SCHEDULE 14A
Rule 14a-101
INFORMATON REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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Fremont Mutual Funds, Inc.
(Name of Registrant as Specified in Charter)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
Schedule 14A; 33-23435; 811-05632
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(3) Filing party: Fremont Mutual Funds, Inc.
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(4) Date filed: February 12, 1998
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INDEX OF FILING
I. Documents for Fremont International Small Cap Fund
1. Shareholder Letter for Fremont International Small Cap Fund
2. Fremont International Small Cap Fund Proxy Statement
3. Exhibits to Fremont International Small Cap Fund Proxy Statement
1. Exhibit A - Investment Advisory and
Administrative Services Agreement
2. Exhibit B - Portfolio Management Agreement
3. Exhibit C - 12b-1 - Share Marketing Plan
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February 13, 1998
Re: Proxy and Shareholders' Meeting
Dear Fremont International Small Cap Fund Shareholder:
PLEASE READ THIS LETTER...IMPORTANT DOCUMENTS ENCLOSED.
I am writing to inform you of an important Proxy vote involving all Fremont
International Small Cap Fund shareholders. It is important that all Fremont
International Small Cap Fund shareholders exercise their right to vote on five
significant issues concerning this Fund. The Fremont Board of Directors has
recommended that each of the proxy resolutions presented below be approved and
adopted by Fremont Fund shareholders.
Enclosed is a proxy statement that will provide a detailed explanation of each
resolution. You will be asked to vote and approve five separate issues regarding
this fund:
1. Change of Manager--The Board of Directors of the Fund has decided to
strengthen the Fund's competitiveness by recommending that a new subadvisor be
hired to manage it. Bee & Associates Incorporated--a Denver based investment
manager with over $525 million under management-- bring an excellent performance
track record and extensive experience in international small-cap investment
management to this Fund. The Board recommends that they be hired as the new
subadvisor for the Fund.
2. Changes to the Fee Schedule--Because of the planned change in subadvisor, the
fee schedule of the fund will be changed, although the total expense ratio of
the fund will not be increased. With shareholder approval, the expenses will be
changed from a unified fee arrangement with a 1.50% expense ratio to an
allocated arrangement with the following fee schedule: Management fee--1.25%,
Administrative fee--.15%, Other fee--.15%, and a new 12b-1 Marketing fee--.25%.
The total fees for the fund will be capped at 1.50% through the end of the
Fund's fiscal year ending October 31, 1999. Absent the fee cap, however, the
total operating expenses of the Fund is estimated to be 1.80%. Fees waived by
the Investment Manager may be subject to capture as explained in the proxy
statement. Because of the cost and difficulty involved in trading in
international small cap securities, the board has decided to impose a 2%
redemption charge on any investments that are redeemed within six months of
purchase. The proposed redemption fee would apply to all shares purchased after
March 1, 1998. This will help protect shareholders and the Fund from investors
who attempt to time the market by trading in and out of the Fund.
3. New 12b-1 Distribution Fee--Going forward, the International Small Cap Fund
will institute a .25% distribution fee. (over, please)
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Fremont International Small Cap Fund
Shareholder Proxy Letter
Page 2
4. Multi-Manager Exemption--Fremont Investment Advisors, Inc., (the "Advisor"),
is responsible to the shareholders for the selection and oversight of portfolio
managers and subadvisors for the Fremont Funds. Currently, the Advisor may
employ, terminate or change portfolio managers for the Fremont International
Small Cap Fund only with shareholder approval. The Advisor is requesting
shareholder approval of a proposal to amend the Fund's investment advisory
agreement, which will permit the Advisor to hire subadvisors for the Fund or
modify subadvisory agreements without a shareholder vote. Implementing this
policy could benefit shareholders by reducing fund expenses, allowing for more
timely subadvisor changes when warranted and improving operating efficiencies.
5. Non-Diversified Fund--Because Bee & Associates uses a focused long-term,
bottom-up, value-driven approach to investing, the Fund will have a smaller
number of holdings than most other international small-cap funds. In order to
give the subadvisor greater investment flexibility, the Advisor is requesting
shareholder approval to change the fund from a diversified mutual fund to a
non-diversified mutual fund.
In this packet you will find two items:
* The proxy statement. This explains more about the five proposals outlined
above, and provides the background and purpose of this resolution.
* The proxy card--to use as a ballot.
How to vote on these resolutions
If you would like to cast your vote in person you may do so at the special
shareholder meeting that will take place at 10:00 a.m. on Friday, February 27,
1998, in the main conference room on the 26th floor of 333 Market Street, in San
Francisco.
If you do NOT plan to attend the special meeting of Fremont Fund shareholders,
it is very important that you exercise your voting rights by completing and
returning your proxy card in the enclosed postage-paid envelope no later than
February 23, 1998. Your prompt response will avoid the cost of additional
mailings to Fremont International Small Cap Fund shareholders.
The Board of Directors of Fremont Mutual Funds, Inc. unanimously recommends that
you vote in favor of the proposals outlined above.
If you have any questions about any of these materials, please call us at
800-548-4539 (press 1).
Sincerely,
Michael H. Kosich
President
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FREMONT MUTUAL FUNDS, INC.
FREMONT INTERNATIONAL SMALL CAP FUND
333 Market Street
26th Floor
San Francisco, CA 94105
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on February 27, 1998
A Special Meeting of Shareholders (the "Meeting") of the FREMONT
INTERNATIONAL SMALL CAP FUND (the "Fund") will be held at the Fund's offices at
333 Market Street, 26th Floor, San Francisco, California 94105, on February 27,
1998 at 10:00 a.m. for the following purposes:
1. To consider and act upon the approval of a new investment
advisory agreement between Fremont Mutual Funds, Inc. and
Fremont Investment Advisors, Inc.
2. To consider and act upon the approval of a new investment
subadvisory agreement between (i) Fremont Mutual Funds, Inc.,
(ii) Fremont Investment Advisors, Inc., and (iii) Bee &
Associates Incorporated.
3. To consider and act upon the approval of a proposal to convert
the Fund from a diversified mutual fund to a non-diversified
mutual fund.
4. To consider and act upon the approval and adoption of a Plan
of Distribution pursuant to Rule 12b-1 of the Investment
Company Act of 1940, as amended.
5. To consider and act upon the approval of a proposal to permit
Fremont Investment Advisors, Inc. to hire and terminate
subadvisory or modify subadvisory agreements without
shareholder approval.
6. To transact such other business as may properly come before
the Meeting or any adjournments thereof.
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The stock transfer books will not be closed but, in lieu thereof, the
Board of Directors has fixed the close of business on Friday, January 30, 1998
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
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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.
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San Francisco, California
February 13, 1998
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FREMONT MUTUAL FUNDS, INC.
FREMONT INTERNATIONAL SMALL CAP FUND
333 Market Street
26th Floor
San Francisco, CA 94105
(800) 548-4539
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 27, 1998
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 International Small 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 February 27, 1998 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 equally by Fremont Investment Advisors, Inc. (the "Investment
Manager") and the Fund. 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. ADP Investor Communication Services 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
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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 as amended (the "1940 Act") (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 (Proposal I), to approve the Fund's new
investment subadvisory agreement (Proposal II), to approve a change of a
fundamental investment policy of the Fund from being a diversified investment
company to a non-diversified investment company (Proposal III), to approve the
adoption of a Plan of Distribution pursuant to Rule 12b-1 of the 1940 Act
(Proposal IV) and to approve an arrangement to permit the Investment Manager to
hire and terminate subadvisors or modify subadvisory agreements without
shareholder approval (Proposal V).
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.
Since the five Proposals are related to one another, in the event one
or more of the Proposals are not approved by shareholders, the Board of
Directors, in its discretion, may decide not to implement any approved Proposal
until the time when all five Proposals were approved if the Board determines
that delaying such implementation is in the best interests of shareholders.
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.
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The Board of Directors of the Company has fixed the close of business
on January, 30, 1998 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 755,164.882 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 February 13, 1998.
As of the Record Date, the Investment Manager owned of record 14.77% of
the outstanding shares of the Fund; Fremont Group L.L.C.'s pension plan owned of
record 11.69% of the outstanding shares of the Fund; and Fremont Investors,
Inc.'s pension plan owned of record 16.45% 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.
BACKGROUND
The Investment Manager is seeking shareholder approval to make certain
changes to the Fund's operations and fee structure. Since the Fund commenced
operations on June 30, 1994, the Fund has had limited success in attracting
sufficient assets to allow the Investment Manager to operate the Fund at a
cost-efficient level and the subadvisor's quantitative, broadly diversified
investment approach has produced acceptable but not outstanding returns. As a
result, the Investment Manager is proposing several inter-related changes which
the Investment Manager believes will assist in increasing the Fund's assets (and
thereby lower expenses on a per share basis over the long term) and provide
greater opportunity for competitive returns (although there is no assurance that
the proposed new subadvisor will perform better or worse than the current
subadvisor). The first proposed change would modify the Fund's current unitary
fee structure and replace it with an itemized fee structure (Proposal I). Such a
change would bring the Fund's fee structure in line with most other mutual funds
advised by the Investment Manager. The second proposed change would be to
approve a change of investment subadvisor of the Fund from Acadian Asset
Management, Inc. to Bee & Associates Incorporated ("Bee & Associates"), an
investment management firm with $525 million in assets under management with an
exclusive investment focus on smaller companies worldwide (Proposal II). The
Investment Manager believes that Bee & Associates, with its expertise in
worldwide small cap investments, and "bottom up" fundamental research techniques
oriented toward specific stock selectors, will be able to provide more effective
portfolio management for the Fund. The Investment Manager also believes that if
the subadvisor produces more competitive investment results, more assets will be
attracted to the Fund. A related third proposed change is to approve a change in
the Fund's fundamental investment strategy from being a diversified investment
company to a non-diversified investment company (Proposal III). This change is
important to accommodate the proposed new subadvisor's
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style which focuses on specific stocks in concentrated portfolios rather than
broad market exposure. As a fourth proposed change, the Investment Manager also
proposes the adoption of a Rule 12b-1 distribution plan whereby a certain amount
of the Fund's assets would be used in marketing and distribution activities for
the Fund (Proposal IV). The fifth proposed change would allow the Investment
Manager to change subadvisors and modify subadvisory agreements without approval
of the Fund's shareholders (Proposal V).
PROPOSAL I
TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT FOR THE FUND TO
CHANGE THE FUND'SS FEE STRUCTURE FROM A UNITARY FEE STRUCTURE
TO AN ITEMIZED FEE STRUCTURE
The Investment Manager currently provides investment advisory services
to the Fund pursuant to an Investment Advisory and Administrative Services
Agreement (the "Current Agreement"). The Investment Manager, located at 333
Market Street, 26th Floor, San Francisco, California 94105, has advised the Fund
since its inception. The Investment Manager currently has $1.7 billion of assets
under management. Under the Current Agreement, the Fund pays the Investment
Manager an all-inclusive unitary management fee at an annual rate of 1.50% of
the Fund's average daily net assets, and the Investment Manager in turn is
responsible for providing investment advisory and administrative services as
well as paying all of the Fund's other ordinary operating expenses. This
Proposal I seeks shareholders' approval for a new Investment Advisory Agreement
(the "New Agreement") that would modify the current contractual management fee
arrangement between the Fund and the Investment Manager by (i) replacing the
all-inclusive unitary fee structure with a fee structure under which the Fund
(rather than the Investment Manager) would pay all of its expenses, including
its administrative expenses and other operating expenses, (ii) reducing the
management fee rate from 1.50% of the Fund's average daily net assets to 1.25%
of the Fund's average net assets, and (iii) adding a 2% redemption fee (payable
to the Fund) on proceeds on shares redeemed within six months of purchase.
Comparison of the Current Agreement and the New Agreement
The initial shareholder of the Fund approved the Current Agreement
shortly before the Fund commenced operation on June 30, 1994. The shareholders
of the Fund have not been asked to reapprove the Current Agreement since then.
The Board of Directors of the Company, including a majority of the
"disinterested" Directors, most recently approved continuation of the Current
Agreement on August 1, 1997 [to confirm]. Under the Current Agreement, the
Investment Manager is entitled to receive from the Fund an all-inclusive unitary
management fee of 1.50% of the average daily net assets of the Fund.
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The New Agreement for the Fund is identical in all material respect to
the Current Agreement except that the New Agreement would change the fee
structure as well as the effective and termination dates and would add a
recapture period for waived fees and expenses as further discussed below. A form
of the New Agreement is attached to this Proxy Statement as Exhibit A. The
following description of the New Agreement is only a summary. You should refer
to Exhibit A for the complete New Agreement. Under the New Agreement, the
Investment Manager would oversee the subadvisor's provision of investment
advisory services to the Fund.
Section 15 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 the Investment Manager to continue advising the Fund under the New
Agreement, the shareholders of the Fund must approve the New Agreement.
If approved by shareholders, the New Agreement will continue in effect
for two years from its effective date, and will continue in effect thereafter
for successive annual periods, provided its continuance is specifically approved
at least annually by (1) a majority vote, cast in person at a meeting called for
that purpose, of the Company's Board of Directors or (2) a vote of the holders
of a majority of the outstanding voting securities (as defined in the 1940 Act
and the rules thereunder) of the Fund, and (3) in either event by a majority of
the Directors who are not parties to the New Agreement or interested persons of
the Company or of any such party. The New Agreement provides that it may be
terminated at any time, without penalty, by either party upon 30-days' written
notice, provided that such termination by the Fund shall be directed or approved
by a vote of the Directors of the Company, or by a vote of holders of a majority
of the shares of the Company.
The advisory fee for both the Current Agreement and the New Agreement
are both expressed as an annual percentage of the Fund's average net assets,
calculated daily and paid monthly. Under the Current Agreement as originally
drafted, the Fund pays the Investment Manager an all-inclusive fee (also called
a unitary fee) at an annual rate of 2.50% of the Fund's average daily net assets
up to $30 million, 2% of the next $70 million of such assets and 1.50% of such
assets in excess of $100 million. Effective November 1, 1996, however, the
Investment Manager recommended, and the Board of Directors approved in its
October 31, 1996 Meeting, a reduction of the unitary fee to a flat annual rate
of 1.50% of the Fund's average daily net assets. In return for the unitary fee,
the Investment Manager provides investment advisory services, administrative
services and pays all of the Fund's other expenses except for certain
extraordinary expenses. The Investment Manager is entitled to receive this
amount regardless of whether the actual expenses of the Fund are more or less
than this amount. Under the New Agreement, the Fund would pay the Investment
Manager a 1.25% Management Fee that is not all-inclusive; the Fund would pay
separately for all of the other expenses. Such a proposed change would have the
effect of increasing the total operating expenses of the Fund to 1.80%. However,
the Investment Manager has agreed to cap all ordinary Fund advisory and
operating expenses at
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the current unitary fee rate of 1.50% per annum until October 31, 1999. The
following is a comparison of the fee structure under the Current Agreement and
the New Agreement.
Current Agreement New Agreement
Management Fee 1.50% 1.25%**
Administrative Fee None 0.15%**
12b-1 Fee None 0.25%*
Other Expenses None 0.15%**
Total Operating Expenses (after waiver) 1.50% 1.50%
Total Operating Expenses (prior to waiver) 1.50% 1.80%**
* The 12b-1 Fee will be imposed only if Proposal IV is approved by the
shareholders of the Fund.
** The Investment Manager will waive fees and reimburse the Fund for other
expenses in order to limit total operating expenses of the Fund to 1.50%
of average daily net assets through the end of the Fund's fiscal year
ending October 31, 1999. Absent such waiver and/or reimbursement, the
total operating expenses of the Fund is estimated to be 1.80%. To the
extent management fees are waived and/or other expenses are reimbursed by
the Investment Manager, the Investment Manager may elect to recapture
such amounts subject to the following conditions: the Investment Manager
must request reimbursement within three years from the year in which the
initial waiver and/or reimbursement is made, and the Board of Directors
must approve the reimbursement, and the Fund must be able to make the
reimbursement and still stay within the then current operating expense
limitation.
Although the Investment Manager is not required to do so, the New
Agreement permits the Investment Manager to reimburse the Fund to the extent
necessary so that the Fund's ratio of operating expenses will not exceed the
voluntary expense limit of 1.50%. The Current Agreement does not have an expense
limit because in a unitary fee structure, the Investment Manager is responsible
for paying all expenses of the Fund. The expense limit under the New Agreement
is voluntary on the part of the Investment Manager. The Investment Manager may
remove these limitations at any time after October 31, 1999 by amending the
prospectus and notifying shareholders. Shareholders should note that even though
the Investment Manager has agreed to limit expenses to 1.50% through the end of
fiscal year 1999 (which ends on October 31, 1999) the Investment Manager is
under no obligation to continue the voluntary waiver after the end of that
period. If the Investment Manager ceases to continue such waiver after that
date, the Fund's actual total operating expenses would likely increase to the
1.80%. Furthermore, unlike the existing arrangement, fee waived and expenses
reimbursed by the Investment Manager are subject to recapture by the Investment
Manager within three years from the year in which the waiver and/or
reimbursement is made if certain conditions as set forth above in the footnote
to the fee table are satisfied.
Both the New Agreement and the Current Agreement provide that the
Investment Manager would have no liability to the Fund or any shareholder of the
Fund for any act or omission in connection with rendering services under the
respective agreements, including any error of judgment, mistake of law or any
loss arising out of any investment, except for liability resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the Investment Manager of its duties under the agreements ("Disabling Conduct"),
and except to the
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extent specified in Section 36(b) of the Investment Company Act with respect to
a loss resulting from the breach of fiduciary duty with respect to receipt of
compensation for services. The New Agreement, like the current Agreement,
provides that the Fund shall indemnify the Investment Manager and its employees,
officers and directors from any liability arising from the Investment Manager's
conduct under the New Agreement, except for Disabling Conduct, to the extent
permitted by the Fund's governing documents and applicable law.
During the fiscal year ended October 31, 1997, the Investment Manager
earned $148,670 in a unitary fee under the Current Agreement. If the New
Agreement and the related new fee structure had been in place during that
period, the Investment Manager would have earned $123,892 in advisory fees under
the New Agreement and the Fund would have paid a total of $148,670 in operating
expenses (assuming a 1.50% CAP). During the fiscal year ended October 31, 1997,
no brokerage commission was paid to any affiliated broker.
The Investment Manager currently expects both the shareholders base and
the assets of the Fund to increase as a result of the proposed establishment of
a 12b-1 distribution plan (see Proposal IV below) and the appointment of Bee &
Associates as new subadvisor to the Fund with a focused approach towards
international small cap investing (see Proposal II below). The Investment
Manager and the Board are concerned, however, that a huge influx of new
shareholders may also attract market timers whose short-term investment focus
might be detrimental to the Fund and its shareholders, especially given the
relatively illiquid nature of international small cap securities. Therefore,
effective March 1, 1998, the Fund will impose a 2% redemption fee which will be
taken out of the proceeds of any shares purchased after that date and redeemed
within six months of purchase. The redemption fee is payable to the Fund.
Benefits to Shareholders
The following are some potential benefits the Investment Manager
believes might result from the proposed change of fee structure:
(1) Improve Disclosure of Expenses. An all-inclusive unitary fee
structure does not provide a detailed breakdown of itemized fees. By commingling
all fees of the Fund under one single fee number, it is more difficult for the
Board of Directors to evaluate the fairness, reasonableness and competitive
nature of the fees. The Board of Directors historically has used profit analysis
and other approaches to try to determine whether the fee requested by the
Investment Manager is fair and reasonable as compared to the industry average
but over time has found it increasingly difficult to do so on an accurate basis.
The Investment Manager believes a unitary number also may confuse shareholders
as to the true management fee paid to the Investment Manger for investment
advisory services and does not provide shareholders as much detailed information
as shareholders increasingly demand. By itemizing each major category of
expenses for the Fund, the new fee structure would make each fee item more
transparent to the Directors and shareholders. It is expected that such
additional disclosure would assist the Board in
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carrying out its fiduciary duties and to help shareholders in their
understanding of the costs of investing in the Fund.
(2) Enhance comparability of Expense with Other Mutual Funds. The
Investment Manager believes that by providing a detailed breakdown of each item
of expense, shareholders would be in a better position to compare the Fund's
expense structure with other mutual funds. By changing to an itemized structure,
shareholders would be able to better compare the Fund's expense structure with
other mutual funds.
Evaluation by the Board of Directors
On January 30, 1998, the independent directors of the Company's Board
met and discussed the proposal and evaluated the terms of the New Agreement.
After careful consideration, the Board decided to approve the proposed New
Agreement and to submit the proposed New Agreement to shareholders for approval.
In approving the New Agreement, the Board considered various factors,
including (1) the improved disclosure of itemized expenses of the Fund, (2) the
enhanced ability of for the Directors and shareholders to compare the Fund's
per-item expense ratios to other mutual funds (e.g. better comparison of
management fees, which under the New Agreement will be specified as a separate
item instead of being an aggregate number) and (3) the fact that the Investment
Manager would no longer be responsible to pay all of the Fund's other operating
expenses. In determining to recommend that shareholders of the Fund vote to
approve the New Agreement as being in the best interest of the Fund's
shareholders, the Board gave substantial weight to the Investment Manager's
representations and its conclusion that the improved disclosure would result in
a more transparent fee disclosure and thereby better allow both the Board and
the shareholders to compare the true expenses of the Fund with other mutual
funds.
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), approved the New Agreement and voted to recommend its approval to the
Fund's shareholders.
The Board of Directors recommends that shareholders vote "FOR" the
proposal to approve the New Agreement to change the Fund's fee structure from a
unitary fee structure to an itemized expense structure. If the shareholders of
the Fund do not approve this Proposal, the Current Agreement will continue.
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PROPOSAL II
TO CONSIDER A NEW SUBADVISORY AGREEMENT FOR THE FUND
Acadian Asset Management, Inc. ("Acadian") currently serves as
subadvisor to the Fund pursuant to an Portfolio Management Agreement dated June
24, 1994 (the "Current Subadvisory Agreement"). The Current Subadvisory
Agreement was first approved by the initial shareholder of the Fund shortly
before the Fund commenced operations on June 30, 1994. The Board of Directors,
including a majority of "disinterested" Directors, most recently approved
continuation of the Current Subadvisory Agreement on August 1, 1997.
This Proposal II seeks shareholders' approval for a new Investment
Subadvisory Agreement (the "New Subadvisory Agreement") with Bee & Associates to
replace Acadian as investment subadvisor to the Fund. At a meeting held on
January 30, 1998, the Board of Directors approved the New Subadvisory Agreement
between the Fund's Investment Manager and Bee & Associates to replace Acadian as
subadvisor to the Fund. Subject to approval by shareholders of the Fund, Bee &
Associates will assume responsibility as subadvisor to the Fund following the
termination of the current subadvisor, Acadian Asset Management.
Comparison of the Current Subadvisory Agreement and the New Subadvisory
Agreement
The New Subadvisory Agreement for the Fund is similar in all material
respects to the Current Subadvisory Agreement except that (1) Bee & Associates
would replace Acadian as the new subadvisor to the Fund, (2) a new fee structure
would be imposed, (3) the initial term of the agreement has been extended from
one year to two years, and (4) there will be new effective and termination dates
for the agreement. A form of the New Subadvisory Agreement is attached to this
Proxy Statement as Exhibit B. The following description of the New Subadvisory
Agreement is only a summary. You should refer to Exhibit B for the complete New
Subadvisory Agreement.
Under the New Subadvisory Agreement, Bee & Associates would provide
investment advisory services to the Fund, subject to the oversight of the
Investment Manager. Bee & Associates would be responsible to, among other
things, deciding what securities will be purchased and sold by the Fund, when
such purchases and sales are to be made, and arranging for those purchases and
sales, all in accordance with the provisions of the Investment Company Act of
1940 as amended and the rules thereunder, the governing documents of the
Company, the fundamental policies of the Fund, as reflected in its registration
statement, and any policies and determinations of the Board of Directors.
Section 15 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 Bee & Associates to serve as new subadvisor to the Fund
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under the New Subadvisory Agreement, the shareholders of the Fund must approve
the New Subadvisory Agreement.
If approved by shareholders, the New Subadvisory Agreement will
continue in effect for two years from its effective date, and will continue in
effect thereafter for successive annual periods, provided its continuance is
specifically approved at least annually by (1) a majority vote, cast in person
at a meeting called for that purpose, of the Company's Board of Directors or (2)
a vote of the holders of a majority of the outstanding voting securities (as
defined in the 1940 Act and the rules thereunder) of the Fund, and (3) in either
event by a majority of the Directors who are not parties to the New Subadvisory
Agreement or interested persons of the Company or of any such party. The New
Subadvisory Agreement provides that it may be terminated at any time, without
penalty, by either party upon 30-days' written notice, provided that such
termination by the Fund shall be directed or approved by a vote of the Directors
of the Company, or by a vote of holders of a majority of the shares of the
Company.
The subadvisory fee for both the Current Subadvisory Agreement and the
New Subadvisory Agreement are both expressed as an annual percentage of the
Fund's average net assets, calculated daily and paid monthly. Under the Current
Subadvisory Agreement, Acadian is entitled to receive subadvisory fees at the
following annual rate expressed as a percentage of the Fund's average net
assets: 0.75% on the first $50 million of average net assets, 0.65% on the next
$50 million of average net assets, 0.50% on net assets on the next $100 million
of average net assets and 0.40% thereafter. Under the New Subadvisory Agreement,
Bee & Associates is entitled to receive subadvisory fees at the rate of 1% of
the Fund's average net assets.
During the fiscal year ended October 31, 1997, Acadian earned
approximately $74,300 in advisory fees under the Current Subadvisory Agreement,
all of which were waived by Acadian.
Similar to the Current Subadvisory Agreement, the New Subadvisory
Agreement provides that in the absence of willful misfeasance, bad faith, gross
negligence, reckless disregard of its obligations thereunder and violation of
any applicable law or regulations, Bee & Associates is not liable to the Fund or
any of the Fund's shareholders for any act or omission by Bee & Associates 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 Bee & Associates subject to the requirements of the 1940 Act.
The New Investment Subadvisor
Bee & Associates, a Colorado corporation located at 370 Seventeenth
Street, Suite 3560, Denver, Colorado 80202 will, upon approval by the Board and
the shareholders, serve as the Fund's new investment subadvisor in conformity
with the Fund's investment objectives and policies.
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Bee & Associates is an independent, Denver-based registered investment
adviser founded in 1989. It's principal business is providing investment
management services. It has $525 million under management for various
foundations, endowments, retirement plan sponsors, mutual funds and individuals.
Bee & Associates' investment focus is exclusively on smaller companies worldwide
(those with under US $1 billion market cap) and the current average market
capitalization of the companies in its portfolios is under $300 million. Bee &
Associates' investment philosophy is the use of a long-term, bottom up, value
orientation toward stock selection and portfolio construction. Bee & Associates
invests in all international markets - - primarily in the developed markets, but
also including (to a limited extent) emerging markets and post-emerging markets
such as Mexico and Brazil. Bee & Associates buys companies for long term
appreciation and the portfolio turnover is typically less than 25%. This
investment approach tends to make its portfolios more tax efficient (for the
fiscal year ended December 31, 1997, the portfolio turnover rate under the
Fund's current subadvisor was 50%).
Bee & Associates' principal executive officers and directors are shown
below. The address of each as it relates to his/her duties at Bee & Associates
is the same as that of Bee & Associates.
Name Position with Company
---- ---------------------
Bruce B. Bee President and Director
Edward N. McMillan Principal and Director
Certain transitional arrangements
In connection with the proposed change of subadvisor from Acadian to
Bee & Associates, the Investment Manager, Acadian and Bee & Associates have
agreed that all portfolio securities currently held by the Fund should be
liquidated prior to or shortly after Bee & Associates become subadvisor to the
Fund. Shareholders should note that such liquidations involve certain costs,
including brokerage commissions, which would be borne by shareholders of the
Fund. In addition, to the extent a portfolio security has appreciated in value,
a capital gain would be recognized upon liquidation of the security position.
Such capital gains, unless offset by capital losses, would be taxable to
shareholders when distributed. Any net capital losses can be carried forward to
offset potential future capital gains. It is also expected that for a short
period immediately after Bee & Associates had been appointed new subadvisor to
the Fund, Acadian would continue to provide limited subadvisory services to the
Fund and assists in liquidating the Fund's portfolio securities position.
Benefits To Shareholders
The Board has identified the following benefits which the shareholders
are anticipated to realize as a result of the new Subadvisory Agreement:
1. The Fund would benefit from the high quality of global
investment management services that can be provided by Bee &
Associates. As discussed above, Bee & Associates has extensive
experience in international small cap investments. It
currently advises three mutual funds investing in
international equity securities. Given the Fund's investment
focus in the international area, the Investment Manager
believes that Bee & Associates would be able to provide
valuable investment advisory services to the Fund and its
shareholders.
2. The advisory fees charged to the Fund will not increase as a
result of approving the New Subadvisory Agreement. Even
though, under the New Subadvisory Agreement, both the
Investment Manager and Bee & Associates would be involved in
providing advisory services to the Fund and Bee & Associates
is entitled to a higher fee than Acadian, the Investment
Manager (and not the Fund nor its shareholders) is responsible
for paying Bee & Associates's fees.
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Evaluation by the Board of Directors
On December 17, 1997, and on January 30, 1998, the Company's Board met
and discussed the proposed new subadvisory arrangement and its possible effect
on the Fund and evaluated the Subadvisory Agreement. In evaluating the proposed
new subadvisory arrangement, the Board reviewed materials furnished by Bee &
Associates relevant to its decision. Those materials included information
regarding Bee & Associates, its affiliates, personnel, operations, financial
condition, global research capabilities, investment philosophy, method of
managing portfolios and long-term experience and investment results in global
investing. The Investment Manager indicated that based on its separate review of
Bee & Associates, including its view of materials relating to Bee & Associates,
it was recommending to the Board that the Fund retain Bee & Associates as the
new subadvisor to the Fund. The Board considered the potential benefits to
shareholders. In its deliberations, the Board considered, among other things,
the terms of the proposed New Subadvisory Agreement and Bee & Associates's
long-term experience and investment results in global investing, its research
organization, its investment philosophy and the low turnover of its investment
professionals. 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.
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 the Investment
Manager's assurances that the estimated expenses to be incurred by the Fund
after the execution of the New Subadvisory Agreement will not be greater than
those that would otherwise be incurred by the Fund. The Board was also persuaded
that Bee & Associates's expertise in international investing would bring a
substantial benefit to the Fund.
Accordingly, after consideration of the above, and such other factors
and information as it deemed relevant, the Board of Directors, including a
majority of the directors who are not interested persons (as such term is
defined by the 1940 Act), approved the appointment of Bee & Associates and voted
to recommend the approval of Bee & Associates to the Fund's shareholders.
The Board of Directors recommends that shareholders vote "FOR" the
proposal to permit Bee & Associates to serve as the Fund's new subadvisor.
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PROPOSAL III
APPROVAL OR DISAPPROVAL OF A PROPOSAL TO CONVERT THE FUND
TO A NON-DIVERSIFIED FUND
Since its inception, the Fund has been operated as a diversified fund.
A diversified fund is subject to certain restrictions under the Investment
Company Act on the composition of its assets. Such restrictions require that
with respect to 75% of the Fund's assets, not more than 5% can be invested in
the securities of any one company and the Fund cannot own more than 10% of any
company's outstanding voting securities. There are no limitations with respect
to the remaining 25% of a diversified fund's assets.
In connection with Proposal II, which relates to the proposed
appointment of Bee & Associates as the new subadvisor to the Fund, the
Investment Manager is proposing to convert the Fund to a non-diversified Fund.
Under the Investment Company Act, there are no limitations on investments by a
non-diversified fund in any one issuer. However, if the conversion is approved,
the Fund will continue to operate under the diversification requirements of the
Internal Revenue Code necessary to achieve pass-through tax status. Under the
Internal Revenue Code, with respect to 50% of a non-diversified fund's assets,
not more than 5% can be invested in the securities of any one company and the
Fund cannot own more than 10% of any company's outstanding voting securities.
With respect to the remaining 50% of a non-diversified fund's assets, not more
than 25% may be invested in the securities of any one company.
Reasons For the Conversion
At meetings of the Board of Directors held on December 17, 1997 and on
January 30, 1998, the Board of Directors unanimously voted in favor of
converting the Fund to a non-diversified fund. For the reasons described below,
the Board of Directors believes that the conversion will enhance the Fund's
overall performance and be more consistent with the investment style of the
proposed new subadvisor.
If Proposal II is approved, Bee & Associates will become the new
investment subadvisory of the Fund. It employs an investment strategy which is
often described as a "bottom up" approach. Under this strategy, the subadvisor
of the Fund makes investments after identifying individual companies, conducting
research into their business operations, and concluding that the stock of the
company is available at a price that will provide an above average return to the
Fund. Bee & Associates' investment strategy is to identify a selected number of
under-researched companies and invest only in those companies that offer the
best long term investment prospects. This approach tends to result in portfolios
that contain only 20 to 25 stocks.
The Investment Manager believes that a "bottom up" approach can be very
successful in the small cap area. Conversion of the Fund to a non-diversified
fund will allow the Fund's assets
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to be concentrated in those ideas which the proposed new subadvisor identifies
as the most likely to produce significant capital appreciation. However, if the
Fund has fewer portfolio positions, it can be expected to be more volatile, and
a decrease in the market price of any one or more of its portfolio positions
will have a greater negative impact on the Fund's net asset value per share than
might be the case if the Fund held a widely diversified portfolio.
The Investment Manager also believes that a more focused investment
approach will attract more investors, thereby increasing the Fund's assets. At a
larger asset size, the Fund's fixed expenses would be spread over a larger base,
reducing the expense to each stockholder and increasing the return. The Fund's
ability to increase its asset size by attracting new investors is in part
dependent upon its success in achieving its goal of delivering above average
performance. The Investment Manager believes that by converting to a
non-diversified status, the Fund's performance could be improved and thus
provide it with a better chance of outperforming market averages. The
achievement of this goal would enhance the Fund's ability to attract new
investors and increase the Fund's asset base. However, there can be no assurance
that the conversion of the Fund to a non-diversified fund will improve the
Fund's performance or result in an increase in the Fund's asset size.
The Board of Directors recommends that shareholders vote "FOR" the
proposal to convert the Fund to a non-diversified fund.
PROPOSAL IV
APPROVAL OR DISAPPROVAL OF A RULE 12b-1 PLAN OF DISTRIBUTION
As part of the restructuring of the Fund, the Board of Directors is
recommending that the Fund adopt a Rule 12b-1 Plan of Distribution (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act in order to provide a mechanism to
finance broader distribution of the Fund. In reaching a recommendation in favor
of adoption of the Plan, the Directors determined, in the exercise of their
business judgment and in light of their fiduciary duties as Directors, that
there is a reasonable likelihood that the Plan would benefit the Fund and its
shareholders. The Board of Directors believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund, which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification, and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Directors make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, the costs to and expenses incurred by the
Investment Manager pursuant to the Plan and the purposes underlying such cash
and expenditures must be reported quarterly to the Board of Directors for its
review. In addition, the selection and
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nomination of those Directors who are not interested persons of the Company are
committed to the discretion of the Independent Directors during such period.
Under the Plan, the Fund would be permitted to compensate the
Investment Manager for expenses incurred in the distribution and promotion of
the Fund's shares, including, but not limited to, the printing of prospectuses,
statements of additional information, and reports used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
promotion, marketing, and sales expenses, and other distribution-related
expenses, including any distribution fees paid to securities dealers or other
firms who have executed a distribution or service agreement with the Fund's
underwriter. The Plan would permit payments in any fiscal year up to a maximum
of .25% (1/4 of 1%) of the average daily net assets of the Fund. No amounts may
be carried forward from one year to the next. It is possible that the Investment
Manager could receive compensation under the Plan that exceeds the Investment
Manager's costs and related distribution expenses, thus resulting in a profit to
the Investment Manager. However, the Investment Manager does not anticipate that
this would ever be the case. Rather, the Investment Manager anticipates that it
will freely use the entire amount received under the Plan to promote the
distribution of the Fund as well as continue its current practice of supporting
the Fund's distribution with the Investment Manager's own monies.
All payments made pursuant to the Plan will be made in accordance with
written agreements and will be reviewed by the Board of Directors at least
quarterly.
The Plan is a one-year plan that must be reconsidered and reviewed
annually by a vote of the Company's Board of Directors and by a vote of the
Independent Directors at a meeting called for the purpose of voting on such
continuance. The Plan may be terminated at any time by a vote of a majority of
the Independent Directors or by a vote of the holders of a majority of the
outstanding shares of the Fund. In the event the Plan is terminated in
accordance with its terms, the Fund will not be required to make any payments
for expenses incurred by the Advisor after the termination date. Each
Implementation Agreement terminates automatically in the event of its assignment
and may be terminated at any time by a vote of a majority of the Independent
Directors or by a vote of the holders of a majority of the outstanding shares of
the Fund on not more than 60 days' written notice to any other party to the
Implementation Agreement. The Plan may not be amended to increase materially the
amount to be spent for distribution without shareholder approval. All material
amendments to the Plan must be approved by a vote of the Company's Board of
Directors and by a vote of the Independent Directors.
As described in Proposal I, under the new Agreement, the Investment
Manager has voluntarily undertaken to limit the Fund's annual total operating
expenses (including the expense of the Plan) to 1.50%. In view of this expense
cap, approval of the Plan will not increase expenses incurred by the Fund.
However, the expense cap is voluntary (and waived fees may be subject to
recapture) and although the Investment Manager has no current intention to
terminate it, the cap could be terminated at any time subsequent to October 31,
1999 in the sole discretion of the Investment Manager. Absent such an expense
Cap, the total operating expenses of the Fund is estimated to be 1.80%.
Accordingly, adoption of the Plan has the potential to impact the Fund's
expenses.
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The Board of Directors recommends that shareholders vote "FOR" the
proposal to permit the adoption of a Rule 12b-1 Plan of Distribution.
PROPOSAL V
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
(as defined above, the "Current Agreement") with the Company. However, if
Proposal II is approved by shareholders of the Fund, Bee & Associates will be
appointed as a subadvisor and the Investment Manager 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 of the 1940 Act.
Section 15 of the 1940 Act requires 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 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 subadvisors, and shareholders would save the
considerable expenses involved in holding shareholder meetings and soliciting
proxies. 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 (as defined above, "Independent Directors"), and the nomination of new or
additional Independent Directors will be placed with the discretion of the then
existing Independent Directors.
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(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
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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 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.
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.
GENERAL INFORMATION
Officers and Directors of the Investment Manager
The Investment Manager's principal executive officers are set forth
below. The address of each as it relates to his/her duties at the Investment
Manager, is the same as the Investment Manager.
Name Position with the Investment Manager
---- ------------------------------------
David L. Redo President and Director
Michael H. Kosich Senior Vice President and Director
Albert W. Kirschbaum Senior Vice President and Director
Peter F. Landini Executive Vice President and Director
Other Matters to Come Before the Meeting
The Investment Manager 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.
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Shareholder Proposals
The Meeting is a special meeting of shareholders. The Fund is not
required to, nor does it intend to, hold regular annual meetings of its
shareholders. If such a meeting is called, any shareholder who wishes to submit
a proposal for consideration at the meeting should submit the proposal promptly
to the Company.
Reports to Shareholders
The Company will furnish, without charge, a copy of the most recent
Annual Report to Shareholders of the Company, and the most recent Semi-Annual
Report succeeding such Annual Report, if any, on request. Request for such
reports should be directed to the Company c/o Fremont Investment Advisors, Inc.,
333 Market Street, Suite 2900, San Francisco, California 94105-4022, or to (800)
548-4539.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
Very truly yours,
Tina Thomas
Secretary
FEBRUARY 13, 1998
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EXHIBIT A
INVESTMENT ADVISORY
AND
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT, dated and effective as of this _______ day of
________, 1998 is made and entered into by and between FREMONT MUTUAL FUNDS,
INC., a Maryland corporation (hereinafter called the "Company") and FREMONT
INVESTMENT ADVISORS, INC. a California corporation (hereinafter called the
"Advisor").
WHEREAS, the Company is engaged in business as an open-end management
investment company and is so registered under the Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, the Advisor is engaged principally in the business of
rendering investment advisory and management services and is so registered under
the Investment Advisers Act of 1940; and
WHEREAS, the Company is authorized to, and does, issue shares of
capital stock in separate series with each such series representing interests in
a separate portfolio of securities and other assets; and
WHEREAS, the Company has issued shares of capital stock in a separate
series called the International Small Cap Fund (the "Fund") and the Advisor is
current serving as advisor and administrator to the Fund pursuant to an Amended
and Restated Investment Advisory and Administrative Services Agreement; and
WHEREAS, the Company desires to retain the Advisor to continue to
render investment advisory services to the Fund hereunder and the Advisor is
willing to do so under a new fee arrangement as expressed in this agreement;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the
parties hereto as follows:
1. The Company hereby appoints the Advisor to act as investment adviser
and administrator to the Fund for the period and on the terms herein set forth.
The Advisor accepts such appointment and agrees to render the services herein
set forth, for the compensation herein provided. The Advisor shall, for all
purposes herein, be deemed an independent contractor and not an agent of the
Company.
2. (a) The Advisor, as investment advisor to the Fund, agrees to
provide
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supervision of the portfolio of the Fund and to determine what securities or
other property shall be purchased or sold by the Fund, subject to the engagement
by the Advisor of any Sub-Advisor approved by the Board of Directors and (if
required by applicable law) the shareholders of the Company, giving due
consideration to the policies of the Fund as expressed in the Company's Articles
of Incorporation, By-laws, Form N-1A Registration Statement under the 1940 Act
and under the Securities Act of 1933, as amended (the "1933 Act"), and
prospectus as in use from time to time, as well as to the factors affecting the
status of the Fund as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended. In its duties hereunder, the Advisor shall
further be bound by any and all determinations by the Board of Directors of the
Company relating to investment policy, which determinations shall in writing be
communicated to the Advisor. Subject to the foregoing, the Advisor will exercise
all voting rights with respect to portfolio securities and may delegate such
voting rights to any Sub-Advisor approved by the Board of Directors.
(b) To the extent authorized by the Board of Directors of the
Company, the Advisor shall make decisions for the Fund as to foreign currency
matters and make determinations as to, and execute and perform, foreign exchange
contracts or may delegate such decisions to any Sub-Advisor approved by the
Board of Directors.
(c) (i) The Advisor shall provide adequate facilities and
qualified personnel for the placement of, and shall place orders for the
purchase, or other acquisition, and sale, or other disposition, of portfolio
securities for the Fund. With respect to such transactions, the Advisor, subject
to such direction as may be furnished from time to time by the Board of
Directors of the Company, shall endeavor as the primary objective to obtain the
most favorable prices and executions of orders. Subject to such primary
objective, the Advisor may place orders with brokerage firms which furnish
statistical and other information to the Advisor, taking into account the value
and quality of the brokerage services of such brokerage firms, including the
availability and quality of such statistical and other information. Receipt by
the Advisor of any such statistical and other information and services shall not
be deemed to give rise to any requirement for abatement of the advisory fee
payable to the Advisor pursuant to Section 6 hereof.
(ii) On occasions when the Advisor deems the purchase
or sale of a security to be in the best interests of the Fund as well as other
clients of the Advisor, the Advisor, to the extent permitted by applicable laws
and regulations, may aggregate the securities to be so sold or purchased when
the Advisor believes that to do so will be in the best interests of the Fund. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
the Advisor considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
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3. Subject to prior approval of the Board of Directors, the Advisor
may, but is not required to, retain one or more investment management
organizations ("Subadvisors") to make specific investment decisions with respect
to all or a portion of the assets of the Fund. The Advisor may allocate portions
of the Fund's assets among such Subadvisor(s) or among itself and such
Subadvisor(s). The Advisor shall monitor the performance of such Subadvisor(s),
shall allocate and reallocate assets among Subadvisors of the Fund with multiple
Subadvisors, and shall recommend the employment or termination of a particular
Subadvisor when deemed advisable. The Advisor will compensate such Subadvisor(s)
from its own resources, at no additional cost to te Company.
4. The Advisor, as administrator for the Fund, shall furnish the
services of persons to perform the executive, administrative, clerical, and
bookkeeping functions of the Company (other than services involving the custody
of portfolio securities), including the daily determination of net asset value
of the Fund. The Advisor shall also provide the Company with suitable office
space (which may be in the offices of the Advisor); all necessary small office
equipment and utilities; and general purpose accounting forms, supplies, and
postage used at the offices of the Company. These services are exclusive of the
necessary services and records at any dividend disbursing agent, transfer agent,
registrar or custodian, and accounting and bookkeeping services to be provided
by the custodian or other third-party service provider.
5. The Fund shall be responsible for paying for all costs and expenses
attendant to operating the Fund, including but not limited to (i) the
compensation payable hereunder to the Advisor for advisory and administrative
services; (ii) taxes; (iii) interest expense; (iv) portfolio transaction costs,
including, e.g., brokerage commissions and underwriting discounts; (v) any other
ordinary expenses incurred in the course of the regular and ongoing operations
of the Fund and (vi) any extraordinary costs or expenses such as legal,
accounting, or other costs or expenses not incurred in the course of the regular
and ongoing operations of the Fund.
6. (a) The Fund shall pay to the Advisor on or before the tenth (10th)
day of each month, as compensation for the services rendered by the Advisor
during the preceding month, an amount to be computed by applying to the total
net asset value of the Fund the applicable annual rates set forth on Appendix A
hereto.
(b) The fees on Appendix A shall be computed and accrued daily at
one three-hundred-sixty-fifth (1/365th) or one three hundred-sixty-sixth
(1/366th), as appropriate, of the applicable rates set forth therein. The net
asset value of the Fund shall be determined in the manner set forth in the
Articles of Incorporation and applicable Prospectus of the Company after the
close of the New York Stock Exchange on each day on which said Exchange is open,
and in the case of Saturdays, Sundays, and other days on which said exchange
shall not be open in the manner further set forth in said Articles of
Incorporation and Prospectus. In the event of
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<PAGE>
termination other than at the end of a calendar month, the monthly fee shall be
prorated for the portion of the month prior to termination and paid on or before
the tenth (10th) day subsequent to termination.
7. The Advisor may reduce any portion of the compensation or
reimbursement of expenses due to it pursuant to this Agreement and may agree to
make payments to limit the expenses which are the responsibility of the Fund
under this Agreement. Any such reduction or payment shall be applicable only to
such specific reduction or payment and shall not constitute an agreement to
reduce any future compensation or reimbursement due to the Advisor hereunder or
to continue future payments. Any such reduction will be agreed to prior to
accrual of the related expense or fee and will be estimated daily and reconciled
and paid on a monthly basis. To the extent such an expense limitation has been
agreed to by the Advisor and such limit has been disclosed to shareholders of
the Fund in a prospectus, the Advisor may not change the limitation without
first disclosing the change in an updated prospectus. Any fee withheld pursuant
to this Section 7 from the Advisor shall be reimbursed by the Fund to the
Advisor in the first, second, or third (or any combination thereof) fiscal year
next succeeding the first year of the withholding if the aggregate expenses for
the next succeeding fiscal year or second succeeding fiscal year or third
succeeding fiscal year do not exceed any more restrictive limitation to which
the Advisor has agreed. The Advisor generally may request and receive
reimbursement for the oldest reductions and waivers before payment for fees and
expenses for the current year.
8. Nothing contained in this Agreement shall be construed to prohibit
the Advisor from performing investment advisory, management, or distribution
services for other investment companies and other persons or companies, or to
prohibit affiliates of the Advisor from engaging in such businesses or in other
related or unrelated businesses.
9. The Company agrees (i) not to hold the Advisor or any of its
officers, directors, agents or employees liable for, and (ii) to indemnify or
insure the Advisor and its officers, directors, agents and employees
("Indemnified Parties") against any and all losses, claims, damages, liabilities
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under the 1933 Act, 1940 Act, the Advisors Act, under
any other statute, at common law or otherwise, which (1) arises out of an
investment decision or other action taken or omitted by one or more Indemnified
Parties in good faith exercise of authority hereunder or otherwise related to
this Agreement 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 Company or 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 Indemnified Parties; provided, however, that
in no case is Company's indemnity in favor of Indemnified Parties deemed to
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protect such Indemnified Parties against any liability to which any such
Indemnified Parties 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.
10. (a) This Agreement shall become effective with respect to the Fund
on the date hereof (the "Effective Date"). Unless terminated as herein provided,
this Agreement shall remain in full force and effect for two (2) years from the
Effective Date and shall continue in full force and effect for periods of one
year thereafter with respect to the Fund so long as such continuance with
respect to the Fund is approved at least annually (i) by either the Directors of
the Company or by a vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund, and (ii) in either event by the vote
of a majority of the Directors of the Company 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) This Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by the Board of Directors of the
Company or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Company, on thirty (30) days' written
notice to the Advisor, or by the Advisor on like notice to the Company.
(c) This Agreement shall automatically and immediately terminate in
the event of its assignment.
(d) 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.
(e) 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 Fund, if such approval is required by applicable law.
11. (a) This Agreement supersedes any prior agreement relating to the
subject matter hereof between the parties.
(b) 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized as
of the date first above written.
FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC.
By: By:
------------------------------- -----------------------------
Michael H. Kosich, Chairman David L. Redo, President
ATTEST: ATTEST:
- ----------------------------------- ---------------------------------
Tina Thomas, Secretary Tina Thomas, Secretary
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<PAGE>
APPENDIX A
to Investment Advisory
and Administrative Agreement
(International Small Cap Fund)
Investment Advisory Fee: 1.25% annually on the portion of
daily total net asset value
Administrative Fee: 0.15% annually on the portion of
daily total net asset value
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<PAGE>
EXHIBIT B
PORTFOLIO MANAGEMENT AGREEMENT
THIS AGREEMENT dated and effective as of [ ] 1998, among Bee &
Associates Incorporated, a Colorado corporation (the "Sub-Advisor"); 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 International Small Cap Fund (the "International Small Cap Series");
and
WHEREAS, the Fund has retained the Advisor to render investment
management and administrative services to the International Small Cap Series;
and
WHEREAS, the Advisor and the Fund desire to retain the Sub-Advisor to
furnish portfolio management services to the International Small Cap Series in
connection with Advisor's investment management activities on behalf of the
Series, and the Sub-Advisor is willing to furnish such services to the Advisor
and the International Small Cap Series;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Sub-Advisor, the Advisor and the Fund
as follows:
1. Appointment. The Advisor and the Fund hereby appoint Sub-Advisor to
provide sub-investment advisory services to the Advisor and the Fund with
respect to certain assets of the International Small Cap Series for the periods
and on the terms set forth in this Agreement. The Sub-Advisor accepts such
appointment and agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Sub-Advisor Duties. Subject to the supervision of the Advisor, the
Sub-Advisor shall have full discretionary authority as agent and
attorney-in-fact with respect to the portion of assets of the International
Small Cap Series' portfolio assigned to the Sub-Advisor, from time to
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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 Sub-Advisor may select. The
Sub-Advisor will provide the services under this Agreement in accordance with
the International Small Cap Series' registration statement filed with the
Securities and Exchange Commission ("SEC"), as amended. The Advisor will provide
the Sub-Advisor with a copy of each registration statement promptly after it has
been filed with the SEC. Investments by the Sub-Advisor 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 Sub-Advisor will vote proxies with respect to the securities and investments
purchased with the assets of the International Small Cap Series' portfolio
managed by the Sub-Advisor. The Sub-Advisor 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 International Small Cap Series and select the markets on or
in which the transaction will be executed. In providing the International Small
Cap Series with investment management, it is recognized that the Sub-Advisor
will give primary consideration to securing the most favorable price and
efficient execution considering all circumstances. Within the framework of this
policy, the Sub-Advisor 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 Sub-Advisor's other clients may be a party. It is
understood that it is desirable for the Fund that the Sub-Advisor 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 International Small Cap 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 Sub-Advisor is
authorized to place orders for the purchase and sale of securities for the
International Small Cap 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
Sub-Advisor 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 Sub-Advisor 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
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<PAGE>
Sub-Advisor in connection with the Sub-Advisor's services to other clients. On
occasions when the Sub-Advisor deems the purchase or sale of a security to be in
the best interest of the International Small Cap Series as well as other clients
of the Sub-Advisor, the Sub-Advisor, 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 Sub-Advisor in the manner the
Sub-Advisor considers to be the most equitable and consistent with its fiduciary
obligations to the International Small Cap 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 International Small Cap Series to assist the Advisor and the
Fund in their compliance with respect to the International Small 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 Sub-Advisor
will furnish the Fund's Board of Directors with respect to the International
Small Cap 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
Sub-Advisor as well as all investments, receipts, disbursements and other
transactions made with such assets. Such records shall be open to inspection and
audit during Sub-Advisor's normal business hours upon reasonable notice by any
person designated by the Advisor or the Fund. The Sub-Advisor 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 Sub-Advisor 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 Sub-Advisor 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 Sub-Advisor will
pay all expenses incurred by it, its staff and their activities, in connection
with its portfolio management activities under this Agreement. The Sub-Advisor
shall not be responsible for any expense incurred by the Advisor or the Fund,
except as provided in Section 6 below.
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<PAGE>
4. Compensation. For the services provided to the International Small
Cap Series, the Advisor will pay the Sub-Advisor 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 Sub-Advisor hereby agrees that all records
which it maintains for the International Small 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 Sub-Advisor 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 Sub-Advisor of the identity of its custodian bank and shall give the
Sub-Advisor 15 days' written notice of any changes in such custody arrangements.
Neither the Sub-Advisor, 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 Sub-Advisor with respect
thereto (which may be orally given if confirmed in writing); and (b) provide the
Sub-Advisor with all operational information necessary for the Sub-Advisor to
trade on behalf of the Fund.
6. Indemnification. The Sub-Advisor 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 Sub-Advisor) 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 Sub-Advisor, any of its employees
or representatives or any affiliate of or any person acting on behalf of the
Sub-
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Advisor 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
Sub-Advisor or any affiliated person of the Sub-Advisor; provided, however, that
in no case is the Sub-Advisor'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 Sub-Advisor or any of its officers or
employees liable for, and to indemnify and hold harmless, the Sub-Advisor and
its directors, officers, employees, affiliated persons and controlling persons
("Indemnified Parties") against, any act or omission of any other Sub-Advisor
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 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, may have investment responsibilities or render
investment advice to, or perform other investment advisory services for, other
individuals or entities ("Affiliated Accounts"). It is also understood that the
services of the Subadvisor provide a competitive advantage to the Fund and the
Advisor, and the Subadvisor agrees that it will not provide investment advisory
or subadvisory services to any other United States, publicly offered, SEC
registered investment company with investment objectives and policies similar to
those of the International Small Cap Series for the duration of this agreement.
Subject to the provisions of paragraph 2 hereof, the Fund agrees that the
Subadvisor 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 International
Small Cap 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 International Small Cap 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
International Small Cap Series and any specific investment restrictions
applicable thereto. The Fund acknowledges that one or
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<PAGE>
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 International Small Cap Series may have an interest from time to time,
whether in transactions which may involve the International Small Cap Series or
otherwise. Subadvisor shall have no obligation to acquire for the International
Small Cap 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 International Small Cap 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 International Small
Cap 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 International Small Cap Series, or by the Advisor, on thirty
(30) days' written notice to the Sub-Advisor, or by the Sub-Advisor 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 International Small Cap Series, if such approval is required by applicable
law.
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<PAGE>
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
Sub-Advisor 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 "Bee & Associates
Incorporated" or the name of any of its affiliates, or any derivative associated
with those names, are the valuable property of the Sub-Advisor 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
Bee & Associates Incorporated 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
BEE & ASSOCIATES INCORPORATED
By: ______________________________
(Title)
FREMONT INVESTMENT ADVISORS, INC.
By: ______________________________
(Title)
FREMONT MUTUAL FUNDS, INC.
By: ______________________________
(Title)
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<PAGE>
APPENDIX A
TO PORTFOLIO MANAGEMENT AGREEMENT
Bee & Associates Incorporated
Sub-Advisor to the Fremont International Small Cap Fund
SCHEDULE OF FEES
Fremont Investment Advisors, Inc. will pay to Bee & Associates Incorporated a
fee computed at the annual rate of 1.00% of the International Small Cap Fund's
average value of the daily net assets under management by Bee & Associates
Incorporated.
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.
<PAGE>
APPENDIX B
TO PORTFOLIO MANAGEMENT AGREEMENT
Bee & Associates Incorporated
Sub-Advisor to the Fremont International Small Cap Fund
INVESTMENT OBJECTIVES AND GUIDELINES
Overall Investment Objective:
The objective of the Fremont International Small Cap Fund is to achieve
long-term capital appreciation by investing primarily in equity securities of
small cap companies domiciled outside the United States.
Policy and Guidelines for Sub-Advisor:
The Sub-Advisor will adhere to the Investment Objective and to policies in the
Fremont International Small Cap Fund prospectus.
Performance Objective for Sub-Advisor:
[The Sub-Advisor 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 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.]
<PAGE>
EXHIBIT C
FREMONT MUTUAL FUNDS, INC.
SHARE MARKETING PLAN
(Rule 12b-1 Plan)
(Fixed Compensation Plan)
This Share Marketing Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "Act"), by Fremont Mutual Funds, Inc., a Maryland
corporation (the "Corporation") with respect to certain series of its shares as
listed in Exhibit A (each such series, a "Fund"). The Plan has been approved by
a majority of the Corporation's Board of Directors, including a majority of the
Directors who are not interested persons of the Corporation and who have no
direct or indirect financial interest in the operation of the Plan (the
"independent Directors"), cast in person at a meeting called for the purpose of
voting on the Plan.
In reviewing the Plan, the Board of Directors considered the
proposed range and nature of payments and terms of the Investment Management
Agreement between the Corporation on behalf of each Fund and Fremont Investment
Advisors, Inc. (the "Advisor") and the nature and amount of other payments, fees
and commissions that may be paid to the Advisor, its affiliates and other agents
of the Corporation. The Board of Directors, including the independent Directors,
concluded that the proposed overall compensation of the Advisor and its
affiliates was fair and not excessive.
In its considerations, the Board of Directors also recognized
that uncertainty may exist from time to time with respect to whether payments to
be made by the Corporation to the Advisor, as the initial "distribution
coordinator," or other firms under agreements with respect to a Fund may be
deemed to constitute impermissible distribution expenses. As a general rule, an
investment company may not finance any activity primarily intended to result in
the sale of its shares, except pursuant to the Rule. Accordingly, the Board of
Directors determined that the Plan also should provide that payments by the
Corporation and expenditures made by others out of monies received from the
Corporation which are later deemed to be for the financing of any activity
primarily intended to result in the sale of Fund shares shall be deemed to have
been made pursuant to the Plan.
The approval of the Board of Directors included a
determination that in the exercise
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<PAGE>
of the Directors' reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Plan will benefit the
Corporation, the Fund to which the Plan applies and its shareholders.
The provisions of the Plan are:
1. Annual Fee. The Corporation will pay to Advisor, as the
Funds' distribution coordinator, an annual fee for the Advisor's services in
connection with the promotion and distribution of the Fund's shares and related
shareholder servicing. The annual fee paid to Advisor under the Plan will be
calculated daily and paid monthly by each Fund on the first day of each month
based on the average daily net assets of each Fund, as follows: an annual rate
of up to 0.25%. This fee is not tied exclusively to actual distribution and
service expenses, and the fee may exceed the expenses actually incurred.
2. Services Covered by the Plan. The fee paid under Section 1
of the Plan is intended to compensate the Advisor for performing the following
kinds of services: services primarily intended to result in the sale of the
Fund's shares ("distribution services"), including, but not limited to: (a)
making payments, including incentive compensation, to agents for and consultants
to Advisor, any affiliate of the Advisor or the Corporation, including pension
administration firms that provide distribution and shareholder related services
and broker-dealers that engage in the distribution of the Fund's shares; (b)
making payments to persons who provide support services in connection with the
distribution of a Fund's shares and servicing of a Fund's shareholders,
including, but not limited to, personnel of Advisor, office space and equipment,
telephone facilities, answering routine inquiries regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Corporation's transfer agency or other servicing
arrangements; (c) making payments pursuant to the form of Distribution Agreement
attached hereto as an exhibit; (d) formulating and implementing marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (e)
printing and distributing prospectuses, statements of additional information and
reports of the Fund to prospective shareholders of the Fund; (f) preparing,
printing and distributing sales literature pertaining to the Fund; and (g)
obtaining whatever information, analysis and reports with respect to marketing
and promotional activities that the Corporation may, from time to time, deem
advisable. Such services and activities shall be deemed to be covered by this
Plan whether performed directly by the Advisor or by a third party.
3. Written Reports. Advisor shall furnish to the Board of
Directors of the Corporation, for its review, on a quarterly basis, a written
report of the monies paid to it under the Plan with respect to each Fund, and
shall furnish the Board of Directors of the Corporation with such other
information as the Board of Directors may reasonably request in connection with
the payments made under the Plan in order to enable the Board of Directors to
make an informed determination
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<PAGE>
of whether the Plan should be continued as to each Fund.
4. Termination. The Plan may be terminated as to any Fund at
any time, without penalty, by vote of a majority of the outstanding voting
securities of a Fund, and any Distribution Agreement under the Plan may be
likewise terminated on not more than sixty (60) days' written notice. Once
terminated, no further payments shall be made under the Plan notwithstanding the
existence of any unreimbursed current or carried forward Distribution Expenses.
5. Amendments. The Plan and any Distribution Agreement may not
be amended to increase materially the amount to be spent for distribution and
servicing of Fund shares pursuant to Section 1 hereof without approval by a
majority of the outstanding voting securities of a Fund. All material amendments
to the Plan and any Distribution Agreement entered into with third parties shall
be approved by the independent Directors cast in person at a meeting called for
the purpose of voting on any such amendment. The Advisor may assign its
responsibilities and liabilities under the Plan to another party who agrees to
act as "distribution coordinator" for the Corporation with the consent of a
majority of the independent Directors.
6. Selection of Independent Directors. So long as the Plan is
in effect, the selection and nomination of the Corporation's independent
Directors shall be committed to the discretion of such independent Board of
Directors.
7. Effective Date of Plan. The Plan shall take effect at such
time as it has received requisite Director and shareholder approval and, unless
sooner terminated, shall continue in effect for a period of more than one year
from the date of its execution only so long as such continuance is specifically
approved at least annually by the Board of Directors of the Corporation,
including the independent Directors, cast in person at a meeting called for the
purpose of voting on such continuance.
8. Preservation of Materials. The Corporation will preserve
copies of the Plan, any agreements relating to the Plan and any report made
pursuant to Section 5 above, for a period of not less than six years (the first
two years in an easily accessible place) from the date of the Plan, agreement or
report.
9. Meanings of Certain Terms. As used in the Plan, the terms
"interested person" and "majority of the outstanding voting securities" will be
deemed to have the same meaning that those terms have under the Act and the
rules and regulations under the Act, subject to any exemption that may be
granted to the Corporation under the Act by the Securities and Exchange
Commission.
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<PAGE>
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Corporation and Advisor, as distribution
coordinator, as evidenced by their execution hereof, as of this ____ day of
November 1997.
FREMONT MUTUAL FUNDS, INC.
By:
Title: ___________________________________________
FREMONT INVESTMENT ADVISORS, INC.
as Distribution Coordinator
By:
Title: ___________________________________________
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<PAGE>
FREMONT MUTUAL FUNDS, INC.
---------
EXHIBIT A TO SHARE MARKETING PLAN
The following Series of Fremont Mutual Funds, Inc. have adopted the
Share Marketing Plan:
Fund Date Adopted
---- ------------
Fremont U.S. Small Cap Fund September 24, 1997
Fremont Emerging Markets Fund __________, 1998
Fremont International Growth Fund __________, 1998
Fremont International Small Cap Fund __________, 1998
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<PAGE>
FREMONT MUTUAL FUNDS, INC.
Share Marketing Agreement
EXHIBIT ONLY
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
Ladies and Gentlemen:
This Share Marketing Agreement has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Company
Act"), by Fremont Mutual Funds, Inc., a Maryland business corporation (the
"Corporation"), on behalf of various series of the Corporation (each series, a
"Fund"), as governed by the terms of a Share Marketing Plan (Rule 12b-1 Plan)
(the "Plan").
The Plan has been approved by a majority of the Directors who
are not interested persons of the Corporation or the Funds and who have no
direct or indirect financial interest in the operation of the Plan (the
"independent Directors"), cast in person at a meeting called for the purpose of
voting on such Plan. Such approval included a determination that in the exercise
of the reasonable business judgment of the Board of Directors and in light of
the Directors' fiduciary duties, there is a reasonable likelihood that the Plan
will benefit each Fund and its shareholders.
1. To the extent you provide eligible shareholder services of
the type identified in the Plan to the Funds identified in the attached Schedule
(the "Schedule"), we shall pay you a monthly fee based on the average net asset
value of Fund shares during any month which are attributable to customers of
your firm, at the rate set forth on the Schedule.
2. In no event may the aggregate annual fee paid to you
pursuant to the Schedule to Share Marketing Agreement
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<PAGE>
exceed ____ percent of the value of the net assets of each Fund held in your
customers' accounts which are eligible for payment pursuant to this Agreement
(determined in the same manner as the Fund uses to compute its net assets as set
forth in its then effective Prospectus), without approval by a majority of the
outstanding shares of each Fund.
3. You shall furnish us and the Corporation with such
information as shall reasonably be requested by the Corporation's Board of
Directors with respect to the services performed by you and the fees paid to you
pursuant to the Schedule.
4. We shall furnish to the Board of Directors of the
Corporation, for its review, on a quarterly basis, a written report of the
amounts expended under the Plan by us with respect to each Fund and the purposes
for which such expenditures were made.
5. You agree to make shares of the Funds available only (a) to
your customers or entities that you service at the net asset value per share
next determined after receipt of the relevant purchase instruction or (b) to
each such Fund itself at the redemption price for shares, as described in each
Fund's then-effective Prospectus.
6. No person is authorized to make any representations
concerning a Fund or shares of a Fund except those contained in each Fund's
then-effective Prospectus or Statement of Additional Information and any such
information as may be released by a Fund as information supplemental to such
Prospectus or Statement of Additional Information.
7. Additional copies of each such Prospectus or Statement of
Additional Information and any printed information issued as supplemental to
each such Prospectus or Statement of Additional Information will be supplied by
each Fund to you in reasonable quantities upon request.
8. In no transaction shall you have any authority whatever to
act as agent of the Funds and nothing in this Agreement shall constitute you or
the Fund the agent of the other. You are not authorized to act as an underwriter
of shares of the Funds or as a dealer in shares of the Funds.
9. All communications to the Funds shall be sent to: Ms. Tina
Thomas, Fremont Investment Advisors, Inc., 333 Market Street, Suite 2600, San
Francisco, California, 94105. Any notice to you shall be duly given if mailed or
telegraphed to you at your address as indicated in this Agreement.
10. This Agreement may be terminated by us or by you, by the
vote of a majority of the Directors of the Corporation who are independent
Directors, or by a vote of a majority of the outstanding shares of a Fund, on
sixty (60) days' written notice, all without payment of any penalty.
-7-
<PAGE>
It shall also be terminated automatically by any act that terminates the Plan.
11. The provisions of the Plan between the Corporation and us,
insofar as they relate to you, are incorporated herein by reference.
This Agreement shall take effect on the date indicated below,
and the terms and provisions thereof are hereby accepted and agreed to by us as
evidenced by our execution hereof.
Fremont Investment Advisors, Inc.
Distribution Coordinator
By: EXHIBIT ONLY
-----------------------------
Authorized Officer
Dated: ________________________
Agreed and Accepted:
- ----------------------------
(Name)
By: ________________________
(Authorized Officer)
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<PAGE>
FREMONT MUTUAL FUNDS, INC.
-----------
SCHEDULE TO SHARE MARKETING AGREEMENT
BETWEEN _____________________.
AND
FREMONT INVESTMENT ADVISORS, INC.
as distribution coordinator
Pursuant to the provisions of the Share Marketing Agreement
between the above parties with respect to Fremont Investment Advisors, Inc. as
Distribution Coordinator, shall pay a monthly fee to the above-named party based
on the average net asset value of shares of each Fund during the previous
calendar month the sales of which are attributable to the above-named party, as
follows:
Fund Fee
---- ---
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<PAGE>
PROXY
Fremont International Small Cap Fund
SPECIAL MEETING OF SHAREHOLDERS
February 27, 1998
SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
FREMONT MUTUAL FUNDS, INC.
The undersigned hereby appoints Michael H. Kosich and Tina Thomas, and
each of them, as proxies of the undersigned, each with the power to appoint his
substitute, for the Special Meeting of Shareholders of Fremont International
Small Cap Fund (the "Fund"), a series of Fremont Mutual Funds, Inc. (the
Company), to be held on February 27, 1998 at the offices of Fremont Mutual
Funds, Inc., 333 Market Street, 26th Floor, San Francisco, California, 94105, or
at any and all adjournments thereof (the "Meeting"), to vote, as designated
below, all shares of the Fund, held by the undersigned at the close of business
on January 30, 1998. Capitalized terms used without definition have the meanings
given to them in the accompanying Proxy Statement.
A SIGNED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL LISTED BELOW UNLESS YOU
HAVE SPECIFIED OTHERWISE. PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY. YOU
MAY VOTE ONLY IF YOU HELD SHARES IN THE FUND AT THE CLOSE OF BUSINESS ON JANUARY
30, 1998. YOUR SIGNATURE AUTHORIZES THE PROXIES TO VOTE IN THEIR DISCRETION UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING, INCLUDING WITHOUT
LIMITATION ALL MATTERS INCIDENT TO THE CONDUCT OF THE MEETING.
1. Approval of the new Investment Advisory and Administrative Services
Agreement between the Fremont Investment Advisors, Inc., and the Fund:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Approval of the new Subadvisory Agreement among Fremont Mutual Funds, Inc.,
Fremont Investment Advisors, Inc. and Bee & Associates Incorporated:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
3. Approval of a proposal to convert the Fund from a diversified mutual fund
to a non-diversified mutual fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval of the Rule 12b-1 Plan of Distribution:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Approval to permit the Investment Manager to hire and terminate subadvisors
or modify subadvisory agreements without shareholder approval:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated: ______________, 1998
-----------------------------------
Signature
-----------------------------------
Title (if applicable)
-----------------------------------
Signature (if held jointly)
-----------------------------------
Title (if applicable)
Please sign exactly as name or names appear on your shareholder account
statement. When signing as attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please give full title. If shares are
held jointly, each shareholder should sign.
