[Federal Register Volume 61, Number 227 (Friday, November 22, 1996)]
[Notices]
[Pages 59474-59476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29934]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22340; 812-10126]


Fremont Mutual Funds, Inc., et al.; Notice of Application

November 18, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption Under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Fremont Mutual Funds, Inc. (``Company'') and Fremont 
Investment Advisors, Inc. (``Advisor'').

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the 
Act from section 15(a) of the Act and rule 18f-2 thereunder.

SUMMARY OF APPLICATION: Applicants seek an order permitting subadvisers 
approved by the Company's board of directors to serve as portfolio 
managers (``Managers'') for the Company's series of shares without 
obtaining shareholder approval of the agreements with the Managers.

FILING DATES: The application was filed on May 6, 1996, and amended on 
November 12, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on December 13, 
1996, and should be accompanied by proof of service on applicants, in 
the form of an affidavit, or for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 333 Market Street, Suite 2600, San Francisco, CA 
94105.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenless, Senior 
Counsel, at (202) 942-0581 or Mary Kay Frech, Branch Chief, at (202) 
942-0564 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch.

 Applicants' Representations

    1. The Company, a Maryland corporation, is registered under the Act 
as an open-end, diversified management investment company. The Advisor 
is investment adviser to the Company and is a registered investment 
adviser. The Company currently offers nine portfolios (``Funds''), each 
with distinct investment objectives, policies, and restrictions. The 
Company's board of directors (``Board of Directors'') has the authority 
to create additional Funds and may do so from time to time.\1\
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    \1\ Applicants also request relief with respect to (a) any 
additional Fund organized in the future and (b) any other open-end 
management investment company (``Future Company'') advised by the 
Advisor, or a person controlling, controlled by or under common 
control with the Advisor, in the future, provided that such Future 
Company operates in substantially the same manner as the Funds and 
complies with the conditions of the requested order.
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    2. General management of the Company's investment operations is 
provided by the Advisor pursuant to investment advisory agreements with 
the Company, which have been approved by the shareholders of the Funds. 
Specific portfolio management for the Company is provided by the 
Advisor and/or a Manager for each Fund. The Managers are recommended to 
the Board of Directors by the Advisor. Each Manager performs services 
pursuant to a written portfolio management agreement (``Portfolio 
Management Agreement''). For Funds managed by the Advisor and a 
Manager, the Advisor is responsible for the allocation, and 
reallocation from time to time, of a Fund's assets among the Advisor 
and the Manager. More than one Manager could be engaged for a Fund, but 
this has not been done to date. The Advisor also is responsible for 
recommending to the Board of Directors the termination of a Manger when 
deemed in the best interests of a Fund.
    3. Each Fund pays an investment advisory fee to the Advisor, 
payable monthly based on a average daily net assets. The Advisor, out 
of these fees, pays the fees of the Managers at no additional cost to 
the Funds. Administrative services for the Company are provided by the 
Advisor and various unaffiliated third-party service providers.
    4. The specific investment decisions for five Funds are presently 
made by different Managers, each of which has discretionary authority 
to invest all or a portion of the assets of a particular Fund, subject 
to general supervision by the Advisor and the Board of Directors. Each 
Manager is an ``investment adviser,'' as defined in section 2(a)(20) of 
the Act. Applicants currently do not anticipate that the overall number 
of Managers will be reduced, although some Managers may in the future 
be terminated and replaced. The overall number of Managers may be 
increased if more Managers are added for existing Funds and if new 
Funds are created and Managers are engaged for those Funds.
    5. The Advisor currently seeks to enhance performance and reduce 
market risk by allocating the Fund's assets among itself and a Manager 
for one of the Funds (a ``Multiple Manager Arrangement''). Under a 
Multiple Manager Arrangement, which may be

[[Page 59475]]

employed with other Funds, the Advisor may allocate portions of a 
Fund's assets among multiple Managers, including itself, with 
dissimilar investment styles and security selection disciplines.
    6. Applicants request an exemption from section 15(a) of the Act 
and rule 18f-2 thereunder to permit applicants to enter into and amend, 
and Managers to act pursuant to, written advisory contracts without 
approval by a majority of the outstanding voting securities of each 
Fund.

Applicants' Legal Analysis

    1. Section 15(a) of the Act and rule 18f-2 thereunder provide, 
together and in substance, that it is unlawful for any person to act as 
an investment adviser to one of the Funds except pursuant to a written 
contract, which has been submitted to and approved by the vote of a 
majority of the outstanding voting securities of the Fund.
    2. Applicants assert that the Company's structure is different from 
that of most registered investment companies. A Fund using a Multiple 
Manager Arrangement has its assets divided among two (or more) Managers 
(which may include the Advisor). The Advisor has overall oversight and 
allocation responsibility as to portfolio management. The Advisor may 
allocate and reallocate the proportion of a Fund's assets subject to 
particular Manager styles (or may hire new Managers in response to 
changing market conditions or Manager performance), in an attempt to 
improve the Fund's overall performance.
    3. Applicants believe that investors in a Fund are, in effect, 
electing to have the Advisor select one or more Managers, including the 
Advisor, best suited to achieve that Fund's investment objectives. Part 
of such investor's investment decision is a decision to have those 
selections made by the Advisor, a professional management organization 
with substantial experience in making such evaluations, selections, and 
terminations. Applicants state that Managers are engaged solely for 
selection of portfolio investments in accordance with a Fund's 
investment objectives and policies, and do not have broader 
supervisory, management, or administrative responsibilities with 
respect to a Fund or the Company. Applicants assert, therefore, that 
there are no policy reasons which require investors in the Company to 
approve the relationship, and terms of the relationship, with a 
Manager, any more than shareholders of a registered investment company 
should be required to approve its adviser's internal change of a 
portfolio manager or revision of the portfolio manager's salary or 
conditions of employment.
    4. Applicants believe that relief from the Act's shareholder 
approval requirements with respect to the Portfolio Management 
Agreements is appropriate because such requirements in this case do not 
serve the purposes intended by the Act and place costs and burdens on 
the Company and its shareholders that do not materially advance their 
interests. Applicants argue that requiring shareholder approval of the 
Portfolio Management Agreements only serves to increase the Company's 
expenses and delay the prompt implementation of actions deemed 
advisable by the Advisor and the Board of Directors, both of which 
results are disadvantageous to shareholders. Applicants state that, 
without the requested relief, the Company has been (and would be) 
required to call a meeting of shareholders whenever it decides to 
employ new or additional Managers, or to approve a new Portfolio 
Management Agreement after an ``assignment,'' or due to a material 
change in terms. Applicants believe that, given the nature of the 
Company's operations and investors' reasons for investing in various of 
the Funds, such expenses provide little, if any, benefit to the 
Company's shareholders.
    5. Section 6(c) of the Act authorizes the Commission to exempt any 
person or transaction or any class or classes of persons or 
transactions from any provision of the Act, if and to the extent that 
such exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act. Applicants believe 
that the section 6(c) standards for exemption have been met.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. The Advisor will not enter into a Portfolio Management Agreement 
with any Manager that is an ``affiliated person,'' as defined in 
section 2(a)(3) of the Act, of the Company or the Advisor other than by 
reason of serving as a Manager to one or more of the Funds (an 
``Affiliated Manager'') without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable 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 section 2(a)(19) of the Act (``Independent Directors''), and 
the nomination of new or additional Independent Directors will be 
placed with the discretion of the then existing Independent Directors.
    3. When a Manager change is proposed for a 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 Advisor or the Affiliated Manager derives an 
inappropriate advantage.
    4. The Advisor will provide general management services to the 
Company and the Funds and, subject to review and approval by the Board 
of Directors, will: (i) set the Funds' overall investment strategies; 
(ii) select Managers; (iii) allocate and, when appropriate, reallocate 
a Fund's assets among the Advisor and one or more Managers; (iv) 
monitor and evaluate the performance of Managers; and (v) seek to 
ensure that the Managers comply with the Funds' investment objectives, 
policies, and restrictions.
    5. Within 60 days of the hiring of any new Manager or the 
implementation of any proposed material change in a Portfolio 
Management Agreement, the Advisor will furnish shareholders all 
information about the new Manager or Portfolio Management Agreement 
that would be included in a proxy statement. Such information will 
include any change in such disclosure caused by the addition of a new 
Manager or any proposed material change in a Portfolio Management 
Agreement. The Advisor will meet this condition by providing 
shareholders with an information statement which meets the requirements 
of Regulation 14C and Schedule 14C under the 1934 Act. The information 
statement will also meet the requirements of item 22 of Schedule 14A.
    6. The Company, and any Future Company, will disclose in their 
respective Prospectuses the existence, substance, and effect of any 
order granted pursuant to this application.
    7. Before a Fund may rely on the order requested by applicants, the 
operations of the Fund in the manner described in the application will 
be approved by a majority of each Fund's outstanding voting securities, 
as defined in the Act, or, in the case of a Future Company whose public 
shareholders purchase shares on the basis of a prospectus containing 
the disclosure

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contemplated by condition 6 above, by the sole shareholder before 
offering shares of the Future Company to the public.
    8. No director or officer of the Company or the Advisor 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 Manager except for: (i) ownership of interest in the Advisor or any 
entity that controls, is controlled by or is under common control with 
the Advisor; or (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 Manager or an entity that controls, is controlled by, 
or is under common control with a Manager.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29934 Filed 11-21-96; 8:45 am]
BILLING CODE 8010-01-M