-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ay46iPpvubGABfCVmq087FvjwZ1XWr3fiDym7qO9CGXeOuTpcjSP9HE8zgQLL67v OoPKxD0up4i+2VnP6Iu/wA== 0000891804-96-000092.txt : 19960411 0000891804-96-000092.hdr.sgml : 19960411 ACCESSION NUMBER: 0000891804-96-000092 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960410 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREMONT MUTUAL FUNDS INC CENTRAL INDEX KEY: 0000837389 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-23453 FILM NUMBER: 96545922 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05632 FILM NUMBER: 96545881 BUSINESS ADDRESS: STREET 1: 50 FREMONT ST STE 3600 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4157685461 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA MUTUAL FUNDS INC DATE OF NAME CHANGE: 19881113 485APOS 1 FREMONT MUTUAL FUNDS, INC. File Nos. 33-23453 811-5632 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ Post-Effective Amendment No. 22 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 25 FREMONT MUTUAL FUNDS, INC. -------------------------------------------------- (Exact Name of Registration as Specified in Charter) 50 Fremont Street, Suite 3600 SAN FRANCISCO, CALIFORNIA 94105 -------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (415) 284-8500 Albert W. Kirschbaum, Secretary Fremont Mutual Funds, Inc. 50 Fremont Street, Suite 3600 SAN FRANCISCO, CALIFORNIA 94105 ------------------------------------------------- (Name and Address of Agent for Service) copy to: Cary I. Klafter Morrison & Foerster 345 California Street SAN FRANCISCO, CA 94104-2675 The Registrant has filed a declaration pursuant to Rule 24f-2. On December 28, 1995, it filed its Rule 24f-2 Notice for fiscal 1995. It is proposed that this filing will become effective (check appropriate box) -- / / immediately upon filing pursuant to paragraph (b) / / on (date) pursuant to paragraph (b) /X/ 75 days after filing pursuant to paragraph (a) / / on (date) pursuant to paragraph (a) of Rule 485 FREMONT MUTUAL FUNDS, INC. CROSS-REFERENCE SHEET Between Items Enumerated in Form N-1A and this Registration Statement ITEM NO. OF PART A OF FORM N-1A CAPTIONS IN PROSPECTUS - ------------------- ---------------------- 1. Cover Page Cover Page 2. Synopsis Summary of Fees and Expenses; Investment Results 3. Financial Highlights Inapplicable 4. General Description of The Advisor, the Sub-Advisor Registrant and the Fund; Investment Objective, Policies and Risk Considerations; General Investment Policies 5. Management of the Fund The Advisor, the Sub-Advisor and the Fund; Execution of Portfolio Transactions; General Information 6. Capital Stock and Other Shareholder Account Services Securities and Privileges; Dividends, Distributions and Federal Income Taxation; General Information 7. Purchase of Securities How to Invest; Calculation of Being Offered Net Asset Value and Public Offering Price; Plan of Distribution 8. Redemption or Repurchase How to Redeem Shares; Calculation of Net Asset Value and Public Offering Price; Retirement Plans 9. Pending Legal Proceedings Inapplicable ITEM NO. OF CAPTIONS IN STATEMENT OF PART B OF FORM N-1A ADDITIONAL INFORMATION - ------------------- ------------------------- 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and Inapplicable History 13. Investment Objectives and Investment Objective, Policies Policies and Risk Considerations; Investment Restrictions; Appendix A: Description of Securities Ratings 14. Management of the Funds Investment Company Directors and Officers; Investment Advisory and Other Services 15. Control Persons and Investment Company Directors Principal Holders of and Officers; Investment Securities Advisory and Other Services 16. Investment Advisory and Investment Advisory and Other Other Services Services; Plan of Distribution; Additional Information 17. Brokerage Allocation and Execution of Portfolio Other Practices Transactions 18. Capital Stock and Other Additional Information Securities 19. Purchase, Redemption and How to Invest; Other Pricing of Securities Investment and Redemption Being Offered Services 20. Tax Status Taxes -- Mutual Funds 21. Underwriters Investment Advisory and Other Services 22. Calculation of Performance Investment Results Data 23. Financial Statements Inapplicable ITEMS IN PART C - ---------------- 24. Financial Statements and Exhibits 25. Persons Controlled by or Under Common Control 26. Number of Holders of Securities 27. Indemnification 28. Business and Other Connections of Investment Advisors 29. Principal Underwriter 30. Location of Accounts and Records 31. Management Services 32. Undertakings Prospectus FREMONT EMERGING MARKETS FUND FREMONT MUTUAL FUNDS, INC. FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in the FREMONT EMERGING MARKETS FUND, primarily investing in equity securities of issuers domiciled in countries with emerging or developing capital markets. FREMONT EMERGING MARKETS FUND seeks to achieve long-term capital appreciation. There can be no assurance that the Fund will achieve its investment objective. Shares of the Fund are offered without sales charge. This Prospectus, which should be retained for future reference, sets forth the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 1-800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, CA 94105. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SHARES INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is June 24, 1996. FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 1-800-548-4539. PLEASE READ THIS PROSPECTUS CAREFULLY. IT IS DESIGNED TO PROVIDE YOU WITH INFORMATION AND TO HELP YOU DECIDE IF THE FREMONT EMERGING MARKETS FUND'S OBJECTIVE MEETS YOUR OWN GOALS. - ------------------------------------------------------------------------------ SUMMARY OF FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees (a) None Exchange Fee None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)(b) Management Fee None 12b-1 Fees None Other Expenses None Total Fund Operating Expenses None Example: You would pay the following total expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 year $ 0 3 years $43 The purpose of the above table is to give you information and assistance in understanding the various costs and expenses of the Fund that an investor may bear directly or indirectly. The percentages expressing annual fund operating expenses are based on estimated amounts for the current fiscal year. THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESEN- TATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. - -------------------- (a) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $8. See "How to Redeem Shares." (b) The Advisor anticipates waiving management, 12b-1 and administrative fees and reimbursing the Fund for all of its other operating expenses until further notice. Absent fee waivers and reimbursement of expenses by the Advisor, the management fee, 12b-1 fees, other expenses and total fund operating expenses would be 1.00%, .25%, .70% and 1.95%, respectively. THE ADVISOR, THE SUB-ADVISOR AND THE FUND Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end, diversified investment company which under this Prospectus is offering shares in the Fremont Emerging Markets Fund (the "Fund"). The Investment Company has other series offered with different prospectuses, and the Board of Directors of the Investment Company is permitted to create additional funds at any time. The Fund has its own investment objective and policies and operates like a separate mutual fund. The management of the business and affairs of the Fund is the responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the "Advisor") provides the Fund with investment management and administrative services under an Investment Advisory and Administrative Agreement (the "Advisory Agreement") with the Investment Company. As described more fully below, the Advisor has retained Credit Lyonnais International Asset Management (HK) Limited (the "Sub-Advisor") to provide the Fund with portfolio management services. The Advisor's Investment Committee oversees the portfolio management of the Fund, including the services provided by the Sub-Advisor. The professional staff of the Advisor has offered professional investment management services regarding asset allocation and in connection with securities portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987. The Advisor also provides investment advisory services regarding asset allocation, investment manager selection and portfolio diversification to a number of large Bechtel-related investors. The Investment Company is one of its clients. As compensation for its services to the Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of 1.00% per annum of the Fund's average daily net assets. The Advisory Agreement also provides that the Fund will pay to the Advisor an administrative fee of .15% per annum of average daily net assets. The Advisor is waiving both fees and reimbursing the Fund for all of its other operating expenses until further notice. See "Other Expenses of the Fund" below. Credit Lyonnais International Asset Management (HK) Limited, Three Exchange Square, 38 Connaught Place, 6th floor, Hong Kong, serves as Sub-Advisor to the Fund pursuant to a Portfolio Management Agreement. The Sub-Advisor is a Hong Kong company which is a wholly-owned indirect subsidiary of Credit Lyonnais S.A., the world's sixteenth largest banking group in terms of assets, which exceeded $320 billion as of December 31, 1994. Credit Lyonnais manages or advises in excess of $1.9 billion world-wide as of December 31, 1995. The Sub-Advisor is registered as an investment advisor with the Securities and Exchange Commission under the Investment Advisers Act of 1940. All investment decisions of the Sub-Advisor with respect to the Fund are made by a committee, and no one person is primarily responsible for making recommendations to the committee. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the Fund), the Advisor and the Sub-Advisor provides that the Sub-Advisor will manage the investment and reinvestment of the assets of the Fund and continually review, supervise and administer the Fund's investments. The Sub-Advisor pays all expenses of its staff and their activities in connection with its portfolio management activities. As compensation for its services, the Advisor (not the Fund) pays the Sub- Advisor a fee equal to .50% per annum of the Fund's average daily net assets. The Sub-Advisor has agreed, however, to waive its entire fee until further notice. The Portfolio Management Agreement with the Sub-Advisor may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by the Sub-Advisor. The Advisor will provide direct portfolio management services to the extent that a sub-advisor does not provide those services. In the future, the Advisor may propose to the Investment Company that different or additional sub-advisor(s) be engaged to provide investment advisory or portfolio management services to the Fund. Prior to such engagement, any agreement with a sub-advisor would be submitted to a vote of the Board of Directors and if required by law, by the shareholders of the Fund. The Advisor may in its discretion manage all or a portion of the Fund's portfolio directly, with or without the use of a sub-advisor. For additional information about the Advisor and the Sub-Advisor, see "Investment Advisory and Other Services" in the Statement of Additional Information. OTHER EXPENSES OF THE FUND. In addition to the fees described above, the Fund pays all expenses not assumed by the Advisor. These expenses include, but are not limited to the following: custodian, stock transfer and dividend disbursing fees and expenses; costs of mailing reports, prospectuses, proxy statements and notices to existing shareholders; interest, taxes and insurance; expenses of the issuance and redemptions of shares of the Fund (including registration and qualification fees); promotional expenses in connection with the distribution of the Fund's shares (see "Plan of Distribution"); legal and auditing expenses; fees and expenses of the Directors unaffiliated with the Advisor; and association dues. All general Investment Company expenses are allocated among and charged to the assets of the Fund on a basis that the Board of Directors deems fair and equitable. The Advisory Agreement provides that the Advisor will reimburse the Fund for expenses in excess of expense limitations imposed by state regulations. The total expenses of the Fund presently are limited by California securities laws to 2.5% of average net assets with respect to the first $30 million, 2.0% with respect to the next $70 million, and 1.5% thereafter. - ------------------------------------------------------------------------------- INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS The Fund is a non-diversified mutual fund which seeks to achieve long-term capital appreciation by investing primarily in equity securities of issuers domiciled in countries with emerging or developing capital markets. Investments in emerging or developing capital markets may exhibit substantially greater price volatility than investments in developed markets, and therefore the Fund is intended for long-term investors, not for those who may wish to redeem their shares after a short period of time. All investments, including mutual funds, have risks, and no investment is suitable for all investors. Investors should consult with their financial and other advisors concerning the suitability of this investment for their own particular circumstances. Accordingly, there is no assurance that the Fund will achieve its investment objective. Under normal market conditions, at least 65% of the total assets of the Fund will be invested in equity securities of issuers in Emerging Markets (as defined below). The Fund will not necessarily seek to diversify investments on a geographical basis or on the basis of the level of economic development of any particular country. However, the Fund will be invested in a minimum of three countries defined as Emerging Markets. The Fund's portfolio of equity securities will consist of common and preferred stock, warrants and debt securities convertible into common stock. Included in this 65% total, up to 5% of the Fund's assets may be invested in rights or warrants to purchase equity securities. For defensive purposes, the Fund may temporarily have less than 65% of its total assets invested in equity securities of issuers in Emerging Markets. In addition to investing directly in equity securities, the Fund may invest in instruments such as sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities markets. An issuer will be deemed to be in an Emerging Market if: (1) the principal securities trading market for such issuer is in an Emerging Market; (2) such issuer derives at least 50% of its revenues or earnings, either alone or on a consolidated basis, from goods produced or sold, investments made or services performed in an Emerging Market, or has at least 50% of its total assets situated in one or more Emerging Markets; or (3) such issuer is organized under the laws of, and with a principal office in, an Emerging Market. Determinations as to whether an issuer is an Emerging Markets issuer will be made by the Sub-Advisor based on publicly available information and inquires made to the issuers. As used in this Prospectus, an Emerging Market is any country except: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom and the United States. Emerging Markets tend to be in the less economically developed regions of the world. General characteristics of emerging market countries also include lower degrees of political stability, a high demand for capital investment, a high dependence on export markets for their major industries, a need to develop basic economic infrastructures and rapid economic growth. The Advisor and Sub-Advisor believe that investments in equity securities of issuers in Emerging Markets offer the opportunity for significant long-term investment returns. However, these investments involve not only the risks discussed below with respect to foreign securities (see "General Investment Policies - Risk Factors and Special Considerations for International Investing"), but also other risks. Investments in Emerging Markets may exhibit greater price volatility, have less liquidity and have settlement arrangements which are less efficient than in developed markets. Furthermore, the economies of countries with Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by adjustments in currency values and protectionist measures imposed or negotiated by the countries with which they trade. These Emerging Market economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The Fund may invest a portion of its assets in equity securities of smaller to medium sized growth companies. Investing in small companies involves certain special risks. Small companies may have limited product lines, markets, or financial resources, and their managements may be dependent on a limited number of key individuals. The securities of small companies may have limited market liquidity and may be subject to more abrupt or erratic market movements than securities of larger, more established companies or the market averages in general. The governments in some Emerging Markets have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The Advisor and Sub-Advisor believe that privatizations may offer opportunities for significant capital appreciation, and intend to invest assets of the Fund in privatizations in appropriate circumstances. In certain Emerging Markets, the ability of foreign entities such as the Fund to participate in privatizations may be limited by local law and/or the terms on which the Fund may be permitted to participate may be less advantageous than those afforded local investors. There can be no assurance that governments in Emerging Markets will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. Because the Fund is non-diversified, it may invest a larger percentage of its assets in individual issuers than a diversified fund. In this regard, the Fund is not subject to the general limitation that it not invest more than 5% of its total assets in the securities of any one issuer. To the extent the Fund makes investments in excess of 5% of its assets in a particular issuer, its exposure to credit and market risks associated with that issuer is increased. The Fund may invest in Brady Bonds (see "General Investment Policies") and other debt securities of both governmental and corporate issuers in Emerging Markets which are rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by S&P Ratings Group ("S&P") or, if unrated, determined by the Sub-Advisor to be of comparable quality. Securities which are rated BBB by S&P or Baa by Moody's are considered investment grade, but may have speculative characteristics, and changes in economic conditions may lead to a weakened capacity to make principal and interest payments than is the case with higher rated securities. For further information, see the Statement of Additional Information. Debt securities are susceptible to market fluctuations resulting from changes in interest rates. When interest rates decline, the value of a portfolio invested at higher yields can be expected to rise. Conversely, when interest rates rise, the value of a portfolio invested at lower yields can be expected to decline. Capital appreciation in debt securities in which the Fund invests may arise as a result of favorable changes in relative foreign exchange rates, in relative interest rate levels and/or in the creditworthiness of issuers. The receipt of income from debt securities owned by the Fund is incidental to the Fund's objective of long-term capital appreciation. Whenever in the judgment of the Advisor or Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in U.S. dollar-denominated or foreign currency- denominated cash-equivalent investments or in high quality debt securities with maturities of one year or less. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. For liquidity purposes, the Fund may normally also invest up to 10% of its assets in U.S. dollar-denominated or foreign currency-denominated cash-equivalent investments or in high quality debt securities with maturities of one year or less. The Fund may enter into forward currency contracts and currency futures contracts, and may purchase put and call options on currencies. See "General Investment Policies -Forward Currency, Futures and Options Transactions." - ---------------------------------------------------------------------------- GENERAL INVESTMENT POLICIES MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations and governments; U.S. Government and agency securities; money market mutual funds; and other debt securities which are not specifically named but which meet the Fund's quality guidelines. The Fund also may enter into repurchase agreements as described below and may purchase variable and floating rate debt securities. At the time of purchase, short-term securities must be rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs") or by a single NRSRO in the case of a security rated by only one NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined by the Advisor or the Sub-Advisor. Generally, high quality short-term securities must be issued by an entity with an outstanding debt issue rated A or better by an NRSRO, or an entity of comparable quality as determined by the Advisor or the Sub-Advisor. Obligations of foreign banks, foreign corporations and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A to the Statement of Additional Information for a description of rating categories. U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government securities, which are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds and Government National Mortgage Association certificates, are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Mortgage Corporation, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies or instrumentalities as described above in the future, other than as set forth above, since it is not obligated to do so by law. BRADY BONDS. Brady Bonds are debt restructurings that provide for the exchange of cash and loans for newly issued bonds. Brady Bonds have been issued by the countries of, among others, Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Philippines, Poland, Uruguay and Venezuela and are expected to be issued by Panama, Peru and other Emerging Market countries. Brady Bonds issued by Brazil, Argentina and Mexico currently are rated below investment grade. As of the date of this Prospectus, the Fund is not aware of the occurrence of any payment defaults on Brady Bonds. Investors should recognize, however, that Brady Bonds have been issued only recently and, accordingly, do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (primarily the U.S. dollar) and are actively traded in the secondary market for Latin American debt. The Salomon Brothers Brady Bond Index provides a benchmark that can be used to compare returns of Brady Bonds issued in Emerging Markets with returns in other bond markets, e.g., the U.S. bond market. The Fund may invest in either collateralized or uncollateralized Brady Bonds. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par bonds or floating rate discount bonds, are collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the bonds. Interest payments on such bonds generally are collateralized by cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least one year's rolling interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). The Fund will not purchase securities the value of which is greater than 5% of its net assets on a when issued basis. The Fund, as purchaser, assumes the risk of any decline in the value of the security beginning on the date of the agreement or purchase, and no interest accrues to the Fund until it accepts delivery of the security. The Fund will not use such transactions for leveraging purposes, and accordingly will segregate cash, cash equivalents or high quality debt securities or hold a covered position in an amount sufficient to meet its payment obligations thereunder. There is always a risk that the securities may not be delivered and that the Fund may incur a loss or will have lost the opportunity to invest the amount set aside for such transaction in the segregated asset account. Settlements in the ordinary course of business, which may take substantially more than three business days for non-U.S. securities, are not treated by the Fund as when-issued or forward commitment transactions and, accordingly, are not subject to the foregoing limitations, even though some of the risks described above may be present in such transactions. SHARES OF INVESTMENT COMPANIES. The Fund may invest some portion of its assets in shares of other no-load, open-end investment companies and closed-end investment companies to the extent that they may facilitate achieving the objective of the Fund or to the extent that they afford the principal or most practical means of access to a particular market or markets or they represent attractive investments in their own right. Pursuant to the 1940 Act, the percentage of Fund assets which may be so invested is not limited, provided that the Fund and its affiliates do not acquire more than 3% of the shares of any such investment company. The provisions of the 1940 Act may also impose certain restrictions on redemption of the Fund's shares in other investment companies. The Fund's purchase of shares of investment companies may result in the payment by a shareholder of duplicative management fees. The Advisor and/or Sub-Advisor will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees under Rule 12b-1 of the 1940 Act, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above 1940 Act restrictions, the Fund does have the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. REPURCHASE AGREEMENTS. As part of its cash reserve position, the Fund may enter into repurchase agreements through which the Fund acquires a security (the "underlying security") from the seller, a well-established securities dealer or a bank that is a member of the Federal Reserve System. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest. Repurchase agreements are generally for a short period of time, often less than a week. The seller must maintain with the Fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. The Fund will not enter into a repurchase agreement with a maturity of more than seven business days if, as a result, more than 15% of the value of its net assets, together with other illiquid assets, would then be invested in such repurchase agreements. The Fund will only enter into repurchase agreements where (1) the underlying securities are issued or guaranteed by the U.S. Government, (2) the market value of the underlying security, including interest accrued, will be at all times equal to or in excess of the value of the repurchase agreement, and (3) payment for the underlying securities is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (1) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible subnormal levels of income and lack of access to income during this period; and (3) expenses of enforcing the Fund's rights. PORTFOLIO TURNOVER. The Fund expects to trade in securities for short-term gain whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take advantage of anomalies occurring in general market, economic or political conditions. Therefore, the Fund may have a higher portfolio turnover rate than that of some other investment companies, but it is anticipated that the annual portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by the Fund's average month-end long-term investments. High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions and other costs that the Fund will bear directly, and may result in the realization of net capital gains, which are generally taxable when distributed to shareholders. LOANS OF PORTFOLIO SECURITIES. The Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors in an amount not exceeding 33 1/3% of its net assets. The borrower must maintain with the Fund's custodian collateral consisting of cash, cash equivalents or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Fund will receive any interest or dividends paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities, or possible loss of rights in the collateral should the borrower fail financially. The lender also may bear the risk of capital loss on investment of the cash collateral, which must be returned in full to the borrower when the loan is terminated. Loans will be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. BORROWING. The Fund may borrow from banks in an amount not exceeding 30% of the value of its total assets for temporary or emergency purposes and enter into reverse repurchase agreements. If the income and gains on securities purchased with the proceeds of borrowings or reverse repurchase agreements exceed the cost of such borrowings or agreements, the Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the cost, earnings or net asset value would decline faster than otherwise would be the case. If the 300% asset coverage required by the 1940 Act should decline as a result of market fluctuation or other reasons, the Fund may be required to sell some of its portfolio securities within three days to reduce the borrowings and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. WARRANTS OR RIGHTS. Warrants or rights may be acquired by the Fund in connection with other securities or separately and provide the Fund with the right to purchase other securities of the issuer at a later date. As a condition of its continuing registration in certain states, the Fund's investments in warrants or rights, valued at the lower of cost or market, will not exceed 5% of the value of its net assets, and not more than 2% of such assets will be invested in warrants and rights which are not listed on the American or New York Stock Exchanges. Warrants or rights acquired by the Fund in units or attached to securities will be deemed to be without value for purposes of this restriction. These limits are not fundamental policies of the Fund and may be changed by the Board of Directors without shareholder approval. OPTIONS AND FUTURES CONTRACTS. When the Fund is not fully invested, strategies such as buying calls, writing puts, and buying futures may be used to increase its exposure to price changes in stocks or debt securities. When the Advisor and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such as buying puts, writing calls, and selling futures may be used to reduce market exposure. Since most stock index futures and options are based on broad stock market indexes, their performance tends to track the performance of common stocks generally which may or may not correspond to the types of securities in which the Fund invests. The Fund will maintain segregated accounts consisting of liquid assets, such as cash, U.S. Government securities or other high quality debt securities (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under options and futures contacts to avoid leveraging. In seeking appreciation or to reduce principal volatility, the Fund may also (1) enter into futures contracts - contracts for the future delivery of debt securities, stock, stock index futures contracts with respect to the S&P 500 Index, small capitalization stock market indices or other similar broad-based stock market indices, the initial margins of which are limited to 5% of the Fund's assets; and (2) purchase put and call options on portfolio securities, stock indices or stock index futures contracts the premiums of which are limited to 5% of the Fund's assets. The Fund may write put and call options. It will only do so by writing covered put or call options, and the aggregate value of the securities underlying put options, as of the date of sale of the options, will not exceed 50% of the net assets of the Fund. The Fund will set aside cash, cash equivalents, or high quality debt securities, or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contracts. Options and futures can be volatile investments. If the Advisor and/or Sub-Advisor applies a hedge at an inappropriate time or evaluates market conditions incorrectly, options and futures strategies may lower the Fund's return. The Fund could also experience a loss if the prices of its options or futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. Although these investment practices will be used primarily to generate income or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: futures contracts - no assurance that closing purchase transactions will be available at favorable prices, possible reduction of the Fund's income due to the use of hedging, the possible reduction in value of both the securities hedged and the hedging instrument, and possible loss in excess of the initial margin payment; options and futures contracts - imperfect correlation between the contract and the underlying security, commodity or index and unsuccessful hedging transactions due to incorrect forecasts of market trends; writing covered call options - the inability to effect closing transactions at favorable prices and the inability to participate in the appreciation of the underlying securities above the exercise price; and purchasing or selling put and call options - possible loss of the entire premium. A more thorough description of these investment practices and their associated risks is contained in the Statement of Additional Information. FORWARD CURRENCY, FUTURES AND OPTIONS TRANSACTIONS. The Fund may enter into forward currency contracts and currency futures contracts and may purchase put or call options on currencies (each such arrangement sometimes referred to as a "currency contract"). Forward contracts typically will involve the purchase or sale of a foreign currency against the dollar. These techniques are designed primarily to hedge against future changes in currency prices which might adversely affect the value of the Fund's portfolio securities. The Fund may attempt to accomplish objectives similar to those involved in its use of forward currency contracts by purchasing put or call options on currencies or currency futures. For a more detailed description of such arrangements, see the Statement of Additional Information. The Fund may enter into currency contracts either with respect to specific transactions or with respect to the Fund's portfolio positions. For example, when the Advisor and/or Sub-Advisor anticipates making a purchase or sale of a security, the Fund may enter into a currency contract in order to set the rate (either relative to the U.S. dollar or another currency) at which a currency exchange transaction related to the purchase or sale will be made. Further, when it is believed that a particular currency may decline compared to the U.S. dollar or another currency, the Fund may enter into a currency contract to sell the currency the Advisor and/or Sub- Advisor expects to decline in the amount approximating the value of some or all of the Fund's portfolio securities denominated in that currency or related currencies that the Advisor and/or Sub-Advisor feels demonstrate a correlation in exchange rate movements. The practice of using correlated currencies is known as "cross-hedging." When the Advisor and/or Sub- Advisor believes that the U.S. dollar may suffer a substantial decline against a foreign currency or currencies, the Fund may enter into a currency contract to buy a foreign currency for a fixed dollar amount. By entering into such transactions, however, the Fund may be required to forego the benefits of advantageous changes in exchange rates. Currency contracts generally are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, such contracts operate in a manner distinct from exchange-traded instruments, and their use involves certain risks beyond those associated with transactions in other futures contracts. While the Fund enters into forward currency contracts and purchases currency options or currency futures to reduce the risks of fluctuations in exchange rates, these contracts cannot eliminate all such risks and do not eliminate fluctuations in the prices of the Fund's portfolio securities. Purchasing (selling) a currency forward limits the Fund's exposure to risk of loss from a rise (decline) in the dollar value of the currency, but also limits its potential for gain from a decline (rise) in the currency's dollar value. While purchasing options can protect the Fund against certain exchange rate fluctuations, the Fund is subject to the loss of its entire premium payment where the option is allowed to expire without exercise. To avoid leverage in connection with forward currency transactions, the Fund will set aside with its Custodian cash, cash equivalents or high quality debt securities, or hold a coverage position against any potential delivery or payment obligations under any outstanding contracts. To the extent the Fund enters into over-the-counter options, the options and the assets so segregated or set aside to cover such options are considered illiquid assets and, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. In addition, premiums paid for currency options held by the Fund may not exceed 5% of the Fund's net assets. Although the Fund will enter into currency contracts solely for hedging purposes, their use does involve certain risks. For example, there can be no assurance that a liquid secondary market will exist for any currency contract purchased or sold, and the Fund may be required to maintain a position until exercise or expiration, which could result in losses. Currency contracts may be entered into on United States exchanges regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission as well as in the over-the-counter market and on foreign exchanges. SWAP AGREEMENTS. The Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding minimum or maximum levels. Whether the Fund's use of swap agreements will be successful in furthering its investment objective will depend on the Advisor's or Sub-Advisor's ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. The Fund's obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash, U.S. Government securities or other high quality debt obligations to avoid any potential leveraging of the Fund's portfolio. Swap agreements having a term of greater than seven days are considered illiquid assets and the Fund's obligations under such agreements, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. RISK FACTORS AND SPECIAL CONSIDERATIONS FOR INTERNATIONAL INVESTING. Investment in securities of foreign entities and securities denominated in foreign currencies involves risks typically not present to the same degree in domestic investments. Likewise, investment in ADRs and EDRs presents similar risks, even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social or economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its investments, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. income taxes. See "Dividends, Distributions and Federal Income Taxation." There may be less publicly available information about some foreign issuers or securities than about U.S. issuers or securities, and foreign issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of U.S. entities. With respect to unsponsored ADRs, these programs cover securities of companies which are not required to meet either the reporting or accounting standards of the United States. Many foreign financial markets, while generally growing in volume, continue to have substantially less volume than domestic markets, and securities of many foreign companies are less liquid and their prices are more volatile than are securities of comparable U.S. companies. Such markets may have longer settlement periods than markets in the United States. In addition, non-U.S. stock exchange transactions may be subject to difficulties associated with the settlement of such transactions. Such settlement difficulties may result in delays in reinvestment. The Sub- Advisor will consider such difficulties when determining the allocation of the Fund's assets, although the Sub-Advisor does not believe that such difficulties will materially adversely affect the Fund's portfolio trading activities. Costs associated with transactions in foreign securities are generally higher than those of domestic securities, and there is generally less governmental supervision and regulation of exchanges, financial institutions and issuers in foreign countries. The value of the Fund's portfolio securities computed in U.S. dollars will vary with increases and decreases in the exchange rate between the currencies in which the Fund has invested and the U.S. dollar. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and net investment income and capital gains, if any, to be distributed in U.S. dollars to shareholders by the Fund. The rate of exchange between the U.S. dollar and other currencies is influenced by many factors, including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the price of oil, the pace of activity in the industrial countries, including the United States, and other economic and financial conditions affecting the world economy. The Fund will not invest in a foreign currency or in securities denominated in a foreign currency if such currency is not at the time of investment considered by the Advisor or Sub-Advisor to be fully exchangeable into U.S. dollars without legal restriction. The Fund may purchase securities that are issued by the government or a corporation or financial institution of one nation but denominated in the currency of another nation. To the extent that the Fund invests in ADRs, the depository bank generally pays cash dividends in U.S. dollars regardless of the currency in which such dividends originally are paid by the issuer of the underlying security. The operating expense ratio of the Fund may be higher than that of an investment company investing exclusively in U.S. securities because certain expenses, such as custodial, transfer and brokerage costs, may be higher. Several of the countries in which the Fund may invest restrict, to varying degrees, foreign investments in their securities markets. Governmental and private restrictions take a variety of forms, including (i) limitation on the amount of funds that may be invested into or repatriated from the country (including limitations on repatriation of investment income and capital gains), (ii) prohibitions or substantial restrictions on foreign investment in certain industries or market sectors, such as defense, energy and transportation, (iii) restrictions (whether contained in the charter of an individual company or mandated by the government) on the percentage of securities of a single issuer which may be owned by a foreign investor, (iv) limitations on the types of securities which a foreign investor may purchase and (v) restrictions on a foreign investor's right to invest in companies whose securities are not publicly traded. In some circumstances, these restrictions may limit or preclude investment in certain countries. Therefore, the Fund intends to invest in such countries through the purchase of shares of investment companies organized under the laws of such countries. The Fund's interest and dividend income from foreign issuers may be subject to non-U.S. withholding taxes. The Fund also may be subject to taxes on trading profits in some countries. In addition, many of the countries in the Pacific Basin have a transfer or stamp duties tax on certain securities transactions. The imposition of these taxes will increase the cost to the Fund of investing in any country imposing such taxes. For United States tax purposes, United States shareholders may be entitled to a credit or deduction to the extent of any foreign income taxes paid by the Fund. See "Dividends, Distributions and Federal Income Taxation." AMERICAN DEPOSITORY RECEIPTS. American Depository Receipts ("ADRs") are negotiable receipts issued by a United States bank or trust to evidence ownership of securities in a foreign company which have been deposited with such bank or trust's office or agent in a foreign country. Investing in ADRs presents risks not present to the same degree as investing in domestic securities even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social and economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its ADRs, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. income taxes. See "Dividends, Distributions and Federal Income Taxation." Unsponsored ADRs are offered by companies which are not prepared to meet either the reporting or accounting standards of the United States. While readily exchangeable with stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs. Additionally, there generally is less publicly available information with respect to unsponsored ADRs. INVESTMENT RESTRICTIONS. The Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions include prohibitions against borrowing money (except as described above) and against concentrating the Fund's investments in issuers conducting their principal business activities in a single industry (except that this limitation does not apply with respect to U.S. Government securities). These investment restrictions and the Fund's investment objective cannot be changed without the approval of shareholders of the Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information can be changed by the Board of Directors without shareholder approval. - -------------------------------------------------------------------------------- INVESTMENT RESULTS The Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future performance. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund may calculate performance on an average annual total return basis for l-, 5- and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced from reinvested dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending redeemable values as determined above. The Fund's investment results will vary from time to time depending upon market conditions, the composition of the Fund's portfolio, and operating expenses of the Fund, so that any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing the Fund's investment results with those published for other investment companies, other investment vehicles and unmanaged indices. The comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Fund may also be mentioned in newspapers, magazines, or other media from time to time. The Fund assumes no responsibility for the accuracy of such data. The Fund's results also should be considered relative to the risks associated with the Fund's investment objective and policies. See "Investment Results" in the Statement of Additional Information. Additional performance information regarding the Fund will be included in the Fund's annual and semi-annual reports, which will be mailed to shareholders without charge upon request. - ------------------------------------------------------------------------------- HOW TO INVEST The shares of the Fund may be purchased through the Transfer Agent by submitting payment by check, wire transfer or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Fund. All orders for the purchase of shares are subject to acceptance or rejection by the Board of Directors or the Advisor. Purchases of shares are made at the current public offering price next determined after the purchase order is received. A minimum initial investment of $2,000 is required to open a shareholder account, except for retirement plans such as Individual Retirement Accounts (IRAs) and Keogh Plans. Retirement plans are subject to a $1,000 minimum initial investment. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan and may be waived in other instances at the sole discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent investment in the Fund must be $200 or more except in the case of retirement plans or Automatic Investment Plans. There is a minimum continuing balance of $1,500 required for non-retirement accounts (calculated on the basis of original investment value). In some cases, the minimum balance requirement may be waived. Investors wishing to open a new account by bank wire must call the Transfer Agent at 1-800-548-4539 to obtain an account number and detailed wire instructions. Bank wire instructions are also provided in the last section of this Prospectus. All bank wire investments received before 4:00 p.m., Eastern time, will be credited the same day. Bank wire investments received after 4:00 p.m., Eastern time, will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. Shares of the Fund may also be purchased through a broker-dealer that has signed a dealer agreement with the Fund or has made similar arrangements with the Fund. Brokers who process orders on behalf of their customers are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased pursuant to such orders. Brokers may charge an investor a reasonable transaction fee as determined by the broker, no part of which will be paid to the Fund or the Advisor. In some instances, all or a portion of the transaction fee or shareholder servicing fee charged by a broker may be paid by the Advisor and the Advisor may seek reimbursement of such payments pursuant to the Fund's Plan of Distribution (see "Plan of Distribution"). From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor to do so. As a condition of this offering, if an order to purchase shares is cancelled due to nonpayment (for example, a check returned for "insufficient funds"), the person who made the order will be subject to a $20 charge and must reimburse the Fund for any loss incurred by reason of such cancellation. For more information, see "Other Investment and Redemption Services" in the Statement of Additional Information. Funds Distributor, Inc., One Exchange Place, Boston, MA 02109, is the principal underwriter for the Fund. - ------------------------------------------------------------------------------- SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES STATEMENTS AND REPORTS When a shareholder makes an initial investment in the Fund, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Fund will receive statements as of the end of December, April, July and October. Shares are issued only in book-entry form (without certificates). The fiscal year of the Fund ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of the Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to the Fund's shareholders after the end of the calendar year on Form 1099-DIV. EXCHANGES BETWEEN FUNDS Shares of one Fremont Fund may be exchanged for shares of another Fremont Fund at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund then offered for sale in your state of residence. It is required that (1) all shares in one Fund must be exchanged or (2) the remaining balance must be at least $1,500. This minimum balance requirement may be waived. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes, except in the case of tax-deferred retirement accounts or other tax-exempt shareholders. A shareholder interested in making an exchange should contact the Investment Company to request a current prospectus. The following are the Fremont Mutual Funds currently offered to the public: Fremont Money Market Fund Fremont California Intermediate Tax-Free Fund Fremont Bond Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont International Small Cap Fund Fremont U.S. Micro-Cap Fund Fremont Emerging Markets Fund Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions and exchanges should be made for investment purposes only. A pattern of frequent exchanges, purchases and sales is not acceptable and, at the discretion of the Board of Directors, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from the shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. TELEPHONE EXCHANGE PRIVILEGE An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 1-800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Fund. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by 4:00 p.m., Eastern time, will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. AUTOMATIC INVESTMENT PLAN A shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the shareholder's bank checking, savings, negotiable on withdrawal ("NOW") or similar account, with the proceeds to be used to purchase shares of the Fund. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan. The amount of the monthly investment must be at least $50, and is not otherwise subject to the $200 minimum for subsequent investments. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is cancelled due to nonpayment (for example, "insufficient funds"), the shareholder's account will be subject to a $20 charge and the shareholder will be responsible for reimbursing the Fund for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available upon request. - ------------------------------------------------------------------------------ HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $8 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent before 4:00 p.m., Eastern time, will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Orders received by the Transfer Agent after 4:00 p.m., Eastern time, will be entered at the next calculated net asset value. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see "Signature Guarantee" below). Redemptions from retirement accounts require a written request with a signature guarantee, unless authorized under the Systematic Withdrawal Plan. Call the Transfer Agent for specific instructions on redemptions. For written redemption requests for an amount greater than $25,000, or a redemption request that directs proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee" below). Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less than the amount paid for them. Redemption of shares, exchanges and redemptions under a Systematic Withdrawal Plan may result in taxable capital gains or losses in non- retirement accounts. TELEPHONE REDEMPTION PRIVILEGE An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 1-800-548-4539. (The Telephone Redemption Privilege is not available for IRA or other retirement accounts.) Telephone requests received by 4:00 p.m., Eastern time, will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, nor the Transfer Agent, nor their respective affiliates, will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Fund and/or the Transfer Agent do not employ such procedures, they may be liable for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. SYSTEMATIC WITHDRAWAL PLAN A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions will be made on the last business day of the month. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Systematic redemptions should not reduce the account below the minimum balance required (currently $1,500). Shareholders may terminate the Systematic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Fremont Funds, shareholders must specify if they desire the systematic withdrawal option to be transferred to a new account opened by the exchange. As an account balance declines to the minimum permitted, the shareholders must advise the Transfer Agent if the systematic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is a Systematic Withdrawal Plan established for an account and the entire account is exchanged into another fund, the systematic redemption withdrawal option must be renewed by written request to the Transfer Agent. A shareholder wishing to initiate systematic redemptions must complete a Systematic Withdrawal Plan form available from the Transfer Agent. SIGNATURE GUARANTEE To better protect the Fund and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. OTHER IMPORTANT REDEMPTION INFORMATION A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. The Transfer Agent will reject requests to redeem shares until checks, drafts or Automatic Investment Plan transfers received for the shares purchased have cleared. Although it is anticipated that this process will be completed in less time, this may take up to 15 days. Redemption proceeds will not be delayed when shares have been paid for by wire transfer, or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances and as permissible under the 1940 Act, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. The Investment Company reserves the right to redeem mandatorily the shares in a shareholder's account (other than a retirement plan account) if the balance is reduced to less than $1,500 in net asset value through redemptions or other action by the shareholder. Notice will be given to the shareholder at least 30 days prior to the date fixed for such redemption, during which time the shareholder may increase its holdings to an aggregate amount of $1,500 or more (with a minimum purchase of $200 or more). This minimum balance may be waived. REDEMPTION-IN-KIND The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption-in-kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. TRANSFER AGENT MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354, serves as the Fund's transfer agent and dividend paying agent. In addition, MGF Service Corp. has been retained by the Advisor to assist the Advisor in providing certain administrative services to the Fund. MGF Service Corp. is a subsidiary of Leshner Financial, Inc., of which Robert H. Leshner is the controlling shareholder. - ----------------------------------------------------------------------------- RETIREMENT PLANS Shares of the Fund may be purchased in connection with various tax-deferred retirement plans. These include Individual Retirement Accounts (IRAs); Qualified Retirement Plans for self-employed persons and their employees; corporate pension and profit-sharing plans; Simplified Employee Pension (SEP) IRAs; and Section 403(b) Plans, which are deferred compensation arrangements for employees of public schools and certain charitable organizations. Forms for establishing IRAs, SEP IRAs, and Qualified Retirement Plans are available through the Investment Company, as are forms for corporate Pension and Profit-Sharing plans. Please contact the Investment Company for more information about establishing these accounts. In accordance with industry practice, there may be an annual account charge for participation in these plans. Information regarding these charges is available from the Investment Company. Retirement plan participants may receive additional services related to their plan at no extra cost to any shareholder. The Advisor pays any compensation due to organizations hired for sub-transfer agency services where such services are specific to retirement plans using the Fund as an investment option. - ------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION The Fund intends to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code (the "Code"). For any tax year in which the Fund so qualifies and meets certain other distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires the Fund to diversify its investments so that, at the end of each fiscal quarter, (1) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, securities of other regulated investment companies and other securities, limited, with respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. The Fund intends to distribute substantially all of its net investment income at or about the close of the fiscal year (October 31) and substantially all of its net realized capital gains, if any, at or about the close of the calendar year (December 31). Dividend and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All dividends and distributions are taxable to a shareholder (except tax-exempt shareholders) whether or not they are reinvested in shares of the Fund. Any long-term capital gains distributions are taxable to shareholders as long-term capital gains, regardless of how long shareholders have held Fund shares. Corporate investors may be entitled to the dividends received deduction on all or a portion of the dividends paid by the Fund. Shareholders may elect: -- to have all dividends and capital gain distributions automatically reinvested in additional shares; or -- to receive the income dividends and short-term capital gains distributions in cash and accept the long-term capital gains distributions in additional shares; or -- to receive all distributions of income dividends and capital gains in cash. Automatic reinvestments will be at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gain distributions will be automatically reinvested. These elections may be changed by the shareholder at any time, but to be effective for a particular dividend or capital gain distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in December by the Fund and paid in January are taxable as if paid in December. The Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Fund that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Fund to withhold 31% from any dividends and/or redemptions (including exchange redemptions). Amounts withheld are applied to the shareholder's tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Fund to withhold 30%, or the applicable tax treaty rate, from dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. Dividends and interest from foreign issuers earned by the Fund may give rise to withholding and other taxes imposed by foreign countries, generally at rates from 10% to 40%. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by non-resident investors. Except as indicated below, to the extent that the Fund does pay foreign withholding or other foreign taxes on certain of its investments, investors will not be able to deduct their pro rata shares of such taxes in computing their taxable income and will not be able to take their shares of such taxes as a credit against U.S. income taxes. If more than 50% of the Fund's total assets at the close of its fiscal year consist of securities of foreign corporations, the Fund will be eligible to file, and will file, elections with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to include in their federal income tax returns as gross income their respective pro rata portions of foreign taxes paid by the Fund, to treat such amounts as foreign taxes paid by them, and to deduct such respective pro rata portions in computing their taxable incomes or, alternatively, to use them as foreign tax credits against their U.S. income taxes. The Fund will report annually to its shareholders the amount per share of such withholding. The foregoing is a brief discussion of certain federal income tax considerations. Please see "Taxes-Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of investment in the Fund. - ------------------------------------------------------------------------------- PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund has adopted a plan of distribution (the "Plan") under which the Fund may directly incur or reimburse the Advisor for certain distribution-related expenses, including payments to securities dealers and others, including the Underwriter, who are engaged in the sale of shares of the Fund and who may be advising investors regarding the purchase, sale or retention of Fund shares; expenses of maintaining personnel who engage in or support distribution of shares or who render shareholder support services not otherwise provided by the Advisor or MGF Service Corp.; expenses of formulating and implementing marketing and promotional activities, including direct mail promotions and mass media advertising; expenses of preparing, printing and distributing sales literature and prospectuses and statements of additional information and reports for recipients other than existing shareholders of the Fund; expenses of obtaining such information, analyses and reports with respect to marketing and promotional activities as the Investment Company may, from time to time, deem advisable; and any other expenses related to the distribution of the Fund's shares. The annual limitation for payment of expenses pursuant to the Plan is .25% of the Fund's average daily net assets. Unreimbursed expenditures will not be carried over from year to year. In the event the Plan is terminated by the Fund in accordance with its terms, the Fund will not be required to make any payments for expenses incurred by the Advisor after the date the Plan terminates. - ------------------------------------------------------------------------------ CALCULATION OF NET ASSET VALUE AND PUBLIC OFFERING PRICE The Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. The Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open. The Fund's portfolio typically will include securities which trade primarily on non- U.S. exchanges or otherwise in non-U.S. markets. Because of time zone differences, the prices of these securities, as used for net asset value calculations, may be established substantially in advance of the close of the New York Stock Exchange. Foreign securities may also trade on days when the New York Stock Exchange is closed (such as a Saturday). The net asset value and public offering price of the Fund, to the extent that it holds securities valued on foreign markets, may vary during periods when the New York Stock Exchange is closed. As a result, the value of the Fund's portfolio may be affected significantly by such trading on days when a shareholder has no access to the Fund. For further information, see "How to Invest," "How to Redeem Shares" and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the Statement of Additional Information. The net asset value and public offering price of the Fund will be determined as of the close of the regular session of the New York Stock Exchange. The shares of the Fund are offered at net asset value without a sales charge. Purchase, redemption and exchange orders received in proper form by the Transfer Agent before 4:00 p.m., Eastern time, will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Orders received by the Transfer Agent after 4:00 p.m., Eastern time, will be entered at the next calculated net asset value. - ------------------------------------------------------------------------------ EXECUTION OF PORTFOLIO TRANSACTIONS Orders for the Fund's portfolio securities transactions are placed by the Advisor or Sub-Advisor. The Advisor and Sub-Advisor strive to obtain the best available prices in the Fund's portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical and other information to the Fund, the Advisor or the Sub- Advisor or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States and other countries, and money market securities in which the Fund may invest, are generally traded in the over-the-counter ("OTC") markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures, currency and options transactions. Commissions or discounts in foreign securities exchanges or OTC markets typically are fixed and generally are higher than those in U.S. securities exchanges or OTC markets. There is generally less government supervision and regulation of foreign exchanges and brokers than in the United States. Foreign security settlements may, in some instances, be subject to delays and related administrative uncertainties. - ------------------------------------------------------------------------------ GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July 13, 1988, is a fully managed open-end diversified investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by the Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor and the Portfolio Management Agreement with the Sub- Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that series and is entitled to such dividends and distributions out of the income earned on the assets belonging to that series as may be declared at the discretion of the Board of Directors. Shares of a series when issued are fully paid and are nonassessable. The Board of Directors may, at its discretion, establish and issue shares of additional series of the Investment Company. - ------------------------------------------------------------------------------ TELEPHONE NUMBERS AND ADDRESSES To make an initial purchase: 1. By mail: Fremont Mutual Funds c/o MGF Service Corp. P.O. Box 5354 Cincinnati, OH 45201-5354 Street address: 312 Walnut Street, 21st Floor Cincinnati, OH 45202-3874 2. By wire: Via the Federal Reserve Bank Wire System to: Fifth CIN (Fifth Third Bank) ABA No. 042000314 Credit to: Fremont Mutual Funds Account No. 999-3684 Further Credit to: Fremont Fund Name, Shareholder name, and account number To make a subsequent purchase: Include Shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 1-800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and systematic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 or 415-284-8900 FREMONT MUTUAL FUNDS, INC. Fremont Money Market Fund Fremont California Intermediate Tax-Free Fund Fremont Bond Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont International Small Cap Fund Fremont U.S. Micro-Cap Fund Fremont Emerging Markets Fund For more information on the Fremont Family of Mutual Funds please call 1-800-548-4539 (press 1) or write to: Fremont Mutual Funds 50 Beale Street, Suite 100 San Francisco, CA 94105 - ------------------------------------------------------------------------- ADVISOR Fremont Investment Advisors, Inc. 50 Fremont Street, Suite 3600 San Francisco, CA 94105 - --------------------------------------------------------------------------- TRANSFER AGENT Mailing Address: MGF Service Corp. P.O. Box 5354 Cincinnati, OH 45201-5354 1-800-548-4539 Street Address: MGF Service Corp. 312 Walnut Street, 21st Floor Cincinnati, OH 45202-3874 - ----------------------------------------------------------------------------- CUSTODIAN The Northern Trust Company 50 South LaSalle Street Chicago, IL 60675 - ----------------------------------------------------------------------------- LEGAL COUNSEL Morrison & Foerster, LLP 345 California Street San Francisco, CA 94104 - ------------------------------------------------------------------------------ AUDITORS Coopers & Lybrand, L.L.P. 333 Market Street San Francisco, CA 94105 - ------------------------------------------------------------------------------ NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE ADVISOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. TABLE OF CONTENTS ITEM PAGE NO. Summary of Fees and Expenses................ The Advisor, the Sub-Advisor and The Fund... Investment Objective, Policies and Risk Considerations................... General Investment Policies................. Investment Results.......................... How to Invest............................... Shareholder Account Services and Privileges................................ How to Redeem Shares........................ Retirement Plans............................ Dividends, Distributions and Federal Income Taxation........................... Plan of Distribution........................ Calculation of Net Asset Value and Public Offering Price..................... Execution of Portfolio Transactions......... General Information......................... Telephone Numbers and Addresses............. FREMONT FUNDS 50 BEALE STREET, SUITE 100 SAN FRANCISCO, CA 94105 P.O. BOX 193663 SAN FRANCISCO, CA 94119-3663 1-800-548-4539 (PRESS 1) DISTRIBUTED BY FUNDS DISTRIBUTOR, INC., 50 BEALE STREET, SUITE 100, SAN FRANCISCO, CA 94105 FREMONT MUTUAL FUNDS, INC. FREMONT EMERGING MARKETS FUND 1-800-548-4539 Part B Statement of Additional Information This Statement of Additional Information concerning the Fremont Emerging Markets Fund of Fremont Mutual Funds, Inc. (the "Investment Company") is not a prospectus for the Fund. This Statement supplements the Prospectus for the Fund dated June 24, 1996 and should be read in conjunction with that Prospectus. Copies of the Prospectus are available without charge by calling the Investment Company at the phone number printed above. The date of this Statement of Additional Information is June 24, 1996. TABLE OF CONTENTS Investment Objective, Policies and Risk Considerations ............................ 3 Investment Restrictions ..................... 21 Investment Company Directors and Officers ... 24 Investment Advisory and Other Services ...... 27 Plan of Distribution ........................ 30 Execution of Portfolio Transactions ......... 32 How to Invest ............................... 33 Other Investment and Redemption Services .... 35 Taxes--Mutual Funds ......................... 36 Additional Information ...................... 40 Investment Results .......................... 41 Information About Fremont Investment Advisors.. 51 Appendix A: Description of Ratings .......... A-1 INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS The descriptions below are intended to supplement the material in the Prospectus under "Investment Objective, Policies and Risk Considerations" and "General Investment Policies." WRITING COVERED CALL OPTIONS. The Emerging Markets Fund (the "Fund") may write (sell) "covered" call options and purchase options to close out options previously written by the Fund. The purpose of writing covered call options is to generate additional premium income for the Fund. This premium income will serve to enhance the Fund's total return and will reduce the effect of any price decline of the security or currency involved in the option. Covered call options will generally be written on securities and currencies which, in the opinion of the Advisor or Sub- Advisor, are not expected to make any major price moves in the near future but which, over the long term, are deemed to be attractive investments for the Fund. A call option gives the holder (buyer) the "right to purchase" a security or currency at a specified price (the exercise price) at any time until a certain date (the expiration date). So long as the obligation of the writer of a call option continues, he may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him to deliver the underlying security or currency against payment of the exercise price. This obligation terminates upon the expiration of the call option, or such earlier time at which the writer effects a closing purchase transaction by purchasing an option identical to that previously sold. To secure his obligation to deliver the underlying security or currency in the case of a call option, a writer is required to deposit in escrow the underlying security or currency or other assets in accordance with the rules of the Options Clearing Corporation. The Fund will write only covered call options. This means that the Fund will only write a call option on a security, index or currency which the Fund already owns or has the right to acquire without additional cost. Portfolio securities or currencies on which call options may be written will be purchased solely on the basis of investment considerations consistent with the Fund's investment objectives. The writing of covered call options is a conservative investment technique believed to involve relatively little risk (in contrast to the writing of naked or uncovered options, which the Fund will not do), but capable of enhancing the Fund's total return. When writing a covered call option, the Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security or currency above the exercise price, but conversely retains the risk of loss should the price of the security or currency decline. Unlike one who owns securities or currencies not subject to an option, the Fund has no control over when it may be required to sell the underlying securities or currencies, since it may be assigned an exercise notice at any time prior to the expiration of its obligation as a writer. If a call option which the Fund involved has written expires, the Fund will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security or currency during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security or currency. The security or currency covering the call will be maintained in a separate account by the Fund's custodian. The Fund will not consider a security or currency covered by a call to be "pledged" as that term is used in its policy which limits the pledging or mortgaging of its assets. The premium received is the market value of an option. The premium the Fund will receive from writing a call option will reflect, among other things, the current market price of the underlying security or currency, the relationship of the exercise price to such market price, the historical price volatility of the underlying security or currency, and the length of the option period. Once the decision to write a call option has been made, the Advisor or Sub-Advisor, in determining whether a particular call option should be written on a particular security or currency, will consider the reasonableness of the anticipated premium and the likelihood that a liquid secondary market will exist for those options. The premium received by the Fund for writing covered call options will be recorded as a liability in the Fund's statement of assets and liabilities. This liability will be adjusted daily to the option's current market value, which will be the latest sales price at the time at which the net asset value per share of the Fund is computed (close of the regular trading session of the New York Stock Exchange), or, in the absence of such sale, the latest asked price. The liability will be extinguished upon expiration of the option, the purchase of an identical option in a closing transaction, or delivery of the underlying security or currency upon the exercise of the option. Closing transactions will be effected in order to realize a profit on an outstanding call option, to prevent an underlying security or currency from being called, or to permit the sale of the underlying security or currency. Furthermore, effecting a closing transaction will permit the Fund to write another call option on the underlying security or currency with either a different exercise price or expiration date or both. If the Fund desires to sell a particular security or currency from its portfolio on which it has written a call option, it will seek to effect a closing transaction prior to, or concurrently with, the sale of the security or currency. There is, of course, no assurance that the Fund involved will be able to effect such closing transactions at a favorable price. If the Fund cannot enter into such a transaction, it may be required to hold a security or currency that it might otherwise have sold, in which case it would continue to be at market risk with respect to the security or currency. The Fund will pay transaction costs in connection with the writing of options to close out previously written options. Such transaction costs are normally higher than those applicable to purchases and sales of portfolio securities. Call options written by the Fund will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities or currencies at the time the options are written. From time to time, the Fund may purchase an underlying security or currency for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security or currency from its portfolio. In such cases, additional costs will be incurred. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security or currency, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security or currency owned by the Fund. FEDERAL INCOME TAX TREATMENT OF COVERED CALL OPTIONS. Expiration of an option or entry into a closing purchase transaction will result in capital gain or loss. If the option was "in-the-money" (i.e., the option strike price was less than the market value of the security or currency covering the option) at the time it was written, any gain or loss realized as a result of the closing purchase transaction will be long-term capital gain or loss if the security or currency covering the option was held for more than one year prior to the writing of the option. The holding period of the securities or currencies covering an "in-the-money" option will not include the period of time the option is outstanding. If the option is exercised, the Fund will realize a gain or loss from the sale of the security or currency covering the call option, and in determining such gain or loss the premium will be included in the proceeds of the sale. If the Fund writes options other than "qualified covered call options," as defined in the Internal Revenue Code of 1986, as amended (the "Code"), any losses on such options transactions, to the extent they do not exceed the unrealized gains on the securities or currencies covering the options, may be subject to deferral until the securities or currencies covering the options have been sold. In addition, any options written against securities other than bonds or currencies will be considered to have been closed out at the end of the Fund's fiscal year and any gains or losses will be recognized for tax purposes at that time. Under Code Section 1256, such gains or losses would be characterized as 60% long-term capital gain or loss and 40% short-term capital gain or loss. Code Section 988 may also apply to currency transactions. Under Section 988, each foreign currency gain or loss is generally computed separately and treated as ordinary income or loss. In the case of overlap between Sections 1256 and 988, special provisions determine the character and timing of any income, gain or loss. The Fund will attempt to monitor Section 988 transactions to avoid an adverse tax impact. WRITING COVERED PUT OPTIONS. The Fund may write covered put options. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period. So long as the obligation of the writer continues, he may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him to make payment of the exercise price against delivery of the underlying security or currency. The operation of put options in other respects, including their related risks and rewards, is substantially identical to that of call options. The Fund would write put options only on a covered basis, which means that the Fund would maintain in a segregated account, or set aside, cash and high-grade debt obligations in an amount not less than the exercise price at all times while the put option is outstanding. (The rules of the Clearing Corporation currently require that such assets be deposited in escrow to secure payment of the exercise price.) The Fund would generally write covered put options in circumstances where the Advisor or Sub-Advisor wishes to purchase the underlying security or currency for the Fund's portfolio at a price lower than the current market price of the security or currency. In such event the Fund would write a put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. Since the Fund would also receive interest on debt securities or currencies maintained to cover the exercise price of the option, this technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be that the market price of the underlying security or currency would decline below the exercise price less the premiums received. PURCHASING PUT OPTIONS. The Fund may purchase put options. As the holder of a put option, the Fund has the right to sell the underlying security or currency at the exercise price at any time during the option period. The Fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The Fund may purchase put options for defensive purposes in order to protect against an anticipated decline in the value of its securities or currencies. An example of such use of put options is provided below. The Fund may purchase a put option on an underlying security or currency (a "protective put") owned as a defensive technique in order to protect against an anticipated decline in the value of the security or currency. Such hedge protection is provided only during the life of the put option when the Fund, as the holder of the put option, is able to sell the underlying security or currency at the put exercise price regardless of any decline in the underlying security's market price or currency's exchange value. For example, a put option may be purchased in order to protect unrealized appreciation of a security or currency where the Advisor or Sub-Advisor deems it desirable to continue to hold the security or currency because of tax considerations. The premium paid for the put option and any transaction costs would reduce any capital gain otherwise available for distribution when the security or currency is eventually sold. The Fund may also purchase put options at a time when the Fund does not own the underlying security or currency. By purchasing put options on a security or currency it does not own, the Fund seeks to benefit from a decline in the market price of the underlying security or currency. If the put option is not sold when it has remaining value, and if the market price of the underlying security or currency remains equal to or greater than the exercise price during the life of the put option, the Fund will lose its entire investment in the put option. In order for the purchase of a put option to be profitable, the market price of the underlying security or currency must decline sufficiently below the exercise price to cover the premium and transaction costs, unless the put option is sold in a closing sale transaction. The Fund will commit no more than 5% of its assets to premiums when purchasing put options. The premium paid by the Fund when purchasing a put option will be recorded as an asset in the Fund's statement of assets and liabilities. This asset will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the Fund's net asset value per share is computed (close of trading on the New York Stock Exchange), or, in the absence of such sale, the latest bid price. The asset will be extinguished upon expiration of the option, the selling (writing) of an identical option in a closing transaction, or the delivery of the underlying security or currency upon the exercise of the option. PURCHASING CALL OPTIONS. The Fund may purchase call options. As the holder of a call option, the Fund has the right to purchase the underlying security or currency at the exercise price at any time during the option period. The Fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The Fund may purchase call options for the purpose of increasing its current return or avoiding tax consequences which could reduce its current return. The Fund may also purchase call options in order to acquire the underlying securities or currencies. Examples of such uses of call options are provided below. Call options may be purchased by the Fund for the purpose of acquiring the underlying securities or currencies for its portfolio. Utilized in this fashion, the purchase of call options enables the Fund to acquire the securities or currencies at the exercise price of the call option plus the premium paid. At times the net cost of acquiring securities or currencies in this manner may be less than the cost of acquiring the securities or currencies directly. This technique may also be useful to the Fund in purchasing a large block of securities that would be more difficult to acquire by direct market purchases. So long as it holds such a call option rather than the underlying security or currency itself, the Fund is partially protected from any unexpected decline in the market price of the underlying security or currency and in such event could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. The Fund will commit no more than 5% of its assets to premiums when purchasing call options. The Fund may also purchase call options on underlying securities or currencies it owns in order to protect unrealized gains on call options previously written by it. A call option would be purchased for this purpose where tax considerations make it inadvisable to realize such gains through a closing purchase transaction. Call options may also be purchased at times to avoid realizing losses that would result in a reduction of the Fund's current return. For example, where the Fund has written a call option on an underlying security or currency having a current market value below the price at which such security or currency was purchased by the Fund, an increase in the market price could result in the exercise of the call option written by the Fund and the realization of a loss on the underlying security or currency with the same exercise price and expiration date as the option previously written. DESCRIPTION OF FUTURES CONTRACTS. A Futures Contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (security or currency) for a specified price at a designated date, time and place. Brokerage fees are incurred when a Futures Contract is bought or sold and margin deposits must be maintained. Although Futures Contracts typically require future delivery of and payment for financial instruments or currencies, the Futures Contracts are usually closed out before the delivery date. Closing out an open Futures Contract sale or purchase is effected by entering into an offsetting Futures Contract purchase or sale, respectively, for the same aggregate amount of the identical type of financial instrument or currency and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the Contract. As an example of an offsetting transaction in which the financial instrument or currency is not delivered, the contractual obligations arising from the sale of one Contract of September Treasury Bills on an exchange may be fulfilled at any time before delivery of the Contract is required (e.g., on a specified date in September, the "delivery month") by the purchase of one Contract of September Treasury Bills on the same exchange. In such instance the difference between the price at which the Futures Contract was sold and the price paid for the offsetting purchase, after allowance for transaction costs, represents the profit or loss to the Fund. The Fund may enter into interest rate, S&P Index (or other stock market indexes) or currency Futures Contracts as a hedge against changes in prevailing levels of stock values, interest rates, or currency exchange rates in order to establish more definitely the effective return on securities or currencies held or intended to be acquired by the Fund. The Fund's hedging may include sales of Futures as an offset against the effect of expected increases in currency exchange rates; purchases of such Futures as an offset against the effect of expected declines in currency exchange rates and purchase of Futures in anticipation of purchasing underlying index stocks prior to the availability of sufficient assets to purchase such stocks or to offset potential increase in stocks prices. When selling options or Futures Contracts, the Fund will segregate, or set aside, cash and high-grade debt obligations to cover any related liability. The Fund will not enter into Futures Contracts for speculation and will only enter into Futures Contracts which are traded on national futures exchanges and are standardized as to maturity date and underlying financial instrument. The principal Futures exchanges in the United States are the Board of Trade of the City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and trading are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission. Futures are also traded in various overseas markets. Although techniques other than sales and purchases of Futures Contracts could be used to reduce the Fund's exposure to currency exchange rate fluctuations, the Fund may be able to hedge its exposure more effectively and perhaps at a lower cost through using Futures Contracts. The Fund will not enter into a Futures Contract if, as a result thereof, more than 5% of the Fund's total assets (taken at market value at the time of entering into the contract) would be committed to "margin" (down payment) deposits on such Futures Contracts. A Stock Index contract is an agreement to take or make delivery at a specified future date of an amount of cash equal to $500 multiplied by the difference between the value of the Stock Index at purchase and at the close of the last trading day of the contract. In order to close long positions in the Stock Index contracts prior to their settlement date, the Fund will enter into offsetting sales of Stock Index contracts. Using Stock Index contracts in anticipation of market transactions involves certain risks. Although the Fund may intend to purchase or sell Stock Index contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for the contracts at any particular time. In addition, the price of Stock Index contracts may not correlate perfectly with the movement in the Stock Index due to certain market distortions. Due to the possibility of price distortions in the futures market and because of the imperfect correlation between movements in the Stock Index and movements in the price of Stock Index contracts, a correct forecast of general market trends may not result in a successful anticipatory hedging transaction. FUTURES CONTRACTS GENERALLY. Persons who trade in Futures Contracts may be broadly classified as "hedgers" and "speculators." Hedgers, such as the Fund, whose business activity involves investment or other commitments in debt securities, equity securities or other obligations, use the Futures markets primarily to offset unfavorable changes in value that may occur because of fluctuations in the value of the securities and obligations held or expected to be acquired by them or fluctuations in the value of the currency in which the securities or obligations are denominated. Debtors and other obligers may also hedge the interest cost of their obligations. The speculator, like the hedger, generally expects neither to deliver nor to receive the financial instrument underlying the Futures Contract, but, unlike the hedger, hopes to profit from fluctuations in prevailing interest rates, securities prices or currency exchange rates. A public market exists in Futures Contracts covering foreign financial instruments such as U.K. Pound, Japanese Yen and German Mark, among others. Additional Futures Contracts may be established from time to time as various exchanges and existing Futures Contract markets may be terminated or altered as to their terms or methods of operation. The Fund's Futures transactions will be entered into for traditional hedging purposes; that is, Futures Contracts will be sold to protect against a decline in the price of securities or currencies that the Fund owns, or Futures Contracts will be purchased to protect the Fund against an increase in the price of securities or currencies it has a fixed commitment to purchase. "Margin" with respect to Futures and Futures Contracts is the amount of funds that must be deposited by the Fund with a broker in order to initiate Futures trading and to maintain the Fund's open positions in Futures Contracts. A margin deposit ("initial margin") is intended to assure the Fund's performance of the Futures Contract. The margin required for a particular Futures Contract is set by the exchange on which the Contract is traded, and may be significantly modified from time to time by the exchange during the term of the Contract. Futures Contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the Contract being traded. If the price of an open Futures Contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the Futures Contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin deposit ("margin variation"). However, if the value of a position increases because of favorable price changes in the Futures Contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. In computing daily net asset values, the Fund will mark to market the current value of its open Futures Contracts. The Fund expects to earn interest income on its margin deposits. The prices of Futures Contracts are volatile and are influenced, among other things, by actual and anticipated changes in interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. At best, the correlation between changes in prices of Futures Contracts and of the securities or currencies being hedged can be only approximate. The degree of imperfection of correlation depends upon circumstances such as: variations in speculative market demand for Futures and for securities or currencies, including technical influences in Futures trading; and differences between the financial instruments being hedged and the instruments underlying the standard Futures Contracts available for trading, with respect to interest rate levels, maturities, and creditworthiness of issuers. A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior or interest rate trends. Because of the low margin deposits required, Futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a Futures Contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the Futures Contract is deposited as margin, a subsequent 10% decrease in the value of the Futures Contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the Contract were closed out. Thus, a purchase or sale of a Futures Contract may result in losses in excess of the amount invested in the Futures Contract. However, the Fund would presumably have sustained comparable losses if, instead of the Futures Contract, it had invested in the underlying financial instrument and sold it after the decline. Furthermore, in the case of a Futures Contract purchase, in order to be certain that the Fund has sufficient assets to satisfy its obligations under a Futures Contract, the Fund segregates and commits to back the Futures Contract with money market instruments equal in value to the current value of the underlying instrument less the margin deposit. Most United States Futures exchanges limit the amount of fluctuation permitted in Futures Contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a Futures Contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of Contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures Contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of Futures positions and subjecting some Futures traders to substantial losses. FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions the Fund identified as hedging transactions, the Fund is required for federal income tax purposes to recognize as income for each taxable year its net unrealized gains and losses on Futures Contracts as of the end of the year as well as those actually realized during the year. Identified hedging transactions would not be subject to the mark to market rules and would result in the recognition of ordinary gain or loss. Otherwise, unless transactions in Futures Contracts are classified as part of a "mixed straddle," any gain or loss recognized with respect to a Futures Contract is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the Contract. In the case of a Futures transaction classified as a "mixed straddle," the recognition of losses may be deferred to a later taxable year. Sales of Futures Contracts which are intended to hedge against a change in the value of securities or currencies held by the Fund may affect the holding period of such securities or currencies and, consequently, the nature of the gain or loss on such securities or currencies upon disposition. In order for the Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or currencies. In addition, gains realized on the sale or other disposition of securities or currencies held for less than three months must be limited to less than 30% of the Fund's annual gross income. It is anticipated that any net gain realized from the closing out of Futures Contracts will be considered gain from the sale of securities or currencies and therefore be qualifying income for purposes of the 90% requirement. In order to avoid realizing excessive gains on securities or currencies held less than three months, the Fund may be required to defer the closing out of Futures Contracts beyond the time when it would otherwise be advantageous to do so. It is anticipated that unrealized gains on Futures Contracts, which have been open for less than three months as of the end of the Investment Company's fiscal year and which are recognized for tax purposes, will not be considered gains on securities or currencies held less than three months for purposes of the 30% test. The Fund will distribute to shareholders annually any net long-term capital gains which have been recognized for federal income tax purposes (including unrealized gains at the end of the Investment Company's fiscal year) on Futures transactions. Such distributions will be combined with distributions of capital gains realized on the Fund's other investments and shareholders will be advised of the nature of the payments. OPTIONS ON INTEREST RATE AND/OR CURRENCY FUTURES CONTRACTS. Options on Futures Contracts are similar to options on fixed income or equity securities or options on currencies except that options on Futures Contracts give the purchaser the right, in return for the premium paid, to assume a position in a Futures Contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the Futures Contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the Futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's Futures margin account which represents the amount by which the market price of the Futures Contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the Futures Contract. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the securities or currencies upon which the Futures Contracts are based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. As an alternative to purchasing call and put options on Futures, the Fund may purchase call and put options on the underlying securities or currencies. Such options would be used in a manner identical to the use of options on Futures Contracts. To reduce or eliminate the leverage then employed by the Fund or to reduce or eliminate the hedge position then currently held by the Fund, the Fund may seek to close out an option position by selling an option covering the same securities or contract and having the same exercise price and expiration date. FORWARD CURRENCY AND OPTIONS TRANSACTIONS. A forward currency contract is an obligation to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. The Fund may either accept or make delivery of the currency at the maturity of the forward contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. The Fund typically engages in forward currency transactions in anticipation of, or to protect itself against, fluctuations in exchange rates. The Fund might sell a particular currency forward, for example, when it wanted to hold bonds denominated in that currency but anticipated, and sought to be protected against, a decline in the currency against the U.S. dollar. Similarly, the Fund might purchase a currency forward to "lock in" the dollar price of securities denominated in that currency which it anticipated purchasing. A put option gives the Fund, as purchaser, the right (but not the obligation) to sell a specified amount of currency at the exercise price until the expiration of the option. A call option gives the Fund, as purchaser, the right (but not the obligation) to purchase a specified amount of currency at the exercise price until its expiration. The Fund might purchase a currency put option, for example, to protect itself during the contract period against a decline in the dollar value of a currency in which it holds or anticipates holding securities. If the currency's value should decline against the dollar, the loss in currency value should be offset, in whole or in part, by an increase in the value of the put. If the value of the currency instead should rise against the dollar, any gain to the Fund would be reduced by the premium it had paid for the put option. A currency call option might be purchased, for example, in anticipation of, or to protect against, a rise in the value against the dollar of a currency in which the Fund anticipates purchasing securities. Currency options may be either listed on an exchange or traded over-the-counter (OTC). Listed options are third-party contracts (i.e., performance of the obligations of the purchaser and seller is guaranteed by the exchange or clearing corporation), and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration dates. The Fund will not purchase an OTC option unless it believes that daily valuation for such option is readily obtainable. REVERSE REPURCHASE AGREEMENTS AND LEVERAGE. The Fund may enter into reverse repurchase agreements which involve the sale of a security by the Fund and its agreement to repurchase the security at a specified time and price. The Fund will maintain in a segregated account, or set aside, with its custodian cash, cash equivalents or high quality debt securities in an amount sufficient to cover its obligations under reverse repurchase agreements with broker-dealers (but not with banks). Under the 1940 Act, reverse repurchase agreements are considered borrowings by the Fund; accordingly, the Fund will limit its investments in these transactions, together with any other borrowings, to no more than one-third of its total assets. The use of reverse repurchase agreements by the Fund creates leverage which increases the Fund's investment risk. If the income and gains on securities purchased with the proceeds of these transactions exceed the cost, the Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely if the income and gains fail to exceed the costs, earnings or net asset value would decline faster than otherwise would be the case. If the 300% asset coverage required by the 1940 Act should decline as a result of market fluctuation or other reasons, the Fund may be required to sell some of its portfolio securities within three days to reduce the borrowings (including reverse repurchase agreements) and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. The Fund intends to enter into a reverse repurchase agreement only if the income from the investment of the proceeds is greater than the expense of the transaction, as the proceeds are invested for a period no longer than the term of the reverse repurchase agreement. FLOATING RATE AND VARIABLE RATE OBLIGATIONS AND PARTICIPATION INTERESTS. The Fund may purchase floating rate and variable rate obligations, including participation interests therein. Floating rate or variable rate obligations provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate at a major commercial bank) or is reset on a regular basis by a bank or investment banking firm to a market rate. At specified times, the owner can demand payment of the obligation at par plus accrued interest. Variable rate obligations provide for a specified periodic adjustment in the interest rate, while floating rate obligations have an interest rate which changes whenever there is a change in the external interest rate. Frequently banks provide letters of credit or other credit support or liquidity arrangements to secure these obligations. The quality of the underlying creditor or of the bank, as the case may be, must, as determined by the Advisor or Sub- Advisor, be equivalent to the quality standards prescribed for the Fund. The Fund may invest in participation interests purchased from banks in floating rate or variable rate obligations owned by banks. A participation interest gives the Fund an undivided interest in the obligation in the proportion that the Fund's participation interest bears to the total principal amount of the obligation, and provides a demand repayment feature. Each participation is backed by an irrevocable letter of credit or guarantee of a bank (which may be the bank issuing the participation interest or another bank). The bank letter of credit or guarantee must meet the prescribed investment quality standards for the Fund. The Fund has the right to sell the participation instrument back to the issuing bank or draw on the letter of credit on demand for all or any part of the Fund's participation interest in the underlying obligation, plus accrued interest. SWAP AGREEMENTS. The Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap"; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor"; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding minimum or maximum levels. The "notional amount" of the swap agreement is only a fictive basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by the Fund would calculate the obligations of the parties to the agreement on a "net basis." Consequently the Fund's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). The Fund's obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by maintaining in a segregated account, or setting aside, cash, U.S. Government securities, or high grade debt obligations, to avoid any potential leveraging of the Fund's portfolio. The Fund will not enter into a swap agreement with any single party if the net amount owed or to be received under existing contracts with that party would exceed 5% of the Fund's net assets. Whether the Fund's use of swap agreements will be successful in furthering its investment objective will depend on the Advisor's or the Sub-Advisor's ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements will be considered to be illiquid. Moreover, the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Advisor or Sub-Advisor will cause the Fund to enter into swap agreements only with counterparties that would be eligible for consideration as repurchase agreement counterparties under the Fund's repurchase agreement guidelines. Certain restrictions imposed on the Fund by the Internal Revenue Code may limit the Fund's ability to use swap agreements. The swaps market is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund's ability to terminate existing swap agreements or to realize amounts to be received under such agreements. WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction but the settlement is delayed). The Fund will not purchase securities the value of which is greater than 5% of its net assets on a when-issued or firm commitment basis. The Fund, as purchaser, assumes the risk of any decline in value of the security beginning on the date of the agreement or purchase and no interest accrues to the Fund until it accepts delivery of the security. The Fund will not use such transactions for leveraging purposes, and accordingly will segregate, or set aside, cash, cash equivalents or high quality debt securities in an amount sufficient to meet its payment obligations thereunder. Although these transactions will not be entered into for leveraging purposes, to the extent the Fund's aggregate commitments under these transactions exceed its holdings of cash and securities that do not fluctuate in value (such as short-term money market instruments), the Fund temporarily will be in a leveraged position (i.e., it will have an amount greater than its net assets subject to market risk). Should market values of the Fund's portfolio securities decline while the Fund is in a leveraged position, greater depreciation of its net assets would likely occur than were it not in such a position. As the Fund's aggregate commitments under these transactions increase, the opportunity for leverage similarly increases. The Fund will not borrow money to settle these transactions and, therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash to meet its obligations thereunder. COMMERCIAL BANK OBLIGATIONS. For the purposes of the Fund's investment policies with respect to bank obligations, obligations of foreign branches of U.S. banks and of foreign banks may be general obligations of the parent bank in addition to the issuing bank, or may be limited by the terms of a specific obligation and by government regulation. As with investment in non-U.S. securities in general, investments in the obligations of foreign branches of U.S. banks, and of foreign banks may subject the Fund to investment risks that are different in some respects from those of investments in obligations of domestic issuers. Although the Fund will typically acquire obligations issued and supported by the credit of U.S. or foreign banks having total assets at the time of purchase in excess of $1 billion, this $1 billion figure is not a fundamental investment policy or restriction of the Fund. For the purposes of calculation with respect to the $1 billion figure, the assets of a bank will be deemed to include the assets of its U.S. and non-U.S. branches. ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in all forms of "illiquid securities." An investment is generally deemed to be "illiquid" if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which such securities are valued by the Fund. "Restricted" securities are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the "1933 Act"). However, a market exists for certain restricted securities (for example, securities qualifying for resale to certain "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act). Additionally, the Advisor and the Fund believe that a similar market exists for commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act. The Fund may invest without limitation in these forms of restricted securities if such securities are determined by the Advisor or Sub-Advisor to be liquid in accordance with standards established by the Investment Company's Board of Directors. Under these standards, the Advisor or Sub-Advisor must consider (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) any dealer undertaking to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). It is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in restricted securities could have the effect of increasing the level of the Fund's illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing additional income, the Fund may make secured loans of portfolio securities amounting to not more than 33-1/3% of its net assets. Securities loans are made to broker-dealers or institutional investors pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent marked to market on a daily basis. The collateral received will consist of cash, short-term U.S. Government securities, bank letters of credit or such other collateral as may be permitted under the Fund's investment program and by regulatory agencies and approved by the Board of Directors. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. The Fund has a right to call each loan and obtain the securities on five business days' notice. The Fund will not have the right to vote equity securities while they are being lent, but it will call a loan in anticipation of any vote in which it seeks to participate. REDUCTION IN BOND RATING. The Fund may invest in debt securities rated not lower than Baa or BBB. In the event that the rating for any security held by the Fund drops below the minimum acceptable rating applicable to the Fund, the Fund's Advisor or Sub-Advisor will determine whether the Fund should continue to hold such an obligation in its portfolio. Bonds rated below BBB or Baa are commonly known as "junk bonds." These bonds are subject to greater fluctuations in value and risk of loss of income and principal due to default by the issuer than are higher rated bonds. The market values of junk bonds tend to reflect short-term corporate, economic and market developments and investor perceptions of the issuer's credit quality to a greater extent than higher rated bonds. In addition, it may be more difficult to dispose of, or to determine the value of, junk bonds. See Appendix A for a complete description of the bond ratings. INVESTMENT RESTRICTIONS The Fund has adopted the following fundamental investment policies and restrictions in addition to the policies and restrictions discussed in its prospectus. With respect to the Fund, the policies and restrictions listed below cannot be changed without approval by the holders of a "majority of the outstanding voting securities" of the Fund (which is defined in the 1940 Act to mean the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). These restrictions provide that the Fund may not: 1. Invest 25% or more of the value of its total assets in the securities of issuers conducting their principal business activities in the same industry, except that this limitation shall not apply to securities issued or guaranteed as to principal and interest by the U.S. Government or any of its agencies or instrumentalities, to tax exempt securities issued by state governments or political subdivisions thereof. 2. Buy or sell real estate (including real estate limited partnerships) or commodities or commodity contracts; however, the Fund may invest in securities secured by real estate, or issued by companies which invest in real estate or interests therein, including real estate investment trusts, and may purchase and sell currencies (including forward currency exchange contracts), gold, bullion, futures contracts and related options generally as described in the Prospectus and Statement of Additional Information. 3. Engage in the business of underwriting securities of other issuers, except to the extent that the disposal of an investment position may technically cause it to be considered an underwriter as that term is defined under the Securities Act of 1933. 4. Make loans, except that the Fund may purchase debt securities, enter into repurchase agreements, and make loans of portfolio securities amounting to not more than 33 1/3% of its net assets calculated at the time of the securities lending. 5. Borrow money, except from banks for temporary or emergency purposes not in excess of 30% of the value of the Fund's total assets. The Fund will not purchase securities while such borrowings are outstanding. 6. Change its status as a non-diversified investment company. 7. Issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and except that the Investment Company and the Fund may issue shares of common stock in multiple series or classes. 8. Notwithstanding any other fundamental investment restriction or policy, the Fund may invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions and policies as the Fund. Other current investment policies of the Fund, which are not fundamental and which may be changed by action of the Board of Directors without shareholder approval, are as follows. The Fund may not: 9. Invest in companies for the purpose of exercising control or management. 10. Mortgage, pledge or hypothecate any of its assets, provided that this restriction shall not apply to the transfer of securities in connection with any permissible borrowing. 11. Invest in interests in oil, gas or other mineral exploration or development programs or leases. 12. Invest more than 5% of its total assets in securities of companies having, together with their predecessors, a record of less than three years continuous operation. 13. Purchase or retain the securities of any issuer, if those individual officers and directors of the Investment Company, its investment advisor, or distributor, each owning beneficially more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer. 14. Purchase securities on margin, provided that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities, except that the Fund may make margin deposits in connection with futures contracts. 15. Enter into a futures contract if, as a result thereof, more than 5% of the Fund's total assets (taken at market value at the time of entering into the contract) would be committed to margin on such futures contract. 16. Acquire securities or assets for which there is no readily available market or which are illiquid, if, immediately after and as a result, the value of such securities would exceed, in the aggregate, 15% of the Fund's net assets. 17. Make short sales of securities or maintain a short position, except that the Fund may sell short "against the box." 18. Invest in securities of an issuer if the investment would cause the Fund to own more than 10% of any class of securities of any one issuer. 19. Acquire more than 3% of the outstanding voting securities of any one investment company. 20. Invest more than 5% of its net assets in warrants or rights, or more than 2% of its net assets in warrants and rights which are not listed on the American or New York Stock Exchanges. INVESTMENT COMPANY DIRECTORS AND OFFICERS The By-laws of Fremont Mutual Fund, Inc. (the "Investment Company"), the Maryland investment company which established the Fund, authorize a Board of Directors of between three and 15 persons, as fixed by the Board of Directors. There are presently seven directors, each of whom have been elected by the shareholders of the Investment Company for an indefinite term of office. A majority of remaining directors may fill director vacancies caused by resignation, death or expansion of the Board of Directors. Any director may be removed by vote of holders of a majority of all outstanding shares of the Investment Company qualified to vote at the meeting. Principal Occupations and Business Experience Name and Address Age Positions Held for Past Five Years David L. Redo (1)(2)(4) 58 President, Chief Executive President and Director, Fremont Fremont Investment Officer and Director Investment Advisors, Inc.; Advisors, Inc. Managing Director, Fremont 50 Beale St., Suite 100 Group, L.L.C. and Fremont San Francisco, Investors, Inc.; Director, Sequoia CA 94105 Ventures, Inc., Sit/Kim International Investment Associates and J.P. Morgan Securities Asia. Vincent P. Kuhn, Jr.(1)(2)(4) 63 Executive Vice President, Executive Vice President and Fremont Investment Chief Compliance Officer Director, Fremont Investment Advisors, Inc. and Director Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 Albert W. Kirschbaum(1)(2)(4) 57 Senior Vice President, Senior Vice President and Fremont Investment Secretary and Director Director, Fremont Investment Advisors, Inc. Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 Richard E. Holmes(3) 52 Director Vice President and Director, P.O. Box 479 BelMar Advisors, Inc. Sanibel, FL 33957 (marketing firm) William W. Jahnke(3) 52 Director 1/96 - Present Jahnke & Associates Chairman, Financial Design 58 Camino del Diablo Education Corp. Orinda, CA 94563 3/93 - Present Principal, Jahnke & Associates (Consultants) 6/83 - 3/93 Chairman, Board of Directors, Vestek Systems, Inc. Donald C. Luchessa(3) 66 Director Principal, DCL Advisory DCL Advisory (marketer for investment 345 California Street, 10th Fl advisors) San Francisco, CA 94104
David L. Egan(3) 61 Director President, Fairfield Capital Fairfield Capital Associates, Inc. Associates, Inc. (an investment 1640 Sylvaner advisor) and Fairfield Capital St. Helena, CA 94574 Funding, Inc. (a broker-dealer) Peter F. Landini(4) 45 Senior Vice President Senior Vice President and Fremont Investment and Treasurer Director, Fremont Investment Advisors, Inc. Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 William M. Feeney 40 Vice President Vice President, Fremont Fremont Investment Investment Advisors, Inc. Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 Marycatherine Dwyer 32 Vice President, Asst. 10/91 - Present Fremont Investment Compliance Officer Vice President, Fremont Advisors, Inc. and Asst. Secretary Investment Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 6/90 - 10/91 Registered Representative, Liberty Securities Norman Gee 46 Vice President Vice President, Fremont Fremont Investment Investment Advisors, Inc. Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 Alexandra W. Kinchen(4) 50 Vice President Vice President, Fremont Fremont Investment Investment Advisors, Inc. Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 Andrew L. Pang(4) 46 Vice President Vice President, Fremont Fremont Investment Investment Advisors, Inc. Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 Robert J. Haddick(4) 36 Vice President Vice President, Fremont Fremont Investment Investment Advisors, Inc. Advisors, Inc. 50 Fremont St., Suite 3600 San Francisco, CA 94105 Ian R. Stone 32 Vice President, Asst. Vice President, Fremont Fremont Investment Secretary and Asst.Treasurer Investment Advisors, Inc. Advisors, Inc. 50 Beale St., Suite 100 San Francisco, CA 94105 Richard G. Thomas 38 Vice President 11/91 - Present Fremont Investment Vice President, Fremont Advisors, Inc. Investment Advisors, Inc. 50 Fremont St., Suite 3500 San Francisco, CA 94105 1/88 - 11/91 Institutional Sales, Charles Schwab & Co. Chantal Gaiddon 39 Vice President Vice President and Controller, Fremont Investment and Controller Fremont Investment Advisors, Advisors, Inc. Inc. 50 Beale St., Suite 100 San Francisco, CA 94105 Gretchen Hollstein 29 Vice President 8/92 - Present Fremont Investment Regional Sales Manager, Advisors, Inc. Fremont Investment Advisors, 50 Beale St., Suite 100 Inc. San Francisco, CA 94105 8/90 - 7/92 Assistant Vice President, Bank of California Dean Boebinger 40 Vice President 8/94 - Present Fremont Investment Regional Sales Manager, Advisors, Inc. Fremont Investment Advisors, 3000 Post Oak Blvd, Suite 100 Inc. Houston, TX 77056 3/92 - 7/94 Certified Financial Planner and Account Executive, GNA Inc. - ---------------------------- (1) Director who is an "interested person" of the Company due to his affiliation with the Company's investment manager. (2) Member of the Executive Committee. (3) Member of the Audit Committee and the Contracts Committee. (4) Member of the Fremont Investment Committee. During the fiscal year ended October 31, 1995, Richard E. Holmes received $3,000 and William W. Jahnke and Donald C. Luchessa each received $4,500 for serving as directors of the Investment Company. As of April 1, 1996 the officers and directors as a group owned in the aggregate beneficially or of record less than 1% of the outstanding shares of the Investment Company.
INVESTMENT ADVISORY AND OTHER SERVICES MANAGEMENT AGREEMENT. The Advisor, in addition to providing investment management services, furnishes the services and pays the compensation and travel expenses of persons who perform the executive, administrative, clerical and bookkeeping functions of the Investment Company, provides suitable office space, necessary small office equipment and utilities, and general purpose accounting forms, supplies, and postage used at the offices of the Investment Company. The Advisor is responsible to pay sub- transfer agency fees when such entities are engaged in connection with share holdings in the Fund acquired by certain retirement plans. The Fund will pay all of its own expenses not assumed by the Advisor, including, but not limited to, the following: custodian, stock transfer and dividend disbursing fees and expenses; taxes and insurance; expenses of the issuance and redemption of shares of the Fund (including stock certificates, registration or qualification fees and expenses); promotional expenses in connection with the distribution of the Fund's shares (see "Plan of Distribution"); legal and auditing expenses; and the costs of stationery and forms prepared exclusively for the Fund. The allocation of general Investment Company expenses among the series of the Investment Company, including the Fund, is made on a basis that the directors deem fair and equitable, which may be based on the relative net assets of each series or the nature of the services performed and relative applicability to each series. The directors of the Advisor are David L. Redo, Vincent P. Kuhn, Jr., Jon S. Higgins, Peter F. Landini and Albert W. Kirschbaum. Under the Investment Advisory and Administration Agreement (the "Advisory Agreement"), the Advisor has agreed to reimburse the Fund if its annual ordinary expenses exceed the most stringent limits prescribed by any state in which the Fund's shares are offered for sale. Expenses which are not subject to this limitation are interest, taxes, the amortization of organizational expenses, and extraordinary expenses. Expenditures, including costs incurred in connection with the purchase or sale of portfolio securities, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, are accounted for as capital items and not as expenses. Reimbursement, if any, will be on a monthly basis, subject to year-end adjustment. Once waived, fees will not be recognized in the future. The Advisory Agreement may be renewed annually, provided that any such renewal has been specifically approved by (i) the Board of Directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, and (ii) the vote of a majority of directors who are not parties to the Advisory 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. The Advisory Agreement also provides that either party thereto has the right to terminate it without penalty upon sixty (60) days' written notice to the other party, and that the Advisory Agreement terminates automatically in the event of its assignment (as defined in the 1940 Act). The Advisory Agreement also provides for the payment of an administrative fee to the Advisor at the annual rate of .15% of average net assets. The Advisor is currently waiving the entire administrative fee until further notice. The Advisor's employees may engage in personal securities transactions. However, the Investment Company and the Advisor have adopted a Code of Ethics for the purpose of establishing standards of conduct for the Advisor's employees with respect to such transactions. The Code of Ethics includes some broad prohibitions against fraudulent conduct, and also includes specific rules, restrictions and reporting obligations with respect to personal securities transactions of the Advisor's employees. Generally, each employee is required to obtain prior approval of the Advisor's compliance officer in order to personally purchase or sell a security. Purchases or sales of securities which are not eligible for purchase or sale by the Fund or any other client of the Advisor are exempted from the prior approval requirement, as are certain other transactions which the Advisor believes present no potential conflict of interest. The Advisor's employees are also required to file with the Advisor quarterly reports of their securities transactions. THE SUB-ADVISOR. The Advisory Agreement authorizes the Advisor, at its option and at its sole expense, to appoint a Sub-Advisor, which may assume all or a portion of responsibilities and obligations of the Advisor pursuant to the Advisory Agreement as shall be delegated to the Sub-Advisor. Any appointment of a Sub-Advisor and assumption of responsibilities and obligations of the Advisor by such Sub-Advisor is subject to approval by the Board of Directors and, as required by law, the shareholders of the Fund. Pursuant to this authority, Credit Lyonnais International Asset Management (HK) Limited serves as the Fund's Sub-Advisor. The Sub-Advisor is overseen by the members of the Fremont Investment Committee. See "Investment Company Directors and Officers." The Portfolio Management Agreement provides that the Sub-Advisor agrees to manage the investment of the Fund's assets, subject to the applicable provisions of the Investment Company's Articles of Incorporation, Bylaws and current registration statement (including, but not limited to, the investment objective, policies and restrictions delineated in the Fund's current Prospectus and Statement of Additional Information), as interpreted from time to time by the Board of Directors. For its services under the Portfolio Management Agreement, the Advisor has agreed to pay the Sub-Advisor an annual fee equal to .50% of the value of the Fund's average net assets, payable monthly. The Sub-Advisor has agreed to waive its fees until further notice. The Portfolio Management Agreement continues in effect from year to year only as long as such continuance is specifically approved at least annually by (i) the Board of Directors of the Investment Company or by the vote of a majority of the outstanding voting shares of the Fund, and (ii) by the vote of a majority of the directors of the Investment Company who are not parties to the Agreement or interested persons of the Advisor or the Sub-Advisor or the Investment Company. The Agreement may be terminated at any time, without the payment of any penalty, by the Board of Directors of the Investment Company or by the vote of a majority of the outstanding voting shares of the Fund, or by the Sub-Advisor or the Advisor, upon 30 days' written notice to the other party. Additionally, the Agreement automatically terminates in the event of its assignment. PRINCIPAL UNDERWRITER. The Fund's principal underwriter is Funds Distributor, Inc., One Exchange Place, Tenth Floor, Boston, Massachusetts (the "Distributor"). The Distributor is engaged on a non-exclusive basis to assist in the distribution of shares in various jurisdictions. The Distributor receives compensation from the Advisor (not the Fund); however, the Advisor may seek reimbursement of payments made to the Distributor pursuant to the Fund's Plan of Distribution (see "Plan of Distribution"). TRANSFER AGENT. The Fund's transfer agent, MGF Service Corp., 312 Walnut Street, Cincinnati, Ohio (the "Transfer Agent"), maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of the Fund's shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions. The Transfer Agent is a subsidiary of Leshner Financial, Inc., of which Robert H. Leshner is the controlling shareholder. In addition, the Transfer Agent has been retained by the Advisor to assist the Advisor in providing administrative services to the Investment Company. In this capacity, the Transfer Agent supplies non-investment related regulatory compliance services and executive and administrative services. The Transfer Agent supervises the preparation of reports to and filings with the Securities and Exchange Commission and materials for meetings of the Board of Directors. The Advisor (not the Investment Company) pays the Transfer Agent a monthly fee of $6,000 for these administrative services. PLAN OF DISTRIBUTION As stated in the Prospectus, the Fund has adopted a plan of distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 which permits the Fund to pay 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 Underwriter. The Plan expressly limits payment of the distribution expenses listed above in any fiscal year to a maximum of .25% of the average daily net assets of the Fund. Unreimbursed expenses will not be carried over from year to year. Agreements implementing the Plan (the "Implementation Agreements") are in writing and have been approved by the Board of Trustees. All payments made pursuant to the Plan are made in accordance with written agreements. The continuance of the Plan and the Implementation Agreements must be specifically approved at least annually by a vote of the Investment Company's Board of Directors and by a vote of the Directors who are not interested persons of the Investment Company and have no direct or indirect financial interest in the Plan or any Implementation Agreement (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 Adviser 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 Investment Company's Board of Directors and by a vote of the Independent Directors. In approving 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 will 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, all amounts spent by the Fund pursuant to the Plan and the purposes for which such expenditures were made must be reported quarterly to the Board of Directors for its review. In addition, the selection and nomination of those Directors who are not interested persons of the Investment Company are committed to the discretion of the Independent Directors during such period. Pursuant to the Plan, the Fund may also make payments to banks or other financial institutions that provide shareholder services and administer shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in the business of underwriting, selling or distributing securities. Although the scope of this prohibition under the Glass-Steagall Act has not been clearly defined by the courts or appropriate regulatory agencies, management of the Investment Company believes that the Glass- Steagall Act should not preclude a bank from providing such services. However, state securities laws on this issue may differ from the interpretations of federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law. If a bank were prohibited from continuing to perform all or a part of such services, management of the Investment Company believes that there would be no material impact on the Fund or its shareholders. Banks may charge their customers fees for offering these services to the extent permitted by regulatory authorities, and the overall return to those shareholders availing themselves of the bank services will be lower than to those shareholders who do not. The Fund may from time to time purchase securities issued by banks which provide such services; however, in selecting investments for the Fund, no preference will be shown for such securities. EXECUTION OF PORTFOLIO TRANSACTIONS There are occasions on which portfolio transactions for the Fund may be executed as part of concurrent authorizations to purchase or sell the same security for other of the accounts served by the Advisor or Sub-Advisor, including other series of the Investment Company. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the Fund, they will be effected only when the Advisor or Sub-Advisor believes that to do so will be in the best interest of the Fund. When such concurrent authorizations occur, the objective will be to allocate the executions in a manner which is deemed equitable to the accounts involved, including the Fund. The Fund contemplates purchasing foreign equity and/or fixed-income securities in over-the-counter markets or stock exchanges located in the countries in which the respective principal offices of the issuers of the various securities are located, if that is the best available market. Fixed commissions on foreign stock transactions and transaction costs with respect to foreign fixed-income securities are generally higher than negotiated commissions on United States transactions, although the Fund will endeavor to achieve the best net results on its portfolio transactions. There is generally less government supervision and regulation of foreign stock exchanges and brokers than in the United States. Foreign security settlements may in some instances be subject to delays and related administrative uncertainties. Foreign equity securities may be held by the Fund in the form of American Depository Receipts ("ADRs") or similar instruments. ADRs may be listed on stock exchanges, or traded in the over-the-counter markets in the United States. ADRs, like other securities traded in the United States, will be subject to negotiated commission rates. The government securities issued by the United States and other countries and money market securities in which the Fund may invest are generally traded in the over-the-counter markets. Subject to the requirement of seeking the best available prices and executions, the Advisor or Sub-Advisor may, in circumstances in which two or more broker-dealers are in a position to offer comparable prices and executions, give preference to broker-dealers who have provided investment research, statistical, and other related services to the Advisor or Sub-Advisor for the benefit of the Fund and/or of other accounts served by the Advisor or Sub-Advisor. Such preferences would only be afforded to a broker-dealer if the Advisor determines that the amount of the commission is reasonable in relation to the value of the brokerage and research services provided by that broker-dealer and only to a broker-dealer acting as agent and not as principal. The Advisor is of the opinion that, while such information is useful in varying degrees, it is of indeterminable value and does not reduce the expenses of the Advisor in managing the Fund's portfolio. HOW TO INVEST PRICE OF SHARES. The price to be paid by an investor for shares of the Fund, the public offering price, is based on the net asset value per share which is calculated once daily as of the close of trading (currently 4:00 p.m., Eastern time) each day the New York Stock Exchange is open as set forth below. The New York Stock Exchange is currently closed on weekends and on the following holidays: (i) New Year's Day, Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas Day; and (ii) the preceding Friday when any one of those holidays falls on a Saturday or the subsequent Monday when any one of those holidays falls on a Sunday. The Fund will calculate its net asset value and complete orders to purchase, exchange or redeem shares only on a Monday-Friday basis (excluding holidays on which the New York Stock Exchange is closed). The Fund's portfolio securities may from time to time be listed on foreign stock exchanges or otherwise traded on foreign markets which may trade on other days (such as Saturday). As a result, the net asset value of the Fund may be significantly affected by such trading on days when a shareholder has no access to the Fund. See also in the Prospectus at "General Investment Policies - Special Considerations in International Investing," "Calculation of Net Asset Value and Public Offering Price," "How to Invest," "How to Redeem Shares," and "Shareholder Account Services and Privileges - Exchanges Between Fund." 1. Fixed-income obligations with original or remaining maturities in excess of 60 days are valued at the mean of representative quoted bid and asked prices for such securities or, if such prices are not available, at prices for securities of comparable maturity, quality and type. However, in circumstances where the Advisor deems it appropriate to do so, prices obtained for the day of valuation from a bond pricing service will be used. The Fund amortizes to maturity all securities with 60 days or less remaining to maturity based on their cost to the Fund if acquired within 60 days of maturity or, if already held by the Fund on the 60th day, based on the value determined on the 61st day. Options on currencies purchased by the Fund are valued at their last bid price in the case of listed options or at the average of the last bid prices obtained from dealers in the case of OTC options. Where market quotations are not readily available, securities are valued at fair value pursuant to methods approved by the Board of Directors; 2. Equity securities, including ADRs, which are traded on stock exchanges, are valued at the last sale price on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available mean price. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Directors as the primary market. Securities traded in the over-the-counter market are valued at the last available bid price in the over-the-counter market prior to the time of valuation. Securities and assets for which market quotations are not readily available (including restricted securities which are subject to limitations as to their sale) are valued at fair value as determined in good faith by or under the direction of the Board of Directors; 3. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets is normally completed well before the close of the business day in New York. In addition, European or Far Eastern securities trading may not take place on all business days in New York. Furthermore, trading takes place in Japanese markets on certain Saturdays and in various foreign markets on days which are not business days in New York and on which the Fund's net asset value is not calculated. The calculation of net asset value may not take place contemporaneously with the determination of the prices of securities held by the Fund used in such calculation. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the New York Stock Exchange will not be reflected in the Fund's calculation of net asset value unless the Board of Directors deems that the particular event would materially affect net asset value, in which case an adjustment will be made. 4. The value of each security denominated in a currency other than U.S. dollars will be translated into U.S. dollars at the prevailing market rate as determined by the Advisor; 5. The Fund's liabilities, including proper accruals of taxes and other expense items, are deducted from total assets; and 6. The net assets so obtained are then divided by the total number of shares outstanding (excluding treasury shares), and the result, rounded to the nearest cent, is the net asset value per share. OTHER INVESTMENT AND REDEMPTION SERVICES THE OPEN ACCOUNT. When an investor makes an initial investment in the Fund, a shareholder account is opened in accordance with the investor's registration instructions. Each time there is a transaction in a shareholder account, such as an additional investment, redemption or distribution (dividend or capital gain), the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the shareholder account, along with a summary of the status of the account as of the transaction date. PAYMENT AND TERMS OF OFFERING. Payment of shares purchased should accompany the purchase order, or funds should be wired to the Transfer Agent as described in the Prospectus. Payment, other than by wire transfer, must be made by check or money order drawn on a U.S. bank. Checks or money orders must be payable in U.S. dollars. As a condition of this offering, if an order to purchase shares is cancelled due to nonpayment (for example, on account of a check returned for "not sufficient funds"), the person who made the order will be subject to a $20 charge and will be responsible for reimbursing the Advisor for any loss incurred by reason of such cancellation. If such purchaser is a shareholder, the Fund shall have the authority as agent of the shareholder to redeem shares in his account for their then-current net asset value per share to reimburse the Fund for the loss incurred. Such loss shall be the difference between the net asset value of the Fund on the date of purchase and the net asset value on the date of cancellation of the purchase. Investors whose purchase orders have been cancelled due to nonpayment may be prohibited from placing future orders. The Investment Company reserves the right at any time to waive or increase the minimum requirements applicable to initial or subsequent investments with respect to any person or class of persons. An order to purchase shares is not binding on the Investment Company until it has been confirmed in writing by the Transfer Agent (or other arrangements made with the Investment Company, in the case of orders utilizing wire transfer of funds) and payment has been received. To protect existing shareholders, the Investment Company reserves the right to reject any offer for a purchase of shares by any individual. REDEMPTION IN KIND. The Investment Company may elect to redeem shares in assets other than cash but must pay in cash all redemptions with respect to any shareholder during any 90-day period in an amount equal to the lesser of (i) $250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such period. SUSPENSION OF REDEMPTION PRIVILEGES. The Investment Company may suspend redemption privileges with respect to the Fund or postpone the date of payment for more than seven days after the redemption order is received during any period (1) when the New York Stock Exchange is closed other than customary weekend and holiday closings, or trading on the Exchange is restricted as determined by the SEC, (2) when an emergency exists, as defined by the SEC, which makes it not reasonably practicable for the Investment Company to dispose of securities owned by it or to fairly determine the value of its assets, or (3) as the SEC may otherwise permit. TAXES - MUTUAL FUNDS STATUS AS A "REGULATED INVESTMENT COMPANY." The Fund will be treated under the Internal Revenue Code (the "Code") as a separate entity, and the Fund intends to qualify as a separate "regulated investment company" under Subchapter M of the Code. To qualify for the tax treatment afforded a regulated investment company under the Code, the Fund must annually distribute at least 90% of the sum of its investment company taxable income (generally net investment income and certain short-term capital gains), its tax-exempt interest income (if any) and net capital gains, and meet certain diversification of assets and other requirements of the Code. If the Fund qualifies for such tax treatment, it will not be subject to federal income tax on the part of its investment company taxable income and its net capital gain which it distributes to shareholders. To meet the requirements of the Code, the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of securities or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of securities held less than three months; and (c) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's total assets is represented by cash, U.S. Government securities, securities of other regulated investment companies, and other securities, limited, in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. Income and gain from investing in gold or other commodities will not qualify in meeting the 90% gross income test. Even though the Fund qualifies as a "regulated investment company," it may be subject to certain federal excise taxes unless the Fund meets certain additional distribution requirements. Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gain net income (both long-term and short-term) for the one-year period ending on October 31 of such year and (iii) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (i) amounts actually distributed by the Fund from its current year's ordinary income and capital gain net income and (ii) any amount on which the Fund pays income tax for the year. The Fund intends to meet these distribution requirements to avoid the excise tax liability. If for any taxable year the Fund does not qualify for the special tax treatment afforded regulated investment companies, all of its taxable income will be subject to tax at regular corporate rates (without any deduction for distributions to its shareholders). In such event, dividend distributions would be taxable to shareholders to the extent of earnings and profits. DISTRIBUTIONS OF NET INVESTMENT INCOME. Dividends from net investment income (including net short-term capital gains) are taxable as ordinary income. Shareholders will be taxed for federal income tax purposes on dividends from the Fund in the same manner whether such dividends are received as shares or in cash. If the Fund does not receive any dividend income from U.S. corporations, dividends from the Fund will not be eligible for the dividends received deduction allowed to corporations. To the extent that dividends received by the Fund would qualify for the dividends received deduction available to corporations, the Fund must designate in a written notice to shareholders the amount of the Fund's dividends that would be eligible for this treatment. In order to qualify for the dividends received deduction, a corporate shareholder must hold the Fund's shares paying the dividends, upon which a dividend received deduction would be based, for at least 46 days. NET CAPITAL GAINS. Any distributions designated as being made from the Fund's net capital gains will be taxable as long-term capital gains, regardless of the holding period of the shareholders of the Fund's shares. Shareholders are advised to consult their tax advisor regarding application of these rules to their particular circumstances. NON-U.S. SHAREHOLDERS. Under the Code, distributions of net investment income by the Fund to a shareholder who, as to the U.S., is a nonresident alien individual, nonresident alien fiduciary of a trust or estate, foreign corporation, or foreign partnership (a "foreign shareholder") will be subject to U.S. tax withholding (at a 30% or lower treaty rate). Withholding will not apply if a dividend paid by the Fund to a foreign shareholder is "effectively connected" with a U.S. trade or business, in which case the reporting and withholding requirements applicable to U.S. citizens, U.S. residents or domestic corporations will apply. Distributions of net long-term capital gains are not subject to tax withholding, but in the case of a foreign shareholder who is a nonresident alien individual, such distributions ordinarily will be subject to U.S. income tax withholding at a rate of 30% if the individual is physically present in the U.S. for more than 182 days during the taxable year. OTHER INFORMATION. The amount of any realized gain or loss on closing out a futures contract such as a forward commitment for the purchase or sale of foreign currency will generally result in a realized capital gain or loss for tax purposes. Under Code Section 1256, futures contracts held by the Fund at the end of each fiscal year will be required to be "marked to market" for federal income tax purposes, that is, deemed to have been sold at market value. Sixty percent (60%) of any net gain or loss recognized on these deemed sales and sixty percent (60%) of any net realized gain or loss from any actual sales will be treated as long-term capital gain or loss, and the remainder will be treated as short-term capital gain or loss. Code Section 988 may also apply to currency transactions. Under Section 988, each foreign currency gain or loss is generally computed separately and treated as ordinary income or loss. In the case of overlap between Sections 1256 and 988, special provisions determine the character and timing of any income, gain or loss. The Fund will attempt to monitor Section 988 transactions to avoid an adverse tax impact. See also "Investment Objectives, Policies and Risk Considerations" in this Statement of Additional Information. Any loss realized on redemption or exchange of the Fund's shares will be disallowed to the extent shares are reacquired within the 61 day period beginning 30 days before and ending 30 days after the shares are disposed of. Under the Code, the Fund's taxable income for each year will be computed without regard to any net foreign currency loss attributable to transactions after October 31, and any such net foreign currency loss will be treated as arising on the first day of the following taxable year. The Fund may be required to pay withholding and other taxes imposed by foreign countries generally at rates from 10% to 40% which would reduce the Fund's investment income. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. So long as the Fund (i) qualifies for treatment as a regulated investment company, (ii) is liable for foreign income taxes, and (iii) more than 50% of its total assets at the close of its taxable year consist of stock or securities of foreign corporations, it may elect to "pass through" to its shareholders the amount of such foreign taxes paid. If this election is made, information with respect to the amount of the foreign income taxes that are allocated to the Fund's shareholders will be provided to them and any shareholder subject to tax on dividends will be required (i) to include in ordinary gross income (in addition to the amount of the taxable dividends actually received) its proportionate share of the foreign taxes paid that are attributable to such dividends, and (ii) either deduct its proportionate share of foreign taxes in computing its taxable income or to claim that amount as a foreign tax credit (subject to applicable limitations) against U.S. income taxes. The Fund may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies ("PFICs"). Currently, PFICs are the only or primary means by which the Fund may invest in some countries. If the Fund invests in PFICs, it may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain from the disposition of such shares even if such income is distributed as a taxable dividend to shareholders. In addition to bearing their proportionate share of the Fund's expenses, shareholders will also bear indirectly similar expenses of PFICs in which the Fund has invested. Additional charges in the nature of interest may be imposed on either the Fund or its shareholders in respect of deferred taxes arising from such distributions or gains. Capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long such PFICs are held. If the Fund were to invest in a PFIC and elect to treat the PFIC as a "qualified electing fund" under the Code, in lieu of the foregoing requirements, the Fund might be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if not distributed to the Fund, and such amounts would be subject to the 90% and calendar year distribution requirements described above. The foregoing is a general abbreviated summary of present United States federal income taxes on dividends and distributions by the Fund. Investors are urged to consult their own tax advisors for more detailed information and for information regarding any foreign, state and local taxes applicable to dividends and distributions received. ADDITIONAL INFORMATION CUSTODIAN. The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60675, acts as Custodian for the Investment Company's assets, and as such safekeeps the Fund's portfolio securities, collects all income and other payments with respect thereto, disburses funds at the Investment Company's request and maintains records in connection with its duties. INDEPENDENT AUDITORS; FINANCIAL STATEMENTS. The Investment Company's independent auditors are Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105. Coopers & Lybrand L.L.P. will conduct an annual audit of the Fund, assist in the preparation of the Fund's federal and state income tax returns and consult with the Investment Company as to matters of accounting, regulatory filings, and federal and state income taxation. The financial statements of the Fund will be issued in reliance on the opinion of Coopers & Lybrand L.L.P. given on the authority of said firm as experts in auditing and accounting. LEGAL OPINIONS. The validity of the shares offered by the Prospectus will be passed upon by Morrison & Foerster LLP, 345 California Street, San Francisco, California 94104. In addition to acting as counsel to the Investment Company, Morrison & Foerster LLP has acted and may continue to act as counsel to the Advisor and its affiliates in various matters. USE OF NAME. The Advisor has granted the Investment Company the right to use the "Fremont" name and has reserved the rights to withdraw its consent to the use of such name by the Investment Company at any time, or to grant the use of such name to any other company, and the Investment Company has granted the Advisor, under certain conditions, the use of any other name it might assume in the future, with respect to any other investment company sponsored by the Advisor. SHAREHOLDER VOTING RIGHTS. The Investment Company currently issues shares in nine series and may establish additional classes or series of shares in the future. When more than one class or series of shares is outstanding, shares of all classes and series will vote together for a single set of directors, and on other matters affecting the entire Investment Company, with each share entitled to a single vote. On matters affecting only one class or series, only the shareholders of that class or series shall be entitled to vote. On matters relating to more than one class or series but affecting the classes and series differently, separate votes by class and series are required. Shareholders holding 10% of the shares of the Investment Company may call a special meeting of shareholders. LIABILITY OF DIRECTORS AND OFFICERS. The Articles of Incorporation of the Investment Company provide that subject to the provisions of the 1940 Act, to the fullest extent permitted under Maryland law, no officer or director of the Investment Company may be held personally liable to the Investment Company or its shareholders. OTHER INVESTMENT INFORMATION. The Advisor directs the management of over $3.5 billion of assets and internally manages over $1.1 billion of assets for retirement plans, foundations, private portfolios, and mutual funds. The Advisor's philosophy is to apply a long-term approach to investing that balances risk and return potential. The Fund is best suited as a long-term investment. While the Fund offers higher potential total returns than certificates of deposit or money market funds, it involves added return volatility or risk. The prospective investor must weigh this potential for higher return against the associated higher risk. INVESTMENT RESULTS The Investment Company may from time to time include information on the investment results of the Fund in advertisements or in reports furnished to current or prospective shareholders. The average annual rate of return ("T") for a given period is computed by using the redeemable value at the end of the period ("ERV") of a hypothetical initial investment of $1,000 ("P") over the period in years ("n") according to the following formula as required by the SEC: P(1+T)n = ERV. The following assumptions will be reflected in computations made in accordance with the formula stated above: (1) reinvestment of dividends and distributions at net asset value on the reinvestment date determined by the Board of Directors; and (2) a complete redemption at the end of any period illustrated. The Fund will calculate total return for one, five and ten-year periods after such a period has elapsed, and may calculate total returns for other periods as well. In addition, the Fund will provide lifetime average annual total return figures. The Fund's investment results will vary from time to time depending upon market conditions, the composition of the Fund's portfolio and operating expenses of the Fund, so that current or past total return should not be considered representations of what an investment in the Fund may earn in any future period. These factors and possible differences in the methods used in calculating investment results should be considered when comparing the Fund's investment results with those published for other investment companies and other investment vehicles. The Fund's results also should be considered relative to the risks associated with the Fund's investment objective and policies. The Investment Company may from time to time compare the investment results of the Fund with, or refer to, the following: (1) Average of Savings Accounts, which is a measure of all kinds of savings deposits, including longer-term certificates (based on figures supplied by the U.S. League of Savings Institutions). Savings accounts offer a guaranteed rate of return on principal, but no opportunity for capital growth. During certain periods, the maximum rates paid on some savings deposits were fixed by law. (2) The Consumer Price Index, which is a measure of the average change in prices over time in a fixed market basket of goods and services (e.g., food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, prescription medicines, and other goods and services that people buy for day-to-day living). (3) Statistics reported by Lipper Analytical Services, Inc., which ranks mutual funds by overall performance, investment objectives and assets. (4) Standard & Poor's "500" Index which is a widely recognized index composed of the capitalization-weighted average of the price of 500 large publicly traded U.S. common stocks. (5) Dow Jones Industrial Average. (6) CNBC/Financial News Composite Index. (7) Wilshire 5000 Index which reflects the investment return of the approximately 5,000 publicly traded securities for which daily pricing is available, weighted by market capitalization, excluding income. (8) Salomon Brothers Broad Investment Grade Index which is a widely used index composed of U.S. domestic government, corporate and mortgage-backed fixed income securities. (9) Wilshire Associates, an on-line database for international financial and economic data including performance measures for a wide variety of securities. (10) Morgan Stanley Europe, Australia and Far East (EAFE) Index which is composed of foreign stocks. (11) Morgan Stanley Capital International Emerging Markets Index which measures stock market performance in various developing countries around the world. (12) IFC Emerging Markets Investables Indices which measure stock market performance in various developing countries around the world. (13) Salomon Brothers World Bond Index which is composed of domestic and foreign corporate and government fixed income securities. (14) Lehman Brothers Government/Corporate Bond Index which is a widely used index composed of investment quality U.S. government and corporate fixed income securities. (15) Lehman Brothers Government/Corporate Intermediate Bond Index which is a widely used index composed of investment quality U.S. government and corporate fixed income securities with maturities between one and ten years. (16) Salomon Brothers World Government Bond Index which is a widely used index composed of U.S. and non-U.S. government fixed income securities of the major countries of the World. (17) 90-day U.S. Treasury Bills Index which is a measure of the performance of constant maturity 90-day U.S. Treasury Bills. (18) Donoghue First Tier Money Fund Average which is an average of the 30-day yield of approximately 250 major domestic money market funds. (19) Salomon Brothers Non-U.S. World Government Bond Index which is the World Government Bond index excluding its U.S. market component. (20) Salomon Brothers Non-Dollar Bond Index which is composed of foreign corporate and government fixed income securities. (21) Bear Stearns Foreign Bond Index which provides simple average returns for individual countries and GNP-weighted index, beginning in 1975. The returns are broken down by local market and currency. (22) Ibbottson Associates International Bond Index which provides a detailed breakdown of local market and currency returns since 1960. (23) The World Bank Publication of Trends in Developing Countries ("TIDE") which provides brief reports on most of the World Bank's borrowing members. The World Development Report is published annually and looks at global and regional economic trends and their implications for the developing economies. (24) Datastream and Worldscope which is an on-line database retrieval service for information including but not limited to international financial and economic data. (25) International Financial Statistics which is produced by the International Monetary Fund. (26) Various publications and annual reports such as the World Development Report, produced by the World Bank and its affiliates. (27) Various publications from the International Bank for Reconstruction and Development/The World Bank. (28) Various publications including but not limited to ratings agencies such as Moody's Investors Service, Fitch Investors Service and Standard Poor's Ratings Group. (29) Various publications from the Organization for Economic Cooperation and Development. Indices prepared by the research departments of such financial organizations as the Sub-Advisor of the Fund; J.P. Morgan; Lehman Brothers; S.G. Warburg; Jardine Fleming; the Asian Development Bank; Bloomberg, L.P.; Morningstar, Inc; Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith, Inc.; Morgan Stanley; Bear Stearns & Co., Inc.; and Ibbottson Associates may be used, as well as information provided by the Federal Reserve and the respective central banks of various countries. The Investment Company may use performance rankings and ratings reported periodically in national financial publications such as, but not limited to, MONEY MAGAZINE, FORBES, THE WALL STREET JOURNAL, INVESTOR'S BUSINESS DAILY, FORTUNE, SMART MONEY, BUSINESS WEEK, and BARRON'S. The Advisor believes the Fund is an appropriate investment for long-term investment goals including but not limited to funding retirement, paying for education or purchasing a house. The Fund does not represent a complete investment program and investors should consider the Fund as appropriate for a portion of their overall investment portfolio with regard to their long-term investment goals. The Advisor believes that a growing number of consumer products, including but not limited to home appliances, automobiles and clothing, purchased by Americans are manufactured abroad. The Advisor believes that investing globally in the companies that produce products for U.S. consumers can help U.S. investors seek protection of the value of their assets against the potentially increasing costs of foreign manufactured goods. Of course, there can be no assurance that there will be any correlation between global investing and the costs of such foreign goods unless there is a corresponding change in value of the U.S. dollar to foreign currencies. From time to time, the Investment Company may refer to or advertise the names of such companies although there can be no assurance that the Fund may own the securities of these companies. From time to time, the Investment Company may refer to the number of shareholders in the Fund or the aggregate number of shareholders in all Fremont Mutual Funds or the dollar amount of Fund assets under management or rankings by DALBAR Savings, Inc. in advertising materials. The Fund may compare its performance to that of other compilations or indices of comparable quality to those listed above which may be developed and made available in the future. The Fund may be compared in advertising to Certificates of Deposit (CDs), the Bank Rate Monitor National Index, an average of the quoted rates for 100 leading banks and thrifts in ten U.S. cities chosen to represent the ten largest Consumer Metropolitan statistical areas, or other investments issued by banks. The Fund differs from bank investments in several respects. The Fund may offer greater liquidity or higher potential returns than CDs; but unlike CDs, the Fund will have a fluctuating share price and return and is not FDIC insured. The Fund's performance may be compared to the performance of other mutual funds in general, or to the performance of particular types of mutual funds. These comparisons may be expressed as mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an independent service which monitors the performance of mutual funds. Lipper generally ranks funds on the basis of total return, assuming reinvestment of distributions, but does not take sales charges or redemption fees into consideration, and is prepared without regard to tax consequences. In addition to the mutual fund rankings, the Fund's performance may be compared to mutual fund performance indices prepared by Lipper. The Investment Company may provide information designed to help individuals understand their investment goals and explore various financial strategies. For example, the Investment Company may describe general principles of investing, such as asset allocation, diversification and risk tolerance. Ibbottson Associates of Chicago, Illinois (Ibbottson) provides historical returns of capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the CPI), and combinations of various capital markets. The performance of these capital markets is based on the returns of different indices. The Investment Company may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. Performance comparisons may also include the value of a hypothetical investment in any of these capital markets. The risks associated with the security types in any capital market may or may not correspond directly to those of the Fund. The Fund may also compare performance to that of other compilations or indices that may be developed and made available in the future. In advertising materials, the Advisor may reference or discuss its products and services, which may include: retirement investing; the effects of dollar-cost averaging and saving for college or a home. In addition, the Advisor may quote financial or business publications and periodicals, including model portfolios or allocations, as they relate to fund management, investment philosophy, and investment techniques. The Fund may discuss its Quotron number, CUSIP number, and its current portfolio management team. From time to time, the Fund's performance also may be compared to other mutual funds tracked by financial or business publications and periodicals. For example, the Fund may quote Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the basis of risk- adjusted performance. In addition, the Fund may quote financial or business publications and periodicals as they relate to fund management, investment philosophy, and investment techniques. Rankings that compare the performance of Fremont Mutual Funds to one another in appropriate categories over specific periods of time may also be quoted in advertising. The Fund may quote various measures of volatility and benchmark correlation such as beta, standard deviation and R2 in advertising. In addition, the Fund may compare these measures to those of other funds. Measures of volatility seek to compare the Fund's historical share price fluctuations or total returns compared to those of a benchmark. Measures of benchmark correlation indicate how valid a comparative benchmark may be. All measures of volatility and correlation are calculated using averages of historical data. The Fund may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, an investor invests a fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer shares when prices are high and more shares when prices are low. While such a strategy does not assure a profit or guard against loss in a declining market, the investor's average cost per share can be lower than if a fixed number of shares are purchased at the same intervals. In evaluating such a plan, investors should consider their ability to continue purchasing shares through periods of low price levels. The Fund may be available for purchase through retirement plans of other programs offering deferral of or exemption from income taxes, which may produce superior after tax returns over time. For example, a $10,000 investment earning a taxable return of 10% annually would have an after-tax value of $17,976 after ten years, assuming tax was deducted from the return each year at a 39.6% rate. An equivalent tax-deferred investment would have an after-tax value of $19,626 after ten years, assuming tax was deducted at a 39.6% rate from the deferred earnings at the end of the ten-year period. The Fund may describe in its sales material and advertisements how an investor may invest in the Fund through various retirement accounts and plans that offer deferral of income taxes on investment earnings and may also enable you to make pre-tax contributions. Because of their advantages, these retirement accounts and plans may produce returns superior to comparable non-retirement investments. The Fund may also discuss these accounts and plans which include: INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): Any individual who receives earned income from employment (including self- employment) can contribute up to $2,000 each year to an IRA (or 100% of compensation, whichever is less). If your spouse is not employed, a total of $2,250 may be contributed each year to IRAs set up for each individual (subject to the maximum of $2,000 per IRA). Some individuals may be able to take an income tax deduction for the contribution. Regular contributions may not be made for the year after you become 70 1/2, or thereafter. ROLLOVER IRAS: Individuals who receive distributions from qualified retirement plans (other than required distributions) and who wish to keep their savings growing tax-deferred can rollover (or make a direct transfer of) their distribution to a Rollover IRA. These accounts can also receive rollovers or transfers from an existing IRA. SEP-IRAS AND SALARY-REDUCTION SEP-IRAS: Simplified employee pension (SEP) plans and salary-reduction SEPs provide self-employed individuals (and any eligible employees) with benefits similar to Keogh-type plans or 401(k) plans, but with fewer administrative requirements and therefore lower annual administration expenses. PROFIT SHARING (INCLUDING 401(K) AND MONEY PURCHASE PENSION PLANS: Corporations can sponsor these qualified defined contribution plans for their employees. A 401(k) plan, a type of profit sharing plan, additionally permits the eligible, participating employees to make pre-tax salary reduction contributions to the plan (up to certain limitations). The Advisor may from time to time in its sales methods and advertising discuss the risks inherent in investing. The major types of investment risk are market risk, industry risk, credit risk, interest rate risk and inflation risk. Risk represents the possibility that you may lose some or all of your investment over a period of time. A basic tenet of investing is the greater the potential reward, the greater the risk. From time to time, the Fund and the Advisor will quote certain information including but not limited to data regarding: individual countries, regions, world stock exchanges, and economic and demographic statistics from sources the Advisor deems reliable, including but not limited to, the economic and financial data of such financial organizations as: 1) Stock market capitalization: Morgan Stanley Capital International World Indices, International Finance Corporation and Datastream. 2) Stock market trading volume: Morgan Stanley Capital International World Indices, International Finance Corporation. 3) The number of listed companies: International Finance Corporation, Salomon Brothers Inc., and S.G. Warburg. 4) Wage rates: U.S. Department of Labor Statistics and Morgan Stanley Capital International World Indices. 5) International industry performance: Morgan Stanley Capital International World Indices, Wilshire Associates and Salomon Brothers, Inc. 6) Stock market performance: Morgan Stanley Capital International World Indices, International Finance Corporation and Datastream. 7) The Consumer Price Index and inflation rate: The World Bank, Datastream and International Finance Corporation. 8) Gross Domestic Product (GDP): Datastream and The World Bank. 9) GDP growth rate: International Finance Corporation, The World Bank and Datastream. 10) Population: The World Bank, Datastream and United Nations. 11) Average annual growth rate (%) of population: The World Bank, Datastream and United Nations. 12) Age distribution within populations: Organization for Economic Cooperation and Development and United Nations. 13) Total exports and imports by year: International Finance Corporation, The World Bank and Datastream. 14) Top three companies by country, industry or market: International Finance Corporation, Salomon Brothers, Inc., and S.G. Warburg. 15) Foreign direct investments to developing countries: The World Bank and Datastream. 16) Supply, consumption, demand and growth in demand of certain products, services and industries, including, but not limited to electricity, water, transportation, construction materials, natural resources, technology, other basic infrastructure, financial services, health care services and supplies, consumer products and services and telecommunications equipment and services (sources of such information may include, but would not be limited to, The World Bank, OECD, IMF, Bloomberg and Datastream). 17) Standard deviation and performance returns for U.S. and non-U.S. equity and bond markets: Morgan Stanley Capital International. 18) Political and economic structure of countries: Economist Intelligence Unit. 19) Government and corporate bonds - credit ratings, yield to maturity and performance returns: Salomon Brothers, Inc. 20) Dividend for U.S. and non-U.S. companies: Bloomberg. In advertising and sales materials, the Advisor or the Sub- Advisor may make reference to or discuss its products, services and accomplishments. Such accomplishments do not provide any assurance that the Fremont Mutual Funds' investment objectives will be achieved. FREMONT INVESTMENT ADVISORS INNOVATIVE INVESTMENT MANAGEMENT AND ADVISORY SERVICES A subsidiary of The Fremont Group THE FREMONT GROUP THE FREMONT GROUP MANAGES OVER $5 BILLION IN FOUR KEY BUSINESS AREAS. Fremont Investment Advisors, Inc., (FIA) is a wholly-owned subsidiary of The Fremont Group, formerly Bechtel Investments, Inc. The Fremont Group employs over 200 professionals in offices throughout the United States and manages over $5 billion in four key business areas: -- Direct Investments - The Fremont Group holds significant equity positions in companies from a broad range of industries including: - Coldwell Banker - residential real estate - Crown Pacific - timber/lumber - Petro Stopping Centers - full-service truck stops - Trinity Ventures - venture capital -- Real Estate - Fremont Properties, Inc., a wholly-owned subsidiary of The Fremont Group, acquires and develops commerical, retail and industrial real estate. Fremont Properties also manages over 6 million square feet of real estate in 23 properties across the U.S. -- Energy - Activities of The Fremont Group's energy division include oil and natural gas exploration, developmment and refining, and directional drilling. -- Securities Management - Through its subsidiary, Fremont Investment Advisors, The Fremont Group manages over $3.5 billion in global investment portfolios. FREMONT INVESTMENT ADVISORS FREMONT INVESTMENT ADVISORS PROVIDES INVESTMENT MANAGEMENT SERVICES TO BOTH INSTITUTIONAL AND INDIVIDUAL CLIENTS. Originally organized to manage the marketable securities of Bechtel, Fremont Investment Advisor's professional staff operated for many years within Bechtel's treasury area. In 1986, FIA became a separate organization. FIA is a registered investment advisor which provides investment management and advisory services to a variety of clients including: -- defined benefit plans -- defined contribution plans -- foundations and trusts -- high net worth individuals Major clients include the Bechtel Retirement Plan which has over 15,000 participants and was recently rated as one of the ten best corporate retirement plans in the U.S. by Worth Magazine. FREMONT MUTUAL FUNDS THE FREMONT FUNDS OFFER INVESTORS EIGHT NO-LOAD MUTUAL FUNDS IN A WIDE VARIETY OF INVESTMENT AREAS. Fremont Investment Advisors formed the Fremont Mutual Funds in 1988 at the request of retiring Bechtel employees who were taking their retirement savings out of the Bechtel Retirement Plan. These employees were looking for a low-cost way to invest their retirement savings in mutual funds with investment objectives similar to those offered in the Bechtel Plan. The Fremont Family of Funds includes eight 100% no-load mutual funds in a variety of investment disciplines. From conservative bond and money market funds to aggressive U.S. micro-cap and international small cap stock funds, Fremont Mutual Funds offer investors a full range of investment options. INNOVATIVE INVESTMENT MANAGEMENT FREMONT INVESTMENT ADVISORS UTILIZES BOTH INTERNAL AND EXTERNAL INVESTMENT MANAGEMENT EXPERTISE. FOR MORE INFORMATION ABOUT FREMONT OR THE FREMONT FUNDS, PLEASE CALL 1-800-548-4539 (PRESS 1). Fremont Investment Advisors is innovative in its approach to investment management. By combining the talents of both internal and external investment managers, FIA offers the highest quality management in each investment discipline. This "hybrid" approach allows FIA to concentrate resources in investment areas where its investment professionals excel. These areas include global asset allocation, economic analysis and the municipal bond market. For other specialty investment disciplines, FIA selects external or "outside" managers with excellent long-term performance track records within the institutional marketplace. This close partnership provides smaller institutional and individual investors with access to the investment management expertise usually reserved only for the largest institutional investors. FIA's current team of external managers includes: U.S. Stock Investments -- Morgan Grenfell Capital Management -- Sit Investment Associates International Stock Investments -- Acadian Asset Management Bond Investments -- Pacific Investment Management Company (PIMCO) FOR MORE INFORMATION ON FREMONT INVESTMENT ADVISORS OR THE FREMONT FUNDS, PLEASE CALL 1-800-548-4539 (PRESS 1) OR (415) 284-8900. THE FREMONT GROUP ORGANIZATION | | Direct Investments Real Estate Energy Securities Management Fremont Investment Advisors ----- Fremont Mutual Funds APPENDIX A: DESCRIPTION OF RATINGS DESCRIPTION OF COMMERCIAL PAPER RATINGS: MOODY'S INVESTORS SERVICE, INC. employs the designation "Prime-1" to indicate commercial paper having the highest capacity for timely repayment. Issuers rated Prime-1 "have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protections; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity." STANDARD & POOR'S RATINGS GROUP'S ratings of commercial paper are graded into four categories ranging from "A" for the highest quality obligations to "D" for the lowest. Issues assigned the highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 - "This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation." FITCH INVESTORS SERVICES, INC.'s short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1+ - "Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment." F-1 - "Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+." DUFF & PHELPS CREDIT RATING CO. employs the designation "D-1" to indicate high-grade short-term debt. D-1+ - "Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources or funds, is outstanding, and safety is just below risk-free U.S. Treasury short-term obligations." D-1 - "Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor." D-1- - "High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small." IBCA LIMITED's short-term ratings range from "A1" for the highest quality obligation to "C" for the lowest. A1 - "Obligations supported by the highest capacity for timely repayment. Where issues possess a particularly strong credit feature, a rating of 'A1+' is assigned." THOMSON BANKWATCH assigns short-term debt ratings ranging from "TBW-1" to "TBW-4." Important factors that may influence its assessment are the overall financial health of the particular company, and the probability that the government will come to the aid of a troubled institution in order to avoid a default or failure. TBW-1 - "The highest category; indicates a very high likelihood that principal and interest will be paid on a timely basis." DESCRIPTION OF BOND RATINGS: MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by various entities from "Aaa" to "C." The ratings from "Aa" through "B" may be modified by the addition of 1, 2 or 3 to show relative standing within the major rating categories. Investment ratings are as follows: Aaa - Best quality. These securities "carry the smallest degree of investment risk and are generally referred to as gilt edge.' Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." Aa - High quality by all standards. "They are rated lower than the best bond because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat greater." A - Upper medium grade obligations. These bonds possess many favorable investment attributes. "Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." Baa - Medium grade obligations. "Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." STANDARD & POOR'S RATINGS GROUP rates the long-term debt securities of various entities in categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - Highest rating. "Capacity to pay interest and repay principal is extremely strong." AA - High grade. "Very strong capacity to pay interest and repay principal." A - "Strong capacity to pay interest and repay principal," although "somewhat more susceptible to the adverse effects of change in circumstances and economic conditions than debt in higher rated categories." BBB - "Adequate capacity to pay interest and repay principal." These bonds normally exhibit adequate protection parameters, but "adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for debt in higher rated categories." FITCH INVESTORS SERVICES, INC. rates the long-term debt securities of various entities in categories ranging from "AAA" to "D." The ratings from "AA" through "C" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events." AA - "Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA.' Because bonds are rated AAA' and AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+'." A - "Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings." BBB - "Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings." DUFF & PHELPS CREDIT RATING CO. rates the long-term debt securities of various entities in categories ranging from "AAA" to "DD." The ratings from "AA" through "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt." AA - "High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions." A - "Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress." BBB - "Below average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles." IBCA LIMITED rates the long-term debt securities of various entities in categories ranging from "AAA" to "C." The ratings below "AAA" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Obligations for which there is the lowest expectation of investment risk. Capacity for timely repayment of principal and interest is substantial, such that adverse changes in business, economic or financial conditions are unlikely to increase investment risk substantially." AA - "Obligations for which there is a very low expectation of investment risk. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business, economic or financial conditions may increase investment risk, albeit not very significantly." A - "Obligations for which there is a low expectation of investment risk. Capacity for timely repayment of principal and interest is strong, although adverse changes in business, economic or financial conditions may lead to increased investment risk." BBB - "Obligations for which there is currently a low expectation of investment risk. Capacity for timely repayment of principal and interest is adequate, although adverse changes in business, economic or financial conditions are more likely to lead to increased investment risk than for obligations in other categories." THOMSON BANKWATCH rates the long-term debt securities of various entities in categories ranging from "AAA" to "D." The ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Indicates that the ability to repay principal and interest on a timely basis is extremely high." AA - "Indicates a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to issues rated in the highest category." A - "Indicates the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings." BBB - "The lowest investment-grade category; indicates an acceptable capacity to repay principal and interest. BBB issues are more vulnerable to adverse developments (both internal and external) than obligations with higher ratings." FREMONT MUTUAL FUNDS, INC. PART C; OTHER INFORMATION Item 24. FINANCIAL STATEMENTS - ------- -------------------- (a) Financial Statements: None (b) Exhibits -- Exhibits required by Part C, Item 24 of Form N-1A (1) (a) Articles of Incorporation -- on file (File No. 811-5632) (b) Articles of Amendment -- on file (File No. 811-5632) (c) Articles of Amendment changing name -- on file (File No. 811-5632) (d) Articles Supplementary relating to shares of International Growth Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 16 filed December 29, 1993) (e) Articles Supplementary for Income Fund, changing name to Bond Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (f) Articles Supplementary relating to shares of the International Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (g) Articles Supplementary relating to shares of the U.S. Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (h) Articles Supplementary relating to shares of the Emerging Markets Fund -- filed herewith (2) Bylaws -- on file (File No. 811-5632 under Post- Effective Amendment No. 21 filed January 20, 1996) (3) None (4) Forms of specimen stock certificate -- shares are issued in uncertificated form only (5) (a) Amended and Restated Investment Advisory and Administrative Services Agreement -- filed herewith (b) Investment Advisory and Administrative Services Agreement relating to International Growth Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (c) Investment Advisory and Administrative Services Agreement relating to International Small-Cap Fund and U.S. Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 19 filed August 1, 1994) (d) Portfolio Management Agreement with Pacific Investment Management Co. and Fremont Investment Advisors, Inc. for Bond (formerly Income) Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (e) Portfolio Management Agreement with Sit Investment Associates, Inc. and Fremont Investment Advisors, Inc. for Growth Fund -- filed herewith (f) Portfolio Management Agreement with Acadian Asset Management, Inc. and Fremont Investment Advisors, Inc. for International Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (g) Portfolio Management Agreement with Morgan Grenfell Capital Management and Fremont Investment Advisors, Inc. for U.S. Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (h) Form of Portfolio Management Agreement with Credit Lyonnais International Asset Management (HK) Limited for Emerging Markets Fund -- filed herewith (6) Distribution Agreement with Funds Distributor, Inc. -- on file (File No. 811-5632 under Post- Effective Amendment No. 21 filed January 20, 1996) (7) None (8) Custodian Agreement with The Northern Trust Company -- on file (File No. 811-5632 under Post- Effective Amendment No. 21 filed January 20, 1996) (9) (a) Transfer Agency Agreement with MGF Service Corp. -- on file (File No. 811-5632 under Post-Effective Amendment No. 20 filed February 23, 1995) (b) Administrative Services Agreement with MGF Service Corp. -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (c) License Agreement relating to the Mark "Fremont" with Fremont Investment Advisors, Inc. -- on file (File No. 811-5632) (d) Investment Accounting Agreement between Investors Fiduciary Trust Company and Fremont Mutual Funds, Inc. -- on file (File No. 811- 5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (10) Opinion and Consent of Counsel -- on file (File No. 811-5632) (11) Inapplicable (12) Inapplicable (13) (a) Subscription Agreement with initial shareholders -- on file (File No. 811-5632 under Post-Effective Amendment filed May 11, 1992) (b) Subscription Agreement with initial shareholders of International Growth Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 16 filed December 29, 1993) (c) Subscription Agreement with initial shareholders of International Small-Cap Fund -- on file (File No. 811- 5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (d) Subscription Agreement with initial shareholders of U.S. Micro-Cap Fund -- on file (File No. 811-5632 under Post- Effective Amendment No. 18 filed April 22, 1994) (14) Retirement Plans -- on file (File No. 811-5632) (15) Form of Plan of Distribution Pursuant to Rule 12b-1 -- filed herewith (16) Inapplicable (17) Inapplicable (18) Inapplicable Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE - ------ REGISTRANT ------------------------------------------------------ Stephen D. Bechtel, Jr. and members of his family, including trusts for family members, would be considered controlling persons under applicable Securities and Exchange Commission regulations, on account of their shareholdings in the Funds. Item 26. NUMBER OF HOLDERS OF SECURITIES - ------- ------------------------------- NUMBER OF RECORD HOLDERS AS OF TITLE OF CLASS APRIL 1, 1996 - -------------- ---------------- Capital Stock -- Money Market Fund 816 Capital Stock -- Global Fund 3,050 Capital Stock -- California Intermediate Tax-Free Fund 213 Capital Stock -- Bond Fund 190 Capital Stock -- Growth Fund 824 Capital Stock -- International Growth Fund 198 Capital Stock -- International Small Cap Fund 150 Capital Stock -- U.S. Micro-Cap Fund 1,612 Capital Stock -- Emerging Markets Fund 0 Item 27. INDEMNIFICATION - ------- --------------- Article VII(g) of the Articles of Incorporation, filed as Exhibit (1), Item 24(b), provides for indemnification of certain persons acting on behalf of the Funds. The Funds and the Advisor are jointly insured under an errors and omissions policy issued by Gulf Insurance Company. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons by the Registrant's charter and bylaws, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in said Act, and is, therefore, unenforceable. In particular, the Articles of the Company provide certain limitations on liability of officers and directors. In the event that a claim for indemnification against such liabilities (other than the payment by the Series of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR - ------- ---------------------------------------------------- See the material following the captions "Advisory Agreement" and "Advisory and Sub-Advisory Agreements" appearing as a portion of Parts A hereof and "Investment Advisory and Other Services" appearing as a portion of Part B hereof. Item 29. PRINCIPAL UNDERWRITERS - ------- ---------------------- (a) Funds Distributor, Inc. is a leading provider of distribution and sales services for mutual funds. Its current clients represent over 225 investment portfolios with assets of approximately $85 billion. Funds Distributor, Inc. also offers a range of specialized investment company consulting services. (b) None of the officers of Funds Distributor, Inc. hold positions or offices with the Registrant. (c) Inapplicable Item 30. LOCATION OF ACCOUNTS AND RECORDS - ------- -------------------------------- Accounts, books and other records required by Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended, are maintained and held in the offices of the Registrant and its investment manager, Fremont Investment Advisors, Inc., 50 Fremont Street, 36th Floor, San Francisco, California 94105. Other books and records will be maintained by the sub-advisers to the Funds. Records covering stockholder accounts and portfolio transactions are also maintained and kept by the Funds' Transfer Agent, MGF Service Corp., and by the Custodian, The Northern Trust Company. Item 31. MANAGEMENT SERVICES - ------- ------------------- None Item 32. UNDERTAKINGS - ------- ------------ (a) Inapplicable (b) The Registrant undertakes to file a Post-Effective Amendment, using financial statements of the Emerging Markets Fund which need not be certified, within four to six months from the effective date of such Fund. (c) The information required by part 5A of the Form N-1A is or will be contained in the latest annual report to shareholders, and Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. (d) The Registrant undertakes that within five business days after receipt of a written application by shareholders holding in the aggregate at least 1% of the shares then outstanding or shares then having a net asset value of $25,000, which is less, each of whom shall have been a shareholder for at least six months prior to the date of application (hereinafter the "Petitioning Shareholders"), requesting to communicate with other shareholders with a view to obtaining signatures to a request for a meeting for the purpose of voting upon removal of any Trustee of the Registrant, which application shall be accompanied by a form of communication and request which such Petitioning Shareholders wish to transmit, Registrant will: (i) provide such Petitioning Shareholders with access to a list of the names and addresses of all shareholders of the Registrant; or (ii) inform such Petitioning Shareholders of the approximate number of shareholders and the estimated costs of mailing such communication, and to undertake such mailing promptly after tender by such Petitioning Shareholders to the Registrant of the material to be mailed and the reasonable expenses of such mailing. SIGNATURE OF THE REGISTRANT Pursuant to the requirements of the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant has duly caused this Amendment No. 25 (1940 Act) and Post-Effective Amendment No. 22 (1933 Act) to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of San Francisco, and the State of California, on the 10th day of April, 1996. FREMONT MUTUAL FUNDS, INC. By: /s/ DAVID L. REDO ------------------------- President Pursuant to the requirements of the Securities Act of 1933 this Post-Effective Amendment No. 22 to the Registration Statement has been signed below by the following persons in the capacities listed, and each on April 10, 1996. PRINCIPAL EXECUTIVE OFFICER: /s/ DAVID L. REDO President and Chief - ------------------------ David L. Redo Executive Officer PRINCIPAL ACCOUNTING OFFICER: /s/ CHANTAL GAIDDON Principal Accounting - ------------------------- Chantal Gaiddon Officer PRINCIPAL FINANCIAL OFFICER: /s/ PETER F. LANDINI Vice President, Treasurer - ------------------------- Peter F. Landini and Principal Financial Officer DIRECTORS: - ------------------------ Director Richard E. Holmes* - ------------------------- Director William W. Jahnke* - ------------------------- Director Donald C. Luchessa* - ------------------------- Director David L. Egan* /s/ VINCENT P. KUHN, JR. Director - ------------------------ Vincent P. Kuhn, Jr. /s/ DAVID L. REDO Director - ------------------------- David L. Redo /s/ ALBERT W. KIRSCHBAUM Director - ------------------------- Albert W. Kirschbaum *By: /s/ VINCENT P. KUHN, JR. ------------------------ (Attorney-in-Fact pursuant to limited powers of attorney filed with Post-Effective Amendment No. 19 filed on August 1, 1994.) EX-99 2 EXHIBIT INDEX FREMONT MUTUAL FUNDS, INC. EXHIBIT INDEX 1. Articles Supplementary relating to shares of the Emerging Markets Fund 2. Amended and Restated Investment Advisory and Administrative Services Agreement 3. Portfolio Management Agreement for Growth Fund 4. Form of Portfolio Management Agreement for Emerging Markets Fund 5. Form of Plan of Distribution Pursuant to Rule 12b-1 EX-99.B1 3 ARTICLES SUPPLEMENTARY FREMONT MUTUAL FUNDS, INC. ARTICLES SUPPLEMENTARY Fremont Mutual Funds, Inc., a Maryland corporation, having its principal office in Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article FIFTH of the Charter of the Corporation, the Board of Directors has duly classified 100,000,000 shares of the unissued shares of capital stock of the Corporation into a series designated the Fremont Emerging Markets Fund (the "Emerging Markets Fund") and has provided for the issuance of such series. The Board of Directors of the Corporation may from time to time increase or decrease the number of shares of capital stock so classified. All such shares are initially classified as "Class A Common Stock" of the Emerging Markets Fund. The Board of Directors may classify or reclassify any unissued shares of capital stock of the Emerging Markets Fund (whether or not such shares have been previously classified or reclassified) from time to time by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock. SECOND: A description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Emerging Markets Fund is as follows: (1) ASSETS BELONGING TO THE EMERGING MARKETS FUND SERIES. All consideration received by the Corporation from the issue or sale of shares of the Emerging Markets Fund, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the Emerging Markets Fund for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items allocated to the Emerging artcsupl.emg 04/09/96 Markets Fund as provided in the following sentence, are herein referred to as "assets belonging to" the Emerging Markets Fund. In the event that there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular class or series (collectively "General Items"), such General Items shall be allocated by or under the supervision of the Board of Directors to the Emerging Markets Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable; and any General Items so allocated to the Emerging Markets Fund shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes. (2) LIABILITIES OF THE EMERGING MARKETS FUND SERIES. The assets belonging to the Emerging Markets Fund shall be charged with the liabilities of the Corporation in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as belonging to any particular class or series shall be allocated and charged by or under the supervision of the Board of Directors to the Emerging Markets Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to the Emerging Markets Fund are herein referred to as "liabilities belonging to" that series. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Directors shall be conclusive and binding for all purposes. (3) INCOME BELONGING TO THE EMERGING MARKETS FUND SERIES. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the Investment Company Act of 1940 (the "1940 Act"), to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding. Income belonging to the Emerging Markets Fund includes all income, earnings and profits derived from assets belonging to the Emerging Markets Fund less any expenses, costs, charges or reserves belonging to the Emerging Markets Fund for the relevant time period, all determined in accordance with generally accepted accounting principles. (4) DIVIDENDS AND DISTRIBUTIONS. Dividends and distributions on shares of the Emerging Markets Fund may be paid with such frequency, in such form and in such amount as the Board of Directors may from time to time determine. Dividends may be daily or otherwise pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities belonging to the Emerging Markets Fund. All dividends on shares of the Emerging Markets Fund shall be paid only out of the income belonging to the Emerging Markets Fund and capital gains distributions on shares of the Emerging Markets Fund shall be paid only out of the capital gains belonging to the Emerging Markets Fund. Subject to subsection (12) below, all dividends and distributions on shares of the Emerging Markets Fund shall be distributed pro rata to the holders of the Emerging Markets Fund in proportion to the number of shares of the Emerging Markets Fund held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no dividend or distribution shall be payable on shares as to which the Shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. The Corporation intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended, or any successor or comparable statute thereto, and regulations promulgated thereunder. Inasmuch as the computation of net income and gains for federal income tax purposes may vary from the computation thereof on the books of the Corporation, the Board of Directors shall have the power, in its sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Board of Directors, to enable the Corporation to qualify as a regulated investment company and to avoid liability of the Corporation for federal income tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Directors to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the Corporation for such tax. Dividends and distributions may be made in cash, property or additional shares of the Emerging Markets Fund or another class or series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by each Shareholder of the mode of the making of such dividend or distribution to that Shareholder. Any such dividend or distribution paid in shares will be paid at the net asset value thereof as defined in subsection (9) below. (5) LIQUIDATION. In the event of the liquidation or dissolution of the Corporation, the shareholders of the Emerging Markets Fund shall be entitled to receive, as a series and in preference to any other series, when and as declared by the Board of Directors, the excess of the assets belonging to the Emerging Markets Fund over the liabilities belonging to that series and such shareholders shall not be entitled thereby to any distribution upon liquidation of any other class or series. The assets so distributable to the shareholders of the Emerging Markets Fund shall be distributed among such shareholders in proportion to the number of shares of that series held by them and recorded on the books of the Corporation. The liquidation of the Emerging Markets Fund may be authorized by vote of a majority of the Board of Directors then in office, subject to the approval of a majority of the outstanding securities of that series, as defined in the 1940 Act, and without the vote of the holders of any other class or series. The liquidation or dissolution of the Emerging Markets Fund may be accomplished, in whole or in part, by the transfer of assets of such series to another class or series or by the exchange of shares of such series for the shares of another class or series. (6) VOTING. On each matter submitted to a vote of the shareholders of the Corporation, each holder of a share of the Emerging Markets Fund shall be entitled to one vote for each share of the Emerging Markets Fund standing in his name on the books of the Corporation, and all shares of all classes or series shall vote as a single class or series ("Single Class Voting"); provided, however, that (a) as to any matter with respect to which a separate vote of the Emerging Markets Fund or of any class or classes thereof is required by the 1940 Act or by the Maryland General Corporation Law (including, without limitation, approval of any plan, agreement or other arrangement referred to in subsection (12)(b)(iii) below), such requirement as to a separate vote by the Emerging Markets Fund or of any class or classes thereof shall apply in lieu of Single Class Voting as described above; (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes of series, then, subject to (c) below, the shares of all other classes or series shall vote as a single class or series; and (c) as to any matter which does not affect the interest of the Emerging Markets Fund, or of any class or classes thereof, the holders of shares of the Emerging Markets Fund, or of any class or classes thereof, as the case may be, shall not be entitled to vote. As to any matter with respect to which a separate vote of the Emerging Markets Fund is required pursuant to proviso (a) above, notwithstanding any provision of law requiring any action on that matter to be taken or authorized by the holders of a greater proportion than a majority of the Emerging Markets Fund entitled to vote thereon, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of shares of the Emerging Markets Fund outstanding and entitled to vote thereon. (7) REDEMPTION BY SHAREHOLDER. Each holder of shares of the Emerging Markets Fund shall have the right at such times as may be permitted by the Corporation, but no less frequently than once each week, to require the Corporation to redeem all or any part of his shares of the Emerging Markets Fund at a redemption price per share equal to the net asset value per share of the Emerging Markets Fund next determined (in accordance with subsection (9)) after the Shares are properly tendered for redemption, less such redemption charge (which may, but is not required to be, the same for the shares of each class of the Emerging Markets Fund) as is determined by the Board of Directors. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may make payment wholly or partly in securities or other assets belonging to the Emerging Markets Fund at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of the Emerging Markets Fund to require the Corporation to redeem shares of that series during any period or at any time when and to the extent permissible under the 1940 Act. (8) REDEMPTION BY CORPORATION. The Board of Directors may cause the Corporation to redeem at net asset value the shares of the Emerging Markets Fund from a holder who has had shares of that series having an aggregate net asset value (determined in accordance with subsection (9)) of an amount equal to $100 less than the minimum initial investment in or less in his account, provided that at least sixty (60) days' prior written notice of the proposed redemption has been given to such holder by postage paid mail to his last known address. Upon redemption of such shares pursuant to this subsection, the Corporation shall promptly cause payment of the full redemption price to be made to the holder of such shares so redeemed. (9) NET ASSET VALUE PER SHARE. Subject to subsection (12) below, the net asset value per share of the Emerging Markets Fund shall be the quotient obtained by dividing the value of the net assets of that series (being the value of the assets belonging to that series less the liabilities belonging to that series) by the total number of shares of the Emerging Markets Fund outstanding, all determined by the Board of Directors in accordance with generally accepted accounting principles and not inconsistent with the 1940 Act. The Board of Directors may determine to maintain the net asset value per share of the Emerging Markets Fund at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that series as dividends payable in additional shares of the Emerging Markets Fund at the designated constant dollar amount and for the handling of any losses attributable to that series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to the Emerging Markets Fund his pro rata portion of the total number of shares required to be cancelled in order to permit the net asset value per share of the Emerging Markets Fund to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the Emerging Markets Fund shall be deemed to have agreed, by his investment in such series, to make the contribution referred to in the preceding sentence in the event of any such loss. (10) EQUALITY. Subject to subsection (12) below, all shares of the Emerging Markets Fund shall represent an equal proportionate interest in the assets belonging to the Emerging Markets Fund (subject to the liabilities belonging to that series), and each share of the Emerging Markets Fund shall be equal to each other share of that series. The Board of Directors may from time to time divide or combine the shares of the Emerging Markets Fund, or any class or classes thereof, into a greater or lesser number of shares of the Emerging Markets Fund or any class or classes thereof, as the case may be, without thereby changing the proportionate beneficial interest in the assets belonging to the Emerging Markets Fund or in any way affecting the rights of shares of the Emerging Markets Fund, or any class thereof. (11) CONVERSION OR EXCHANGE RIGHTS. Subject to compliance with the requirements of the 1940 Act, the Board of Directors shall have the authority to provide that holders of shares of the Emerging Markets Fund shall have the right to convert or exchange said shares into shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors. (12) DESIGNATION OF CLASSES. (a) The Emerging Markets Fund of Common Stock may have such number of classes of Common Stock as shall be designated by the Board of Directors from time to time. Any class of Common Stock of the Emerging Markets Fund shall be referred to herein individually as a "Class" and collectively, together with any further class or classes of such Series from time to time established, as the "Classes." Each Class shall consist of, until further changed, such number of shares as shall be designated by the Board of Directors from time to time, provided that the total number of shares of all Classes of the Emerging Markets Fund shall not exceed the number of shares classified from time to time as capital stock of the Emerging Markets Fund. All such shares are initially classified as Class A Common Stock of the Emerging Markets Fund. Designations of shares among the Classes by the Board of Directors shall be effectuated through the filing from time to time of articles supplementary to the Corporation's Charter. (b) All Classes of the Emerging Markets Fund shall represent the same interest in the Corporation and have identical voting, dividend, liquidation, and other rights with any other shares of Common Stock of that Series; provided, however, that notwithstanding anything in the Charter of the Corporation or these Articles Supplementary to the contrary: (i) The shares of Class A Common Stock shall be sold without front-end sales loads; provided, however, if no other Class is at that time established, that the Board of Directors may in its discretion authorize the sale of Class A Common Stock with front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as are in accordance with the 1940 Act and applicable rules and regulations (if any) of the National Association of Securities Dealers, Inc. ("NASD"). (ii) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that shares of each additional Class may be subject to such no-load arrangements, front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as may be established from time to time by the Board of Directors in accordance with the 1940 Act and applicable rules and regulations (if any) of the NASD. (iii) Expenses related solely to a particular Class (including, without limitation, distribution expenses under a 1940 Act Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated) shall be borne by that Class and shall be appropriately reflected (in the manner determined by the Board of Directors) in the net asset value, dividends, distribution and liquidation rights of the shares of that Class. (iv) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that on an anniversary (as designated in such articles supplementary) of the first business day of the month following the month in which shares of a Class were purchased by a stockholder, such shares (as well as a pro rata portion of any shares purchased through the reinvestment of dividends and other distributions paid in respect of all shares of that Class held by such stockholder) may automatically convert to shares of Class A Common Stock or any other Class as may be designated in the articles supplementary; provided, however, that such conversion may be subject to the continuing availability of an opinion of counsel to the effect that the conversion of the shares of that Class does not constitute a taxable event under federal income tax law. The Board of Directors, in its sole discretion, may suspend the conversion of shares of that Class if such opinion is no longer available. (13) FRACTIONAL SHARES. The Corporation may issue and sell fractions of shares of the Emerging Markets Fund, or any class or classes thereof, having pro rata all the rights of full shares of the Emerging Markets Fund, or any class thereof, including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the Articles or in the By-Laws, they shall be deemed to include fractions of shares of the Emerging Markets Fund, or any class or classes thereof, as the case may be, where the context does not clearly indicate that only full shares are intended. (14) STOCK CERTIFICATES. The Corporation shall not be obligated to issue certificates representing shares of the Emerging Markets Fund, or any class or classes thereof, unless it shall receive a written request therefor from the record holder thereof in accordance with procedures established in the By-Laws or by the Board of Directors. IN WITNESS WHEREOF, Fremont Mutual Funds, Inc., has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Secretary on , 1996. WITNESS: FREMONT MUTUAL FUNDS, INC. ____________________________ By:___________________________ Albert W. Kirschbaum, David L. Redo, Secretary President THE UNDERSIGNED, President of Fremont Mutual Funds, Inc., who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. ________________________ David L. Redo, President EX-99.B5I 4 AMENDED RESTD INVSTMNT ADVSY & ADM AGRMNT AMENDED RESTATED INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT THIS AGREEMENT, dated and effective as of the 15th day of November, 1988, is made and entered into by and between FREMONT MUTUAL FUNDS, INC., a Maryland corporation (hereinafter called the "Company"), and SIERRA ASSET MANAGEMENT, 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 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 intends to initially offer shares in two series, the Multi Asset Fund and Money Market Fund (the "Initial Series"), which together with all other series subsequently established by the Company with respect to which the Company desires to retain the Advisor to render investment advisory services hereunder and the Advisor is willing so to do, being herein collectively referred to as the "Series" and individually referred to as a "Series"; NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties hereto as follows: 1. (a) INITIAL SERIES. The Company hereby appoints the Advisor to act as manager and investment adviser to the Initial Series 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. (b) ADDITIONAL SERIES. In the event that the Company establishes one or more series of shares other than the Initial Series with respect to which it desires to retain the Advisor to render management and investment advisory services hereunder, it shall so notify the Advisor in writing, indicating the advisory fee which will be payable with respect to the additional series of shares. If the Advisor is willing to render such services, it shall so notify the Company in writing, whereupon such series of shares shall become a Series hereunder. The Advisor shall, for all purposes herein, be deemed an independent contractor and not an agent of the Company. 2. (a) The Advisor agrees to provide supervision of the portfolio of each Series and to determine what securities or other property shall be purchased or sold by the Series, subject to the engagement by the Advisor of any subadvisor approved by the Board of Directors and the shareholders of the Company, giving due consideration to the policies of each Series 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 each Series 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 subadvisor 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 each Series as to foreign currency matters and make determinations as to, and execute and perform, foreign exchange contracts or may delegate such decisions to any subadvisor 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 each Series. 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 5 hereof. (ii) On occasions when the Advisor deems the purchase or sale of a security to be in the best interests of a Series 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 Series. 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 Series and to such other clients. 3. The Advisor 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 each Series. The Advisor shall pay the compensation and travel expenses of all the Company, and they shall serve without additional compensation from the Company. The Advisor shall also, at its expense, 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 of any dividend disbursing agent, transfer agent, registrar or custodian, and accounting and bookkeeping services to be provided by the custodian. 4. The Company shall pay all its expenses not assumed by the Advisor as provided herein. Such expenses shall include, but shall not be limited to, computer services, custodian, registrar, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; interest, taxes and insurance; expenses of the issuance and redemption of shares of each Series (including stock certificates, registration and qualification fees and expenses); legal and auditing expenses; compensation, fees, and expenses paid to Directors; association dues; and costs of stationery and forms prepared exclusively for the Company; and costs of assembling and storing shareholder account data. 5. (a) Each Series 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 such Series the applicable annual rates set forth on Appendix A hereto plus an administrative fee for each Fund of .15% of total net asset value. (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 each Series shall be determined in the manner set forth in the Articles of Incorporation and 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 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. (c) Notwithstanding the foregoing, the administrative fee will not exceed $24,000 per annum for each Fund until the total net asset value of such Series equals or exceeds $30 million and will not exceed $40,000 per annum for each Series until the total net asset value of such Fund equals or exceeds $50 million. 6. (a) The Advisor agrees to reduce the fee payable to it under this Agreement by the amount by which the ordinary operating expenses of the Company for any fiscal year of the Company, excluding interest, taxes and extraordinary expenses, shall exceed the most stringent limits prescribed by any state in which the Company shares are offered for sale, based on the average total net asset value of the Company determined pursuant to Section 5. Costs incurred in connection with the purchase or sale of portfolio securities, including brokerage fees and commissions, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, shall be accounted for as capital items and not as expenses. Proper accruals shall be made by the Company for any projected reduction hereunder and corresponding amounts shall be withheld from the fees paid by the Company to the Advisor. Any additional reduction computed at the end of the fiscal year shall be deducted from the fee for the last month of such fiscal year. (b) The above provision in subsection (a) with respect to expense limitation shall be calculated and administered separately with respect to each Series, as opposed to the Company in the aggregate, if and to the extent so required by state securities authorities. 7. 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. 8. 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 costs and liabilities the Indemnified Parties may incur as a result of any claim against the Indemnified Parties in the good faith exercise of their powers hereunder (excepting matters as to which the Indemnified Parties shall be finally adjudged to have been guilty of willful misconduct or gross negligence, or in violation of applicable law) or arising out of an act or omission of the custodian, subadvisor or of any broker or agent selected by the Advisor in a commercially reasonable manner. 9. (a) This Agreement shall become effective with respect to the Initial Series on the date hereof (the "Effective Date") and, with respect to any additional Series, on the date of receipt by the Company of notice from the Advisor in accordance with Section 1(b) hereof that the Advisor is willing to serve as Advisor with respect to such Series. Unless terminated as herein provided, this Agreement shall remain in full force and effect for two (2) years from the Effective Date with respect to the Initial Series and, with respect to each additional Series, until the anniversary of the Effective Date following the first anniversary of the date on which such Series becomes a Series hereunder, and shall continue in full force and effect for periods of one year thereafter with respect to each Series so long as such continuance with respect to any such Series 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 such Series, 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. However, the continuance of this Agreement with respect to any Series is subject to the approval of this Agreement by a majority (as defined in the 1940 Act) of the outstanding voting securities of such Series on or before the next anniversary following the date on which such Series becomes a Series hereunder. Any approval of this Agreement by a majority (as defined in the 1940 Act) of the outstanding voting securities of any Series shall be effective to continue this Agreement with respect to any such Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority (as defined in the 1940 Act) of the outstanding voting securities of any other Series affected thereby, and (ii) that this Agreement has not been approved by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Company, unless such approval shall be required by any applicable law or otherwise. (b) This Agreement may be terminated with respect to any Series 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 Series, if such approval is required by applicable law. 10. (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. 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. SIERRA ASSET MANAGEMENT, INC. By: /s/ DAVID L. REDO By: /s/ DAVID L. REDO ------------------------- ------------------------- President President DAVID L. REDO DAVID L. REDO ------------------------- ------------------------- (Print Name) (Print Name) ATTEST: ATTEST: /s/ LOUIS INDINDOLI, JR. /s/ LOUIS INDINDOLI, JR. ------------------------- ------------------------- Secretary Secretary LOUIS INDINDOLI, JR. LOUIS INDINDOLI, JR. ------------------------- ------------------------- (Print Name) (Print Name) FREMONT MUTUAL FUNDS, INC. FREMONT MULTI ASSET FUND FREMONT MONEY MARKET FUND 50 FREMONT STREET, SUITE 3600 SAN FRANCISCO, CALIFORNIA 94105 July 2, 1990 Sierra Asset Management, Inc. 50 Fremont Street - Suite 3600 San Francisco, CA 94105 Re: Notification of New Series Amended Restated Investment Advisory and Administrative Agreement In accordance with Section 1(b) of the subject contract dated November 15, 1988, please be notified that effective July 2, 1990 the Investment Company is establishing an additional series of shares to be called the Fremont California Intermediate Tax-Free Fund. Attached is a revised Appendix A to the Investment Advisory and Administrative Agreement which includes the advisory fee schedule for the new fund. This notification and acceptance is to be executed in duplicate originals as of July 2, 1990. FREMONT MUTUAL FUNDS, INC. SIERRA ASSET MANAGEMENT, INC. By: /s/ JAMES E. RHODES By: /s/ DAVID L. REDO ------------------------- ------------------------- Senior Vice President President JAMES E. RHODES DAVID L. REDO ------------------------- ------------------------- (Print Name) (Print Name) ATTEST: ATTEST: /s/ LOUIS INDINDOLI, JR. /s/ LOUIS INDINDOLI, JR. - ------------------------ ------------------------- Secretary Secretary LOUIS INDINDOLI, JR. LOUIS INDINDOLI, JR. ------------------------- ------------------------- (Print Name) (Print Name) FREMONT MUTUAL FUNDS May 7, 1992 Fremont Investment Advisors 50 Fremont Street - Suite 3600 San Francisco, CA 94105 Re: Notification of New Series Amended Restated Investment Advisory and Administrative Agreement In accordance with Section 1(b) of the subject contract dated November 15, 1988, please be notified that effective May 11, 1992 the Investment Company is establishing an additional series of shares to be called the Fremont Equity Fund. Attached is a revised Appendix A to the Investment Advisory and Administrative Agreement which includes the advisory fee schedule for the new fund. This notification and acceptance is to be executed in duplicate originals as of May 7, 1992. FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC. By: /s/ JAMES E. RHODES By: /s/ DAVID L. REDO ------------------------- ------------------------- Senior Vice President President JAMES E. RHODES DAVID L. REDO ------------------------- ------------------------- (Print Name) (Print Name) ATTEST: ATTEST: /s/ IAN R. STONE /s/ IAN R. STONE - ------------------------- ------------------------- Assistant Secretary Assistant Secretary IAN R. STONE IAN R. STONE ------------------------- ------------------------- (Print Name) (Print Name) Fremont Mutual Funds, Inc. 50 Fremont Street, Suite 3600 San Francisco, CA 94105 Telephone (415) 768-9000 FREMONT INVESTMENT ADVISORS March 1, 1993 Fremont Investment Advisors, Inc. 50 Fremont Street, Suite 3600 San Francisco, CA 94105 Re: Notification of New Series Amended Restated Investment Advisory and Administrative Agreement In accordance with Section 1(b) of the subject contract dated November 15, 1988, please be notified that effective March 1, 1993 the Investment Company is establishing an additional series of shares to be called the Fremont Income Fund. Attached is a revised Appendix A to the Investment Advisory and Administrative Agreement which includes the advisory fee schedule for the new fund. This notification and acceptance is to be executed in duplicate originals as of March 1, 1993. FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC. By: /s/ VINCENT P. KUHN, JR. By: /s/ DAVID L. REDO ------------------------- --------------------------- Executive Vice President President VINCENT P. KUHN, JR. DAVID L. REDO ------------------------- --------------------------- (Print Name) (Print Name) ATTEST: ATTEST: /s/ ALBERT W. KIRSCHBAUM /s/ ALBERT W. KIRSCHBAUM - ------------------------- --------------------------- Assistant Secretary Assistant Secretary ALBERT W. KIRSCHBAUM ALBERT W. KIRSCHBAUM ------------------------- --------------------------- (Print Name) (Print Name) Fremont Investment Advisors, Inc. A Bechtel Investments Company 50 Beale Street, Suite 100 San Francisco, CA 94105 P.O. Box 193965 San Francisco, CA 94119-3965 Telephone (415) 768-9000 FREMONT FUNDS June 24, 1996 Fremont Investment Advisors, Inc. 50 Fremont Street - Suite 3600 San Francisco, CA 94105 Re: Notification of New Series Amended Restated Investment Advisory and Administrative Agreement In accordance with Section 1(b) of the subject contract dated November 15, 1988, please be notified that effective June 24, 1996 the Investment Company is establishing an additional series of shares to be called the Fremont Emerging Markets Fund. Attached is a revised Appendix A to the Investment Advisory and Administrative Agreement which includes the advisory fee schedule for the new fund. This notification and acceptance is to be executed in duplicate originals as of June 24, 1996. FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC. By:-------------------------- By:--------------------------- Executive Vice President President VINCENT P. KUHN, JR. DAVID L. REDO ------------------------- --------------------------- (Print Name) (Print Name) ATTEST: ATTEST: ------------------------- --------------------------- Secretary Secretary ALBERT W. KIRSCHBAUM ALBERT W. KIRSCHBAUM ------------------------- --------------------------- (Print Name) (Print Name) Fremont Mutual Funds Shareholder Services 312 Walnut Street, 21st Floor . Cincinnati, Ohio 45202-3874 P.O. Box 5354 . Cincinnati, Ohio 45201-5354 . Telephone EFFECTIVE JUNE 24, 1996 APPENDIX A to Investment Advisory and Administrative Agreement ON THE PORTION OF DAILY TOTAL NET ASSET VALUE ANNUAL RATE - --------------------------- ----------- Global Fund (formerly Multi Asset Fund): .60% Money Market Fund: First $50 million .30% In excess of $50 million .20% California Intermediate Tax-Free Fund: First $25 million .40% Next $25 million .35% Next $50 million .30% Next $50 million .25% In excess of $150 million .20% Growth Fund (formerly Equity Fund): .50% Bond Fund (formerly Income Fund): .40% Emerging Markets Fund: 1.00% EX-99. 5 PORTFOLIO MANAGEMENT AGREEMENT PORTFOLIO MANAGEMENT AGREEMENT THIS AGREEMENT dated and effective as of May 8, 1992, among Sit Investment Associates, Inc., a Minnesota corporation (the "Subadvisor") Fremont Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland corporation (the "Fund"). WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company and is authorized to issue separate series (the "Series"), each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective, policies and limitations; WHEREAS, the Fund presently offers shares of a particular series named the Fremont Equity Fund (The "Equity Series"), WHEREAS, the Fund has retained the Advisor to render investment management and administrative services to the Series; WHEREAS, the Advisor and the Fund desire to retain the Subadvisor to furnish portfolio management services to the Equity Series in connection with Advisor's investment management activities on behalf of the Series, and the Subadvisor is willing to furnish such services to the Advisor and the Equity Series. NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the Subadvisor, the Advisor and the Fund as follows: 1. APPOINTMENT. The Advisor and the Fund hereby appoint Subadvisor to act as Subadvisor with respect to certain assets of the Equity Series for the periods and on the terms set forth in this Agreement. The Subadvisor accepts such appointment and agrees to furnish the services herein set forth, for the compensation herein provided. In the event the Fund designates one or more classes other than the Equity Series with respect to which the Advisor and the Fund desire to retain the Subadvisor to render portfolio management hereunder, they shall notify the Subadvisor in writing. If the Subadvisor is willing to render such services, it shall notify the Advisor and the Fund in writing, whereupon such class shall become a Series hereunder, and be subject to this Agreement. Fees payable to the Subadvisor for services to be provided with respect to such additional Series are subject to negotiation and shall be attached hereto on Appendix A. 2. SUBADVISOR DUTIES. Subject to the supervision of the Advisor and the Fund's Board of Directors, the Subadvisor shall have full discretionary authority as agent and attorney-in-fact with respect to the portion of assets of the Equity Series' portfolio assigned to the Subadvisor, from time to time by the Advisor or the Board of Directors, including authority to: (a) buy, sell, exchange, convert or otherwise trade in any stocks without limitation and (b) place orders for the execution of such securities transactions with or through such brokers, dealers, or issuers as Subadvisor may select. The Subadvisor will provide the services under this agreement in accordance with the Equity Series' registration statement filed with the Securities and Exchange Commission ("SEC"), as amended. Investments by the Subadvisor shall conform with the provisions of Appendix B attached hereto, as such may be revised from time to time at the discretion of the Advisor and the Fund. Subject to the foregoing, the Subadvisor will vote proxies with respect to the securities and investments purchased with the assets of the Equity Series' portfolio managed by the Subadvisor and will provide regular reports of proxy voting. The Subadvisor further agrees that it will: (a) conform with all applicable rules and regulations of the Securities and Exchange Commission; (b) place orders pursuant to its investment determinations for the Series either directly with the issuer or with any broker or dealer. In placing orders with brokers and dealers, the Subadvisor will attempt to obtain the best net price and the most favorable execution of its orders. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Subadvisor may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide it with research advice and other services of lawful assistance to the Subadvisor in serving the Series as the Subadvisor or who sell the Equity Series' shares; and (c) make available to the Advisor and the Fund promptly upon their request all its investment records and ledgers to assist the Advisor and the Fund in their compliance with respect to the Series' securities transactions as required by the 1940 Act and the Investment Advisers Act of 1940 ("Advisers Act"), as well as other applicable laws. The Subadvisor will furnish the Fund's Board of Directors with respect to the Series such periodic and special reports as the Advisor and the Directors may reasonably request. (d) maintain detailed records of the assets managed by the Subadvisor as well as all investments, receipts, disbursements and other transactions made with such assets. Such records shall be open to inspection and audit at reasonable times by any person designated by the Advisor or the Fund. The Subadvisor shall provide to the Advisor or the Fund and any other party either the Advisor or the Fund designates: (i) monthly statements of the activities with regard to the assets for the month and of the assets showing each asset at its cost and, for each security listed on any national securities exchange, its value at the last quoted sale price reported on the composite tape on the valuation date or, in the cases of securities not so reported, by the principal exchange on which the security is traded, or, if no trade was made on the valuation date or if such security is not listed on any exchange, its value as determined by a nationally recognized pricing service used by the Subadvisor to value securities in their client accounts, at the value specified by such pricing service on the valuation date, and for any other security or asset in a manner determined in good faith by the Subadvisor to reflect its then fair market value; (ii) statements evidencing any purchases and sales as soon as practicable after such transaction has taken place; (iii) a quarterly review of the assets under management; and (iv) tax information as requested, on a monthly basis, to the Fund's custodian bank. 3. EXPENSES. During the term of this Agreement, the Portfolio manager will pay all expenses incurred by it, its staff and their activities, in connection with its portfolio management activities under this Agreement. 4. COMPENSATION. For the services provided to the Initial Series, the Advisor of the Fund will pay the Subadvisor a fee as provided on Appendix A hereto. 5. BOOKS AND RECORDS; CUSTODY. (a) In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadvisor hereby agrees that all records which it maintains for the Equity Series are the property of the Fund and further agrees to surrender promptly to the Fund any of such records upon the Fund's request. The Subadvisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. (b) Title to all investments shall be made in the name of the Fund, provided that for convenience in buying, selling, and exchanging securities (stocks, bonds, commercial paper, etc.), title to such securities may be held in the name of the Fund's custodian bank, or its nominee. The Fund shall advise the Subadvisor of the identity of its custodian bank and shall give the Subadvisor 15 days' written notice of any changes in such custody arrangements. Neither the Subadvisor, nor any parent, subsidiary or related firm, shall take possession of or handle any cash, securities, mortgages or deeds of trust, or other indicia of ownership of the Fund's investments, or otherwise act as custodian of such investments. All cash and the indicia of ownership of all other investments shall be held by the Fund's custodian bank. The Fund shall instruct its custodian bank to (a) carry out all investment instructions as may be directed by the Subadvisor with respect thereto (which may be orally given if confirmed in writing); and (b) provide the Subadvisor with all operational information necessary for the Subadvisor to trade on behalf of the Fund. 6. INDEMNIFICATION. The Subadvisor agrees to indemnify and hold harmless, the Advisor, the Fund, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund (other than the Subadvisor) and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"), controls ("controlling person") the Advisor or the Fund against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses), to which the Advisor, the Fund or such affiliated person or controlling person may become subject under the 1933 Act, 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise, which (1) may be based upon any wrongful act or omission by the Subadvisor, any of its employees or representatives or any affiliate of or any person acting on behalf of the Subadvisor or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering the shares of the Fund or any Series or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Fund or any affiliated person of the Fund by the Subadvisor or any affiliated person of the Subadvisor; provided, however, that in no case is the Subadvisor's indemnity in favor of the Advisor or the Fund or any affiliated person or controlling person of the Advisor or the Fund deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement. The Fund agrees not to hold the Subadvisor or any of its officers or employees liable for, and to indemnify or insure the Subadvisor and its officers and employees ("Indemnified Parties") against any act or omission of any other subadvisor providing investment management services to the Fund, and against any costs and liabilities the Indemnified Parties may incur as a result of a claim against the Indemnified Parties regarding actions taken in good faith exercise of their powers hereunder excepting matters as to which the Indemnified Parties have been negligent, engaged in willful misfeasance, bad faith, reckless disregard of the obligations and duties under this Agreement or have been in violation of applicable law or regulations. 7. SERVICES NOT EXCLUSIVE. It is understood that the services of the Subadvisor are not exclusive, and nothing in this Agreement shall prevent the Subadvisor from providing similar services to other investment companies (whether or not their investment objectives and policies are similar to those of the Series) or from engaging in other activities. When the Subadvisor recommends the purchase or sale of a security for other investment companies and other clients, and at the same time the Subadvisor recommends the purchase or sale of the same security for the Series, it is understood that such transactions will be executed on a basis that is fair and equitable to the Series. 8. (a) DURATION. This Agreement shall become effective with respect to the Equity Series on the date hereof and, with respect to any additional Series, on the date of receipt by the Fund of notice from Subadvisor in accordance with Section 1(b) hereof that Subadvisor is willing to serve as portfolio manager with respect to such Series. Unless terminated as herein provided, this Agreement shall remain in full force and effective through April 29, 1994 with respect to the Equity Series and, with respect to each additional Series, until April 29 following the date on which such Series becomes a Series hereunder, and shall continue in full force and effect for periods of one year thereafter with respect to each Series so long as such continuance with respect to any such Series is approved at least annually (i) by either the Directors of the Fund or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such Series, and (ii) by the Advisor, and (iii) in either event by the vote of a majority of the Directors of the Fund who are not parties of this Agreement or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. However, the continuance of this Agreement with respect to any Series is subject to the approval of this Agreement by a majority (as defined in the 1940 Act) of the outstanding voting securities of such Series no later than sixteen months following the date on which such Series becomes a Series hereunder. Any approval of this Agreement by a majority (as defined in the 1940 Act) of the outstanding voting securities of any Series shall be effective to continue this Agreement with respect to any such Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority (as defined in the 1940 Act) of the outstanding voting securities of any other Series affected thereby, and (ii) that this Agreement has not been approved by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, unless such approval shall be required by any applicable law or otherwise. (b) TERMINATION. This Agreement may be terminated with respect to any Series at any time, without payment of any penalty, by the Board of Trustees of the Fund or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, or by the Advisor, on thirty (30) days' written notice to the Subadvisor, or by the Subadvisor on like notice to the Fund and to the Advisor. (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 Series, if such approval is required by applicable law. 10.MISCELLANEOUS. (a) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (d) Nothing herein shall be construed as constituting the Subadvisor as an agent of the Fund or the Advisor. (e) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. SIT INVESTMENT ASSOCIATES, INC. Dated: MAY 7, 1992 By /s/ EUGENE C. SIT ------------------------------ PRESIDENT (Title) FREMONT INVESTMENT ADVISORS, INC. Dated: MAY 7, 1992 By /s/ DAVID L. REDO ----------------------------- David L. Redo PRESIDENT (Title) FREMONT MUTUAL FUNDS, INC. Dated: MAY 7, 1992 By /s/ DAVID L. REDO ----------------------------- David L. Redo PRESIDENT (Title) APPENDIX A TO PORTFOLIO MANAGEMENT AGREEMENT SIT INVESTMENT ASSOCIATES, INC. SCHEDULE OF FEES ---------------- ANNUAL RATE ----------- Value of Total Assets Under Management by Sit Investment Associates, Inc. for the Fremont Equity Fund .40% Fee shall be billed and payable after the end of each calendar month based on average daily balances in such account, and prorated for any period less than a month. APPENDIX B SIT INVESTMENT ASSOCIATES, INC. -SUBADVISOR- INVESTMENT OBJECTIVES FOR FREMONT EQUITY MUTUAL FUND POLICY AND GUIDELINES - --------------------- THE SUBADVISOR SHALL ADHERE TO THE INVESTMENT OBJECTIVES AND POLICIES IDENTIFIED IN THE FREMONT EQUITY FUND PROSPECTUS. To qualify for investment by the Subadvisor a company should be expected to have attractive prospects for long-term earnings growth. Both large and small companies will be purchased by the Subadvisor. Up to one-third of the portfolio being managed by the Subadvisor can be invested in smaller emerging growth companies and in companies that have favorable prospects for future growth or are attractive based on the underlying valuation of assets and future earnings and dividends. PERFORMANCE OBJECTIVES - ---------------------- The Subadvisor's account is expected to achieve a competitive rate of return over a 3 to 5 year time horizon and/or a complete market cycle, when compared to other managers of similar size and investment approach. Performance will also be compared to a custom index: 2/3 S&P 500 and 1/3 NASDAQ. EX-99.B5III 6 PORTFOLIO MANAGEMENT AGREEMENT PORTFOLIO MANAGEMENT AGREEMENT THIS AGREEMENT dated and effective as of June 24, 1996, among Credit Lyonnais International Asset Management (HK) Limited, a Hong Kong company, (the "Subadvisor"); Fremont Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland corporation (the "Fund"). WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company and is authorized to issue separate series (the "Series"), each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective, policies and limitations; WHEREAS, the Fund presently offers shares of a particular series named the Fremont Emerging Markets Fund (the "Emerging Markets Series"), WHEREAS, the Fund has retained the Advisor to render investment management and administrative services to the Series; WHEREAS, the Advisor and the Fund desire to retain the Subadvisor to furnish portfolio management services to the Emerging Markets Series in connection with Advisor's investment management activities on behalf of the Series, and the Subadvisor is willing to furnish such services to the Advisor and the Emerging Markets Series. NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the Subadvisor, the Advisor and the Fund as follows: 1. APPOINTMENT. The Advisor and the Fund hereby appoint Subadvisor to act as Subadvisor with respect to certain assets of the Emerging Markets Series for the periods and on the terms set forth in this Agreement. The Subadvisor accepts such appointment and agrees to furnish the services herein set forth, for the compensation herein provided. 2. SUBADVISOR DUTIES. Subject to the supervision of the Advisor and the Fund's Board of Directors, the Subadvisor shall have full discretionary authority as agent and attorney-in- fact with respect to the portion of assets of the Emerging Markets Series' portfolio assigned to the Subadvisor, from time to time by the Advisor or the Board of Directors, including authority to: (a) buy, sell, exchange, convert or otherwise trade in any stocks without limitation and (b) place orders for the execution of such securities transactions with or through such brokers, dealers, or issuers as Subadvisor may select. The Subadvisor will provide the services under this Agreement in accordance with the Emerging Markets Series' registration statement filed with the Securities and Exchange Commission ("SEC"), as amended. Investments by the Subadvisor shall conform with the provisions of Appendix B attached hereto, as such may be revised from time to time at the discretion of the Advisor and the Fund. Subject to the foregoing, the Subadvisor will vote proxies with respect to the securities and investments purchased with the assets of the Emerging Markets Series' portfolio managed by the Subadvisor and will provide regular reports of proxy voting. The Subadvisor further agrees that it will: (a) conform with all applicable rules and regulations of the Securities and Exchange Commission; (b) place orders pursuant to its investment determinations for the Emerging Markets Series either directly with the issuer or with any broker or dealer. In placing orders with brokers and dealers, the Subadvisor will attempt to obtain the best net price and the most favorable execution of its orders. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Subadvisor may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide it with research advice and other services of lawful assistance to the Subadvisor in serving the Emerging Markets Series as the Subadvisor or who sell the Emerging Markets Series' shares; and (c) make available to the Advisor and the Fund promptly upon their request all its investment records and ledgers to assist the Advisor and the Fund in their compliance with respect to the Emerging Markets Series' securities transactions as required by the 1940 Act and the Investment Advisers Act of 1940 ("Advisers Act"), as well as other applicable laws. The Subadvisor will furnish the Fund's Board of Directors with respect to the Emerging Markets Series such periodic and special reports as the Advisor and the Directors may reasonably request. (d) maintain detailed records of the assets managed by the Subadvisor as well as all investments, receipts, disbursements and other transactions made with such assets. Such records shall be open to inspection and audit at reasonable times by any person designated by the Advisor or the Fund. The Subadvisor shall provide to the Advisor or the Fund and any other party either the Advisor or the Fund designates: (i) monthly statements of the activities with regard to the assets for the month and of the assets showing each asset at its cost and, for each security listed on any national securities exchange, its value at the last quoted sale price reported on the composite tape on the valuation date or, in the cases of securities not so reported, by the principal exchange on which the security is traded, or, if no trade was made on the valuation date or if such security is not listed on any exchange, its value as determined by a nationally recognized pricing service used by the Subadvisor to value securities in their client accounts, at the value specified by such pricing service on the valuation date, and for any other security or asset in a manner determined in good faith by the Subadvisor to reflect its then fair market value; (ii) statements evidencing any purchases and sales as soon as practicable after such transaction has taken place; (iii) a quarterly review of the assets under management; and (iv) tax information as requested, on a monthly basis, to the Fund's custodian bank. 3. EXPENSES. During the term of this Agreement, the Subadvisor will pay all expenses incurred by it, its staff and their activities, in connection with its portfolio management activities under this Agreement. 4. COMPENSATION. For the services provided to the Emerging Markets Series, the Advisor of the Fund will pay the Subadvisor a fee as provided on Appendix A hereto. 5. BOOKS AND RECORDS; CUSTODY. (a) In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadvisor hereby agrees that all records which it maintains for the Emerging Markets Series are the property of the Fund and further agrees to surrender promptly to the Fund any of such records upon the Fund's request. The Subadvisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. (b) Title to all investments shall be made in the name of the Fund, provided that for convenience in buying, selling, and exchanging securities (stocks, bonds, commercial paper, etc.), title to such securities may be held in the name of the Fund's custodian bank, or its nominee. The Fund shall advise the Subadvisor of the identity of its custodian bank and shall give the Subadvisor 15 days' written notice of any changes in such custody arrangements. Neither the Subadvisor, nor any parent, subsidiary or related firm, shall take possession of or handle any cash, securities, mortgages or deeds of trust, or other indicia of ownership of the Fund's investments, or otherwise act as custodian of such investments. All cash and the indicia of ownership of all other investments shall be held by the Fund's custodian bank. The Fund shall instruct its custodian bank to (a) carry out all investment instructions as may be directed by the Subadvisor with respect thereto (which may be orally given if confirmed in writing); and (b) provide the Subadvisor with all operational information necessary for the Subadvisor to trade on behalf of the Fund. 6. INDEMNIFICATION. The Subadvisor agrees to indemnify and hold harmless the Advisor, the Fund, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund (other than the Subadvisor) and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"), controls ("controlling person") the Advisor or the Fund against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses) to which the Advisor, the Fund or such affiliated person or controlling person may become subject under the 1933 Act, 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise, which (1) may be based upon any wrongful act or omission by the Subadvisor, any of its employees or representatives or any affiliate of or any person acting on behalf of the Subadvisor or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering the shares of the Fund or any Series or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Fund or any affiliated person of the Fund by the Subadvisor or any affiliated person of the Subadvisor; provided, however, that in no case is the Subadvisor's indemnity in favor of the Advisor or the Fund or any affiliated person or controlling person of the Advisor or the Fund deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement. The Fund agrees to indemnify and hold harmless the Subadvisor, any affiliated person of the Subadvisor and each controlling person of the Subadvisor against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses) to which the Subadvisor 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 Fund, any of its officers or representatives or any affiliate of or any person acting on behalf of the Fund or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering the shares of the Fund or any Series or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such a statement or omission was made in reliance upon information furnished to the Fund or any affiliated person of the Fund by the Subadvisor or any affiliated person of the Subadvisor; provided, however, that in no case is the Fund's indemnity in favor of the Subadvisor or any affiliated person or controlling person of the Subadvisor deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement. 7. SERVICES TO OTHER INVESTMENT COMPANIES. It is 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 similar services to any other investment company with investment objectives and policies similar to those of the Emerging Markets Series. When the Subadvisor recommends the purchase or sale of a security for other clients, and at the same time the Subadvisor recommends the purchase or sale of the same security for the Emerging Markets Series, it is understood that such transactions will be executed on a basis that is fair and equitable to the Series. 8. (a) DURATION. This Agreement shall become effective on the date hereof. Unless terminated as herein provided, this Agreement shall remain in full force and effective through July 31, 1997 and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Fund or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Emerging Markets Series, and (ii) by the Advisor, and (iii) in either event by the vote of a majority of the Directors of the Fund who are not parties of this Agreement or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. (b) TERMINATION. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of the Fund or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Emerging Markets Series, or by the Advisor, on thirty (30) days' written notice to the Subadvisor, or by the Subadvisor on like notice to the Fund and to the Advisor. (c) AUTOMATIC TERMINATION. This Agreement shall automatically and immediately terminate in the event of its assignment. 9. AMENDMENTS. No provision of this agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the Emerging Markets Series, if such approval is required by applicable law. 10. MISCELLANEOUS. (a) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (d) Nothing herein shall be construed as constituting the Subadvisor as an agent of the Fund or the Advisor. (e) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. CREDIT LYONNAIS INTERNATIONAL ASSET MANAGEMENT (HK) LIMITED By:------------------------------- ------------------------------- (Title) FREMONT INVESTMENT ADVISORS, INC. By:------------------------------- David L. Redo PRESIDENT ------------------------------- (Title) FREMONT MUTUAL FUNDS, INC. By:------------------------------- V.P. Kuhn, Jr. EXECUTIVE VICE PRESIDENT ------------------------------- (Title) APPENDIX A TO PORTFOLIO MANAGEMENT AGREEMENT Credit Lyonnais International Asset Management (HK) Limited Subadvisor to the Fremont Emerging Markets Fund SCHEDULE OF FEES Fremont Investment Advisors, Inc. will pay to Credit Lyonnais International Management (HK) Limited a fee computed at the annual rate of 0.50% (50 basis points) of the average value of the daily assets of the Emerging Markets Fund under management by Credit Lyonnais International Asset Management.* Fee should be billed and payable after the end of each calendar month based on the average daily balances in this account. Fee will be prorated for any period less than one month. *NOTE: Credit Lyonnais International Asset Management (HK) Limited will waive this fee until July 1, 1997 or until Fund assets reach $40 million. APPENDIX B TO PORTFOLIO MANAGEMENT AGREEMENT Credit Lyonnais International Asset Management (HK) Limited Subadvisor to the Fremont Emerging Markets Fund INVESTMENT OBJECTIVES AND GUIDELINES ------------------------------------ OVERALL INVESTMENT OBJECTIVE: - ----------------------------- The objective of the Fremont Emerging Markets Fund is to achieve long-term capital appreciation by investing, in normal market conditions, at least 65% of its total assets in equity securities of issuers domiciled in emerging market countries. In normal market conditions, at least three different emerging market countries will be represented in the Fund's portfolio. POLICY AND GUIDELINES FOR SUBADVISOR: - ------------------------------------ The Subadvisor will adhere to the Investment Objective and to policies in the Fremont Emerging Markets Fund prospectus. PERFORMANCE OBJECTIVE FOR SUBADVISOR: - ------------------------------------ The Subadvisor is expected to achieve a competitive rate of return over a 3 to 5 year time horizon and/or a complete market cycle, relative to other emerging market funds as compiled by Lipper Analytical Services and/or Morningstar. A competitive rate of return is defined as Fund performance in the top one-third of such funds. Performance will also be compared to the Morgan Stanley Capital International Emerging Markets Index. EX-99.B15 7 PLAN OF DISTRIBUTION PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1 ---------------------- WHEREAS, Fremont Mutual Funds, Inc. (the "Corporation"), a corporation organized under the laws of the State of Maryland, engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Corporation is authorized to issue an unlimited number of shares of beneficial interest without par value (the "Shares"), which may be divided into Series of Shares, pursuant to which authority the Corporation has created a Series of Shares known as the Fremont Emerging Markets Fund (the "Fund"); and WHEREAS, the Directors of the Corporation as a whole, and the Directors who are not interested persons of the Corporation (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operation of this Plan or in any agreement relating hereto (the "Rule 12b-1 Directors"), having determined, in the exercise of reasonable business judgment and in light of their fiduciary duties under state law and under Section 36(a) and (b) of the 1940 Act, that there is a reasonable likelihood that this Plan will benefit the Fund and its shareholders, have approved this Plan by votes cast in person at a meeting called for the purpose of voting hereon and on any agreements related hereto; NOW, THEREFORE, the Corporation hereby adopts this Plan in accordance with Rule 12b-1 under the 1940 Act, on the following terms and conditions: 1. DISTRIBUTION ACTIVITIES. Subject to the supervision of the Directors of the Corporation, the Corporation may, directly or indirectly, engage in any activities related to the distribution of Shares of the Fund, which activities may include, but are not limited to, the following: (a) payments to the Fund's distributor and to securities dealers and others who are engaged in the sale of Fund Shares and who may be advising shareholders of the Fund regarding the purchase, sale or retention of Shares; (b) expenses of maintaining personnel (including personnel of organizations with which the Corporation has entered into agreements related to this Plan) who engage in or support distribution of Fund Shares or who render shareholder support services not otherwise provided by the Fund's transfer agent, including, but not limited to, office space and equipment, telephone facilities and expenses, answering routine inquiries regarding the Fund, processing shareholder transactions, and providing such other shareholder services as the Corporation may reasonably request; (c) formulating and implementing of marketing and promotional activities, including, but not limited to, direct mail promotions and television, radio, newspaper, magazine and other mass media advertising; (d) preparing, printing and distributing sales literature; (e) preparing, printing and distributing prospectuses and statements of additional information and reports of the Fund for recipients other than existing shareholders of the Fund; and (f) obtaining such information, analyses and reports with respect to marketing and promotional activities as the Corporation may, from time to time, deem advisable. The Corporation is authorized to engage in the activities listed above, and in any other activities related to the distribution of Fund Shares, either directly or through other persons with which the Corporation has entered into agreements related to this Plan. 2. MAXIMUM EXPENDITURES. The expenditures to be made by the Fund pursuant to this Plan and the basis upon which payment of such expenditures will be made shall be determined by the Directors of the Corporation, but in no event may such expenditures exceed in any fiscal year an amount calculated at the rate of .25% of the average daily net asset value of the Fund. Such payments for distribution activities may be made directly by the Fund or the Fund's investment adviser may incur such expenses and obtain reimbursement from the Fund. 3. TERM AND TERMINATION. (a) This Plan shall become effective on the date hereof. Unless terminated as herein provided, this Plan shall continue in effect for one year from the date hereof and shall continue in effect for successive periods of one year thereafter, but only so long as each such continuance is specifically approved by votes of a majority of both (i) the Directors of the Corporation and (ii) the Rule 12b-1 Directors, cast in person at a meeting called for the purpose of voting on such approval. (b) This Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund. 4. AMENDMENTS. This Plan may not be amended to increase materially the amount of expenditures provided for in Section 2 hereof unless such amendment is approved by a vote of the majority of the outstanding voting securities of the Fund (as defined in the 1940 Act), and no material amendment to this Plan shall be made unless approved in the manner provided for annual renewal of this Plan in Section 3(a) hereof. 5. SELECTION AND NOMINATION OF DIRECTORS. While this Plan is in effect, the selection and nomination of Directors who are not interested persons (as defined in the 1940 Act) of the Corporation shall be committed to the discretion of the Directors who are not interested persons of the Corporation. 6. QUARTERLY REPORTS. The Treasurer of the Corporation shall provide to the Directors and the Directors shall review, at least quarterly, a written report of the amounts expended pursuant to this Plan and any related agreement and the purposes for which such expenditures were made. 7. RECORDKEEPING. The Corporation shall preserve copies of this Plan and any related agreement and all reports made pursuant to Section 6 hereof, for a period of not less than six years from the date of this Plan, the agreements or such reports, as the case may be, the first two years in an easily accessible place. IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as of the date set forth below. Dated: June 24, 1996 Attest: _______________________________ By: __________________________ Secretary President -----END PRIVACY-ENHANCED MESSAGE-----