FREMONT MUTUAL FUNDS, INC.
FREMONT EMERGING MARKETS FUND
333 MARKET STREET
26TH FLOOR
SAN FRANCISCO, CA 94105
May [ ], 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 advisor (the " Investment Advisor").
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 objectives 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.
After careful consideration, the Board of Directors of Fremont Mutual
Funds, Inc. has unanimously approved this transaction and recommends that you
read the enclosed materials carefully and then vote FOR the proposal.
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,
David L. Redo
Chairman & Chief Executive Officer
Q&A on reverse side
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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. 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 proposal on the enclosed proxy card.
Q. HOW DO I CONTACT YOU?
A. If you have any questions, please call 800-548-4539.
Q. WHO IS MANAGEMENT INFORMATION SERVICES, INC.?
A. Management Information Services, Inc. is a professional proxy
solicitation firm retained by Credit Lyonnais HK to assist them in
coordinating shareholder questions and soliciting shareholder votes.
PLEASE VOTE
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES OF THE FUND YOU OWN
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FREMONT EMERGING MARKETS FUND
SPECIAL MEETING OF SHAREHOLDERS
________, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FREMONT MUTUAL
FUNDS, INC.
The undersigned hereby appoints David L. Redo and Tina Thomas, and each of them,
as Proxies with power of substitution and hereby authorizes each of them to
represent and to vote as provided on the reverse side, all shares of the Fremont
Emerging Markets Fund (the "Fund") which the undersigned is entitled to vote at
the special meeting of shareholders to be held on ________, 1997 or at any
adjournment thereof.
The undersigned acknowledges receipt of the Notice of Special Meeting and Proxy
Statement dated May [ ], 1997.
Date: ________________________
NOTE: Please sign exactly as your
name appears on this proxy. If
signing for an estate, trust or
corporation, title or capacity
should be stated. If the
shares are held jointly, both
signers should sign, although the
signature of one will bind the
other.
________________________________
________________________________
Signature(s) PLEASE SIGN IN THE
BOX ABOVE
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PLEASE INDICATE YOUR VOTE BY FILLING IN THE APPROPRIATE BOX BELOW, AS SHOWN,
USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSALS DESCRIBED
HEREIN.
1. With respect to the approval or disapproval of a new subadvisory
agreement for the Fund with Nicholas-Applegate Capital Management (Hong Kong)
LLC ("Nicholas Applegate"), effective upon the closing of the acquisition of
Credit Lyonnais International Asset Management (HK) Ltd. by Nicholas Applegate.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
PLEASE MARK YOUR PROXY, DATE AND SIGN IT ON THE REVERSE SIDE, AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
4
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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 ________, 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 ________, 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 advisor
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 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 May [ ], 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
Tina Thomas, Secretary
San Francisco, California
May [ ], 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.
5
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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 _______, 1997
INTRODUCTION
This Proxy Statement (the "Proxy") 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 (the "Meeting") of
the Fund to be held at the Fund's offices at 333 Market Street, 26th Floor, San
Francisco, California 94105, on _______, 1997 at 10:00 a.m. 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
will be counted as present 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 not present. 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 advisory agreement.
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 May [ ], 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.
6
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At the close of business on the Record Date, the Fund had [ ] 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 May [ ], 1997.
As of the Record Date, to the best knowledge of the Fund, no person
beneficially owned more than 5% of the outstanding shares of the Fund.
PROPOSAL
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 [has closed on] [is expected to close on or
prior to] May [ ], 1997 and is subject to various conditions, including approval
by the shareholders of the Fund of new investment subadvisory agreement between
(i) the Company, (ii) Fremont Investment Advisors, Inc. the Fund's investment
adviser, 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.
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 subadvisor 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
7
<PAGE>
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 sub-advisory 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, Fremont Investment Advisors, Inc. and
Nicholas-Applegate to replace the current subadvisory agreement with Credit
Lyonnais HK upon consummation of the Transaction. See "Evaluation by the Boards"
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, Connaught Place, Central, Hong Kong, will
serve as the Fund's investment subadvisor upon approval by the Board and the
shareholders. Nicholas-Applegate will manage the Fund's investments, subject to
supervision by the Fund's Investment Advisor, Fremont Investment Advisors, Inc.
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.
8
<PAGE>
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 [ ] years. Other key members of the Credit Lyonnais HK's
investment management team will also enter into [ ] 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 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 asset value, such fee to
be waived until the earlier of (i) July 1, 1997 or (ii) the date Fremont
Investment Advisors, Inc., as investment advisor to the Fund, reaches
"break-even" with respect to the Fund.
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, Fremont Investment
Advisors, Inc. 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.
9
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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.
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 Asia Growth Fund $18.0 million .50% of average
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. Senior officers of Credit Lyonnais HK and
Nicholas-Applegate were available to answer questions from the Board. 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. [Representatives of Credit Lyonnais HK and
Nicholas-Applegate discussed with the Board Nicholas-Applegate's philosophy of
management, performance expectations and methods of operation insofar as they
related to the Fund and indicated their belief that, as a consequence of the
Transaction, the operations of Nicholas-Applegate 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 it 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 Subadvi- sory
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, it was noted
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 would 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.
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OTHER MATTERS
The management 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,
Tina Thomas
Secretary
May [ ], 1997
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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 manage-
ment and administrative services to the 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
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<PAGE>
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 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
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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.
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
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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 perfor-
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mance 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 to which the Indemnified
Parties have been grossly negligent, engaged in willful misfea- sance, 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
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"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.
(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
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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:____________________________
____________________________
(Title)
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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.
*NOTE: Nicholas Applegate will waive this fee until the earlier of (i)
- ------ July 1, 1997 or (ii) the date Fremont Investment Advisors, Inc.
reaches "breakeven" with respect to the Fund.
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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.
9
