Management L.L.C. ("Kern
Capital"). It is Mr. Kern's intention to resign his position with the Investment
Manager on or about September 1, 1997 in order to manage the business of Kern
Capital on a full-time basis. The Investment Manager has proposed, therefore,
that Kern Capital be retained on behalf of the Fund to provide investment
subadvisory services to the Fund following Kern Capital's registration as an
investment adviser. The Board of Directors of Fremont Mutual Funds, Inc. has
preliminarily approved a new Portfolio Management Agreement with Kern Capital.
Implementation of the New Portfolio Management Agreement is subject to final
approval by the Board of Directors and the Fund's shareholders.
The following important facts about the new Portfolio Management
Agreement are outlined below:
o The advisory fees charged to the Fund will not change.
o The investment objective of the Fund will remain the same and the
Fund's portfolio manager, who will become an employee of Kern
Capital, will continue to manage your Fund as he has in the past.
o You will continue to receive the high quality investment
management and shareholder services that you have come to expect
since the Fund's inception.
Shareholders of the Fund are also being asked to approve a proposal to
permit the Investment Manager to enter into, terminate or modify subadvisory
agreements on behalf of the Fund with subadvisors without obtaining the approval
of a majority of the outstanding voting securities of the Fund, as is otherwise
required by the Investment Company Act of 1940. By eliminating shareholder
approval in these matters, the Investment Manager would have greater flexibility
in managing subadvisors, and shareholders would save the considerable expenses
involved in holding shareholder meetings and soliciting proxies.
After careful consideration, the Board of Directors of Fremont Mutual
Funds, Inc. unanimously recommends that you read the enclosed materials
carefully and then vote FOR the proposals.
Your vote is important. Please take a moment now to sign and return
your proxy cards in the enclosed postage paid return envelope.
Thank you for your cooperation and continued support.
Sincerely,
/s/ Michael H. Kosich
Michael H. Kosich
President
Q&A on reverse side
<PAGE>
Q. WHAT IS HAPPENING?
A. The portfolio manager of your Fund is in the process of organizing a
new investment advisory organization. The Board is recommending that
you approve a Portfolio Management Agreement with this new organization
to ensure that the Fund's current portfolio manager will continue to be
responsible for managing the Fund. Consequently, approval of this new
Portfolio Management Agreement will not result in any material changes
in the portfolio management of the Fund.
Q. WHY AM I BEING ASKED TO VOTE ON THIS PROPOSAL?
A. The Investment Company Act of 1940 requires the approval of a new
investment subadvisory agreement by the shareholders of the Fund.
Q. HOW WILL THIS AFFECT ME AS A FUND SHAREHOLDER?
A. Any expenses you are currently charged will not be increased. The Board
expects no change in services provided to you since the Fund's
inception. The Fund's portfolio manager, who will become an employee of
Kern Capital, will continue to act in the same capacity as before.
Q. WILL THE INVESTMENT ADVISORY FEES CHARGED TO THE FUND BE THE SAME?
A. Yes, the fees for investment advice charged to your fund remain
unchanged as a result of the new Portfolio Management Agreement.
Q. ARE THERE ANY OTHER PROPOSALS TO BE VOTED ON?
A. Shareholders are being asked to vote on one additional proposal which,
if approved, would generally permit Fremont Investment Advisors, Inc.
to enter into, terminate or modify subadvisory agreements on behalf of
the Fund with subadvisors without obtaining the approval of
shareholders of the Fund, as is otherwise required by the Investment
Company Act of 1940. By eliminating shareholder approval in these
matters, the Investment Manager would have greater flexibility in
managing the Fund.
Q. HOW DO THE BOARD MEMBERS OF MY FUND RECOMMEND THAT I VOTE?
A. After careful consideration, the Board of Directors unanimously
recommends that you vote "FOR" the proposals on the enclosed
proxy card.
Q. HOW DO I CONTACT YOU?
A. If you have any questions, please call 800-548-4539.
PLEASE VOTE.
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES OF THE FUND YOU OWN.
<PAGE>
FREMONT MUTUAL FUNDS, INC.
FREMONT U.S. MICRO-CAP FUND
333 Market Street, 26th Floor
San Francisco, California 94105
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on August 29, 1997
A Special Meeting of Shareholders (the "Meeting") of the FREMONT U.S.
MICRO-CAP FUND (the "Fund") will be held at the Fund's offices at 333 Market
Street, 26th Floor, San Francisco, California 94105, on Friday, August 29, 1997
at 10:00 a.m. for the following purposes:
1. To consider and act upon the approval of a new Portfolio
Management Agreement between (i) Fremont Mutual Funds, Inc., (ii)
Fremont Investment Advisors, Inc., the investment manager of the
Fund, and (iii) Kern Capital Management L.L.C.
2. To consider and act upon the approval of a proposal to permit
Fremont Investment Advisors, Inc. to hire and terminate
subadvisors or modify subadvisory agreements without shareholder
approval.
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The stock transfer books will not be closed but, in lieu thereof, the
Board of Directors has fixed the close of business on June 30, 1997 as the
record date for the determination of shareholders of the Fund entitled to notice
of, and to vote at, the Meeting.
By order of the Board of Directors
/s/ Tina Thomas
Tina Thomas, Secretary
San Francisco, California
July 3, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN
PERSON OR BY PROXY; IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE APPROPRIATE ENCLOSED PROXY OR PROXIES IN
THE ACCOMPANYING ENVELOPE PROVIDED FOR YOUR CONVENIENCE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
FREMONT MUTUAL FUNDS, INC.
FREMONT U.S. MICRO-CAP FUND
333 Market Street, 26th Floor
San Francisco, California 94105
(800) 548-4539
FOR A SPECIAL MEETING OF SHAREHOLDERS
To Be Held on August 29, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Fremont Mutual Funds, Inc0[(the
"Company") on behalf of the Fremont U.S. Micro-Cap Fund (the "Fund") of proxies
to be voted at a Special Meeting of Shareholders of the Fund to be held at the
Fund's offices at 333 Market Street, 26th Floor, San Francisco, California
94105, on August 29, 1997 at 10:00 a.m. (the "Meeting") and at any adjournment
thereof, for the purposes set forth in the accompanying Notice of Special
Meeting of Shareholders.
The costs of preparing, printing, mailing and soliciting the proxies
will be borne by Fremont Investment Advisors, Inc. (the "Investment Manager").
In addition, certain officers, directors and employees of the Investment Manager
and officers and directors of the Fund (none of whom will receive additional
compensation therefor) may solicit proxies in person or by telephone, telegraph
or mail. Management Information Systems, Inc. has been retained at its customary
rates to solicit proxies.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are marked,
shares represented by the proxies will be voted "FOR" all the proposals. All
shares in Fund-sponsored IRA accounts not voted by the account owner will be
voted by the IRA trustee in the same proportion (for, against and abstain) as
all other votes cast whether in person or by proxy. For purposes of determining
the presence of a quorum for transacting business at the Meeting, abstentions
and broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owner or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be treated
as shares that are present. However, broker non-votes are disregarded in
determining "votes cast" when the voting requirement is based on achieving a
percentage of the voting securities entitled to vote present in person or by
proxy at the Meeting. Any proxy may be revoked at any time prior to the exercise
thereof by submitting another proxy bearing a later date or by giving written
notice to the Secretary of the Company at the address indicated above or by
voting in person at the Meeting. The affirmative vote of a majority of the
shares as defined under the Investment Company Act of 1940 (a "Majority Vote")
(either 67% of the shares present at the Meeting, if holders of more than 50% of
the outstanding shares are present in person or by proxy, or more than 50% of
the outstanding shares, whichever is less) of the Fund is necessary to approve
the Fund's new Portfolio Management Agreement (Proposal I) and to approve an
arrangement to permit the Investment Manager to hire and terminate subadvisors
or modify subadvisory agreements without shareholder approval (Proposal II).
In the event that insufficient votes in favor of any of the items to be
considered at the Meeting are received by the time scheduled for the Meeting,
the Meeting may be held for the purpose of voting on those proposals for which
sufficient votes have been received, and the persons named as proxies may
<PAGE>
propose one or more adjournments of the Meeting to permit further solicitation
of the proxies with respect to any proposals for which sufficient votes had not
been received. Any such adjournment will require the affirmative vote of a
majority of votes cast on the question in person or by proxy at the Meeting. The
persons named as proxies will vote against such adjournment only with respect to
those proxies that they are required to vote against such proposal.
The Board of Directors of the Company knows of no business other than
that specifically mentioned in the Notice of Meeting which will be presented for
consideration at the Meeting. If any other matters are properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
The Board of Directors of the Company has fixed the close of business
on June 30, 1997 as the record date (the "Record Date") for the determination of
shareholders of the Fund entitled to notice of and to vote at the Meeting or any
adjournment thereof. Shareholders of the Fund on that date will be entitled to
one vote on each matter on which they are entitled to vote for each share held
and a fractional vote with respect to fractional shares, and shareholders will
not have cumulative voting rights. At the close of business on the Record Date,
the Fund had 7,140,949.606 outstanding shares, each with a par value of $0.0001
per share.
The principal executive offices of the Company are located at 333
Market Street, 26th Floor, San Francisco, California 94105. The enclosed proxy
and this proxy statement are first being sent to the Fund's shareholders on or
about July 15, 1997.
As of the Record Date, Charles Schwab & Co., Inc., 101 Montgomery
Street, San Francisco, California 94104, owned of record 38.1% of the
outstanding shares of the Fund; Donaldson, Lufkin & Jenrette Securities
Corporation, 1 Pershing Plaza, Jersey City, New Jersey 07399, owned of record
8.6% of the outstanding shares of the Fund; and National Financial Services
Corporation, 200 Liberty Street, New York, New York 10281, owned of record 6.6%
of the outstanding shares of the Fund. As of the Record Date, to the best
knowledge of the Fund, no other person owned of record or beneficially more than
5% of the outstanding shares of the Fund.
PROPOSAL I
TO CONSIDER A NEW SUBADVISORY AGREEMENT FOR THE FUND
Currently, the portfolio management of the Fremont U.S. Micro-Cap Fund
(the "Fund") is handled directly and completely by Fremont Investment Advisors,
Inc. (the "Investment Manager"). Mr. Robert G. Kern is responsible for the
day-to-day portfolio management of the Fund. Mr. Kern, who currently performs
this role as an employee of the Investment Manager, has organized, and is in the
process of registering with the Securities and Exchange Commission, a new
investment advisory organization called Kern Capital Management L.L.C. ("Kern
Capital"). It is Mr. Kern's intention to resign his position with the Investment
Manager on or about September 1, 1997 in order to manage the business of Kern
Capital on a full-time basis. The Investment Manager has proposed, therefore,
that Kern Capital be retained on behalf of the Fund to provide investment
subadvisory services to the Fund. After careful consideration, the Board of
Directors of Fremont Mutual Funds, Inc. has approved a new Portfolio Management
Agreement with Kern Capital, subject to approval of the Fund's shareholders. If
the new Portfolio Management Agreement is approved by shareholders, Mr. Kern
will continue to be responsible for managing the day-to-day portfolio management
affairs of the Fund. Thus, in the view of the Board, the new Portfolio
Management Agreement will not result in any material changes in the portfolio
management and investment operations of the Fund.
Section 15 of the Investment Company Act of 1940, as amended (the "1940
Act"), prohibits any person from serving as an investment advisor to a
registered investment company except pursuant to a written contract that has
been approved by the shareholders. Therefore, in order for Kern Capital to
provide investment subadvisory services to the Fund, the shareholders of the
Fund must approve the new Portfolio Management Agreement.
The new Portfolio Management Agreement, if approved by the Fund's
shareholders, will commence on or about September 1, 1997, but not before Kern
Capital's effective registration as an investment adviser with the Securities
and Exchange Commission. The new Portfolio Management Agreement will remain in
effect for two years and will continue in effect thereafter for successive
<PAGE>
annual periods if and so long as such continuance is specifically approved by
(a) the Board of Directors or (b) a Majority Vote of a the Fund's shareholders,
provided that in either event, the continuance also is approved by a majority of
the directors who are not "interested persons" by vote cast in person at a
meeting called for the purpose of voting on such approval. If the Portfolio
Management Agreement is not approved by shareholders, the Investment Manager
will continue to manage the Fund's assets directly until alternative
arrangements can be made.
After careful consideration, the Board of Directors of the Company
unanimously recommends that shareholders vote "FOR" the new Portfolio Management
Agreement between the Company, the Investment Manager and Kern Capital. See
"Evaluation by the Board of Directors" below.
Benefits To Shareholders
The Board has identified the following benefits which the shareholders
are anticipated to realize as a result of the new Portfolio Management
Agreement:
1. The advisory fees charged to the Fund will not increase as a
result of approving the New Subadvisory Agreement;
2. The investment objective of the Fund will remain the same and
the Fund's portfolio manager will not change; and
3. The quality of the investment management and shareholder services
to the Fund will not diminish as a result of approving the New
Subadvisory Agreement.
The Investment Subadvisor
Kern Capital, located at 114 West 47th Street, Suite 1926, New York,
New York 10036, will serve as the Fund's investment subadvisor upon approval by
the Fund's shareholders. Kern Capital will manage the Fund's investments,
subject to supervision by the Investment Manager. Portfolio Manager Robert E.
Kern will continue to be responsible for the day to day management of the Fund.
The controlling members of Kern Capital include Robert E. Kern and
his son, David G. Kern, and the Investment Manager.
The Portfolio Management Agreement
Pursuant to the new Portfolio Management Agreement between Kern
Capital, the Investment Manager and the Fund, Kern Capital will be retained to
manage the investments of the Fund and to provide such investment research,
advice and supervision, in conformity with the Fund's investment objectives and
policies, as may be necessary for the operations of the Fund. The new portfolio
management arrangements for the Fund were discussed and preliminarily approved
by the Company's Board of Directors on May 2, 1997. Final approval of the Board
of Directors is expected to be given at the next meeting of the Board of
Directors on August 1, 1997. The new Portfolio Management Agreement provides
that the Investment Manager (not the Fund) shall pay to Kern Capital a fee for
its services which is equal to 1.50% of the first $30 million of the Fund's
average daily net assets, 1.00% of the next $70 million of such assets and .75%
of such assets in excess of $100 million.
The Portfolio Management Agreement requires that brokerage orders for
the Fund's portfolio securities transactions will be placed by Kern Capital.
Kern Capital will seek to obtain the best available prices in the Fund's
portfolio transactions, taking into account the costs and promptness of
executions. Subject to this policy, transactions may be directed to those
broker-dealers who provide research, statistical and other information to the
Fund or the subadvisor or who provide assistance with respect to the
distribution of Fund shares. Subject to the requirements of the 1940 Act and
procedures adopted by the Board of Directors, the Fund may execute portfolio
transactions through any broker or dealer and pay brokerage commissions to a
broker which is an affiliated person of the Company, the Investment Manager or
Kern Capital.
<PAGE>
The Portfolio Management Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, Kern Capital is not liable to the Fund or any of the
Fund's shareholders for any act or omission by Kern Capital in the supervision
or management of its respective investment activities or for any loss sustained
by the Fund or the Fund's shareholders, and that the Fund will indemnify Kern
Capital subject to the requirements of the 1940 Act.
The Portfolio Management Agreement may be terminated at any time by the
Fund, without the payment of any penalty, upon the vote of a majority of the
Company's Board of Directors or a majority of the outstanding voting securities
of the Fund or by Kern Capital, on 30 days' written notice.
Evaluation by the Board of Directors
On May 2, 1997, the independent Directors of the Company's Board met
and discussed the new portfolio management arrangements and their possible
effects on the Fund. Management of the Investment Manager outlined for the Board
of Directors the plan to employ Mr. Kern as a portfolio adviser of the
Investment Manager in order to retain continuity in portfolio management for the
Fund. The Investment Manager indicated that it was aware of a plan by Mr. Kern
to form his own investment advisory company, Kern Capital Management L.L.C., and
that if Mr. Kern went forward with this plan (and the new investment advisory
operation was satisfactory to the Investment Manager), the Investment Manager
would recommend to the Board that a new subadvisory contract be awarded to Kern
Capital at the appropriate time in the future. The Board considered these
matters and in particular noted that Mr. Kern, the current portfolio manager,
would be available to provide continuous services to the Fund. The Board was
advised that any arrangements with Mr. Kern and his new company (if and when
formed) would be on the same basic terms as the current arrangements.
The Board was advised by its own counsel and considered all information
that it determined was relevant to its deliberations. In determining to
recommend that shareholders of the Fund vote to approve the new Portfolio
Management Agreement as being in the best interest of the Fund's shareholders,
the Board gave substantial weight to management's representations that the
Fund's portfolio manager will not change and that expenses to be incurred by the
Fund after the execution of the Portfolio Management Agreement will not be
greater than those that would otherwise be incurred by the Fund.
ACCORDINGLY, AFTER CONSIDERATION OF THE ABOVE, AND SUCH OTHER FACTORS
AND INFORMATION AS IT DEEMED RELEVANT, THE BOARD OF DIRECTORS, INCLUDING ALL OF
THE DIRECTORS WHO ARE NOT INTERESTED PERSONS (AS SUCH TERM IS DEFINED BY THE
1940 ACT), UNANIMOUSLY GAVE PRELIMINARY APPROVAL TO THE PORTFOLIO MANAGEMENT
AGREEMENT WITH KERN CAPITAL AND VOTED TO RECOMMEND ITS APPROVAL TO THE FUND'S
SHAREHOLDERS.
PROPOSAL II
APPROVAL OR DISAPPROVAL OF A PROPOSAL TO PERMIT THE INVESTMENT MANAGER TO
HIRE AND TERMINATE SUBADVISORS OR MODIFY SUBADVISORY AGREEMENTS WITHOUT
SHAREHOLDER APPROVAL
The Investment Manager currently serves as investment advisor to the
Fund pursuant to an Investment Advisory and Administrative Services Agreement
(the "Advisory Agreement") with the Company. The Investment Manager proposes to
employ a subadvisor with respect to the Fund and may engage additional
subadvisors in the future. The Company is proposing to permit the Investment
Manager to enter into, terminate, or modify subadvisory agreements on behalf of
the Fund with subadvisors without obtaining the prior approval of a majority of
the outstanding voting securities of the Fund, as is otherwise required by
Section 15(a) of the 1940 Act.
Section 15(a) of the 1940 Act and Rule 18f-2 thereunder require that
the shareholders of the Fund approve the Fund's subadvisory agreement(s) and any
amendments thereto. On December 16, 1996, the Company and the Investment Manager
received from the Securities and Exchange Commission an order (the "SEC Order")
exempting the Fund from these provisions. The SEC Order permits the Investment
Manager to hire new subadvisors, terminate subadvisors, rehire existing
<PAGE>
subadvisors whose agreements have been assigned (and, thus, automatically
terminated), and modify subadvisory agreements without the prior approval of
shareholders. By eliminating shareholder approval in these matters, the
Investment Manager would have greater flexibility in managing the Fund. Pursuant
to the SEC Order, the Company and the Investment Manager have agreed to the
imposition of the following conditions:
(1) The Investment Manager will not enter into a subadvisory agreement
with a subadvisor that is an "affiliated person," as defined in
the 1940 Act, of the Company or the Investment Manager (an
"Affiliated Manager"), other than by reason of serving as a
subadvisor to the Fund, without such agreement, including the
compensation to be paid thereunder, being approved by the
shareholders of the Fund.
(2) At all times, a majority of the Company's directors will be
persons each of whom is not an "interested person" of the Company
as defined in the 1940 Act ("Independent Directors"), and the
nomination of new or additional Independent Directors will be
placed with the discretion of the then existing Independent
Directors.
(3) When a subadvisor change is proposed for the Fund with an
Affiliated Manager, the Company's directors, including a majority
of the Independent Directors, will make a separate finding,
reflected in the Company's board minutes, that such change is in
the best interests of the Fund and its shareholders and does not
involve a conflict of interest from which the Investment Manager
or the Affiliated Manager derives an inappropriate advantage.
(4) The Investment Manager will provide general management services to
the Company and the Fund and, subject to review and approval by
the Company's Board of Directors, will (i) set the Fund's overall
investment strategies; (ii) select subadvisor(s); (iii) allocate
and, when appropriate, reallocate the Fund's assets among the
Investment Manager and one or more subadvisors; (iv) monitor and
evaluate the performance of subadvisors; and (v) seek to ensure
that the subadvisors comply with the Fund's investment objectives,
policies and restrictions.
(5) Within 60 days of the hiring of any new subadvisor or the
implementation of any proposed material change in a subadvisory
agreement, the Investment Manager will furnish shareholders all
information about the new subadvisor or subadvisory agreement that
would be included in a proxy statement. Such information will
include the fees paid by the Investment Manager to the subadvisor
and any change in such disclosure caused by the addition of a new
subadvisor or any proposed material change in a subadvisory
agreement. The Investment Manager will meet this condition by
providing shareholders with an information statement which meets
the requirements of the proxy rules under applicable federal
securities laws.
(6) The Fund will disclose in its Prospectus the existence, substance
and effect of the SEC Order.
(7) Before the Fund may rely on the SEC Order, the operations of the
Fund in the manner described therein will be approved by a
majority of the Fund's outstanding voting securities, as defined
in the 1940 Act.
(8) No director or officer of the Company or the Investment Manager
will own directly or indirectly (other than through a pooled
investment vehicle that is not controlled by any such director or
officer) any interest in a subadvisor except for (i) ownership of
interests in the Investment Manager or any entity that controls,
is controlled by or is under common control with the Investment
Manager; (ii) ownership of less than 1% of the outstanding
securities of any class of equity or debt of a publicly-traded
company that is either a subadvisor or an entity that controls, is
controlled by or is under common control with a subadvisor.
In accordance with condition (7), shareholder approval of this proposed
new arrangement is being sought. Even if the Fund's shareholders approve this
arrangement, any new subadvisors engaged or any change in a subadvisory
agreement in the future will still require shareholder approval if the
subadvisor is affiliated with the Investment Manager (as is the case with Kern
Capital) and will also still require approval of the Board of Directors. In
order to approve new subadvisors, the Board will analyze the factors they deem
relevant, including the nature, quality and scope of services provided by
subadvisors to investment companies comparable to the Fund. The Board will
review the ability of the subadvisor to provide its services to the Fund, as
well as its personnel, operation, financial condition or any other factor which
<PAGE>
would affect the provision of these services. The Board will examine the
performance of the subadvisor with respect to compliance and regulatory matters
over the past fiscal year. The Board will review the subadvisor's investment
performance with respect to accounts deemed comparable. Finally, the Board will
consider other factors deemed relevant to the subadvisor's performance as an
investment advisor. The Board believes that this review provides adequate
shareholder protection in the selection of subadvisors.
On October 30, 1996, the Board of Directors of the Company, including a
majority of the Independent Directors, unanimously approved, subject to the
required shareholder approval described herein, the proposal to permit the
Investment Manager to hire and terminate subadvisors or modify subadvisory
agreements without shareholder approval.
The Board of Directors recommends that shareholders vote "FOR" the
proposal to permit the Investment Manager to hire and terminate subadvisors or
modify subadvisory agreements without shareholder approval. If the shareholders
of the Fund do not approve this Proposal, the Advisory Agreement will continue
and the terms and conditions of the SEC Order will not be applicable to the
Fund.
OTHER MATTERS
Management of the Company knows of no other matters which are to be
brought before the Meeting. However, if any other matters not now known or
determined properly come before the Meeting, it is the intention of the persons
named in the enclosed form of Proxy to vote such Proxy in accordance with their
best judgment on such matters.
All Proxies received will be voted in favor of all the proposals,
unless otherwise directed therein.
Very truly yours,
/s/ Tina Thomas
Tina Thomas, Secretary
July 3, 1997
<PAGE>
EXHIBIT A
PORTFOLIO MANAGEMENT AGREEMENT
THIS AGREEMENT dated and effective as of [ ] 1997, among Kern Capital
Management L.L.C. (the "Subadvisor"); Fremont Investment Advisors, Inc., a
Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland
corporation (the "Fund").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company and is authorized to issue separate series (the "Series"),
each of which may offer a separate class of shares of beneficial interest, each
series having its own investment objective, policies and limitations; and
WHEREAS, the Fund presently offers shares of a particular series
named the Fremont U.S. Micro-Cap Fund (the "U.S. Micro-Cap Series"); and
WHEREAS, the Fund has retained the Advisor to render investment
management and administrative services to the U.S. Micro-Cap Series; and
WHEREAS, the Advisor and the Fund desire to retain the Subadvisor
to furnish portfolio management services to the U.S. Micro-Cap Series in
connection with Advisor's investment management activities on behalf of the
Series, and the Subadvisor is willing to furnish such services to the Advisor
and the U.S. Micro-Cap Series;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Subadvisor, the Advisor and the Fund
as follows:
1. Appointment. The Advisor and the Fund hereby appoint Subadvisor
to act as Subadvisor with respect to certain assets of the U.S.
Micro-Cap Series for the periods and on the terms set forth in
this Agreement. The Subadvisor accepts such appointment and
agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Subadvisor Duties. Subject to the supervision of the Advisor
and the Fund's Board of Directors, the Subadvisor shall
have full discretionary authority as agent and attorney-in-fact
with respect to the portion of assets of the U.S. Micro-Cap
Series' portfolio assigned to the Subadvisor, from time to
time by the Advisor or the Board of Directors, including
authority to: (a) buy, sell, exchange, convert or otherwise
trade in any stocks without limitation and (b) place orders for
the execution of such securities transactions with or through
such brokers, dealers, or issuers as Subadvisor may select.
The Subadvisor will provide the services under this Agreement
in accordance with the U.S. Micro-Cap Series' registration
statement filed with the Securities and Exchange Commission
("SEC"), as amended. Investments by the Subadvisor shall
conform with the provisions of Appendix B attached hereto, as
such may be revised from time to time at the discretion of the
Advisor and the Fund. Subject to the foregoing, the
Subadvisor will vote proxies with respect to the securities and
investments purchased with the assets of the U.S. Micro-Cap
Series' portfolio managed by the Subadvisor and will provide
regular reports of proxy voting. The Subadvisor further agrees
that it will:
(a) conform with all applicable rules and regulations
of the Securities and Exchange Commission.
(b) place orders pursuant to its investment
determinations for the U.S. Micro-Cap Series either
directly with the issuer or with any broker or
dealer. In placing orders with brokers and dealers,
the Subadvisor will attempt to obtain the best net
price and the most favorable execution of its orders.
Consistent with this obligation, when the execution
and price offered by two or more brokers or dealers
are comparable, the Subadvisor may, in its
discretion, purchase and sell portfolio securities to
and from brokers and dealers who provide it with
research advice and other services of lawful
assistance to the Subadvisor in serving the U.S.
Micro-Cap Series as the Subadvisor or who sell the
U.S. Micro-Cap Series' shares.
<PAGE>
(c) make available to the Advisor and the Fund promptly
upon their request all its investment records and
ledgers to assist the Advisor and the Fund in their
compliance with respect to the U.S. Micro-Cap Series'
securities transactions as required by the 1940 Act
and the Investment Advisers Act of 1940 ("Advisers
Act"), as well as other applicable laws. The
Subadvisor will furnish the Fund's Board of Directors
with respect to the U.S. Micro-Cap Series such
periodic and special reports as the Advisor and the
Directors may reasonably request.
(d) maintain detailed records of the assets managed
by the Subadvisor as well as all investments,
receipts, disbursements and other transactions
made with such assets. Such records shall be open
to inspection and audit at reasonable times by any
person designated by the Advisor or the Fund. The
Subadvisor shall provide to the Advisor or the Fund
and any other party either the Advisor or the
Fund designates: (i) monthly statements of the
activities with regard to the assets for the month
and of the assets showing each asset at its cost
and, for each security listed on any national
securities exchange, its value at the last quoted
sale price reported on the composite tape on the
valuation date or, in the cases of securities not
so reported, by the principal exchange on which
the security is traded, or, if no trade was made
on the valuation date or if such security is not
listed on any exchange, its value as determined
by a nationally recognized pricing service used
by the Subadvisor to value securities in their
client accounts, at the value specified by such
pricing service on the valuation date, and for
any other security or asset in a manner determined
in good faith by the Subadvisor to reflect its
then fair market value; (ii) statements evidencing
any purchases and sales as soon as practicable
after such transaction has taken place; (iii) a
quarterly review of the assets under management;
and (iv) tax information as requested, on a monthly
basis, to the Fund's custodian bank.
3. Expenses. During the term of this Agreement, the Subadvisor
will pay all expenses incurred by it, its staff and their
activities, in connection with its portfolio management activities
under this Agreement.
4. Compensation. For the services provided to the U.S. Micro-Cap
Series, the Advisor will pay the Subadvisor the fees as set
forth in Appendix A hereto at the times set forth in Appendix A
hereto.
5. Books and Records; Custody.
(a) In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Subadvisor hereby agrees that
all records which it maintains for the U.S. Micro-Cap
Series are the property of the Fund and further
agrees to surrender promptly to the Fund any of such
records upon the Fund's request. The Subadvisor
further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required
to be maintained by Rule 31a-1 under the 1940 Act and
to preserve the records required by Rule 204-2 under
the Advisers Act for the period specified in the
Rule.
(b) Title to all investments shall be made in the name of
the Fund, provided that for convenience in buying,
selling, and exchanging securities (stocks, bonds,
commercial paper, etc.), title to such securities may
be held in the name of the Fund's custodian bank, or
its nominee. The Fund shall advise the Subadvisor of
the identity of its custodian bank and shall give the
Subadvisor 15 days' written notice of any changes in
such custody arrangements.
Neither the Subadvisor, nor any parent, subsidiary or
related firm, shall take possession of or handle any
cash, securities, mortgages or deeds of trust, or
other indicia of ownership of the Fund's investments,
or otherwise act as custodian of such investments.
All cash and the indicia of ownership of all other
investments shall be held by the Fund's custodian
bank.
<PAGE>
The Fund shall instruct its custodian bank to (a)
carry out all investment instructions as may be
directed by the Subadvisor with respect thereto
(which may be orally given if confirmed in writing);
and (b) provide the Subadvisor with all operational
information necessary for the Subadvisor to trade on
behalf of the Fund.
6. Indemnification. The Subadvisor agrees to indemnify and hold harmless,
the Advisor, the Fund, any affiliated person within the meaning of
Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or
the Fund (other than the Subadvisor) and each person, if any, who,
within the meaning of Section 15 of the Securities Act of 1933 (the
"1933 Act"), controls ("controlling person") the Advisor or the Fund
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), to which the Advisor, the Fund or
such affiliated person or controlling person may become subject under
the 1933 Act, 1940 Act, the Advisers Act, or under any other statute,
at common law or otherwise, which (1) may be based upon any wrongful
act or omission by the Subadvisor, any of its employees or
representatives or any affiliate of or any person acting on behalf of
the Subadvisor or (2) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement or prospectus covering the shares of the Fund or any Series
or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance upon
information furnished to the Fund or any affiliated person of the Fund
by the Subadvisor or any affiliated person of the Subadvisor; provided,
however, that in no case is the Subadvisor's indemnity in favor of the
Advisor or the Fund or any affiliated person or controlling person of
the Advisor or the Fund deemed to protect such person against any
liability to which any such person would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance
of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement.
The Fund agrees not to hold the Subadvisor or any of its officers
or employees liable for, and to indemnify or insure the Subadvisor
and its officers and employees ("Indemnified Parties") against any
act or omission of any other subadvisor providing investment
management services to the Fund, and against any costs and
liabilities the Indemnified Parties may incur as a result of a
claim against the Indemnified Parties regarding actions taken in
good faith exercise of their powers hereunder excepting matters as
to which the Indemnified Parties have been negligent, engaged in
willful misfeasance, bad faith, reckless disregard of the
obligations and duties under this Agreement or have been in
violation of applicable law or regulations.
7. Services Not Exclusive. It is understood that the services of the
Subadvisor are not exclusive, and nothing in this Agreement shall
prevent the Subadvisor from providing similar services to other
investment companies (subject to such restrictions as Subadvisor
may agree to separately) or from engaging in other activities.
When the Subadvisor recommends the purchase or sale of a security
for other investment companies and other clients, and at the same
time the Subadvisor recommends the purchase or sale of the same
security for the U.S. Micro-Cap Series, it is understood that such
transactions will be executed on a basis that is fair and
equitable to the Series.
8. (a) Duration. This Agreement shall become effective on the date
first written above. Unless terminated as herein provided, this
Agreement shall remain in full force and effective for no more
than two (2) years and shall continue in full force and effect for
periods of one year thereafter so long as such continuance is
approved at least annually (i) by either the Directors of the Fund
or by a vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the U.S. Micro-Cap Series, and
(ii) by the Advisor, and (iii) in either event by the vote of a
majority of the Directors of the Fund who are not parties of this
Agreement or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose
of voting on such approval.
(b) Termination. This Agreement may be terminated at any time,
without payment of any penalty, by the Board of Trustees of the
Fund or by the vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the U.S. Micro-Cap Series, or
by the Advisor, on thirty (30) days' written notice to the
Subadvisor, or by the Subadvisor on like notice to the Fund and to
the Advisor.
<PAGE>
(c) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment.
9. Amendments. 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 and no
amendment of this Agreement shall be effective until approved by a
vote of a majority of the outstanding voting securities of the
U.S. Micro-Cap Series, if such approval is required by applicable
law.
10. Miscellaneous.
(a) This Agreement shall be governed by the laws of the
State of California, provided that nothing herein
shall be construed in a manner inconsistent with the
1940 Act, the Advisers Act or rules or orders of the
SEC thereunder.
(b) The captions of this Agreement are included for
convenience only and in no way define or limit any of
the provisions hereof or otherwise affect their
construction or effect.
(c) 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 affected thereby and, to this extent, the
provisions of this Agreement shall be deemed to be
severable.
(d) Nothing herein shall be construed as constituting
the Subadvisor as an agent of the Fund or the
Advisor.
(e) This Agreement supersedes any prior agreement relating
to the subject matter hereof between the parties.
KERN CAPITAL MANAGEMENT L.L.C.
By:---------------------------
---------------------------
(Title)
FREMONT INVESTMENT ADVISORS, INC.
By:----------------------------
----------------------------
(Title)
FREMONT MUTUAL FUNDS, INC.
By:----------------------------
----------------------------
(Title)
<PAGE>
APPENDIX A
TO PORTFOLIO MANAGEMENT AGREEMENT
Kern Capital Management L.L.C.
Subadvisor to the Fremont U.S. Micro-Cap Fund
SCHEDULE OF FEES
Value of Total Assets Under Management
by Kern Capital Management L.L.C.
for the Fremont U.S. Micro-Cap Fund
Annual Rate
1.50% on the first $30 Million
1.00% on the next $70 Million
.75% thereafter.
Fee should be billed and payable after the end of each calendar month based on
the average daily balances in this account. Fee will be prorated for any period
less than one month.
<PAGE>
APPENDIX B
TO PORTFOLIO MANAGEMENT AGREEMENT
Kern Capital Management L.L.C.
Subadvisor to the Fremont U.S. Micro-Cap Fund
INVESTMENT OBJECTIVES AND GUIDELINES
Overall Investment Objective:
The objective of the Fremont U.S. Micro-Cap Fund is to achieve long-term capital
appreciation by investing, in normal market conditions, at least 65% of its
total assets in equity securities of U.S. companies of relatively small
capitalization. The Fund's investment objective reflects the belief that an
investment in companies with small stock market capitalizations which are not as
well-known to the general public provides an opportunity for greater reward than
an investment in common stocks of larger, better-known companies.
Policy and Guidelines for Subadvisor:
The Subadvisor will adhere to the Investment Objective and to policies in the
Fremont U.S. Micro-Cap Fund prospectus.
Performance Objective for Subadvisor:
The Subadvisor is expected to achieve a competitive rate of return over a 3 to 5
year time horizon and/or a complete market cycle, when compared to other
managers of similar size and with similar investment objectives.
<PAGE>
FREMONT MUTUAL FUNDS, INC.
FREMONT EMERGING MARKETS FUND
333 Market Street, 26th Floor
San Francisco, CA 94105
July 15, 1997
Dear Shareholder:
As you may know, Credit Lyonnais International Asset Management (HK)
Ltd. ("Credit Lyonnais HK"), the investment subadvisor to the Fremont Emerging
Markets Fund (the "Fund") has entered into an agreement under which its shares
and assets will be acquired by Nicholas Applegate Capital Management (Hong Kong)
LLC ("Nicholas-Applegate"). Because of the acquisition, it is necessary for the
shareholders of the Fund to approve a new investment subadvisory agreement
between Nicholas-Applegate, the Fund and Fremont Investment Advisors, Inc., the
Fund's investment manager (the "Investment Manager").
The following important facts about the transaction are outlined below:
o The amount of shares you own and the advisory fees charged to the
Fund will not change.
o The investment objective of the Fund will remain the same and key
employees of Credit Lyonnais HK, who will become employees of
Nicholas-Applegate, will continue to manage your Fund as they have
in the past.
o You will continue to receive the high quality investment
management and shareholder services that you have come to expect
since the Fund's inception.
Shareholders of the Fund are also being asked to approve a proposal to
permit the Investment Manager to enter into, terminate or modify subadvisory
agreements on behalf of the Fund with subadvisors without obtaining the approval
of a majority of the outstanding voting securities of the Fund, as is otherwise
required by the Investment Company Act of 1940. By eliminating shareholder
approval in these matters, the Investment Manager would have greater flexibility
in managing subadvisors, and shareholders would save the considerable expenses
involved in holding shareholder meetings and soliciting proxies.
After careful consideration, the Board of Directors of Fremont Mutual
Funds, Inc. has unanimously approved each of the foregoing proposals and
recommends that you read the enclosed materials carefully and then vote FOR the
proposals.
Your vote is important. Please take a moment now to sign and return
your proxy cards in the enclosed postage paid return envelope.
Thank you for your cooperation and continued support.
Sincerely,
/s/ Michael H. Kosich
Michael H. Kosich
President
Q&A on reverse side
<PAGE>
Q. WHAT IS HAPPENING?
A. Credit Lyonnais HK, not your Fund, has entered into an agreement for
its business to be acquired by Nicholas-Applegate. Importantly, key
members of Credit Lyonnais HK's management team will join
Nicholas-Applegate and continue to be responsible for managing the
Fund. Consequently, this transaction will not result in any material
changes in the portfolio management of the Fund.
Q. WHY AM I BEING ASKED TO VOTE ON THIS PROPOSAL?
A. The Investment Company Act of 1940 requires a vote due to the change
of ownership of the Fund's investment subadvisor. As a result, the
Act requires the approval of a new investment subadvisory agreement
by the shareholders of the Fund.
Q. HOW WILL THIS AFFECT ME AS A FUND SHAREHOLDER?
A. Your Fund shares will not change. You will still own the same shares in
the same Fund. Any expenses you are currently charged will not be
increased. The Board expects no change in services provided to you
since the Fund's inception. Key employees of Credit Lyonnais HK who
have been responsible for the management of your Fund, and who will
become employees of Nicholas-Applegate, will continue to act in the
same capacities as before.
Q. WILL THE INVESTMENT ADVISORY FEES BE THE SAME?
A. Yes, the fees for investment advice charged to your Fund as a result
of the new subadvisory agreement will stay the same.
Q. ARE THERE ANY OTHER PROPOSALS TO BE VOTED ON?
A. Shareholders are being asked to vote on one additional proposal which,
if approved, would generally permit Fremont Investment Advisors, Inc.
to enter into, terminate or modify subadvisory agreements on behalf of
the Fund with subadvisors without obtaining the approval of
shareholders of the Fund, as is otherwise required by the Investment
Company Act of 1940. By eliminating shareholder approval in these
matters, the Investment Manager would have greater flexibility in
managing the Fund.
Q. HOW DO THE BOARD MEMBERS OF MY FUND RECOMMEND THAT I VOTE?
A. After careful consideration, the Board of Directors unanimously
recommends that you vote "FOR" the proposals on the enclosed proxy
card.
Q. HOW DO I CONTACT YOU?
A. If you have any questions, please call 800-548-4539.
PLEASE VOTE.
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES OF THE FUND YOU OWN.
<PAGE>
FREMONT MUTUAL FUNDS, INC.
FREMONT EMERGING MARKETS FUND
333 Market Street, 26th Floor
San Francisco, California 94105
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on August 29, 1997
A Special Meeting of Shareholders (the "Meeting") of the FREMONT
EMERGING MARKETS FUND (the "Fund") will be held at the Fund's offices at 333
Market Street, 26th Floor, San Francisco, California 94105, on Friday, August
29, 1997 at 10:00 a.m. for the following purposes:
1. To consider and act upon the approval of a new investment
subadvisory agreement between (i) Fremont Mutual Funds, Inc., (ii)
Fremont Investment Advisors, Inc., the investment manager of the
Fund, and (iii) Nicholas-Applegate Capital Management (Hong Kong)
LLC ("Nicholas Applegate") which will take effect upon the closing
of the acquisition of the stock and assets of Credit Lyonnais HK
by Nicholas-Applegate.
2. To consider and act upon the approval of a proposal to permit
Fremont Investment Advisors, Inc. to hire and terminate
subadvisors or modify subadvisory agreements without shareholder
approval.
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The stock transfer books will not be closed but, in lieu thereof, the
Board of Directors has fixed the close of business on June 30, 1997 as the
record date for the determination of shareholders of the Fund entitled to notice
of, and to vote at, the Meeting.
By order of the Board of Directors
/s/ Tina Thomas
Tina Thomas, Secretary
San Francisco, California
July 3, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN PERSON OR
BY PROXY; IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE APPROPRIATE ENCLOSED PROXY OR PROXIES IN THE
ACCOMPANYING ENVELOPE PROVIDED FOR YOUR CONVENIENCE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
FREMONT MUTUAL FUNDS, INC.
FREMONT EMERGING MARKETS FUND
333 Market Street, 26th Floor
San Francisco, California 94105
(800) 548-4539
FOR A SPECIAL MEETING OF SHAREHOLDERS
To Be Held on August 29, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Fremont Mutual Funds, Inc. (the
"Company") on behalf of the Fremont Emerging Markets Fund (the "Fund") of
proxies to be voted at a Special Meeting of Shareholders of the Fund to be held
at the Fund's offices at 333 Market Street, 26th Floor, San Francisco,
California 94105, on August 29, 1997 at 10:00 a.m. (the "Meeting") and at any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Special Meeting of Shareholders.
The costs of preparing, printing, mailing and soliciting the proxies
will be borne by Credit Lyonnais International Asset Management South East Asia
B.V. (the "Parent"). In addition, certain officers, directors and employees of
the Parent and officers and directors of the Fund (none of whom will receive
additional compensation therefor) may solicit proxies in person or by telephone,
telegraph or mail. Management Information Systems, Inc. has been retained at its
customary rates to solicit proxies.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are marked,
shares represented by the proxies will be voted "FOR" all the proposals. All
shares in Fund-sponsored IRA accounts not voted by the account owner will be
voted by the IRA trustee in the same proportion (for, against and abstain) as
all other votes cast whether in person or by proxy. For purposes of determining
the presence of a quorum for transacting business at the Meeting, abstentions
and broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owner or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be treated
as shares that are present. However, broker non-votes are disregarded in
determining "votes cast" when the voting requirement is based on achieving a
percentage of the voting securities entitled to vote present in person or by
proxy at the Meeting. Any proxy may be revoked at any time prior to the exercise
thereof by submitting another proxy bearing a later date or by giving written
notice to the Secretary of the Company at the address indicated above or by
voting in person at the Meeting. Any proxy may be revoked at any time prior to
the exercise thereof by submitting another proxy bearing a later date or by
giving written notice to the Secretary of the Company at the address indicated
above or by voting in person at the Meeting. The affirmative vote of a majority
of the shares as defined under the Investment Company Act of 1940 (a "Majority
Vote") (either 67% of the shares present at the Meeting, if holders of more than
50% of the outstanding shares are present in person or by proxy, or more than
50% of the outstanding shares, whichever is less) of the Fund is necessary to
approve the Fund's new investment subadvisory agreement (Proposal I) and to
approve an arrangement to permit Fremont Investment Advisors, Inc. (the
"Investment Manager") to hire and terminate subadvisors or modify subadvisory
agreements without shareholder approval (Proposal II).
<PAGE>
In the event that insufficient votes in favor of any of the items to be
considered at the Meeting are received by the time scheduled for the Meeting,
the Meeting may be held for the purpose of voting on those proposals for which
sufficient votes have been received, and the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of the proxies with respect to any proposals for which sufficient votes had not
been received. Any such adjournment will require the affirmative vote of a
majority of votes cast on the question in person or by proxy at the Meeting. The
persons named as proxies will vote against such adjournment only with respect to
those proxies that they are required to vote against such proposal.
The Board of Directors of the Company knows of no business other than
that specifically mentioned in the Notice of Meeting which will be presented for
consideration at the Meeting. If any other matters are properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
The Board of Directors of the Company has fixed the close of business
on June 30, 1997 as the record date (the "Record Date") for the determination of
shareholders of the Fund entitled to notice of and to vote at the Meeting or any
adjournment thereof. Shareholders of the Fund on that date will be entitled to
one vote on each matter on which they are entitled to vote for each share held
and a fractional vote with respect to fractional shares, and shareholders will
not have cumulative voting rights. At the close of business on the Record Date,
the Fund had 1,071,813.202 outstanding shares, each with a par value of $0.0001
per share.
The principal executive offices of the Company are located at 333
Market Street, 26th Floor, San Francisco, California 94105. The enclosed proxy
and this proxy statement are first being sent to the Fund's shareholders on or
about July 15, 1997.
As of the Record Date, the Investment Manager owned of record 18.9% of
the outstanding shares of the Fund; Fremont Group L.L.C.'s pension plan owned of
record 15.1% of the outstanding shares of the Fund; and Fremont Investors,
Inc.'s pension plan owned of record 21.2% of the outstanding shares of the Fund.
As of the Record Date, to the best knowledge of the Fund, no other person owned
of record or beneficially more than 5% of the outstanding shares of the Fund.
PROPOSAL I
TO CONSIDER A NEW SUBADVISORY AGREEMENT
FOR THE FUND WHICH TOOK EFFECT UPON THE CLOSING
OF THE ACQUISITION OF THE SUBADVISOR
SUMMARY OF THE TRANSACTION
On February 17, 1997, Credit Lyonnais International Asset Management
(HK) Ltd. ("Credit Lyonnais HK") and its parent Credit Lyonnais International
Asset Management South East Asia B.V. (the "Parent"), entered into a definitive
agreement (the "Agreement") to sell the shares of Credit Lyonnais HK to
Nicholas-Applegate Capital Management (Hong Kong) LLC ("Nicholas Applegate") for
$7.4 million in cash and Credit Lyonnais HK will promptly thereafter transfer
all of its assets to its new parent company, Nicholas-Applegate (the
"Transaction"). The Transaction is expected to close in mid-July, 1997 and is
subject to various conditions, including approval by the shareholders of the
Fund of a new investment subadvisory agreement between (i) the Company, (ii) the
Investment Manager, and (iii) Nicholas-Applegate (the "New Subadvisory
Agreement"). While shareholder approval is required for Nicholas-Applegate to
become the subadvisor, Nicholas-Applegate may waive approval as a condition of
closing the Transaction. After the Closing, Nicholas-Applegate, as successor,
will continue to operate out of Credit Lyonnais HK's Hong Kong office. Key
members of Credit Lyonnais HK's management team will join Nicholas-Applegate and
continue to be responsible for managing the day-to-day affairs of the Fund. Thus
in the view of the Board and Credit Lyonnais HK, the Transaction will not result
in any material changes in the portfolio management and investment operations of
the Fund.
Nicholas-Applegate is part of an experienced investment management
organization which together manage in excess of U.S. $30 billion through a
variety of investment products and services. The Nicholas-Applegate group of
companies is headquartered in San Diego, California.
<PAGE>
Pursuant to Section 15 of the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund's existing investment subadvisory agreement
terminates automatically upon its assignment, which is deemed to include any
change of control of the investment subadvisor. Section 15(a) of the 1940 Act
prohibits any person from serving as an investment advisor to a registered
investment company except pursuant to a written contract that has been approved
by the shareholders. Therefore, in order for Nicholas-Applegate to provide
investment subadvisory services to the Fund as of the closing of the
Transaction, the shareholders of the Fund must approve the New Subadvisory
Agreement.
The Transaction also contemplates that Credit Lyonnais HK and
Nicholas-Applegate and other persons will comply with the requirements of
Section 15(f) of the 1940 Act after the Closing. Section 15(f) provides, in
pertinent part, that Credit Lyonnais HK and its affiliates may receive any
amount or benefit in connection with a sale of securities of, or a sale of any
other interest in, Credit Lyonnais HK which results in an assignment of an
investment subadvisory contract if (1) for a period of three years after such
event, at least 75% of the members of the board of directors of the investment
company which it advises are not "interested persons" (as defined in the 1940
Act) of the new or old investment subadvisor; and (2) for a two-year period
there is no "unfair burden" imposed on the investment company as a result of the
Transaction. In the Agreement with Credit Lyonnais HK, Nicholas-Applegate and
its affiliates have represented and warranted to Credit Lyonnais HK that they
have no express or implied understanding or arrangement that would impose an
unfair burden on the Fund as a result of the Transaction. Nicholas-Applegate and
its affiliates have agreed to indemnify and hold Credit Lyonnais HK harmless
from and against and in respect of any and all losses arising in connection with
the imposition of any unfair burden on the Fund constituting a breach or
violation of, or non-compliance with, Section 15(f) of the 1940 Act which is
caused by acts or conduct within the control of Nicholas-Applegate and its
affiliates.
The New Subadvisory Agreement, if approved by the Fund's shareholders,
will commence as of the Closing. Thereafter, the New Subadvisory Agreement will
remain in effect for an annual period and will continue in effect thereafter for
successive annual periods if and so long as such continuance is specifically
approved by (a) the Board of Directors or (b) a Majority Vote of a the Fund's
shareholders, provided that in either event, the continuance also is approved by
a majority of the directors who are not "interested persons" by vote cast in
person at a meeting called for the purpose of voting on such approval. If the
Closing occurs before the approval by shareholders, Nicholas-Applegate, as
successor entity to Credit Lyonnais HK, will manage the assets of the Fund
according to the current subadvisory agreement. However, any fees earned by
Nicholas-Applegate, if any, will be placed into an escrow account and not paid
to Nicholas-Applegate until the approval occurs.
After careful consideration, the Board of Directors of the Company
unanimously recommends that shareholders vote "FOR" the New Subadvisory
Agreement between the Company, the Investment Manager and Nicholas-Applegate to
replace the current subadvisory agreement with Credit Lyonnais HK upon
consummation of the Transaction. See "Evaluation by the Board of Directors"
below.
BENEFITS TO SHAREHOLDERS
The Board has identified the following benefits which the shareholders
are anticipated to realize as a result of the Transaction:
1. Senior members of the Fund's investment management team have
agreed to remain employed with Nicholas-Applegate;
2. The advisory fees charged to the Fund will not increase as a
result of the Transaction; and
3. Nicholas-Applegate and its affiliates are an experienced mutual
fund management organization whose operation is more stable than
that of Credit Lyonnais HK and its affiliates, which are
undergoing a reorganization by the French government.
THE INVESTMENT SUBADVISOR
Nicholas-Applegate, located (upon the closing of the Transaction) at
Room 604-6, Three Exchange Square, 8 Connaught Place, Central, Hong Kong, will
serve as the Fund's investment subadvisor upon approval by the Board and the
shareholders. Nicholas-Applegate, in conjunction with a Nicholas-Applegate
affiliate in the United Kingdom, will manage the Fund's investments, subject to
<PAGE>
supervision by the Investment Manager. Portfolio Manager Henry L. Thornton will
continue to be responsible for the day to day management of the Fund.
Nicholas-Applegate Capital Management Holdings L.P., a California
limited partnership, will act as managing member of the investment subadvisor
(the "Managing Member"). The Managing Member will act through one or more of its
executive officers: Arthur E. Nicholas, Chairman of the Board; Tom Waring,
President; and Paul Mack, Vice President.
THE EMPLOYMENT AGREEMENTS
Upon the Closing, Henry L. Thornton will enter into an employment
agreement with Nicholas Applegate or one of its affiliates that provides for his
continued service; it also provides that he cannot be terminated except for
cause or disability and contains non-competition provisions. Mr. Thornton's
agreement has a term of 2 years. Other key members of the Credit Lyonnais HK's
investment management team will also enter into minimum 1 year employment and
non-compete contracts with Nicholas-Applegate which provide long-term
compensation incentives. They will continue to have senior management roles.
THE NEW SUBADVISORY AGREEMENT
Pursuant to the current subadvisory agreement between Credit Lyonnais
HK, the Investment Manager and the Fund, Credit Lyonnais HK has been retained to
manage the investments of the Fund and to provide such investment research,
advice and supervision, in conformity with the Fund's investment objectives and
policies, as may be necessary for the operations of the Fund. The New
Subadvisory Agreement provides the same authority. The current subadvisory
agreement for the Fund is dated June 24, 1996 and was approved by the Company's
Board of Directors on June 18, 1996. The current subadvisory agreement and the
New Subadvisory Agreement each provides that the Advisor shall pay to Credit
Lyonnais HK a fee for its services which is equal to .50% of the Fund's average
daily net assets. Credit Lyonnais HK is currently waving all of its subadvisory
fees until further notice.
The New Subadvisory Agreement provides for the furnishing of the same
subadvisory services for the same subadvisory fees as the current subadvisory
agreement with the Fund. The current subadvisory agreement provides, among other
things, that Credit Lyonnais HK will bear all expenses of its employees and
overhead incurred in connection with its duties. A form of the New Subadvisory
Agreement is attached as Exhibit A.
The New Subadvisory Agreement allows the subadvisor to provide
investment advisory services for other individuals and entities in addition to
the Fund. This clause is less restrictive than the language in the current
subadvisory agreement.
Both the current and New Subadvisory Agreements require that brokerage
orders for the Fund's portfolio securities transactions are placed by the
subadvisor. The subadvisor seeks to obtain the best available prices in the
Fund's portfolio transactions, taking into account the costs and promptness of
executions. Subject to this policy, transactions may be directed to those
broker-dealers who provide research, statistical and other information to the
Fund or the subadvisor or who provide assistance with respect to the
distribution of Fund shares. Subject to the requirements of the 1940 Act and
procedures adopted by the Board of Directors, the Fund may execute portfolio
transactions through any broker or dealer and pay brokerage commissions to a
broker which is an affiliated person of the Company, the Investment Manager or
the subadvisor. During the fiscal year ended October 31, 1996, the Fund paid
brokerage commissions of $2,352 to Credit Lyonnais Securities (USA), Inc. (which
was 11.7% of the aggregate brokerage commissions paid by the Fund during such
period). Credit Lyonnais Securities (USA), Inc. is an affiliated company of
Credit Lyonnais HK.
The current and New Subadvisory Agreements both provide that in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the subadvisor is not liable to the
Fund or any of the Fund's shareholders for any act or omission by the subadvisor
in the supervision or management of its respective investment activities or for
any loss sustained by the Fund or the Fund's shareholders, and that the Fund
will indemnify the subadvisor subject to the requirements of the 1940 Act.
Both the current and New Subadvisory Agreements may be terminated at
any time by the Fund, without the payment of any penalty, upon the vote of a
majority of the Company's Board of Directors or a majority of the outstanding
voting securities of the Fund or by Credit Lyonnais HK, on 30 days' written
notice by either party to the other.
<PAGE>
NICHOLAS-APPLEGATE SUBADVISORY COMMITMENTS
Upon the closing of the Transaction, Nicholas-Applegate will act as a
subadvisor to the following fund, assuming approval by the shareholders of such
fund:
Name of Fund Size of Fund (as of 3/31/97) Compensation Rate
Pacific Capital-New $18.0 million .50% of average
Asia Growth Fund daily net assets
EVALUATION BY THE BOARD OF DIRECTORS
On May 2, 1997, the independent directors of the Company's Board met
and discussed the Transaction and its possible effect on the Fund and evaluated
the New Subadvisory Agreement. In evaluating the New Subadvisory Agreement, the
Board reviewed materials furnished by Credit Lyonnais HK and Nicholas-Applegate
relevant to its decision. Those materials included information regarding Credit
Lyonnais HK and Nicholas-Applegate and their affiliates and their personnel,
operations and financial condition. Management of the Company indicated its
belief that, as a consequence of the Transaction, the operations of Credit
Lyonnais under its new ownership and name, and its ability to provide services
to the Fund, would not be adversely affected and would likely be enhanced. The
Board considered the potential benefits to shareholders. In its deliberations,
the Board considered the terms of the Transaction, including, among other
things, the continued employment of the senior members of the management team by
Nicholas-Applegate, which the Board believed to be important to assure
continuity of the subadvisory services provided to the Fund. In addition, the
Board reviewed and discussed the terms and provisions of the New Subadvisory
Agreement and compared fees and expenses under the New Subadvisory Agreement
with those paid by other investment companies.
The Board was advised by its own counsel and considered all information
that it determined was relevant to its deliberations. In determining to
recommend that shareholders of the Fund vote to approve the New Subadvisory
Agreement as being in the best interest of the Fund's shareholders, the Board
gave substantial weight to management's representations that the advisory
services to be provided by Nicholas-Applegate would be performed by the same
people and that there were certain assurances that expenses to be incurred under
the New Subadvisory Agreement will not be greater than those that would be
incurred under the current subadvisory agreement.
ACCORDINGLY, AFTER CONSIDERATION OF THE ABOVE, AND SUCH OTHER FACTORS
AND INFORMATION AS IT DEEMED RELEVANT, THE BOARD OF DIRECTORS, INCLUDING ALL OF
THE DIRECTORS WHO ARE NOT INTERESTED PERSONS (AS SUCH TERM IS DEFINED BY THE
1940 ACT), UNANIMOUSLY APPROVED THE NEW SUBADVISORY AGREEMENT AND VOTED TO
RECOMMEND ITS APPROVAL TO THE FUND'S SHAREHOLDERS.
PROPOSAL II
APPROVAL OR DISAPPROVAL OF A PROPOSAL TO PERMIT THE
INVESTMENT MANAGER TO HIRE AND TERMINATE SUBADVISORS OR MODIFY
SUBADVISORY AGREEMENTS WITHOUT SHAREHOLDER APPROVAL
The Investment Manager currently serves as investment advisor to the
Fund pursuant to an Investment Advisory and Administrative Services Agreement
(the "Advisory Agreement") with the Company. The Investment Manager currently
employs a subadvisor with respect to the Fund and may engage additional
subadvisors in the future. The Company is proposing to permit the Investment
Manager to enter into, terminate, or modify subadvisory agreements on behalf of
the Fund with subadvisors without obtaining the prior approval of a majority of
the outstanding voting securities of the Fund, as is otherwise required by
Section 15(a) of the 1940 Act.
Section 15(a) of the 1940 Act and Rule 18f-2 thereunder require that
the shareholders of the Fund approve the Fund's subadvisory agreement(s) and any
amendments thereto. On December 16, 1996, the Company and the Investment Manager
received from the Securities and Exchange Commission an order (the "SEC Order")
exempting the Fund from these provisions. The SEC Order permits the Investment
<PAGE>
Manager to hire new subadvisors, terminate subadvisors, rehire existing
subadvisors whose agreements have been assigned (and, thus, automatically
terminated), and modify subadvisory agreements without the prior approval of
shareholders. By eliminating shareholder approval in these matters, the
Investment Manager would have greater flexibility in managing the Fund. Pursuant
to the SEC Order, the Company and the Investment Manager have agreed to the
imposition of the following conditions:
(1) The Investment Manager will not enter into a subadvisory agreement
with a subadvisor that is an "affiliated person," as defined in
the 1940 Act, of the Company or the Investment Manager (an
"Affiliated Manager"), other than by reason of serving as a
subadvisor to the Fund, without such agreement, including the
compensation to be paid thereunder, being approved by the
shareholders of the Fund.
(2) At all times, a majority of the Company's directors will be
persons each of whom is not an "interested person" of the Company
as defined in the 1940 Act ("Independent Directors"), and the
nomination of new or additional Independent Directors will be
placed with the discretion of the then existing Independent
Directors.
(3) When a subadvisor change is proposed for the Fund with an
Affiliated Manager, the Company's directors, including a majority
of the Independent Directors, will make a separate finding,
reflected in the Company's board minutes, that such change is in
the best interests of the Fund and its shareholders and does not
involve a conflict of interest from which the Investment Manager
or the Affiliated Manager derives an inappropriate advantage.
(4) The Investment Manager will provide general management services to
the Company and the Fund and, subject to review and approval by
the Company's Board of Directors, will (i) set the Fund's overall
investment strategies; (ii) select subadvisor(s); (iii) allocate
and, when appropriate, reallocate the Fund's assets among the
Investment Manager and one or more subadvisors; (iv) monitor and
evaluate the performance of subadvisors; and (v) seek to ensure
that the subadvisors comply with the Fund's investment objectives,
policies and restrictions.
(5) Within 60 days of the hiring of any new subadvisor or the
implementation of any proposed material change in a subadvisory
agreement, the Investment Manager will furnish shareholders all
information about the new subadvisor or subadvisory agreement that
would be included in a proxy statement. Such information will
include the fees paid by the Investment Manager to the subadvisor
and any change in such disclosure caused by the addition of a new
subadvisor or any proposed material change in a subadvisory
agreement. The Investment Manager will meet this condition by
providing shareholders with an information statement which meets
the requirements of the proxy rules under applicable federal
securities laws.
(6) The Fund will disclose in its Prospectus the existence, substance
and effect of the SEC Order.
(7) Before the Fund may rely on the SEC Order, the operations of the
Fund in the manner described therein will be approved by a
majority of the Fund's outstanding voting securities, as defined
in the 1940 Act.
(8) No director or officer of the Company or the Investment Manager
will own directly or indirectly (other than through a pooled
investment vehicle that is not controlled by any such director or
officer) any interest in a subadvisor except for (i) ownership of
interests in the Investment Manager or any entity that controls,
is controlled by or is under common control with the Investment
Manager; (ii) ownership of less than 1% of the outstanding
securities of any class of equity or debt of a publicly-traded
company that is either a subadvisor or an entity that controls, is
controlled by or is under common control with a subadvisor.
In accordance with condition (7), shareholder approval of this proposed
new arrangement is being sought. Even if the Fund's shareholders approve this
arrangement, any new subadvisors engaged or terminated or any change in a
subadvisory agreement will still require approval of the Board of Directors. In
order to approve new subadvisors, the Board will analyze the factors they deem
relevant, including the nature, quality and scope of services provided by
subadvisors to investment companies comparable to the Fund. The Board will
review the ability of the subadvisor to provide its services to the Fund, as
well as its personnel, operation, financial condition or any other factor which
would affect the provision of these services. The Board will examine the
<PAGE>
performance of the subadvisor with respect to compliance and regulatory matters
over the past fiscal year. The Board will review the subadvisor's investment
performance with respect to accounts deemed comparable. Finally, the Board will
consider other factors deemed relevant to the subadvisor's performance as an
investment advisor. The Board believes that this review provides adequate
shareholder protection in the selection of subadvisors.
On October 30, 1996, the Board of Directors of the Company, including a
majority of the Independent Directors, unanimously approved, subject to the
required shareholder approval described herein, the proposal to permit the
Investment Manager to hire and terminate subadvisors or modify subadvisory
agreements without shareholder approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO PERMIT THE INVESTMENT MANAGER TO HIRE AND TERMINATE SUBADVISORS OR
MODIFY SUBADVISORY AGREEMENTS WITHOUT SHAREHOLDER APPROVAL. If the shareholders
of the Fund do not approve this Proposal, the Advisory Agreement will continue
and the terms and conditions of the SEC Order will not be applicable to the
Fund.
OTHER MATTERS
Management of the Company knows of no other matters which are to be
brought before the Meeting. However, if any other matters not now known or
determined properly come before the Meeting, it is the intention of the persons
named in the enclosed form of Proxy to vote such Proxy in accordance with their
best judgment on such matters.
All Proxies received will be voted in favor of all the proposals,
unless otherwise directed therein.
Very truly yours,
/s/ Tina Thomas
Tina Thomas, Secretary
July 3, 1997
<PAGE>
EXHIBIT A
PORTFOLIO MANAGEMENT AGREEMENT
THIS AGREEMENT dated and effective as of [ ] 1997, among
Nicholas-Applegate Capital Management (Hong Kong) LLC, a Hong Kong company (the
"Subadvisor"); Fremont Investment Advisors, Inc., a Delaware corporation (the
"Advisor"); and Fremont Mutual Funds, Inc., a Maryland corporation (the "Fund").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company and is authorized to issue separate series (the "Series"),
each of which may offer a separate class of shares of beneficial interest, each
Series having its own investment objective, policies and limitations; and
WHEREAS, the Fund presently offers shares of a particular series named
the Fremont Emerging Markets Fund (the "Emerging Markets Series"); and
WHEREAS, the Fund has retained the Advisor to render investment
management and administrative services to the Emerging Markets Series; and
WHEREAS, the Advisor and the Fund desire to retain the Subadvisor to
furnish portfolio management services to the Emerging Markets Series in
connection with Advisor's investment management activities on behalf of the
Series, and the Subadvisor is willing to furnish such services to the Advisor
and the Emerging Markets Series;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Subadvisor, the Advisor and the Fund
as follows:
1. Appointment. The Advisor and the Fund hereby appoint Subadvisor to
provide sub-investment advisory services to the Advisor and the
Fund with respect to certain assets of the Emerging Markets Series
for the periods and on the terms set forth in this Agreement. The
Subadvisor accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Subadvisor Duties. Subject to the supervision of the Advisor,
the Subadvisor shall have full discretionary authority as agent
and attorney-in-fact with respect to the portion of assets of
the Emerging Markets Series' portfolio assigned to the
Subadvisor, from time to time by the Advisor or the Board of
Directors, including authority to: (a) buy, sell, exchange,
convert or otherwise trade in any stocks without limitation
and (b) place orders for the execution of such securities
transactions with or through such brokers, dealers, or issuers
as Subadvisor may select. The Subadvisor will provide the
services under this Agreement in accordance with the Emerging
Markets Series' registration statement filed with the
Securities and Exchange Commission ("SEC"), as amended. The
Advisor will provide the Subadvisor with a copy of each
registration statement promptly after it has been filed with
the SEC. Investments by the Subadvisor shall conform with the
provisions of Appendix B attached hereto, as such may be
revised from time to time at the discretion of the Advisor and
the Fund. Subject to the foregoing, the Subadvisor will vote
proxies with respect to the securities and investments
purchased with the assets of the Emerging Markets Series'
portfolio managed by the Subadvisor. The Subadvisor further
agrees that it will:
(a) conform with all applicable rules and regulations
of the Securities and Exchange Commission.
(b) select brokers and dealers to execute portfolio
transactions for the Emerging Markets Series and
select the markets on or in which the transaction
will be executed. In providing the Emerging
Markets Series with investment management, it is
recognized that the Subadvisor will give primary
consideration to securing the most favorable price
and efficient execution considering all
circumstances. Within the framework of this policy,
the Subadvisor may consider the financial
responsibility, research and investment
information and other research services and
products provided by brokers or dealers who may
effect or be a party to any such transaction or
other transactions to which the Subadvisor's
other clients may be a party. It is understood
<PAGE>
that it is desirable for the Fund that the
Subadvisor have access to brokerage and research
services and products and security and economic
analysis provided by brokers who may execute
brokerage transactions at a higher cost to the
Emerging Markets Series than broker-dealers that
do not provide such brokerage and research services.
Therefore, in compliance with Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act"),
the Subadvisor is authorized to place orders
for the purchase and sale of securities for the
Emerging Markets Series with such brokers, that
provide brokerage and research products and/or
services that charge an amount of commission for
effecting securities transactions in excess of
the amount of commission another broker would
have charged for effecting that transaction,
provided the Subadvisor determines in good faith
that such amount of commission was reasonable in
relation to the value of the brokerage and research
products and/or services provided by such broker
viewed in terms of either that particular
transaction or the overall responsibilities of
the Subadvisor for this or other advisory accounts,
subject to review by the Fund from time to time
with respect to the extent and continuation of
this practice. It is understood that the information,
services and products provided by such brokers may be
useful to the Subadvisor in connection with the
Subadvisor's services to other clients. On
occasions when the Subadvisor deems the purchase or
sale of a security to be in the best interest of the
Emerging Markets Series as well as other clients
of the Subadvisor, the Subadvisor, to the extent
permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate
the securities to be sold or purchased in order to
obtain the most favorable price of lower
brokerage commissions and efficient execution.
In such event, allocation of the securities so
purchased or sold, as well as the expenses
incurred in the transaction, shall be made by the
Subadvisor in the manner the Subadvisor considers
to be the most equitable and consistent with its
fiduciary obligations to the Emerging Markets
Series and to such other clients.
(c) make available to the Advisor and the Fund's Board of
Directors promptly upon their request all its
investment records and ledgers relating to the
Emerging Markets Series to assist the Advisor and the
Fund in their compliance with respect to the Emerging
Markets Series' securities transactions as required
by the 1940 Act and the Investment Advisers Act of
1940 ("Advisers Act"), as well as other applicable
laws. The Subadvisor will furnish the Fund's Board of
Directors with respect to the Emerging Markets Series
such periodic and special reports as the Advisor and
the Directors may reasonably request in writing.
(d) maintain detailed records of the assets managed
by the Subadvisor as well as all investments,
receipts, disbursements and other transactions
made with such assets. Such records shall be open
to inspection and audit during Subadvisor's
normal business hours upon reasonable notice by
any person designated by the Advisor or the Fund.
The Subadvisor shall provide to the Advisor or the
Fund and any other party designated by either the
Advisor or the Fund: (i) monthly statements of the
activities with regard to the assets for the month
and of the assets showing each asset at its cost
and, for each security listed on any national
securities exchange, its value at the last quoted
sale price reported on the composite tape on the
valuation date or, in the cases of securities
not so reported, by the principal exchange on
which the security traded or, if no trade was made
on the valuation date or if such security is not
listed on any exchange, its value as determined
by a nationally recognized pricing service
used by the Subadvisor specified by such pricing
service on the valuation date, and for any other
security or asset in a manner determined in good
faith by the Subadvisor to reflect its then
fair market value; (ii) statements evidencing
any purchases and sales as soon as practicable
after such transaction has taken place, and (iii)
a quarterly review of the assets under management.
3. Expenses. During the term of this Agreement, the Subadvisor will
pay all expenses incurred by it, its staff and their activities,
in connection with its portfolio management activities under this
Agreement. The Subadvisor shall not be responsible for any expense
incurred by the Advisor or the Fund, except as provided in Section
6 below.
<PAGE>
4. Compensation. For the services provided to the Emerging Markets
Series, the Advisor will pay the Subadvisor the fees as set
forth in Appendix A hereto at the times set forth in Appendix
A hereto.
5. Books and Records; Custody.
(a) In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Subadvisor hereby agrees that
all records which it maintains for the Emerging
Markets Series are the property of the Fund and
further agrees to surrender promptly to the Fund any
of such records upon the Fund's request. The
Subadvisor further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under
the 1940 Act and to preserve the records required by
Rule 204-2 under the Advisers Act for the period
specified in the Rule.
(b) Title to all investments shall be made in the name of
the Fund, provided that for convenience in buying,
selling, and exchanging securities (stocks, bonds,
commercial paper, etc.), title to such securities may
be held in the name of the Fund's custodian bank, or
its nominee. The Fund shall advise the Subadvisor of
the identity of its custodian bank and shall give the
Subadvisor 15 days' written notice of any changes in
such custody arrangements.
Neither the Subadvisor, nor any parent, subsidiary or
related firm, shall take possession of or handle any
cash, securities, mortgages or deeds of trust, or
other indicia of ownership of the Fund's investments,
or otherwise act as custodian of such investments.
All cash and the indicia of ownership of all other
investments shall be held by the Fund's custodian
bank.
The Fund shall instruct its custodian bank to (a)
carry out all investment instructions as may be
directed by the Subadvisor with respect thereto
(which may be orally given if confirmed in writing);
and (b) provide the Subadvisor with all operational
information necessary for the Subadvisor to trade on
behalf of the Fund.
6. Indemnification. The Subadvisor agrees to indemnify and hold
harmless the Advisor, the Fund, any affiliated person
within the meaning of Section 2(a)(3) of the 1940 Act
("affiliated person") of the Advisor or the Fund (other than the
Subadvisor) and each person, if any, who, within the meaning
of Section 15 of the Securities Act of 1933 (the "1933 Act"),
controls ("controlling person") the Advisor or the Fund against
any and all losses, claims, damages, liabilities or litigation
(including reasonable legal and other expenses) to which the
Advisor, the Fund or such affiliated person or controlling
person may become subject under the 1933 Act, 1940 Act, the
Advisers Act, or under any other statute, at common law or
otherwise, which (1) may be based upon any wrongful act or
omission by the Subadvisor, any of its employees or
representatives or any affiliate of or any person acting on
behalf of the Subadvisor or (2) may be based upon any untrue
statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering
the shares of the Fund or any amendment thereof or any supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, if such a statement
or omission was made in reliance upon information furnished
to the Fund or any affiliated person of the Fund by the
Subadvisor or any affiliated person of the Subadvisor; provided,
however, that in no case is the Subadvisor's indemnity in
favor of the Advisor or the Fund or any affiliated person or
controlling person of the Advisor or the Fund deemed to protect
such person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of his or its duties or by
reason of his or its reckless disregard of obligations and duties
under this Agreement or under any law.
The Fund agrees not to hold the Subadvisor or any of its officers
or employees liable for, and to indemnify and hold harmless, the
Subadvisor and its directors, officers, employees, affiliated
persons and controlling persons ("Indemnified Parties") against,
any act or omission of any other subadvisor providing investment
management services to the Fund, and against any costs and
liabilities the Indemnified Parties may incur as a result of a
claim against the Indemnified Parties regarding actions taken in
good faith exercise of their powers hereunder excepting matters as
<PAGE>
to which the Indemnified Parties have been grossly negligent,
engaged in willful misfeasance, bad faith, reckless disregard of
the obligations and duties under this Agreement or have been in
violation of applicable law or regulations.
7. Other Investment Activities of Subadvisor. The Fund and
Advisor acknowledge that Subadvisor, or one or more of its
affiliates, may have investment responsibilities or render
investment advice to, or perform other investment advisory
services for, other individuals or entities ("Affiliated
Accounts"). Subject to the provisions of paragraph 2 hereof,
the Fund agrees that the Subadvisor or its affiliates may give
advice or exercise investment responsibility and take
other action with respect to other Affiliated Accounts
which may differ from advice given or the timing or nature of
action taken with respect to the Emerging Markets Series;
provided that the Subadvisor acts in good faith, and provided
further that it is the Subadvisor's policy to allocate, within
its reasonable discretion, investment opportunities to the
Emerging Markets Series over a period of time on a fair and
equitable basis relative to the Affiliated Accounts, taking
into account the investment objectives and policies of the
Emerging Markets Series and any specific investment restrictions
applicable thereto. The Fund acknowledges that one or more of the
Affiliated Accounts may at any time hold, acquire, increase,
decrease, dispose of or otherwise deal with positions in
investments in which the Emerging Markets Series may have an
interest from time to time, whether in transactions which may
involve the Emerging Markets Series or otherwise. Subadvisor
shall have no obligation to acquire for the Emerging Markets
Series a position in any investment which any Affiliated
Account may acquire, and the Fund shall have no first refusal,
co-investment or other rights in respect of any such investment
either for the Emerging Markets Series or otherwise.
8. (a) Duration. This Agreement shall become effective on the date
hereof. Unless terminated as herein provided, this Agreement shall
remain in full force and effective for a period of two years from
the date of this Agreement, and shall continue in full force and
effect for periods of one year thereafter so long as such
continuance is approved at least annually (i) by either the Board
of Directors of the Fund or by a vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the Emerging
Markets Series, and (ii) by the Advisor, and (iii) by the vote of
a majority of the Board of Directors of the Fund who are not
parties to this Agreement or "interested persons" (as defined in
the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(b) Termination. This Agreement may be terminated at any time,
without payment of any penalty, by the Board of Directors of the
Fund or by the vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the Emerging Markets Series,
or by the Advisor, on thirty (30) days' written notice to the
Subadvisor, or by the Subadvisor on like notice to the Board of
Directors of the Fund and to the Advisor. Payment of fees earned
through the date of termination shall not be construed as a
penalty.
(c) Automatic Termination. This Agreement shall automatically
and immediately terminate in the event of its assignment.
9. Amendments. 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 and no
amendment of this Agreement shall be effective until approved by a
vote of a majority of the outstanding voting securities of the
Emerging Markets Series, if such approval is required by
applicable law.
10. Miscellaneous.
(a) This Agreement shall be governed by the laws of the
State of California, provided that nothing herein
shall be construed in a manner inconsistent with the
1940 Act, the Advisers Act or rules or orders of the
SEC thereunder.
(b) The captions of this Agreement are included for
convenience only and in no way define or limit any of
the provisions hereof or otherwise affect their
construction or effect.
<PAGE>
(c) 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 affected thereby and, to this extent, the
provisions of this Agreement shall be deemed to be
severable.
(d) Nothing herein shall be construed as constituting
the Subadvisor as an agent of the Fund or the
Advisor.
(e) This Agreement supersedes any prior agreement
relating to the subject matter hereof between
the parties.
(f) This Agreement may be executed in counterparts and by
the different parties hereto on separate
counterparts, each of which when so executed and
delivered, shall be deemed an original and all of
which counterparts shall constitute but one and the
same agreement.
11. Use of Name. It is understood that the name "Nicholas-Applegate"
or the name of any of its affiliates, or any derivative associated
with those names, are the valuable property of the Subadvisor and
its affiliates and that the Fund and/or the Fund's distributor
have the right to use such name(s) or derivative(s) in offering
materials and sales literature of the Fund so long as this
Agreement is in effect. Upon termination of the Agreement the Fund
shall forthwith cease to use such name(s) or derivative(s).
12. Receipt of Brochure. The Advisor and the Fund have received from
Nicholas-Applegate the disclosure statement or "brochure" required
to be delivered pursuant to Rule 204-3 of the Advisers Act, which
disclosure statement or brochure was received by the Advisor and
the Fund more than 48 hours prior to entering into this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT (Hong Kong) LLC
By:------------------------------
-----------------------------
(Title)
FREMONT INVESTMENT ADVISORS, INC.
By:------------------------------
-----------------------------
(Title)
FREMONT MUTUAL FUNDS, INC.
By:------------------------------
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APPENDIX A
TO PORTFOLIO MANAGEMENT AGREEMENT
Nicholas-Applegate Capital Management (Hong Kong ) LLC
Subadvisor to the Fremont Emerging Markets Fund
SCHEDULE OF FEES
Fremont Investment Advisors, Inc. will pay to Nicholas Applegate a fee
computed at the annual rate of 0.50% (50 basis points) of the average value of
the daily assets of the Emerging Markets Fund under management by
Nicholas Applegate.*
Fee will be billed after the end of each calendar month. Fees will be prorated
for any period less than one month. Fees shall be due and payable within thirty
(30) days after an invoice has been delivered to Fremont Investment Advisors,
Inc.
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APPENDIX B
TO PORTFOLIO MANAGEMENT AGREEMENT
Nicholas-Applegate Capital Management (Hong Kong ) LLC
Subadvisor to the Fremont Emerging Markets Fund
INVESTMENT OBJECTIVES AND GUIDELINES
Overall Investment Objective:
The objective of the Fremont Emerging Markets Fund is to achieve long-term
capital appreciation by investing, in normal market conditions, at least 65% of
its total assets in equity securities of issuers domiciled in emerging market
countries. In normal market conditions, at least three different emerging market
countries will be represented in the Fund's portfolio.
Policy and Guidelines for Subadvisor:
The Subadvisor will adhere to the Investment Objective and to policies in the
Fremont Emerging Markets Fund prospectus.
Performance Objective for Subadvisor:
The Subadvisor is expected to achieve a competitive rate of return over a 3 to 5
year time horizon and/or a complete market cycle, relative to other emerging
market funds as compiled by Lipper Analytical Services and/or Morningstar. A
competitive rate of return is defined as Fund performance in the top one-third
of such funds. Performance will also be compared to the Morgan Stanley Capital
International Emerging Markets Free Index.
