AMENDED AND RESTATED
PORTFOLIO MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED PORTFOLIO MANAGEMENT AGREEMENT (the "Agreement")
dated and effective as of September 19, 2002, among Xxxx Capital Management LLC,
a Delaware corporation (the "Sub-Advisor"); Fremont Investment Advisors, Inc., a
Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland
corporation (the "Fund"). This Agreement amends and restates in its entirety the
Portfolio Management Agreement dated August 29, 1997 among the Fund, the
Advisor, and the Sub-Advisor.
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 offers shares of a particular series named the Fremont U.
S. Micro-Cap Fund (the "U. S. Micro-Cap Series"); and
WHEREAS, the Fund has retained the Advisor to render investment management
and administrative services to the U. S. Micro-Cap Series; and
WHEREAS, the Advisor and the Fund desire to retain the Sub-Advisor to
furnish portfolio management services to the U. S. Micro-Cap Series in
connection with Advisor's investment management activities on behalf of the
Series, and the Sub-Advisor is willing to furnish such services to the Advisor
and the U. S. Micro-Cap Series;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Sub-Advisor, the Advisor and the Fund as
follows:
1. APPOINTMENT. The Advisor and the Fund hereby appoint Sub-Advisor to provide
portfolio management services to the Advisor and the Fund with respect to
certain assets of the U. S. Micro-Cap Series for the periods and on the terms
set forth in this Agreement. The 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 U. S. Micro-Cap
Series' portfolio assigned to the Sub-Advisor, from time to time by the Advisor
or the Board of Directors, including authority to: (a) buy, sell, exchange,
convert or otherwise trade in any stocks and other marketable securities, in
accordance with the investment guidelines set forth in Appendix A and (b) place
orders for the execution of such securities transactions with or through such
1
brokers, dealers, or issuers as Sub-Advisor may select. The Sub-Advisor will
provide the services under this Agreement in accordance with the U. S. Micro-Cap
Series' registration statement filed with the Securities and Exchange Commission
("SEC"), as that registration statement is amended and supplemented from time to
time. The Advisor will provide the Sub-Advisor with a copy of each registration
statement, amendment and supplement promptly after it has been filed with the
SEC. The parties acknowledge that the Sub-Advisor's performance objective is as
set forth in Appendix A (as such may be revised from time to time at the
discretion of the Advisor); however, failure to satisfy such objective shall not
constitute a breach of this Agreement. Subject to the foregoing, the Sub-Advisor
will vote proxies with respect to the securities and investments purchased with
the assets of the U. S. Micro-Cap Series' portfolio managed by the Sub-Advisor.
The Sub-Advisor further agrees that:
(a) The Sub-Advisor will conform with all applicable rules and regulations
of the SEC.
(b) The Sub-Advisor will select broker-dealers or trading systems to
execute portfolio transactions for the U. S. Micro-Cap Series and select the
markets on or in which the transactions will be executed. In providing the U. S.
Micro-Cap Series with investment advisory services, it is recognized that the
Sub-Advisor will give primary consideration to securing the most favorable price
and efficient execution of orders so that the Fund's total cost or proceeds in
each transactions will be the most favorable under the circumstances. Within the
framework of this policy, the Sub-Advisor may consider the financial condition
of the broker-dealer or trading system, the investment information, brokerage,
research, analyses, trading services and other products provided by the
broker-dealer or trading system 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 and
the Advisor have access to research, analyses and trading services provided by
broker-dealers and trading systems that may execute brokerage transactions at a
higher cost to the U. S. Micro-Cap Series than might result from the allocation
of brokerage to other broker-dealers or trading systems that do not provide such
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 U. S. Micro-Cap Series with
broker-dealers or trading systems that provide research, analyses and trading
services and may charge an amount of commission for effecting securities
transactions in excess of the amount of commission another broker-dealer or
trading system would have charged for effecting that transaction, provided the
Sub-Advisor (or in the case of research, analyses and trading services provided
to the Advisor) determines in good faith that such amount of commission was
reasonable in relation to the value of the research, analyses and trading
services provided by such broker-dealers or trading systems viewed in terms of
either that particular transaction or the overall responsibilities of the
Sub-Advisor or the Advisor for this or other advisory accounts, subject to
review
2
by the Fund's Board of Directors from time to time with respect to the extent
and continuation of this practice to determine whether the Fund benefits,
directly or indirectly, from such practice.
It is understood that the research, analyses and trading services provided
by such broker-dealers or trading systems may be useful to the Sub-Advisor or
the Advisor in connection with the other clients of the Sub-Advisor or the
Advisor. On occasions when the Sub-Advisor deems the purchase or sale of a
security to be in the best interest of the U. S. Micro-Cap Series as well as
other clients of the Sub-Advisor or the 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 U. S. Micro-Cap Series and to
such other clients.
The Sub-Advisor agrees to use its best efforts to direct brokerage to
certain broker-dealers or trading systems as may be requested from time to time
by the Advisor; however, such directed brokerage decisions shall be made in the
discretion of the Sub-Advisor and shall be consistent with the Sub-Advisor's
obligation to use its best efforts to obtain best execution as required by the
policy discussed above in this section. Such directed brokerage may be used to
obtain research used by the Advisor or for other purposes determined by the
Advisor, such as offsetting the operating expenses of the Fund. The Sub-Advisor,
at the request of the Advisor, shall render reports to the Advisor in such form
and at such times as may be reasonably required, setting forth the amount of
total brokerage business which has been placed by it and the allocation thereof
among broker-dealers and trading systems and specifically indicating those
broker-dealers and trading systems which provided research, analyses and trading
services.
(c) The Sub-Advisor will 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 U. S. Micro-Cap Series to assist the Advisor and the Fund in
their compliance with respect to the U. S. Micro-Cap Series' securities
transactions as required by the 1940 Act and the Investment Advisers Act of 1940
(the "Advisers Act"), as well as other applicable laws. The Sub-Advisor will
furnish the Fund's Board of Directors with respect to the U. S. Micro-Cap Series
such periodic and special reports as the Advisor and the Directors may
reasonably request in writing.
(d) The Sub-Advisor will maintain detailed records of the Fund's 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
3
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.
(e) The Sub-Advisor shall use its best judgment and efforts in rendering
the advice and services to the Advisor as contemplated by this Agreement.
3. INDEPENDENT CONTRACTOR.
The Sub-Advisor shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized to do so, have no authority to act for or represent the Company or
the Advisor in any way, or in any way be deemed an agent for the Advisor or the
Company.
4. EXPENSES AND COMPENSATION.
(a) 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 (except that brokerage
costs shall be paid by the Fund). The Sub-Advisor shall not be responsible for
any expense incurred by the Advisor or the Fund, except as provided in Section 6
below.
(b) For the services provided to the U. S. Micro-Cap Series, the Advisor
will pay the Sub-Advisor the fees as set forth in Appendix B hereto at the times
set forth in Appendix B hereto.
5. REPRESENTATIONS AND WARRANTIES.
(a) ADVISOR AND FUND. The Advisor and the Fund each represents and warrants
to the Sub-Advisor that (i) the retention of the Sub-Advisor as contemplated by
this Agreement is authorized by the respective governing documents of the Fund
and the Advisor; (ii) the execution, delivery and performance of each of this
Agreement and the Advisory Agreement does not violate any obligation by which
the Fund or the Advisor or their respective property is bound, whether arising
by contract, operation of law or otherwise; and (iii) each of this Agreement and
the Advisory Agreement has been duly authorized by appropriate action of the
Fund and the Advisor and when executed and
4
delivered by the Advisor will be the legal, valid and binding obligation of the
Fund and the Advisor, enforceable against the Fund and Advisor in accordance
with its terms hereof subject, as to enforcement, to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
equitable principles (regardless of whether enforcement is sought in a
proceeding in equity or law).
(b) SUB-ADVISOR. The Sub-Advisor represents and warrants to the Advisor and
the Fund that (i) the retention of the Sub-Advisor as contemplated by this
Agreement is authorized by the Sub-Advisor's governing documents; (ii) the
execution, delivery and performance of this Agreement does not violate any
obligation by which the Sub-Advisor or its property is bound, whether arising by
contract, operation of law or otherwise; and (iii) this Agreement has been duly
authorized by appropriate action of the Sub-Advisor and when executed and
delivered by the Sub-Advisor will be the legal, valid and binding obligation of
the Sub-Advisor, enforceable against the Sub-Advisor in accordance with its
terms hereof, subject, as to enforcement, to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought in a proceeding in
equity or law).
6. 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 U. S.
Micro-Cap Series are the property of the Fund and further agrees to surrender
promptly to the Fund any of such records upon the Fund's request. The
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 with respect to the U. S. Micro-Cap Series and to preserve the records
required by Rule 204-2 under the Advisers Act with respect to the U. S.
Micro-Cap Series 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 or as otherwise provided
in the Fund's custody agreement. The Fund shall notify the Sub-Advisor of the
identity of its custodian bank and shall give the Sub-Advisor fifteen (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 or 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
5
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.
7. 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-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 and accurately and completely reflects
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 negligence
in the performance of such person's duties or by reason of such person's
reckless disregard of the obligations and duties under this Agreement or by
reason of such person's violation of applicable law or regulations.
The Fund and the Advisor each 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"), 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 and responsibilities hereunder excepting matters as to
which the Indemnified Parties have been negligent, engaged in willful
misfeasance, bad faith, reckless disregard of the obligations and duties under
this Agreement or have been in violation of applicable law or regulations.
8. OTHER INVESTMENT ACTIVITIES OF SUB-ADVISOR. The Fund and Advisor acknowledge
that the Sub-Advisor, may have investment responsibilities or render investment
advice to, or perform other investment advisory services for, other individuals
or entities ("Affiliated Accounts"). Subject to the provisions of paragraph 2
hereof, the
6
Fund agrees that the Sub-Advisor 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 U. S. Micro-Cap Series; provided that the Sub-Advisor acts in
good faith, and provided further that it is the Sub-Advisor's policy to
allocate, within its reasonable discretion, investment opportunities to the U.
S. Micro-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 U. S. Micro-Cap Series and any specific investment restrictions
applicable thereto. The Fund acknowledges that one or more of the Affiliated
Accounts may at any time hold, acquire, increase, decrease, dispose of or
otherwise deal with positions in investments in which the U. S. Micro-Cap Series
may have an interest from time to time, whether in transactions which may
involve the U. S. Micro-Cap Series or otherwise. The Sub-Advisor shall have no
obligation to acquire for the U. S. Micro-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 U. S. Micro-Cap Series or otherwise.
9. (a) TERM. 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 one year 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 0000 Xxx) of
the outstanding voting securities of the U. S. Micro-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 0000 Xxx) 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 0000 Xxx) of the outstanding voting securities of
the U. S. Micro-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 transfer or assignment (within the
meaning of the 1940 Act).
10. 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
7
of the outstanding voting securities of the U. S. Micro-Cap Series, if such
approval is required by applicable law.
11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, 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, and any rules, regulations, and orders promulgated thereunder.
(b) CAPTIONS. The captions of this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
(c) SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, or rule or shall be otherwise rendered
invalid, 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) AGENCY. Nothing herein shall be construed as constituting the
Sub-Advisor as an agent of the Fund or the Advisor.
(e) PRIOR AGREEMENT. This Agreement supersedes any prior agreement relating
to the subject matter hereof between the parties.
(f) COUNTERPARTS. 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.
12. NOTICE OF ARTICLES OF INCORPORATION. The Sub-Advisor acknowledges that it
has received notice of and accepts the limitations of the Company's liability as
set forth in its Articles of Incorporation. The Sub-Advisor agrees that the
Company's obligations under this Agreement shall be limited to U. S. Micro-Cap
Series and to its assets, and that the Sub-Advisor shall not seek satisfaction
of any such obligation from the shareholders of the U. S. Micro-Cap Series nor
from any director, officer, employee or agent of the Fund.
13. USE OF NAME. It is understood that the name "Xxxx Capital Management LLC,"
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).
8
14. RECEIPT OF BROCHURE. The Advisor and the Fund have received from Xxxx
Capital Management LLC 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.
15. NOTICES. Any notice under this Agreement shall be given in writing and shall
be deemed to have been duly given when delivered by hand, on the date indicated
as the date of receipt on a return receipt, or at the time of receipt if sent to
the other party at the principal office of such party by regular mail,
commercial courier service, telex, facsimile or telecopier.
9
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
Xxxx Capital Management LLC
By: ____________________________________
Title: _________________________________
FREMONT INVESTMENT ADVISORS, INC.
By: ____________________________________
Title: _________________________________
FREMONT MUTUAL FUNDS, INC.
By _____________________________________
Title: _________________________________
10
APPENDIX A
TO PORTFOLIO MANAGEMENT AGREEMENT
Xxxx Capital Management LLC
Sub-Advisor to the Fremont U. S. Micro-Cap Fund
INVESTMENT OBJECTIVES AND GUIDELINES
Overall Investment Objective:
-----------------------------
The objective of the Fremont U. S. Micro-Cap Fund is to seek long-term
capital appreciation by investing, in normal market conditions, at least 80% of
its assets in equity securities of U. S. companies that, at the time of initial
purchase, place them among the smallest 5% of companies listed on U.S. exchanges
and on the over-the-counter market.
Policy and Guidelines for Sub-Advisor:
--------------------------------------
The Sub-Advisor will adhere to the Investment Objective and to policies in
the Fremont U. S. Micro-Cap Fund prospectus and Statement of Additional
Information.
Performance Objective for Sub-Advisor:
--------------------------------------
The Sub-Advisor is expected to achieve a competitive rate of return over a
time horizon of three to five years and/or a complete market cycle, relative to
other U. S. micro-cap or small cap funds as compiled by Lipper Analytical
Services and/or Morningstar. A competitive rate of return is defined as Fund
performance in the top one-third of such funds. Performance may be compared to
other investments or indices of comparable quality as outlined in the Statement
of Additional Information.
--------------------------------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, in the event of
a conflict between this Appendix A and the U. S. Micro-Cap Series' registration
statement filed with the SEC, as that registration statement is amended and
supplemented from time to time (collectively, the "Prospectus"), the term of the
Prospectus shall govern.
1
APPENDIX B
TO PORTFOLIO MANAGEMENT AGREEMENT
Xxxx Capital Management LLC
Sub-Advisor to the Fremont U. S. Micro-Cap Fund
SCHEDULE OF FEES
----------------
Fremont Investment Advisors, Inc. will pay to Xxxx Capital Management LLC,
on an aggregate basis, an annual fee computed as a percentage of the average
daily assets of the Fremont U. S. Micro-Cap Fund under management by Xxxx
Capital Management LLC. The management fees specified below shall be the fees
charged. The annual rate is determined as follows:
1.25% on the first $25 million
1.00% on the next $75 million
0.75% on all assets above $100 million
Fees will be billed after the end of each calendar month. Fees will be
prorated for any period less than one month and shall be due and payable within
thirty (30) days after an invoice has been delivered to the Advisor.
The Portfolio Management Agreement with the Sub-Advisor may be terminated
by the Advisor or the Investment Company upon 30 days' written notice.
2
