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.
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(Exact Name of Registration as Specified in Charter)
50 Fremont Street, Suite 3600
SAN FRANCISCO, CALIFORNIA 94105
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(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
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(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
<PAGE>
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
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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
<PAGE>
ITEM NO. OF CAPTIONS IN STATEMENT OF
PART B OF FORM N-1A ADDITIONAL INFORMATION
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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
<PAGE>
ITEMS IN PART C
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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
<PAGE>
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.
<PAGE>
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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.
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(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
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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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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."
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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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
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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.
<PAGE>
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.
<PAGE>
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.
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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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
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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.
<PAGE>
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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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
- ------------------------------------------------------------------------------
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.
<PAGE>
- ------------------------------------------------------------------------------
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.
<PAGE>
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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:
<PAGE>
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
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CUSTODIAN
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
<PAGE>
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LEGAL COUNSEL
Morrison & Foerster, LLP
345 California Street
San Francisco, CA 94104
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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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
<TABLE>
Principal Occupations
and Business Experience
Name and Address Age Positions Held for Past Five Years
<S> <C> <C> <C>
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
<PAGE>
<CAPTION>
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
<PAGE>
<CAPTION>
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.
<FN>
- ----------------------------
(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.
</FN>
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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."
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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).
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
FREMONT INVESTMENT ADVISORS
INNOVATIVE INVESTMENT
MANAGEMENT AND
ADVISORY SERVICES
A subsidiary of The Fremont Group
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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."
<PAGE>
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."
<PAGE>
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."
<PAGE>
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."
<PAGE>
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:
<PAGE>
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."
<PAGE>
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
<PAGE>
(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)
<PAGE>
(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
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
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.)
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
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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
(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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
Fremont Mutual Funds, Inc.
50 Fremont Street, Suite 3600 San Francisco, CA 94105
Telephone (415) 768-9000
<PAGE>
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)
<PAGE>
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
<PAGE>
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
<PAGE>
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%
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
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)
<PAGE>
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.
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
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
