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. 32
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X/
Amendment No. 35
FREMONT MUTUAL FUNDS, INC.
(Exact Name of Registration as Specified in Charter)
333 Market Street, Suite 2600
SAN FRANCISCO, CALIFORNIA 94105
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(415) 284-8733
Tina Thomas, Secretary
Fremont Mutual Funds, Inc.
333 Market Street, Suite 2600
SAN FRANCISCO, CALIFORNIA 94105
(Name and Address of Agent for Service)
copy to:
Julie Allecta
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th floor
SAN FRANCISCO, CA 94104-2635
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)
/ / on _________ pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(ii)
<PAGE>
FREMONT MUTUAL FUNDS, INC.
CROSS-REFERENCE SHEET
Between Items Enumerated in Form N-1A and this Registration Statement
References to items numbered 1 - 23 are for the Fremont Mutual Funds, Inc.
Item No. of
PART A OF FORM N-1A CAPTIONS IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Summary of Fees and Expenses;
Investment Results
3. Financial Highlights Financial Highlights
4. General Description of The Advisor and the Fund;
Registrant Investment Objective,
Policies, and Risk
Considerations; General
Investment Policies
5. Management of the Fund The 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
8. Redemption or Repurchase How to Redeem Shares;
Calculation of Net Asset Value
and Public Offering Price
9. Pending Legal Proceedings Inapplicable
<PAGE>
Item No. of Captions in Statement of
PART B OF FORM N-1A ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Inapplicable
History
13. Investment Objectives and Investment Objective,
Policies Policies, and Risk
Considerations; Investment
Restrictions; Appendix A:
Description of Securities
Ratings
14. Management of the Funds Investment Company Directors
and Officers; Investment
Advisory and Other Services
15. Control Persons and Investment Company Directors
Principal Holders of and Officers; Investment
Securities Advisory and Other Services;
Additional Information
16. Investment Advisory and Investment Advisory and Other
Other Services Services; 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
PART C OF FORM N-1A
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
<PAGE>
FREMONT
MUTUAL
FUNDS, INC.
o International Growth Fund
_______________ , 1998
<PAGE>
TABLE OF CONTENTS
Item Page
- ---- ----
SUMMARY OF FEES AND EXPENSES...................................................4
FINANCIAL HIGHLIGHTS...........................................................6
THE ADVISOR, SUB-ADVISOR AND THE FUND..........................................7
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS........................9
GENERAL INVESTMENT POLICIES...................................................13
INVESTMENT RESULTS............................................................19
HOW TO INVEST.................................................................20
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES...................................21
HOW TO REDEEM SHARES..........................................................23
RETIREMENT PLANS..............................................................25
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION..........................26
PLAN OF DISTRIBUTION..........................................................27
CALCULATION OF NET ASSET VALUE................................................28
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................28
GENERAL INFORMATION...........................................................29
TELEPHONE NUMBERS AND ADDRESSES...............................................30
2
<PAGE>
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this
Prospectus is offering shares in the FREMONT INTERNATIONAL GROWTH FUND (the
Fund").
FREMONT INTERNATIONAL GROWTH FUND seeks to achieve long-term growth of capital
by investing primarily in equity securities of issuers domiciled outside the
United States.
There can be no assurance that the Fund will achieve its investment objective.
The Fund is a diversified fund as defined by the Investment Company Act of 1940,
as amended (the "1940 Act").
Shares of the Fund are offered without a sales charge.
This Prospectus, which should be retained for future reference, sets forth
concisely 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 800-548-4539 (press 1) or by writing to Fremont Mutual Funds,
Inc., 50 Beale Street, Suite 100, San Francisco, California 94105.
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.
This Prospectus is dated , 1998.
FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION, CALL 800-548-4539.
3
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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 Fee(1) None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)(2)
Management Fee 1.00%
12b-1 Expense(3) 0.25%
Other Expenses after Reimbursement 0.25%
-----
Total Fund Operating Expenses4 1.50%
=====
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 3 Years 5 Years 10 Years
------ ------- ------- --------
$15 $47 $82 $179
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR
ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.
The table above is intended to give you information and assistance in
understanding the various costs and expenses of the Fund that an investor may
bear directly or indirectly. Other expenses include, but are not limited to,
administrative and transfer agent fees paid to Fremont Investment Advisors,
Inc., costs of custody, costs of legal and audit services, costs of registration
of fund shares under applicable laws, and costs of printing and distributing
reports to shareholders.
See "The Advisor, Sub-Advisor and the Fund."
(1) 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 $10. See "How to Redeem Shares."
(2) The Advisor has agreed to limit the Fund's total operating expenses to
1.50% of average daily net assets until October 31, 1999. The Fund may
reimburse the Advisor for any reductions in the Advisor's fees during
the three years following that reduction provided that such
reimbursement is requested by the Advisor, can be achieved within the
foregoing expense limit, and if the Board of Directors, at the time of
the request, approves the reimbursement as not inconsistent with the
best interests of the Fund. Absent reimbursements of expenses by the
Advisor, total fund operating expenses are estimated to be 1.78% of
average daily net assets.
(3) 12b-1 fees may be paid to financial intermediaries for services
provided through sales program(s). Long-term shareholders may pay more
that the economic equivalent of the maximum front-end sales charges
permitted by the rules of the National Association of Securities
Dealers. For more information on 12b-1 fees, see "Plan of
Distribution."
4
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(4) The percentages expressing annual fund operating expenses of the Fund
are based on actual expenses incurred during the most recent fiscal
year.
5
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FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand, L.L.P.,
independent accountants, whose unqualified opinion is included in the Fund's
Annual Report. Further information about the Fund's performance is contained in
the Annual Report, which is included in the Fund's Statement of Additional
Information and which may be obtained without charge.
<TABLE>
<CAPTION>
Period from
Year Ended October 31 3/1/94 to
1997 1996 1995 10/31/94
<S> <C> <C> <C> <C>
Selected Per Share Data
for one share outstanding during the period
Net asset value, beginning of period $ 10.40 $ 9.72 $ 9.79 $ 9.57
---------- ---------- --------- ---------
Income from Investment Operations
Net investment income .02 (.02) .10 .02
Net realized and unrealized gain (loss) (.02) .71 (.09) .20
---------- ---------- --------- ---------
Total investment operations -- .69 .01 .22
Less Distributions
From net investment income -- (.01) (.08) --
From net realized gains (.03) -- -- --
---------- ---------- --------- ---------
Total distributions (.03) (.01) (.08) --
---------- ---------- --------- ---------
Net asset value, end of period $ 10.37 $ 10.40 $ 9.72 $ 9.79
========== ========== ========= =========
Total Return -0.01% 7.07% 0.13% 2.30%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 38,643 $ 35,273 $ 32,156 $ 29,725
Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50%*
Ratio of net investment income
(loss) to average net assets .34% -.20% 1.19% .35%*
Portfolio turnover rate 95% 74% 32% 30%
Average commission rate paid(1) $ .0173 $ .0150 -- --
</TABLE>
(1) Disclosure not required for years prior to 1996.
* Annualized
6
<PAGE>
THE ADVISOR, SUB-ADVISOR AND THE FUND
Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment
company which under this Prospectus is offering shares in the Fremont
International Growth Fund (the "Fund"). The Investment Company has other series
offered under 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 as a separate mutual
fund.
The management of the business and affairs of the Investment Company 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. The Advisory Agreement
provides that the Advisor shall furnish advice to the Fund with respect to its
investments and shall, to the extent authorized by the Board of Directors,
determine what securities shall be purchased or sold by the Fund. The Advisor's
Investment Committee oversees the portfolio management of the Fund.
The professional staff of the Advisor has offered professional investment
management services regarding asset allocation 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.
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 must be
approved by 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.
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 net assets. The Advisory agreement also provides that the Fund
will pay to the Advisor an administrative fee of 0.15% per annum of the average
net assets. The Fund also pays the Advisor a 12b-1 fee of 0.25% per annum,
subject to the terms of a plan of distribution more fully described under "Plan
of Distribution". In addition to the fees described above, the Fund pays its own
operating expenses including, but not limited to: taxes, if any; brokerage and
commission expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third-party servicing agents; fees and expenses of Directors
who are not interested persons of the Advisor or the Sub-Advisor; costs and
expenses of calculating daily net asset value; costs and expenses of accounting,
bookkeeping and recordkeeping required under the 1940 Act; insurance premiums;
trade association dues; fees and expenses of registering and maintaining
registration of shares under federal and applicable state
7
<PAGE>
securities laws; all costs associated with shareholders' meetings and the
preparation and dissemination of proxy materials, except for meetings called
solely for the benefit of the Advisor or its affiliates; printing and mailing
prospectuses, statements of additional information and reports to shareholders;
and other expenses relating to the Fund's operations, plus any extraordinary and
non-recurring expenses that are not expressly assumed by the Advisor.
The Advisor anticipates waiving fees and reimbursing the Fund for other
operating expenses in order to limit total operating expenses to 1.50% of
average daily net assets until October 31, 1999. To the extent management fees
are waived and/or other expenses are reimbursed by the Advisor, the Advisor may
elect to recapture such amounts if it requests repayment within three years of
the year in which the waiver and/or reimbursement is made, and the Board of
Directors approves the repayment, and the Fund is able to make repayment and
still stay within the then current operating expense limitation.
Capital Guardian Trust Company ("Capital Guardian") is a wholly-owned subsidiary
of The Capital Group Companies, Inc., a non-operating holding company for a
group of companies involved in providing investment management for institutions
around the world. The Capital organization is one of the oldest major financial
service firms in the United States, dating back to 1931. Capital Guardian was
chartered in 1968 under the California state banking laws as a non-depository
trust company. Its principal business is providing investment management
services, including international investment management services to a limited
number of large institutional clients such as employee benefit funds, public
funds, foundations, and endowment funds. Capital Guardian has been managing
domestic equity assets since its founding in 1968, and as of December 31, 1997,
managed over $65 billion for institutional investors, including over $28 billion
in non-U.S. equity assets. The Capital organization's commitment to
international research and investing dates back to 1955 when its sister company,
Capital Research and Management Company, established an international investment
capability. The Capital organization's first non-U.S. office was established in
Geneva in 1962. The Capital organization currently spends over $100 million
annually on research. Capital Guardian has managed international portfolios
since 1978. The day-to-day responsibility for managing the Fund's portfolio will
be the responsibility of a group of Capital Guardian portfolio mangers, each of
whom will have investment discretion over a portion of the Fund's portfolio.
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 Fund's
assets and continually review and administer the Fund's investments. As
compensation for its services, the Advisor (not the Fund) pays the Sub-Advisor
an annual fee equal to 0.75% of the first $25 million of the Fund's average
daily net assets, 0.60% of the next $25 million, 0.425% of the next $200 million
and 0.375% of such assets in excess of $250 million. 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 managed by the
Sub-Advisor.
Investment Company Administration Corporation (the "Sub-Administrator"),
pursuant to an administrative agreement with the Advisor, supervises the
administration of the Fund. The Sub-
8
<PAGE>
Administrator's responsibilities include, among other things, the preparation
and filing of documents required for compliance by the Fund with applicable laws
and regulations. Certain officers of the Investment Company may be provided by
the Sub-Administrator.
For additional information about the advisor and the Sub-Advisor, see
"Investment Advisory and Other Services" in the Statement of Additional
Information.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of the Fund are stated below. 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. There is no assurance that any Fund will achieve its
investment objective.
The Fund seeks to achieve long-term growth of capital by investing primarily in
equity securities of issuers domiciled outside the United States. The Fund is
designed for investors who wish to accept the risks entailed in investments in
foreign securities and securities denominated in various currencies. See "Risk
Factors and Special Considerations for International Investing."
Under normal market conditions, at least 90% of the Fund's assets will be
invested in equity securities of issuers domiciled outside the United States.
The Fund will be invested in a minimum of three countries excluding the United
States. The Fund's portfolio of equity securities consists of common and
preferred stock, warrants and debt securities convertible into common stock.
Included in this 90% 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 90% of its assets invested in equity
securities domiciled outside the United States.
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies domiciled in the
countries of Japan, the United Kingdom and/or Germany. These are among the
leading industrial economies outside the United States and the values of their
stock markets account for a significant portion of the value of international
markets.
In addition to investing directly in equity securities, the Fund may invest in
various American, Global and International Depository Arrangements, including
but not limited to sponsored and unsponsored American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs"), Global Depository Receipts,
International Depository Receipts, American Depository Shares, European
Depository Shares, Global Depository Shares and International Depository
Shares. See "General Investment Policies" for a discussion of ADRs.
The Fund may also invest in securities of issuers located in emerging market
countries. As used in this prospectus, emerging markets are countries
categorized as emerging markets by the International Finance Corporation, the
World Bank's private sector division. Such countries
9
<PAGE>
currently include, but are not limited to, Thailand, Indonesia, India, Israel,
the Philippines, South Korea, Taiwan and certain Latin American countries. Such
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, high demand for capital investment, high dependence on
export markets for their major industries, a need to develop basic economic
infrastructures and rapid economic growth. The Advisor and/or Sub-Advisor
believe that investments in equity securities of companies in international
emerging markets offer the opportunity for significant long-term investment
returns. However, these investments involve certain risks, as discussed below in
"Risk Factors and Special Considerations for International Investing."
Whenever, in the judgment of the Advisor and/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 or in high-quality debt securities with remaining 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 total assets in U.S. dollar-denominated or
foreign currency-denominated cash or in high quality debt securities with
remaining maturities of one year or less.
Emphasis is placed on identifying securities of companies believed to be
undervalued in the marketplace in relation to factors such as the company's
revenues, earnings, assets and long-term competitive positions which over time
will enhance the equity value of the company. The Fund will not concentrate its
investments in companies of a particular asset size, although, from time to
time, it may emphasize investments in companies within particular industries,
and will select its investments based on the characteristics of the particular
markets and economies of the countries in which it invests.
In selecting portfolio investments, the Sub-Advisor utilizes a value-oriented
investment philosophy. The investment approach is research driven and
"bottom-up" in that investment decisions are based on extensive field research
and direct company contact to help identify differences between the underlying
value of a company and the market price of its securities. In analyzing
potential and current investments, Capital Guardian evaluates a company's
management, financial strength, resources, products, services, the business
climate, future earnings and dividends, and weighs these factors in the context
of identifying potential risks.
There is no limitation on the percentage of the Fund's assets that may be
invested at any one time in one or more countries except that the Fund will
normally be invested in at least three countries outside the United States.
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."
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 present similar risks, even
though the Fund will purchase, sell and be paid dividends on ADRs in
10
<PAGE>
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 foreign 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 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
experience substantially less volume than domestic markets, and securities of
many foreign companies are less liquid and their prices are more volatile than
the securities of comparable U.S. companies. In addition, brokerage commissions,
custodial services and other costs related to investment in foreign markets
(particularly emerging markets) generally are more expensive than in the United
States. Such foreign markets also may have longer settlement periods than
markets in the United States as well asdifferent settlement and clearance
procedures. In certain markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. The inability of the Fund to make
intended securities purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to the Fund
due to subsequent declines in value of a portfolio security or, if the Fund had
entered into a contract to sell the security, could result in possible liability
to the purchaser. Settlement procedures in certain emerging markets also carry
with them a heightened risk of loss due to the failure of the broker or other
service provider to deliver cash or securities.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility and risk of
principal, have less liquidity and have settlement arrangements which are less
efficient than in developed markets. Furthermore, the economies of emerging
market countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the countries with which they
trade. These emerging market economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
The 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.
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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 and/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, a corporation, or a 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.
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
federal income 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."
Other Risk Considerations. Like other mutual funds and financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by it, the Advisor and other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 issue." The Fund and Advisor
are taking steps that are reasonably designed to address the Year 2000 issue
with respect to the computer systems they use and to obtain satisfactory
assurances that comparable steps are being taken by each of the Fund's service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Fund.
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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.
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 and/or Sub-Advisor. Generally, high quality short-term securities
must be issued by an entity with an outstanding debt issue rated A or better by
a NRSRO, or an entity of comparable quality as determined by the Advisor and/or
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 ("GNMA")
certificates, are supported by the full faith and credit of the United States;
those of the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported by
the right of the issuer to borrow from the Treasury; those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. The U.S. government is not obligated by law to provide
future financial support to their U.S. government agencies or instrumentalities
named, other than as described above.
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 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 liquid 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
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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 such investment 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. The percentage of Fund
assets which may be so invested is not limited, provided that the Fund and its
affiliates in aggregate do not acquire more than 3% of the outstanding 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, 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 the
Advisor and/or Sub-Advisor believes that the potential benefits of such
investment are sufficient to warrant the payment of any such premium.
As an exception to the above, the Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions and
policies as that of the Fund. The Fund will notify its shareholders prior to
initiating such an arrangement.
Repurchase Agreements. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a short period of time, often less than a week. The seller must maintain
with the Fund's custodian collateral equal to at least 100% of the repurchase
price, including accrued interest, as monitored daily by the Advisor and/or
Sub-Advisor. The Fund will not enter into a repurchase agreement with a
maturity of more than seven business days if, as a result, more than 15% of the
value of its net assets, would then be invested in such repurchase agreements.
The Fund will only enter into repurchase agreements where (i) the underlying
securities are issued or guaranteed by the U.S. Government, (ii) the market
value of the underlying security, including accrued interest, will be at all
times equal to or in excess of the value of the repurchase agreement, and (iii)
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
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liquidating the underlying securities and losses, including: (i) a possible
decline in the value of the underlying security during the period in which the
Fund seeks to enforce its rights thereto; (ii) possible subnormal levels of
income and lack of access to income during this period; and (iii) expenses of
enforcing the Fund's rights.
Portfolio Turnover. The Fund may 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 whether or not distributed to shareholders.
Loans of Portfolio Securities. The Fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors in an
amount not exceeding 33 1/3% of its net assets. The borrower must maintain with
the Fund's custodian collateral consisting of cash, cash equivalents or U.S.
Government securities equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. The Fund will receive any interest or
dividends paid on the loaned securities and a fee or a portion of the interest
earned on the collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities, or possible loss of
rights in the collateral should the borrower fail financially. The lender also
may bear the risk of capital loss on investment of the cash collateral, which
must be returned in full to the borrower when the loan is terminated. Loans will
be made only to firms deemed by the Advisor and/or Sub-Advisor to be of good
standing and will not be made unless, in the judgment of the Advisor and/or
Sub-Advisor , the consideration to be earned from such loans would justify the
associated risk.
Borrowing. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and may 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.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under federal securities laws, but can be offered and
sold to "qualified institutional buyers." However, the Fund will not invest more
than 15% of its assets in illiquid investments, which include repurchase
agreements and fixed time deposits maturing in more than seven days, and
securities that are not readily marketable and restricted securities, unless the
Board of Directors determines, based upon a review of the trading markets for
the specific restricted security, that such restricted securities are liquid.
The Board of Directors may adopt guidelines and delegate to the Advisor and/or
Sub-Advisor the daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain sufficient oversight and
be ultimately responsible for the determinations.
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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. It is the present
intention of the Fund to limit its investments in warrants or rights, valued at
the lower of cost or market, to no more than 5% of the value of its net assets.
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.
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-Adivsor wishes to hedge against market fluctuations, these same
strategies may be used to reduce market exposure. Because most stock index
futures and options are based on broad stock market indices, 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 invest. The Fund
will maintain segregated accounts consisting of cash, U.S. Government securities
or other liquid securities (or, as permitted by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options and
futures contracts and to avoid leveraging.
In seeking appreciation or to reduce principal volatility, the Fund may also (i)
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 total assets; and (ii) 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 net 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 5% of the Fund's
net assets.
The Fund will set aside cash, cash equivalents, or liquid securities, or hold a
covered position against any potential delivery or payment obligations under any
outstanding option or futures contracts.
Options and futures can be volatile investments. If the Advisor and/or
Sub-Advisor applies a hedge at an inappropriate time or evaluates market
conditions incorrectly, options and futures strategies may lower the Fund's
return. The Fund could also experience a loss if the prices of its options or
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
Although these investment practices will be used primarily to generate income or
to minimize the fluctuation of principal, they do involve risks which are
different in some respects from the investment risks associated with similar
funds which do not engage in such activities. These risks may include the
following: futures contracts -- no assurance that closing purchase transactions
will be available at favorable prices, possible reduction of the Fund's income
due to the use of hedging, the possible reduction in value of both the
securities hedged and the hedging instrument, and possible loss in excess of the
initial margin payment; options and futures contracts -- imperfect correlation
between the contract and the underlying security, commodity or
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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 premium
received; and purchasing or selling put and call options -- possible loss of the
entire premium. A more thorough description of these investment practices and
their associated risks is contained in the Statement of Additional Information.
Forward Currency, Futures and Options Transactions. The Fund may enter into
forward currency contracts and currency futures contracts and may purchase put
or call options on currencies (each such arrangement sometimes referred to as a
"currency contract"). Forward contracts typically will involve the purchase or
sale of a foreign currency against the dollar. These techniques are designed
primarily to hedge against future changes in currency prices which might
adversely affect the value of the Fund's portfolio securities. The Fund may
attempt to accomplish objectives similar to those involved in its use of forward
currency contracts by purchasing put or call options on currencies or currency
futures. For a more detailed description of such arrangements, see the Statement
of Additional Information.
The Fund may enter into currency contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. For example,
when the Advisor and/or Sub-Advisor anticipates making a purchase or sale of a
security, the Fund may enter into a currency contract in order to set the rate
(either relative to the U.S. dollar or another currency) at which a currency
exchange transaction related to the purchase or sale will be made. Further, when
the Advisor and/or Sub-Advisor believes 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 anticipated declining currency, approximating the
value of some or all of the Fund's portfolio securities denominated in that
currency or related currencies which the Advisor and/or Sub-Advisor believes
demonstrates 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 will be
engaged in through private transactions with various counterparties, but may
also be traded over-the-counter, or 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
price fluctuations 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 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 liquid securities,
or hold a covered position against any
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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 set aside to cover such options are considered illiquid assets and,
together with other illiquid assets and securities, will not exceed 15% of the
Fund's net assets. In addition, premiums paid for currency options held by the
Fund may not exceed 5% of the Fund's net assets.
Although the Fund will enter into currency contracts solely for hedging
purposes, their use does involve certain risks. For example, there can be no
assurance that a liquid secondary market will exist for any currency contract
purchased or sold, and the Fund may be required to maintain a position until
exercise or expiration, which could result in losses.
Currency contracts may be entered into on United States exchanges regulated by
the Securities and Exchange Commission or the Commodity Futures Trading
Commission as well as in the over-the-counter market, on foreign exchanges, and
through private transactions.
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 and/or Sub-Advisor's ability
to predict correctly whether certain types of investments are likely to produce
greater returns than other investments.
The Fund's obligations under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of cash, U.S. Government securities or other liquid securities 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 Fund's net assets.
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
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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. federal income tax. See "Dividends, Distributions and Federal Income
Taxation." Unsponsored ADRs are offered by companies which are not prepared to
meet either the reporting or accounting standards of the United States. While
readily exchangeable with stock in local markets, unsponsored ADRs may be less
liquid than sponsored ADRs. Additionally, there generally is less publicly
available information with respect to unsponsored ADRs.
Investment Restrictions. The Fund has certain fundamental policies that are
described in the Statement of Additional Information under "Investment
Restrictions." These investment restrictions include prohibitions against
borrowing money (except as described above) and against concentrating the Fund's
investments in issuers conducting their principal business activities in a
single industry (except that this limitation does not apply with respect to U.S.
government securities). These investment restrictions and the Fund's investment
objective cannot be changed without the approval of shareholders of that 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 on 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
1-, 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 on 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 income dividends and capital gain distributions and changes in share
price during the period. The average annual compounded rate of return over
various periods may also be computed by utilizing ending redeemable values as
determined above.
The Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and operating expenses of
the Fund, so that any investment results reported by the Fund should not be
considered representative of what an investment in the Fund may earn in any
future period. When utilized, total return for the unmanaged indices
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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 its
annual report, which will be mailed to shareholders without charge.
HOW TO INVEST
The shares of the Fund may be purchased through the Transfer Agent or other Fund
agent authorized to accept orders by submitting payment by check, bank wire, or
electronic transfer (Automated Clearing House or "ACH") 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
Fund. Purchases of shares are made at the net asset value next determined after
the purchase order is received by the Transfer Agent or other selling agent of
the Fund. A minimum initial investment of $2,000 is required to open a
shareholder account, except for retirement plans such as Individual Retirement
Accounts (IRAs. 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 $100 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). All investments not meeting the minimum will be
returned. In some cases, the minimum balance requirement may be waived. All
purchases made by check should be in U.S. dollars and be made payable to Fremont
Mutual Funds. Third party checks, credit cards, and cash will not be accepted.
All investment checks are subject to a 10-day holding period.
Investors wishing to open a new account by bank wire must call the Transfer
Agent at 800-548-4539 to obtain an account number and detailed wire
instructions. All bank wire investments received before the close of trading on
the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be
credited the same day. Otherwise, bank wire investments received 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 broker-dealers or other
financial intermediaries who have made appropriate arrangements with the Fund.
Such agents are responsible for ensuring that the account documentation is
complete and that timely payment is
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made for the Fund shares purchased for their customers pursuant to such orders.
These agents may charge a reasonable transaction fee, or other selling charge,
to their customers. In some instances, all or a portion of the transaction fee
or other selling charge may be paid by the Advisor. To the extent these agents
perform shareholder servicing activities for the Fund, they may receive fees
from the Fund or the Advisor for such services.
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 for such activities.
As a condition of this offering, if an order to purchase shares is canceled due
to nonpayment (for example, a check returned for "insufficient funds"), the
person who made the order 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.
First Fund Distributors, Inc., 4455 Camelback Road, Suite 261E, Phoenix,
Arizona, 85018, is the principal underwriter for the Fund.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
Statements and Reports. When a shareholder makes an initial investment in the
Fund, a shareholder account is opened in accordance with registration
instructions. Each time there is a transaction, such as an additional
investment, a dividend or other distribution, or a redemption, the shareholder
will receive from the Transfer Agent or other selling agent of the Fund a
confirmation statement showing the current transaction in the account and the
transaction date. Shareholders of the Fund will receive quarterly statements
with account information as of the end of March, June, September, and December.
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 at the time of
exchange. It is required that (i) all shares in one Fund must be exchanged or
(ii) the remaining balance must be at least $1,500. This minimum balance
requirement may be waived at the sole discretion of the Advisor. 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 that have not borrowed to acquire the shares exchanged.
Exchanges by mail should be sent to the Transfer Agent at the address set forth
in the last section of this Prospectus.
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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 Fund, can be limited by the Investment Company's
refusal to accept further purchase and exchange orders from a 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 800-548-4539. A shareholder wishing to initiate
the telephone exchange privilege should contact the Funds. This privilege will
not be added to an account without written instruction to do so from the
shareholder. Telephone requests received by the close of trading on the New York
Stock Exchange (currently 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.
Autobuy Privilege. The Autobuy privilege allows shareholders to purchase
subsequent shares by investing money directly from their checking account to a
Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not
be added to an account without written authorization from the shareholder. The
Autobuy privilege will be automatically added to an account when the shareholder
chooses any type of ACH privilege. A shareholder may then purchase additional
shares in an existing account by calling 800-548-4539 and instructing the
Transfer Agent as to the dollar amount wanting to be invested. The investment
will automatically be processed through the ACH system. There is no fee for this
option. If the privilege was not established at the time the account was opened,
the shareholder must complete the appropriate form available on request.
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 $100 minimum for subsequent investments. If the
purchase date falls on a weekend or holiday, the purchase will be made on the
previous business day. Shareholders should note that if there is an Automatic
Investment Plan established for an account and the entire account is exchanged
into another Fund, the Automatic Investment Plan must be renewed by the
shareholder to the Transfer Agent. 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
canceled due to nonpayment (for example, "insufficient funds"), the shareholder
will be responsible for reimbursing the Fund for any loss incurred by reason of
such cancellation. A shareholder
22
<PAGE>
wishing to initiate the plan on a new or existing account must fill out an
Automatic Investment Plan form, available on request.
HOW TO REDEEM SHARES
Shares are redeemed at no charge (other than wire transfer fees, if any) at the
net asset value next determined after receipt by the Transfer Agent of proper
written redemption instructions. The current charge for a wire transfer is $10
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 or other Fund
agent authorized to accept orders before the close of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net
asset value determined on that day (with certain limited exceptions discussed in
the Statement of Additional Information). Otherwise, Fund shares will be
redeemed at the price determined as of the close of trading on the New York
Stock Exchange on the next business day.
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 Automatic 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 that the amount paid for them.
Redemption of shares by exchanges, transfers and redemptions under an Automatic
Withdrawal Plan may result in taxable capital gains or losses.
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
800-548-4539. (The Telephone Redemption Privilege is not available for IRA or
other retirement accounts.) Telephone requests received by the close of trading
on the New York Stock Exchanged (currently 4:00 p.m., Eastern time), will be
processed
23
<PAGE>
at the net asset value calculated that same day. During times of drastic
economic or market conditions, the telephone redemption privilege may be
difficult to implement. The Transfer Agent will make its best effort to
accommodate shareholders when its telephone lines are used to capacity. Under
these circumstances, a shareholder should consider using overnight mail to send
a written redemption request.
Neither the Investment Company, 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, the Transfer Agent, or both, will
employ reasonable procedures to determine that telephone instructions are
genuine. If the Investment Company 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.
Automatic 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 by check will be
made on the 15th and/or the last business day of the month. Redemptions made by
electronic transfer will be made on any date the shareholder chooses.
Shareholders may also request automatic exchanges and transfers of a specified
dollar amount. Exchanges and transfers will be made on any date the shareholder
chooses. Because a redemption constitutes a liquidation of shares, the number of
shares owned in the account will be reduced. Automatic redemptions should not
reduce the account below the minimum balance required (currently $1,500). If the
redemption date falls on a weekend or holiday, the redemption will be made on
the previous business day. Shareholders may terminate the Automatic Withdrawal
Plan at any time with written notification received no later than five days
before a scheduled payment date. When an exchange is made between Funds,
shareholders must specify if they desire the automatic withdrawal option to be
transferred to a new account opened by the exchange. As an account balance
declines to the minimum permitted, the shareholder must advise the Transfer
Agent if the automatic withdrawal feature is to be transferred to another
account of the shareholder. Shareholders should note that if there is an
Automatic Withdrawal Plan established for an account and the entire account is
exchanged into another Fremont Fund, the automatic withdrawal option must be
renewed by the shareholder to the Transfer Agent. A shareholder wishing to
initiate automatic redemptions must complete an Automatic Withdrawal Plan form
available from the Transfer Agent.
Signature Guarantee. To better protect the Fund and shareholders' accounts, a
signature guarantee is required for certain transactions. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in applicable
regulations. Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies, and savings associations. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
Other Important Redemption Information. A request for redemption will not be
processed until all of the documentation described above has been received by
the Transfer Agent in proper
24
<PAGE>
form. A shareholder in doubt about what documents are required should contact
the Transfer Agent.
Payment in redemption of shares is normally made within three business days
after receipt by the Transfer Agent of a request in proper form, provided that
payment in redemption of shares purchased by check or draft will be effected
only after such check or draft has been collected. Although it is anticipated
that this process will be completed in less time, it may take up to 10 days.
Redemption proceeds will not be delayed when shares have been paid for by bank
wire or where the account holds a sufficient number of shares already paid for
with collected funds.
Except in extraordinary circumstances, payment for shares redeemed will be made
promptly after receipt of a redemption request, if in good order, but not later
than seven calendar 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 Fund reserves the right to redeem 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 $100 or more.) This minimum balance may be waived at the sole
discretion of the Advisor.
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. The Advisor is transfer agent to the Fund and has engaged State
Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri,
64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder
service agent. State Street Bank and Trust Company has contracted with National
Financial Data Services to serve as shareholder servicing agent. A depository
account has been established at United Missouri Bank of Kansas City ("United
Missouri Bank") through which all payments for the Fund will be processed.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with various tax-deferred
retirement plans. These include IRAs, SEP-IRAs; ROTH IRAs; SIMPLE IRAs;
corporate pension and profit-sharing plans; 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, ROTH IRAs;
SIMPLE 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.
25
<PAGE>
Retirement plan participants may receive additional services related to their
plan at no extra cost to any shareholder.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION
The Fund intends to qualify and elect, and to continue to qualify, to be treated
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). For any tax year in which the Fund so
qualifies and meets certain distribution requirements, it will not incur a
federal tax liability. Such qualification under the Code requires the Fund,
among other things, to diversify its investments so that, at the end of each
fiscal quarter, (i) 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, in 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 (ii) 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
and short-term net realized capital gains once each year in October.
The Fund intends to distribute substantially all of its long term net realized
capital gains, if any, at the end of the calendar year (on or about December
15). Dividend and capital gain 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 who have not borrowed to acquire their shares)
whether or not they are reinvested in shares of the Fund. Any long-term or
mid-term capital gain distributions are taxable to shareholders as long-term or
mid-term capital gains, respectively, regardless of how long shareholders have
held Fund shares. The maximum capital gains rate for individuals is 28% with
respect to assets held for more than 12 months, but not more than 18 months, and
20% with respect to assets held more than 18 months. The maximum capital gains
rate for corporate shareholders is the same as the maximum tax rate for ordinary
income. Distributions of short-term capital gains will be subject to the tax as
ordinary income
Shareholders may elect:
* to have all dividends and capital gain distributions automatically reinvested
in additional shares; or
* to receive income dividends and short-term capital gain distributions in cash
and accept capital gain distributions in additional shares; or
* to receive all distributions of income dividend and capital gain in cash; or
* to invest all dividend and capital gain distributions in another Fremont Fund
owned through an identically registered account.
26
<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 October,
November, or 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 redemption proceeds to the shareholder. Amounts withheld are
applied to the shareholder's federal 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 ordinary dividends (which includes short-term
capital gains) 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 nor be able to take their shares of such taxes as a credit
against U.S. income taxes.
If more than 50% of the value of the Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, the Fund may elect to
"pass through" to its shareholders the amount of foreign taxes paid. If this
election is made, the 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,
(subject to certain limitations) against their U.S. income taxes. The Fund will
report annually to its shareholders the amount per share of such withholding, if
any.
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 an
investment in the Fund.
PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan of
distribution (the "Plan") under which the Fund may directly compensate the
Advisor, paying for certain distribution-related expenses, including payments to
securities dealers and others (including the Underwriter) who are engaged in
promoting the sale of shares of the Fund and who may be advising investors
regarding the purchase, sale, or retention of such 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 the
Transfer Agent; 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,
prospectuses, 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
other expenses related to the distribution of the Fund's shares.
27
<PAGE>
The annual limitation for compensation to the Advisor pursuant to the Plan is
0.25% of the Fund's average daily net assets. All payments will be reviewed by
the Fund's Board of Directors. However, it is possible that in certain periods,
the amount of the Advisor's compensation could exceed the Advisor's distribution
expenses resulting in a profit to the Advisor. If 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
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 complete orders to purchase,
exchange, or redeem shares on a Monday through Friday basis when the New York
Stock Exchange is open. Investments, including options, are stated at value
based on recorded closing sales on a national securities exchange or, in the
absence of a recorded sale, at the mean between the last reported bid and asked
prices, or at fair value pursuant to procedures approved by the Board of
Directors. Short-term notes and similar securities are included in investments
at amortized cost, which approximates value. Securities which are primarily
traded on foreign exchanges are generally valued at the preceding closing values
of such securities on their respective exchanges, or the most recent price
available when no closing value is available. The Fund's portfolio may 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 each Fund will be determined as
of the close of the regular session of the New York Stock Exchange. The shares
of each Fund are offered at net asset value without a sales charge. Purchase,
redemption and exchange orders received in proper form by the Transfer Agent or
other Fund agent authorized to accept orders before the close of trading on the
New York Stock Exchange (currently 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). Otherwise, orders
received by the Transfer Agent or other Fund agent authorized to accept orders
will be entered at the next calculated net asset value.
EXECUTION OF PORTFOLIO TRANSACTIONS
28
<PAGE>
Orders for the Fund's portfolio securities transactions are placed by the
Advisor and/or Sub-Advisor. The Advisor and/or Sub-Advisor strives 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 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.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor, or an affiliated person of such person.
GENERAL INFORMATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed open-end 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.
29
<PAGE>
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) 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
non-assessable. The Board of Directors may, at its discretion, establish and
issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Fund under applicable Securities and Exchange Commission regulations.
TELEPHONE NUMBERS AND ADDRESSES
To make an initial purchase:
1. By mail:
Fremont Mutual Funds, Inc.
c/o National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
Street address:
1004 Baltimore Avenue
Kansas City, MO 64105
2. By wire:
Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account
number and detailed instructions.
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."
30
<PAGE>
2. By telephone: 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 automatic withdrawal plans,
please contact:
Fremont Mutual Funds, Inc.
50 Beale Street, Suite 100
San Francisco, CA 94105
800-548-4539
Fremont Mutual Funds, Inc.
Fremont Money Market Fund
Fremont Bond Fund
Fremont California Intermediate Tax-Free Fund
Fremont Global Fund
Fremont Growth Fund
Fremont International Growth Fund
Fremont U.S. Small Cap Fund
Fremont International Small Cap Fund
Fremont Emerging Markets Fund
Fremont U.S. Micro-Cap Fund
Fremont Real Estate Securities Fund
Fremont Select Fund
For more information on the Fremont Mutual Funds please call 800-548-4539 or
write to:
Fremont Mutual Funds
50 Beale Street, Suite 100
San Francisco, CA 94105
Advisor/Transfer Agent
Fremont Investment Advisors, Inc.
333 Market Street, Suite 2600
San Francisco, CA 94105
Sub-Transfer Agent
Mailing Address:
National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
800-548-4539 (press 2)
Street Address:
31
<PAGE>
National Financial Data Services
1004 Baltimore Avenue
Kansas City, MO 64105
Custodian
The Northern Trust Company
50 South Lasalle Street
Chicago, IL 60675
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
Auditors
Coopers & Lybrand, L.L.P.
333 Market Street
San Francisco, CA 94105
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Funds 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.
32
<PAGE>
FREMONT
MUTUAL
FUNDS, INC.
o International Small Cap Fund
_____________________ , 1998
<PAGE>
TABLE OF CONTENTS
Item Page
- ---- ----
SUMMARY OF FEES AND EXPENSES...................................................2
FINANCIAL HIGHLIGHTS...........................................................4
THE ADVISOR, THE SUB-ADVISOR AND THE FUND......................................5
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS.........................7
GENERAL INVESTMENT POLICIES...................................................11
INVESTMENT RESULTS............................................................17
HOW TO INVEST.................................................................18
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES...................................19
HOW TO REDEEM SHARES..........................................................21
RETIREMENT PLANS..............................................................24
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION..........................24
PLAN OF DISTRIBUTION..........................................................26
CALCULATION OF NET ASSET VALUE................................................27
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................28
GENERAL INFORMATION...........................................................28
TELEPHONE NUMBERS AND ADDRESSES...............................................29
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this
Prospectus is offering shares in the FREMONT INTERNATIONAL SMALL CAP FUND (the
"Fund").
FREMONT INTERNATIONAL SMALL CAP FUND seeks to achieve long-term capital
appreciation by investing primarily in equity securities of small cap companies
domiciled outside
<PAGE>
the United States.
There can be no assurance that the Fund will achieve its investment objective.
The Fund is a non-diversified fund as defined by the Investment Company Act of
1940, as amended (the "1940 Act").
Shares of the Fund are offered without a sales charge.
This Prospectus, which should be retained for future reference, sets forth
concisely 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 800-548-4539 (press 1) or by writing to Fremont Mutual Funds,
Inc., 50 Beale Street, Suite 100, San Francisco, California 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 ________________ , 1998.
FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION, CALL 800-548-4539.
3
<PAGE>
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 Fee (1) None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets) (2)
Management Fee 1.25%
12b-1 Expenses(3) .25%
Other Expenses .30%
-----
Total Fund Operating Expenses(4) 1.80%
Waiver and Reimbursement .30%
-----
Total Fund Operating Expenses
After Waiver and Reimbursement 1.50%
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 3 Years 5 Years 10 Years
$15 $47 $82 $179
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR
ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.
The table above is intended to give you information and assistance in
understanding the various costs and expenses of the Fund that an investor may
bear directly or indirectly. Other expenses include, but are not limited to,
administrative and transfer agent fees paid to Fremont Investment Advisors,
Inc., costs of custody, costs of legal and audit services, costs of registration
of fund shares under applicable laws, and costs of printing and distributing
reports to shareholders.
See "The Advisor, the Sub-Advisor and the Fund."
(1) A redemption fee is imposed on any investments redeemed within six months of
purchase. Additionally, a wire transfer fee is charged by the Transfer Agent in
the case of redemptions made by wire. Such transfer fee is subject to change and
is currently $10. See "How to Redeem Shares."
(2) The Advisor has agreed to limit the Fund's total operating expenses to 1.50%
of average daily net assets until October 31, 1999. The Fund may reimburse the
Advisor for any reductions in the Advisor's fees during the three years
following that reduction provided that such reimbursement is requested by the
Advisor, can be achieved within the foregoing expense limit, and if the Board of
Directors, at the time of the request, approves the reimbursement as not
inconsistent with the best interests of the Fund. Absent reimbursements of
expenses by the Advisor, actual total fund operating expenses are estimated to
be 1.80% of average daily net assets.
4
<PAGE>
(3) 12b-1 fees may be paid to financial intermediaries for services provided
through sales program(s). Long-term shareholders may pay more that the economic
equivalent of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers. For more information on 12b-1 fees,
see "Plan of Distribution."
(4) The percentages expressing annual fund operating expenses of the Fund are
based on estimated expenses for the current fiscal year.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand, L.L.P.,
independent accountants, whose unqualified opinion is included in the Fund's
Annual Report. Further information about the Fund's performance is contained in
the Annual Report, which is included in the Fund's Statement of Additional
Information and which may be obtained without charge.
<TABLE>
<CAPTION>
Year Ended October 31 Period from
--------------------- 6/30/94 to
1997 1996 1995 10/31/94
---- ---- ---- --------
<S> <C> <C> <C> <C>
Selected Per Share Data
for one share outstanding during the period
Net asset value, beginning of period $ 10.15 $ 9.00 $ 9.86 $ 10.00
---------- --------- -------- ---------
Income from Investment Operations
Net investment income (loss) .14 .14 .10 (.01)
Net realized and unrealized gain (loss) (1.58) 1.08 (.88) (.13)
---------- --------- -------- ---------
Total investment operations (1.44) 1.22 (.78) (.14)
---------- --------- -------- ---------
Less Distributions
From net investment income (.21) (.07) (.08) --
From net realized gains (.27) -- -- --
Total distributions (.48) (.07) (.08) --
---------- --------- -------- ---------
Net asset value, end of period $ 8.23 $ 10.15 $ 9.00 $ 9.86
========== ========= ======== =========
Total Return -14.56% 13.69%(1) -7.96%(1) -1.40%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 8,534 $ 9,214 $ 4,245 $ 1,768
Ratio of net expenses to average net assets (2) 1.50% 1.81% 2.06% 2.50%*
Ratio of gross expenses to average net assets (2) 1.50% 2.50% 2.50% 2.50%*
Ratio of net investment income (loss) to
average net assets 1.97% 1.61% 1.67% -0.28%*
Portfolio turnover rate 56% 74% 96% --
Average commission rate paid (3) $ .0005 $ .0003 -- --
</TABLE>
(1) Total return would have been lower had the advisor not waived expenses.
(2) Management fees were voluntarily waived from February 1, 1995 to October
31, 1996.
(3) Disclosure not required for years prior to 1996.
* Annualized
6
<PAGE>
THE ADVISOR, THE SUB-ADVISOR AND THE FUND
Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment
company which under this Prospectus is offering shares in the Fremont
International Small Cap Fund. The Investment Company has other series offered
with a different prospectus, 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 as a separate mutual fund.
The management of the business and affairs of the Investment Company 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. The Advisory Agreement
provides that the Advisor shall furnish advice to the Fund with respect to its
investments and shall, to the extent authorized by the Board of Directors,
determine what securities shall be purchased or sold by the Fund. As described
more fully below, the Advisor has retained an investment management firm (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 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.
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 must be
approved by 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.
As compensation for its services to the Fund, the Advisor receives from the Fund
an advisory fee, computed daily and paid monthly, of 1.25% per annum of the
Fund's average net assets. The Advisory agreement also provides that the Fund
will pay to the Advisor an administrative fee of 0.15% per annum of the average
net assets. The Fund also pays the Advisor a 12b-1 fee of 0.25% per annum,
subject to the terms of a plan of distribution more fully described under "Plan
of Distribution." In addition to the fees described above, the Fund pays its own
operating expenses including, but not limited to: taxes, if any; brokerage and
commission expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third-party servicing agents; fees and expenses of Directors
who are not interested persons of the Advisor or the Sub-Advisor; costs and
expenses of
7
<PAGE>
calculating daily net asset value; costs and expenses of accounting, bookkeeping
and record keeping required under the 1940 Act; insurance premiums; trade
association dues; fees and expenses of registering and maintaining registration
of shares under federal and applicable state securities laws; all costs
associated with shareholders' meetings and the preparation and dissemination of
proxy materials, except for meetings called solely for the benefit of the
Advisor or its affiliates; printing and mailing prospectuses, statements of
additional information and reports to shareholders; and other expenses relating
to the Fund's operations, plus any extraordinary and non-recurring expenses that
are not expressly assumed by the Advisor.
The Advisor anticipates waiving fees and reimbursing the Fund for other
operating expenses in order to limit total operating expenses to 1.50% of
average daily net assets until October 31, 1999. To the extent management fees
are waived and/or other expenses are reimbursed by the Advisor, the Advisor may
elect to recapture such amounts if it requests repayment within three years of
the year in which the waiver and/or reimbursement is made, and the Board of
Directors approves the repayment, and the Fund is able to make repayment and
still stay within the then current operating expense limitation.
Bee & Associates is an independent, Denver-based registered investment adviser
founded in 1989. It's principal business is providing investment management
services. As of March 31, 1998 had $525 million under management for various
foundations, endowments, retirement plan sponsors, mutual funds and individuals.
Bee & Associates' primary investment focus is on smaller companies worldwide
(those with under US $1 billion market cap) and, as of March 31, 1998, the
average market capitalization of the companies in its portfolios was
approximately $300 million. Bee & Associates' principal executive officers and
directors are Bruce B. Bee, President and Director, and Edward N. McMillan,
Principal and Director.
Bee & Associates' investment philosophy is the use of a long-term, bottom-up,
value orientation toward stock selection and portfolio construction. Bee &
Associates invests in all international markets-primarily in the developed
markets and post-emerging markets such as Mexico and Brazil. Bee & Associates
buys companies for long-term appreciation and the portfolio turnover is
typically less than 25%. This investment approach tends to make its portfolios
more tax efficient.
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 Fund's
assets and review and administer the Fund's investments. As compensation for its
services, the Advisor (not the Fund) pays the Sub-Advisor an annual fee equal to
1.00% of the Fund's average daily net assets. However, until the earlier of (1)
March 2, 1999, or (2) the total assets of the Fund reach $15 million, the
Advisor will pay to the Sub-Advisor an annual fee computed at the rate of 0.80%
of the Fund's average daily net assets. 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 managed by the Sub-Advisor.
Investment Company Administration Corporation (the "Sub-Administrator"),
pursuant to an
8
<PAGE>
administrative agreement with the Advisor, supervises the administration of the
Investment Company and the Fund. The Sub-Administrator's responsibilities
include, among other things, the preparation and filing of documents required
for compliance by the Fund with applicable laws and regulations. Certain
officers of the Investment Company may be provided by the Sub-Administrator
For additional information about the Advisor and Sub-Advisor, see "Investment
Advisory and Other Services" in the Statement of Additional Information.
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of the Fund is stated below. 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. There is no assurance that the Fund will achieve its
investment objective.
The Fund seeks to achieve long-term capital appreciation by investing primarily
in small capitalization ("small cap") equity securities of issuers domiciled
outside the United States. The Fund selects its portfolio securities primarily
from among small cap companies in developed markets whose individual market
capitalizations would place them among the smallest 20% of market capitalization
in their respective markets. Developed markets will generally be defined as
those markets represented in the Morgan Stanley Capital International Europe,
Asia and Far East (EAFE) Index. It is expected that the majority of the
companies in which the Fund invests will have a market capitalization of under
$1 billion; however, the Fund is likely to hold some companies with a market
capitalization greater than $1 billion. The Fund is designed for investors
willing to accept the risks entailed in investments in foreign securities of
small companies and securities denominated in various currencies. See "Special
Considerations for International Investing."
Under normal market conditions, at least 65% of the total Fund's assets will be
invested in small cap equity securities of issuers domiciled outside the United
States with a market capitalization of under $1 billion. The Fund will generally
be invested in a minimum of three countries excluding the United States. The
Fund's portfolio of equity securities will typically 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 small
cap equity issuers domiciled outside the United States.
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies domiciled in the
countries of Japan, the United Kingdom and/or Germany. These are among the
leading industrial economies outside the United States and the values of their
stock markets account for a significant portion of the value of international
markets.
9
<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.
International small cap companies are smaller sized companies that the Advisor
and/or Sub-Advisor believe often have the potential for earnings growth over
time that is above the growth rate of more established companies or are early in
their life cycles and have the potential to become major enterprises. In
addition, the Advisor and/or Sub-Advisor believe some smaller companies may be
undervalued because they are not as closely followed by security analysts or
institutional investors. The Advisor and/or Sub-Advisor also believe that an
investment in the Fund provides an opportunity for greater rewards but will
involve more risk than an investment in a fund which seeks capital appreciation
from investment in common stocks of larger, better-known 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.
Emphasis is placed on identifying securities of companies believed to be
undervalued in the marketplace in relation to factors such as the company's
revenues, earnings, assets and long-term competitive positions which over time
will enhance the equity value of the company. In selecting portfolio
investments, a company's growth prospects will be considered, including the
potential for superior appreciation due to growth in earnings, relative
valuation of its securities, and any risks associated with such investment; the
industry in which the company operates, with a view to identification of
international developments within industries, international investment trends,
and social, economic or political factors affecting a particular industry; the
country in which the company is based, as well as historical and anticipated
foreign currency exchange rate fluctuations; and the feasibility of gaining
access to the securities market in a country and of implementing the necessary
custodial arrangements.
There is no limitation on the percentage of the Fund's assets that may be
invested at any one time in one or more countries. However, except during times
that the Fund is in a temporary defensive posture, the Fund will invest at least
65% of its total assets in the securities of issuers domiciled in at least three
different non-U.S. countries.
The Fund may invest in equity securities of companies domiciled in emerging
markets. As used in this prospectus, emerging markets are countries categorized
as emerging markets by the International Finance Corporation, the World Bank's
private sector division. Such countries currently include, but are not limited
to, Thailand, Indonesia, the Philippines, South Korea, Taiwan and certain Latin
American countries. Such markets tend to be in less economically developed
regions of the world. General characteristics of emerging market countries also
include lower degrees of political stability, high demand for capital
investment, high dependence on export markets
10
<PAGE>
for their major industries, a need to develop basic economic infrastructures and
rapid economic growth. The Advisor and/or Sub-Advisor believe that investments
in equity securities of companies in international emerging markets offer the
opportunity for significant long-term investment returns. However, these
investments involve certain risks, as discussed below in "Risk Factors and
Special Considerations for International Investing."
Whenever, in the judgment of the Advisor and/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 or in high quality debt securities with remaining 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 total assets in U.S. dollar-denominated or
foreign currency-denominated cash or in high quality debt securities with
remaining 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.
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 present 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 foreign 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 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
experience substantially less volume than domestic markets, and securities of
many foreign companies are less liquid and their prices are more volatile than
the securities of comparable U.S. companies. In addition, brokerage commissions,
custodial services and other costs related to investment in foreign markets
generally are more expensive than in the United States (particularly emerging
markets). Such foreign markets also may have longer settlement periods than
markets in the United States as well as different settlement and clearance
procedures. In certain markets, there have been times when settlements have been
unable to keep
11
<PAGE>
pace with the volume of securities transactions, making it difficult to conduct
such transactions. The inability of the Fund to make intended securities
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Fund due to subsequent
declines in value of a portfolio security or, if the Fund had entered into a
contract to sell the security, could result in possible liability to the
purchaser. Settlement procedures in certain emerging markets also carry with
them a heightened risk of loss due to the failure of the broker or other service
provider to deliver cash or securities.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility and risk of
principal, have less liquidity and have settlement arrangements which are less
efficient than in developed markets. Furthermore, the economies of emerging
market countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the countries with which they
trade. These emerging market economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
The 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 and/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, a corporation, or a 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.
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,
12
<PAGE>
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 federal income 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."
Other Risk Considerations. The Fund is a non-diversified portfolio and is not
limited by the 1940 Act in the proportion of its assets that may be invested in
the obligations of a single issuer. The Fund, therefore, may invest a greater
proportion of its assets in the securities of a smaller number of issuers and
will be subject to a greater risk with respect to its portfolio securities. Any
economic, regulatory, or political developments affecting the value of the
securities held in the Fund could have a greater impact on the total value of
the Fund's holdings than would be the case if the Fund were classified as
diversified under the 1940 Act.
Like other mutual funds and financial and business organizations around the
world, the Fund could be adversely affected if the computer systems used by it,
the Advisor and other service providers and entities with computer systems that
are linked to Fund records do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 issue." The Fund and Advisor are taking steps that are reasonably
designed to address the Year 2000 issue with respect to the computer systems
they use and to obtain satisfactory assurances that comparable steps are being
taken by each of the Fund's service providers. There can be no assurance,
however, that these steps will be sufficient to avoid any adverse impact on the
Fund.
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.
13
<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 and/or 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 and/or
Sub-Advisor. Obligations of foreign banks, foreign corporations and foreign
ranches 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 ("GNMA")
certificates, are supported by the full faith and credit of the United States;
those of the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported by
the right of the issuer to borrow from the Treasury; those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. The U.S. government is not obligated by law to provide
future financial support to the U.S. government agencies or instrumentalities
named above.
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 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 liquid 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 such investment may facilitate achieving
the objective of the Fund, or to the extent that they afford the primary or most
practical means of access to a particular market or markets, or they represent
attractive investments in their own right. The percentage of Fund assets which
may be so invested
14
<PAGE>
is not limited, provided that the Fund and its affiliates in aggregate do not
acquire more than 3% of the outstanding 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,
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 the
Advisor and/or Sub-Advisor believes that the potential benefits of such
investment are sufficient to warrant the payment of any such premium.
As an exception to the above, the Fund does have the authority to invest all of
its assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions and
policies as that of the Fund. The Fund will notify its shareholders prior to
initiating such an arrangement.
Repurchase Agreements. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a short period of time, often less than a week. The seller must maintain
with the Fund's custodian collateral equal to at least 100% of the repurchase
price, including accrued interest, as monitored daily by the Advisor and/or
Sub-Advisor. The Fund will not enter into a repurchase agreement with a maturity
of more than seven business days if, as a result, more than 15% of the value of
its net assets, would then be invested in such repurchase agreements. The Fund
will only enter into repurchase agreements where (i) the underlying securities
are issued or guaranteed by the U.S. Government, (ii) the market value of the
underlying security, including accrued interest, will be at all times equal to
or in excess of the value of the repurchase agreement, and (iii) 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: (i) a possible decline in the value of the
underlying security during the period in which the Fund seeks to enforce its
rights thereto; (ii) possible reduced levels of income and lack of access to
income during this period; and (iii) expenses of enforcing the Fund's rights.
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Portfolio Turnover. The Fund may 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 whether or not distributed to shareholders.
Loans Of Portfolio Securities. The Fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors in an
amount not exceeding 33 1/3% of its net assets. The borrower must maintain with
the Fund's custodian collateral consisting of cash, cash equivalents or U.S.
Government securities equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. The Fund will receive any interest or
dividends paid on the loaned securities and a fee or a portion of the interest
earned on the collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of, among other things, 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
and/or Sub-Advisor to be of good standing and will not be made unless, in the
judgment of the Advisor and/or Sub-Advisor, the consideration to be earned from
such loans would justify the associated risk.
Borrowing. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and may 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.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under federal securities law, but can be offered and
sold to "qualified institutional buyers." However, the Fund will not invest more
than 15% of its assets in illiquid investments, which include repurchase
agreements and fixed time deposits maturing in more than seven days, and
securities that are not readily marketable and restricted securities, unless the
Board of Directors determines, based upon a review of the trading markets for
the specific restricted security, that such restricted securities are liquid.
The Board of Directors may adopt guidelines and delegate to the Advisor and/or
Sub-Advisor the daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain sufficient oversight and
be ultimately responsible for the determinations.
Warrants Or Rights. Warrants or rights may be acquired by the Fund in connection
with other
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<PAGE>
securities or separately and provide the Fund with the right to purchase other
securities of the issuer at a later date. It is the present intention of the
Fund to limit its investments in warrants or rights, valued at the lower of cost
or market, to no more than 5% of the value of its net assets. 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.
Forward Currency, Futures And Options Transactions. The Fund may enter into
forward currency contracts and currency futures contracts and may purchase put
or call options on currencies (each such arrangement sometimes referred to as a
"currency contract"). Forward contracts typically will involve the purchase or
sale of a foreign currency against the dollar. These techniques are designed
primarily to hedge against future changes in currency prices which might
adversely affect the value of the Fund's portfolio securities. The Fund may
attempt to accomplish objectives similar to those involved in its use of forward
currency contracts by purchasing put or call options on currencies or currency
futures. For a more detailed description of such arrangements, see the Statement
of Additional Information.
The Fund may enter into currency contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. For example,
when the Advisor and/or Sub-Advisor anticipates making a purchase or sale of a
security, the Fund may enter into a currency contract in order to set the rate
(either relative to the U.S. dollar or another currency) at which a currency
exchange transaction related to the purchase or sale will be made. Further, when
the Advisor and/or Sub-Advisor believes 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 anticipated declining currency, approximating the
value of some or all of the Fund's portfolio securities denominated in that
currency or related currencies which the Advisor and/or Sub-Advisor believes
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
price fluctuations 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 when
an option is allowed to expire without exercise.
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<PAGE>
To avoid leverage in connection with forward currency transactions, the Fund
will set aside with its custodian cash, cash equivalents or liquid securities,
or hold a covered 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 set aside to cover such
options are considered illiquid assets and, together with other illiquid assets
and securities, will not exceed 15% of the Fund s net assets. In addition,
premiums paid for currency options held by the Fund may not exceed 5% of the
Fund's net assets.
Although the Fund will enter into currency contracts solely for hedging
purposes, their use does involve certain risks. For example, there can be no
assurance that a liquid secondary market will exist for any currency contract
purchased or sold, and the Fund may be required to maintain a position until
exercise or expiration, which could result in losses.
Currency contracts may be entered into on United States exchanges regulated by
the Securities and Exchange Commission or the Commodity Futures Trading
Commission as well as in the over-the-counter market and on foreign exchanges.
Swap Agreements. The Fund may enter into interest rate, index and currency
exchange rate swap agreements for purposes of seeking 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
purchases a cap and sells a floor, 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 and/or Sub-Advisor's ability to predict correctly
whether certain types of investments are likely to produce greater returns than
other investments.
The Fund's obligations under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of cash, U.S. Government securities or other liquid securities 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 Fund's net assets.
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<PAGE>
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, among other things,
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. federal income tax. See "Dividends, Distributions and Federal
Income Taxation." Unsponsored ADRs are offered by companies which are not
prepared to meet either the reporting or accounting standards of the United
States. While readily exchangeable with stock in local markets, unsponsored ADRs
may be less liquid than sponsored ADRs. Additionally, there generally is less
publicly available information with respect to unsponsored ADRs.
Investment Restrictions. The Fund has certain fundamental policies that are
described in the Statement of Additional Information under "Investment
Restrictions." These investment restrictions include prohibitions against
borrowing money (except as described above) and against concentrating the Fund's
investments in issuers conducting their principal business activities in a
single industry (except that this limitation does not apply with respect to U.S.
government securities). These investment restrictions and the Fund's investment
objective cannot be changed without the approval of shareholders of the Fund;
all other investment practices described in this Prospectus and in the Statement
of Additional Information, however, 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
1-, 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
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<PAGE>
at net asset value on 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, including reinvested
dividends and capital gain distributions and changes in share price during the
period. The average annual compounded rate of return over various periods may
also be computed by utilizing ending redeemable values as determined above.
The Fund's investment results will vary from time to time depending upon, among
other things, economic conditions, 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 its investment objective and policies. See
"Investment Results" in the Statement of Additional Information.
Additional performance information regarding the Fund will be included in its
annual report, which will be mailed to shareholders without charge.
HOW TO INVEST
Shares of the Fund may be purchased through the Transfer Agent or other Fund
agent authorized to accept orders by submitting payment by check, bank wire or
electronic transfer (Automated Clearing House or "ACH") 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 net asset
value next determined after the purchase order is received by the Transfer Agent
or other selling agent of the Fund. A minimum initial investment of $2,000 is
required to open a shareholder account, except for retirement plans such as
Individual Retirement Accounts (IRAs). 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 $100 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 at the sole discretion of the Advisor. All purchases
made by check should be in U.S. dollars and be made payable to Fremont Mutual
Funds. Third party checks, credit cards, and cash will not be accepted.
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<PAGE>
All investment checks are subject to a 10-day holding period.
Investors wishing to open a new account by bank wire must call the Transfer
Agent at 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 the close of trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be
credited the same day. Otherwise, bank wire investments 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 broker-dealers or other
financial intermediaries who have made appropriate arrangements with the Fund.
Such agents are responsible for ensuring that the account documentation is
complete and that timely payment is made for the Fund shares purchased for their
customers pursuant to such orders. These agents may charge a reasonable
transaction fee, or other selling charge, to their customers. In some instances,
all or a portion of the transaction fee or other selling charge may be paid by
the Advisor. To the extent these agents perform shareholder servicing activities
for the Fund, they may receive fees from the Fund or the Advisor for such
services.
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 for such activities.
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 placed the order 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.
First Fund Distributors, Inc., 4455 Camelback Road, Suite 261E, Phoenix,
Arizona, 85018, is the principal underwriter for the Fund.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
Statements And Reports. When a shareholder makes an initial investment in the
Fund, a shareholder account is opened in accordance with registration
instructions. Each time there is a transaction, such as an additional
investment, a dividend or other distribution, or a redemption, the shareholder
will receive from the Transfer Agent or other selling agent a confirmation
statement showing the current transaction in the account and the transaction
date. Shareholders of the Fund will receive quarterly statements with account
information as of the end of March, June, September and December.
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
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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 that are offered for sale in your state of residence at the time
of the exchange. It is required that (i) all shares in one Fund must be
exchanged or (ii) the remaining balance must be at least $1,500. This minimum
balance requirement may be waived at the sole discretion of the Advisor. 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 that have not borrowed to acquire shares
exchanged. 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 of shares should be made for investment
purposes only. A pattern of frequent exchanges, purchases and sales can be
limited, at the discretion of the Board of Directors, 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 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 the close of trading on the New York
Stock Exchange (currently 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.
Autobuy Privilege. The Autobuy privilege allows shareholders to purchase
subsequent shares by investing money directly from their checking account to a
Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not
be added to an account without written authorization from the shareholder. The
Autobuy privilege will be automatically added to an account when the shareholder
chooses any type of ACH privilege. A shareholder may then purchase additional
shares in an existing account by calling 800-548-4539 and instructing the
Transfer Agent as to the dollar amount wanting to be invested. The investment
will automatically be processed through the ACH system. There is no fee for this
option. If the privilege was not established at the time the account
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<PAGE>
was opened, the shareholder must complete the appropriate form, available on
request.
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 $100 minimum for subsequent investments. If the
purchase falls on a weekend or holiday, the purchase will be made on the
previous business day. Shareholders should note that if there is an Automated
Investment Plan established for an account and the entire account is exchanged
into another Fund, the Automatic Investment Plan must be renewed be the
shareholder to the Transfer Agent. 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 non-payment (for example, "insufficient funds"), 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,
available on request.
HOW TO REDEEM SHARES
Shares are redeemed at the net asset value next determined after receipt by the
Transfer Agent of proper written redemption instructions, subject to a 2%
redemption fee imposed on redemptions of shares within six months of purchase.1
Additionally, the current charge for a wire transfer is $10 per wire. This is
subject to change by the Transfer Agent at any time, without prior notification.
Redemption orders received in proper form by the Transfer Agent, or other Fund
agent authorized to accept orders, before the close of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net
asset value determined on that day (with certain limited exceptions discussed in
the Statement of Additional Information). Otherwise, Fund shares will be
redeemed at the price determined as of the close of trading on the New York
Stock Exchange on the next business day.
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
- ---------------------------
(1) These fees are paid to the Fund and are designed to reduce transaction
costs and disruptive effects of short-term investments in the Fund. The
redemption fee will be waived for company-sponsored retirement plans.
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<PAGE>
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 Automatic 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.")
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 an Automatic Withdrawal
Plan may result in taxable capital gains or losses.
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
800-548-4539. (The Telephone Redemption Privilege is not available for IRA or
other retirement accounts.) Telephone requests received by the close of trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be
processed at the net asset value calculated that same day. During times of
drastic economic or market conditions, the telephone redemption privilege may be
difficult to implement. The Transfer Agent will make its best effort to
accommodate shareholders when its telephone lines are used to capacity. Under
these circumstances, a shareholder should consider using overnight mail to send
a written redemption request.
Neither the Investment Company, 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, the Transfer Agent, or both, will
employ reasonable procedures to determine that telephone instructions are
genuine. If the Investment Company 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.
Automatic 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 by check will be
made on the 15th and/or the last business day of the month. Redemptions mad by
electronic transfer will be made on any date the shareholder chooses.
Shareholders may also request automatic exchanges and transfers of a specified
dollar amount. Exchanges and transfers will be made on any date the shareholder
chooses. Because a redemption constitutes a liquidation of shares, the number of
shares owned in the account will be reduced.
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<PAGE>
Automatic redemptions should not reduce the account below the minimum balance
required (currently $1,500). If the redemption date falls on a weekend or
holiday, the redemption will be made on the previous business day. Shareholders
may terminate the Automatic Withdrawal Plan at any time with written
notification received no later than five days before a scheduled payment date.
When an exchange is made between Fremont Funds, shareholders must specify if
they desire the automatic withdrawal option to be transferred to a new account
opened by the exchange. As an account balance declines to the minimum permitted,
the shareholder must advise the Transfer Agent if the automatic withdrawal
feature is to be transferred to another account of the shareholder. Shareholders
should note that if there is an Automatic Withdrawal Plan established for an
account and the entire account is exchanged into another Fremont Fund, the
automatic withdrawal option must be renewed by written request to the Transfer
Agent. A shareholder wishing to initiate automatic redemptions must complete an
Automatic Withdrawal Plan form available from the Transfer Agent.
Signature Guarantee. To better protect the Fund and shareholders' accounts, a
signature guarantee is required for certain transactions. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in applicable
regulations. Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
Other Important Redemption Information. A request for redemption will not be
processed until all of the documentation described above has been received by
the Transfer Agent in proper form. A shareholder in doubt about what documents
are required should contact the Transfer Agent.
Payment in redemption of shares is normally made within three business days
after receipt by the Transfer Agent of a request in proper form, provided that
payment in redemption of shares purchased by check or draft will be effected
only after such check or draft has been collected. Although it is anticipated
that this process will be completed in less time, it may take up to 10 days.
Redemption proceeds will not be delayed when shares have been paid for by bank
wire or where the account holds a sufficient number of shares already paid for
with collected funds.
Except in extraordinary circumstances, payment for shares redeemed will be made
promptly after receipt of a redemption request, if in good order, but not later
than seven calendar 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 Fund reserves the right to redeem 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 $100 or more). This minimum
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balance may be waived at the sole discretion of the Advisor.
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. The Advisor is the transfer agent for the Funds and has engaged
State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City,
Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and
shareholder service agent. State Street Bank and Trust Company has contracted
with National Financial Data Services to serve as shareholder servicing agent. A
depository account has been established at United Missouri Bank of Kansas City
("United Missouri Bank") through which all payments for the funds will be
processed.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with various tax-deferred
retirement plans. These include IRAs; SEP-IRAs; SIMPLE IRAs; Roth IRAs,
Qualified Retirement Plans for self-employed persons and their employees;
corporate pension and profit-sharing plans; 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, SIMPLE IRAs,
Roth 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.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION
The Fund has qualified, and intends to continue to qualify to be treated as a
"regulated investment company" under Sub-chapter 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 a Fund to diversify its investments so
that, at the end of each fiscal quarter, (i) 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, in 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
(ii) 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.
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The Fund intends to distribute substantially all of its net investment income
and short term net realized capital gains, if any, once each year in October.
The Fund intends to distribute substantially all of its long term net realized
capital gains, if any, at the end of the calendar year (on or about December
15). Dividend and capital gain 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 who have not borrowed to acquire their shares)
whether or not they are reinvested in shares of the Fund. Any long-term or
mid-term capital gain distributions are taxable to shareholders as long-term or
mid-term capital gains, respectively, regardless of how long shareholders have
held Fund shares. The maximum capital gains rate for individuals is 28% with
respect to assets held for more than 12 months, but not more than 18 months, and
20% with respect to assets held more than 18 months. The maximum capital gains
rate for corporate shareholders is the same as the maximum tax rate for ordinary
income. Distributions of short-term capital gains will be subject to the tax as
ordinary income.
Shareholders may elect:
* to have all dividends and capital gain distributions automatically reinvested
in additional shares; or
* to receive income dividends and short-term capital gain distributions in cash
and accept long-term capital gain distributions in additional shares; or
* to receive all distributions of income dividend and capital gain in cash; or
* to invest all dividend and capital gain distributions in another Fremont Fund
owned through an identically registered account.
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 gain 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 October, November
or 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
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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 redemption proceeds (including
exchange redemptions) to the shareholder. Amounts withheld are applied to the
shareholder's federal 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 ordinary dividends (which includes short term capital gains) paid to
certain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts. Long-term capital gains distributions may also be subject
to this withholding.
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 nor be able to take their shares of such taxes as a credit
against U.S. income taxes.
If more than 50% of the value of the Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, the Fund may elect to
"pass through" to its shareholders the amount of foreign taxes paid. If this
election is made, the 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,
(subject to certain limitations) against their U.S. income taxes. The Fund will
report annually to its shareholders the amount per share of such withholding, if
any. 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 an
investment in the Fund.
PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan of
distribution (the "Plan") under which the Fund may directly compensate the
Advisor, paying for certain distribution-related expenses, including payments to
securities dealers and others (including the Underwriter) who are engaged in
promoting the sale of shares of the Fund and who may be advising investors
regarding the purchase, sale, or retention of such 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 the
Transfer Agent; 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,
prospectuses, statements of additional
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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 other expenses related to the distribution of the
Fund's shares.
The annual limitation for compensation to the Advisor pursuant to the Plan is
.25% of the Fund's average daily net assets. All payments will be reviewed by
the Fund's Board of Directors. However, it is possible that in certain periods,
the amount of the Advisor's compensation could exceed the Advisor's distribution
expenses resulting in a profit to the Advisor. If 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
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 of Fund shares.2
The Fund will calculate its net asset value and complete orders to purchase,
exchange or redeem shares on a Monday through Friday basis when the New York
Stock Exchange is open. Investments, including options, are stated at value
based on recorded closing sales on a national securities exchange or, in the
absence of a recorded sale, at the mean between the last reported bid and asked
prices or at fair value pursuant to procedures approved by the Board of
Directors. Short-term notes and similar securities are included in investments
at amortized cost, which approximates value. Securities which are primarily
traded on foreign exchanges are generally valued at the preceding closing values
of such securities on their respective exchanges or the most recent price
available where no closing value is available. The Fund's portfolio may 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 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 of the Fund will be determined as of the close of the
regular session of the New
- ----------------
(2) A redemption fee is imposed on any investments redeemed within six months
of purchase. These fees are paid to the Fund.
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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 or other Fund agent authorized to accept
orders, before the close of trading on the New York Stock Exchange (currently
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). Otherwise, orders received by the Transfer Agent or
other Fund agent authorized to accept orders, will be entered at the next
calculated net asset value.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the Fund's portfolio securities transactions are placed by the
Advisor and/or Sub-Advisor. The Advisor and/or 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 and/or 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.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor or the Sub-Advisor, or an affiliated
person of such person.
GENERAL INFORMATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed, open-end 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
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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
non-assessable. The Board of Directors may, at its discretion, establish and
issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Fund under applicable Securities and Exchange Commission regulations.
TELEPHONE NUMBERS AND ADDRESSES
To make an initial purchase:
1. By mail:
Fremont Mutual Funds, Inc.
c/o National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
Street address:
1004 Baltimore Avenue
Kansas City, MO 64105
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2. By wire:
Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account
number and detailed instructions.
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: 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 automatic withdrawal plans,
please contact:
Fremont Mutual Funds, Inc.
50 Beale Street, Suite 100
San Francisco, CA 94105
800-548-4539
Fremont Mutual Funds, Inc.
Fremont Money Market Fund
Fremont Bond Fund
Fremont California Intermediate Tax-Free Fund
Fremont Global Fund
Fremont Growth Fund
Fremont International Growth Fund
Fremont U.S. Small Cap Fund
Fremont International Small Cap Fund
Fremont Emerging Markets Fund
Fremont U.S. Micro-Cap Fund
Fremont Real Estate Securities Fund
Fremont Select Fund
For more information on the Fremont Mutual Funds please call 800-548-4539 or
write to:
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Fremont Mutual Funds
50 Beale Street, Suite 100
San Francisco, CA 94105
Advisor/Transfer Agent
Fremont Investment Advisors, Inc.
333 Market Street, Suite 2600
San Francisco, CA 94105
Sub-Transfer Agent
Mailing Address:
National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
800-548-4539 (press 2)
Street Address:
National Financial Data Services
1004 Baltimore Avenue
Kansas City, MO 64105
Custodian
The Northern Trust Company
50 South Lasalle Street
Chicago, IL 60675
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
Auditors
Coopers & Lybrand, L.L.P.
333 Market Street
San Francisco, CA 94105
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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 Funds 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.
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FREMONT MUTUAL FUNDS, INC.
Fremont Money Market Fund
Fremont Bond Fund
Fremont Real Estate Securities Fund
Fremont Global Fund
Fremont Growth Fund
Fremont International Growth Fund
Fremont International Small Cap Fund
Fremont Select Fund
Fremont U.S. Small Cap Fund
Fremont Emerging Markets Fund
Fremont U.S. Micro-Cap Fund
Fremont California Intermediate Tax-Free Fund
Toll-Free: 800-548-4539
Part B
Statement of Additional Information
This Statement of Additional Information concerning Fremont Mutual
Funds, Inc. (the "Investment Company") is not a prospectus for the Investment
Company. This Statement supplements the Prospectus for the Investment Company
dated March 1, 1998, and should be read in conjunction with the Prospectus.
Copies of the Prospectus are available without charge by calling the Investment
Company at the phone number printed above.
This Statement of Additional Information is dated March 1, 1998,
as amended on June __, 1998.
<PAGE>
TABLE OF CONTENTS
Page
Introduction To The Funds......................................................x
Investment Objectives, Policies And Risk Considerations.......................xx
The Funds (Including The Fremont Money Market Fund) Generally.................xx
Investment Restrictions.......................................................xx
Investment Company Directors And Officers.....................................xx
Investment Advisory And Other Services........................................xx
Plan Of Distribution (U.S. Small Cap Fund, Real Estate Securities Fund,
Select Fund and Emerging Markets Fund only)..................................xx
Execution Of Portfolio Transactions...........................................xx
How To Invest.................................................................xx
Other Investment And Redemption Services......................................xx
Taxes - Mutual Funds .........................................................xx
Additional Information .......................................................xx
Investment Results............................................................xx
Information About Fremont Investment Advisors.................................xx
Appendix A: Description Of Ratings ...........................................xx
Appendix B: Annual Report.....................................................xx
(i)
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INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The descriptions below are intended to supplement the material in the Prospectus
under "Investment Objectives, Policies and Risk Considerations" and "General
Investment Policies."
Fremont Bond Fund, Fremont Real Estate Securities Fund, Fremont Global Fund,
Fremont Growth Fund, Fremont International Growth Fund, Fremont International
Small Cap Fund, Fremont Select Fund, Fremont U.S. Small Cap Fund, Fremont
Emerging Markets Fund and Fremont U.S. Micro-Cap Fund:
Writing Covered Call Options. The Fremont Bond Fund (formerly the Fremont Income
Fund), the Fremont Real Estate Securities Fund, the Fremont Global Fund
(formerly the Fremont Multi-Asset Fund), the Fremont Growth Fund (formerly the
Fremont Equity Fund), the Fremont International Growth Fund, the Fremont
International Small Cap Fund, the Fremont Select Fund, the Fremont U.S. Small
Cap Fund, the Fremont Emerging Markets Fund and the Fremont U.S. Micro-Cap Fund
(collectively, the "Funds") may write (sell) " covered" call options and
purchase options to close out options previously written by the Funds. The
purpose of writing covered call options is to generate additional premium income
for the Funds. This premium income will serve to enhance the Funds' total
returns 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 Fremont Investment
Advisors, Inc. (the " Advisor") or a Fund's sub-advisor ("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 Funds.
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
Funds will write only covered call options. This means that each Fund will only
write a call option on a security, index, or currency which that Fund already,
effectively, owns or has the right to acquire without additional cost.
Portfolio securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with each
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 no Fund will do),
but capable of enhancing a Fund's total return. When writing a covered call
option, a 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, a 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, that 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 involved 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 that
Fund's custodian. No Fund will 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.
<PAGE>
The premium received is the market value of an option. The premium a 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 a Fund for writing covered call options will be
recorded as a liability in that 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 that Fund is computed (close of the regular trading session of the New
York Stock Exchange), or, in the absence of such sale, the latest asked price.
The liability will be extinguished upon expiration of the option, the purchase
of an identical option in a closing transaction, or delivery of the underlying
security or currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security or currency with either a different
exercise price or expiration date or both. If a 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 a 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 involved 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 Funds 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, a 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.
A 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 involved.
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 18 months 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, a 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.
<PAGE>
If a 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. Each
Fund will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.
Writing Covered Put Options. The Funds 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, the writer may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the writer 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 Funds may write put options only on a covered basis, which means that a Fund
would maintain in a segregated account cash and liquid securities 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.) A Fund
would generally write covered put options in circumstances where the Advisor or
Sub-Advisor wishes to purchase the underlying security or currency for that
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 a Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received.
Purchasing Put Options. The Funds may purchase put options. As the holder of a
put option, a Fund has the right to sell the underlying security or currency at
the exercise price at any time during the option period. Such Fund may enter
into closing sale transactions with respect to such options, exercise them, or
permit them to expire. A 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 Funds 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 a 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.
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The Funds may also purchase put options at a time when a Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, a 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 involved 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.
A Fund will commit no more than 5% of its assets to premiums when purchasing put
options. The premium paid by such Fund when purchasing a put option will be
recorded as an asset in that 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 that Fund's net asset value per share
is computed (close of trading on the New York Stock Exchange), or, in the
absence of such sale, the latest bid price. The asset will be extinguished upon
expiration of the option, the selling (writing) of an identical option in a
closing transaction, or the delivery of the underlying security or currency upon
the exercise of the option.
Purchasing Call Options. The Funds may purchase call options. As the holder of a
call option, a Fund has the right to purchase the underlying security or
currency at the exercise price at any time during the option period. Each Fund
may enter into closing sale transactions with respect to such options, exercise
them, or permit them to expire. A Fund may purchase call options for the purpose
of increasing its current return or avoiding tax consequences which could reduce
its current return. A 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 a 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 involved 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 such 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 involved 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.
Each Fund will commit no more than 5% of its assets to premiums when purchasing
call options. A 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 such Fund's current
return. For example, where a 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 that Fund, an increase in the market price
could result in the exercise of the call option written by that Fund and the
realization of a loss on the underlying security or currency with the same
exercise price and expiration date as the option previously written.
Description of Futures Contracts. A Futures Contract provides for the future
sale by one party and purchase by another party of a specified amount of a
specific financial instrument (security or currency) for a specified price at a
designated date, time and place. Brokerage fees are incurred when a Futures
Contract is bought or sold and margin deposits must be maintained.
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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 involved realizes
a gain; if it is more, that Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund involved realizes
a gain; if it is less, that Fund realizes a loss. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, that 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 involved.
The Funds may enter into interest rate, S&P Index (or other major market index),
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 such Fund. A 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 purchases of Futures in
anticipation of purchasing underlying index stocks prior to the availability of
sufficient assets to purchase such stocks or to offset potential increases in
the prices of such stocks. When selling options or Futures Contracts, a Fund
will segregate cash and liquid securities to cover any related liability.
The Funds 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 a Fund's exposure to currency exchange rate fluctuations, a Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through using Futures Contracts.
A 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 such as the S&P 500 Stock Index Contract, for example, 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 a Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such
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contracts, no assurance can be given that a liquid market will exist for the
contracts at any particular time. In addition, the price of Stock Index
contracts may not correlate perfectly with the movement in the Stock Index due
to certain market distortions. Due to the possibility of price distortions in
the futures market and because of the imperfect correlation between movements in
the Stock Index and movements in the price of Stock Index contracts, a correct
forecast of general market trends may not result in a successful anticipatory
hedging transaction.
Futures Contracts Generally. Persons who trade in Futures Contracts may be
broadly classified as "hedgers" and "speculators." Hedgers, such as the Funds,
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 obligors 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 Funds' 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 such Fund owns, or Futures
Contracts will be purchased to protect that 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 a Fund's open positions in Futures Contracts. A margin
deposit ("initial margin") is intended to assure such Fund's performance of the
Futures Contract. The margin required for a particular Futures Contract is set
by the exchange on which the Contract is traded, and may be significantly
modified from time to time by the exchange during the term of the Contract.
Futures Contracts are customarily purchased and sold on margins that may range
upward from less than 5% of the value of the Contract being traded.
If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin deposit ("margin
variation"). However, if the value of a position increases because of favorable
price changes in the Futures Contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to that Fund. In computing daily
net asset values, that 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
<PAGE>
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 or
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, a 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 such Fund
has sufficient assets to satisfy its obligations under a Futures Contract, the
Fund involved segregates and commits to back the Futures Contract with money
market instruments equal in value to the current value of the underlying
instrument less the margin deposit.
Most United States Futures exchanges limit the amount of fluctuation permitted
in Futures Contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a Futures Contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
Contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures Contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of Futures positions and
subjecting some Futures traders to substantial losses.
Federal Tax Treatment of Futures Contracts. Except for transactions the Funds
identified as hedging transactions, each 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 a Fund may affect the holding period
of such securities or currencies and, consequently, the nature of the gain or
loss on such securities or currencies upon disposition.
In order for a 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. 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.
The Funds 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
<PAGE>
capital gains realized on each Fund's other investments and shareholders will be
advised of the nature of the payments.
Options on Interest Rate and/or Currency Futures Contracts, and with Respect to
the Fremont Global Fund, Gold 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 on the expiration date between
the exercise price of the option and the closing level of the securities or
currencies upon which the Futures Contracts are based. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
As an alternative to purchasing call and put options on Futures, the Funds may
purchase call and put options on the underlying securities or currencies, or
with respect to the Global Fund, on gold or other commodities. 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 a Fund or to reduce or
eliminate the hedge position then currently held by that Fund, the Fund involved
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 Funds 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. A Fund typically engages in forward currency
transactions in anticipation of, or to protect itself against, fluctuations in
exchange rates. The Fund might sell a particular currency forward, for example,
when it wanted to hold bonds denominated in that currency but anticipated, and
sought to be protected against, a decline in the currency against the U.S.
dollar. Similarly, the Fund might purchase a currency forward to "lock in" the
dollar price of securities denominated in that currency which it anticipated
purchasing.
A put option gives the Fund, as purchaser, the right (but not the obligation) to
sell a specified amount of currency at the exercise price until the expiration
of the option. A call option gives the Fund, as purchaser, the right (but not
the obligation) to purchase a specified amount of currency at the exercise price
until its expiration. The Fund might purchase a currency put option, for
example, to protect itself during the contract period against a decline in the
dollar value of a currency in which it holds or anticipates holding securities.
If the currency's value should decline against the dollar, the loss in currency
value should be offset, in whole or in part, by an increase in the value of the
put.
If the value of the currency instead should rise against the dollar, any gain to
the Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which
the Fund anticipates purchasing securities.
Currency options may be either listed on an exchange or traded over-the-counter
(OTC). Listed options are third-party contracts (i.e., performance of the
obligations of the purchaser and seller is guaranteed by
<PAGE>
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 Funds will not purchase an OTC option unless
they believe that daily valuation for such option is readily obtainable.
THE FUNDS (INCLUDING THE FREMONT MONEY MARKET FUND) GENERALLY
Diversification. Each Fund, except for the Real Estate Securities Fund, the
International Small Cap Fund, the Fremont Select Fund, and the Fremont Emerging
Markets Fund, intends to operate as a "diversified" management investment
company, as defined in the Investment Company Act of 1940 (the "1940 Act"). A
"diversified" investment company means a company which meets the following
requirements: At least 75% of the value of the company's total assets is
represented by cash and cash items (including receivables), "Government
Securities" (as defined below), securities of other investment companies, and
other securities for the purposes of this calculation limited in respect of any
one issuer to an amount not greater in value than 5% of the value of the total
assets of such management company and to not more than 10% of the outstanding
voting securities of such issuer. "Government Securities" means securities
issued or guaranteed as to principal or interest by the United States, or by a
person controlled or supervised by and acting as an instrumentality of the
Government of the United States pursuant to authority granted by the Congress of
the United States.
The Fremont Real Estate Securities Fund, the Fremont Select Fund, and the
Fremont Emerging Markets Fund are non-diversified funds and are not subject to
the foregoing requirements.
Reverse Repurchase Agreements and Leverage. The Funds may enter into reverse
repurchase agreements which involve the sale of a security by a Fund and its
agreement to repurchase the security at a specified time and price. The Fund
involved will maintain in a segregated account with its custodian cash, cash
equivalents, or liquid 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 a Fund; accordingly, each 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 a 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, a
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, a 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 Funds intend to enter into reverse repurchase agreements only if
the income from the investment of the proceeds is greater than the expense of
the transaction, because 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
Funds 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 meet the minimum
credit quality standards, as
<PAGE>
determined by the Advisor or Sub-Advisor, prescribed for the Funds by the Board
of Directors with respect to counterparties in repurchase agreements and similar
transactions.
The Funds may invest in participation interests purchased from banks in floating
rate or variable rate obligations owned by banks. A participation interest gives
a 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
Funds. A 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 Funds may enter into interest rate, index, and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include interest
rate caps, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates exceed a specified rate,
or "cap"; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified level, or "floor"; and interest rate collars, under which a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently a
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"). A 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 high grade debt
obligations, to avoid any potential leveraging of the Fund's portfolio. A 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 a 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, a 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 a Fund to enter into swap agreements only with counterparties that would
be eligible for consideration as repurchase agreement counterparties under a
Fund's
<PAGE>
repurchase agreement guidelines. Certain restrictions imposed on the Funds by
the Internal Revenue Code may limit the Funds' 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
a Fund's ability to terminate existing swap agreements or to realize amounts to
be received under such agreements.
When-Issued Securities and Firm Commitment Agreements. A 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). A
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, except that this
limitation does not apply to the Fremont Bond Fund. A 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. A Fund will not use such transactions for
leveraging purposes, and accordingly, will segregate cash, cash equivalents, or
liquid 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 a 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 a 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. A 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 each 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 Funds to investment risks that are different in some
respects from those of investments in obligations of domestic issuers. Although
a 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 any Fund. For the purposes of calculating 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.
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. 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 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, and may pay customary brokerage
commissions to buy and sell shares of closed-end investment companies.
<PAGE>
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, the Fund has 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.
Illiquid Securities. Each Fund (other than the Money Market Fund) may invest up
to 15% of its net assets in all forms of "illiquid securities." The Money Market
Fund may invest up to 10% of its net assets in "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 Funds 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 Funds 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 a Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Municipal Securities
Municipal securities are issued by or on behalf of states, territories, and
possessions of the United States and the District of Columbia and by their
political subdivisions, agencies, and instrumentalities. The interest on these
obligations is generally not includable in gross income of most investors for
federal income tax purposes. Issuers of municipal obligations do not usually
seek assurances from governmental taxing authorities with respect to the
tax-free nature of the interest payable on such obligations. Rather, issuers
seek opinions of bond counsel as to such tax status. See "Special Tax
Considerations" below.
Municipal issuers of securities are not usually subject to the securities
registration and public reporting requirements of the Securities and Exchange
Commission and state securities regulators.
<PAGE>
As a result, the amount of information available about the financial condition
of an issuer of municipal obligations may not be as extensive as that which is
made available by corporations whose securities are publicly traded.
The two principal classifications of municipal securities are general obligation
securities and limited obligation (or revenue) securities. There are, in
addition, a variety of hybrid and special types of municipal obligations as well
as numerous differences in the financial backing for the payment of municipal
obligations (including general fund obligation leases described below), both
within and between the two principal classifications. Long-term municipal
securities are typically referred to as "bonds and short-term municipal
securities are typically called "notes."
Payments due on general obligation bonds are secured by the issuer's pledge of
its full faith and credit including, if available, its taxing power. Issuers of
general obligation bonds include states, counties, cities, towns and various
regional or special districts. The proceeds of these obligations are used to
fund a wide range of public facilities such as the construction or improvement
of schools, roads and sewer systems.
The principal source of payment for a limited obligation bond or revenue bond is
generally the net revenue derived from particular facilities financed with such
bonds. In some cases, the proceeds of a special tax or other revenue source may
be committed by law for use to repay particular revenue bonds. For example,
revenue bonds have been issued to lend the proceeds to a private entity for the
acquisition or construction of facilities with a public purpose such as
hospitals and housing. The loan payments by the private entity provide the
special revenue source from which the obligations are to be repaid.
Municipal Notes. Municipal notes generally are used to provide short-term
capital funding for municipal issuers and generally have maturities of one year
or less. Municipal notes of municipal issuers include tax anticipation notes,
revenue anticipation notes and bond anticipation notes:
Tax Anticipation Notes are issued to raise working capital on a short-term
basis. Generally, these notes are issued in anticipation of various seasonal tax
revenues being paid to the issuer, such as property, income, sales, use and
business taxes, and are payable from these specific future taxes.
<PAGE>
Revenue Anticipation Notes are issued in anticipation of the receipt of non-tax
revenue, such as federal revenues or grants.
Bond Anticipation Notes are issued to provide interim financing until long-term
financing can be arranged. In most cases, long-term bonds are issued to provide
the money for the repayment of these notes.
Commercial Paper. Issues of municipal commercial paper typically represent
short-term, unsecured, negotiable promissory notes. Agencies of state and local
governments issue these obligations in addition to or in lieu of notes to
finance seasonal working capital needs or to provide interim construction
financing and are paid from revenues of the issuer or are refinanced with
long-term debt. In most cases, municipal commercial paper is backed by letters
of credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions.
Lending of Portfolio Securities. For the purpose of realizing additional income,
a 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 a Fund's investment
program and by regulatory agencies and approved by the Board of Directors. While
the securities are being lent, a 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
Funds have a right to call each loan and obtain the securities on five business
days' notice. The Funds 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.
Particular Risk Factors Relating to California Municipal Securities (Fremont
California Intermediate Tax-Free Fund). Certain risks are associated with
California municipal securities in which the Fund predominantly will invest.
This summarized information is based on information drawn from official
statements and prospectuses relating to securities offerings of the state of
California and various local agencies in California, available prior to the date
of this Statement of Additional Information. While the Advisor has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects. In addition to this current
information, future California constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives could have
an adverse effect on the debt obligations of California issuers.
Certain debt obligations held by the Fund may be obligations of issuers who rely
in whole or in substantial part on California state revenues for the continuance
of their operations and the payment of their obligations. In recent efforts to
assist California municipal issuers to raise revenues to pay their bond
obligations, the California legislature has passed measures which have provided
for the redistribution of California's General Fund surplus to local agencies,
the reallocation of revenues to local agencies, and the assumption of certain
local obligations by the state. It is not known whether additional revenue
redistribution legislation will be enacted in the future or, if enacted, whether
such legislation would provide sufficient revenue to allow such issuers to pay
their obligations. To the extent local entities do not receive money from the
state to pay for their operations and services, their ability to pay debt
service on obligations held by the Fund may be impaired.
<PAGE>
Certain debt obligations held by the Fund may be obligations of issuers who rely
in whole or in part on ad valorem real property taxes, on property-related
assessments, charges or fees, and on taxes such as utility user's taxes as
sources of revenue. The California Constitution limits the taxing and spending
powers of the state of California and its public agencies and, therefore, the
ability of California issuers to raise revenues through taxation, and to spend
such revenues over appropriations limits. Such limits may impair the ability of
such issuers to make timely payment on their obligations.
Certain debt obligations held by the Fund may be obligations payable solely from
lease payments on real property or personal property leased to the state,
cities, counties, or their various public entities. California law requires that
the lessee is not required to make lease payments during any period that it is
denied use and occupancy of the property leased in proportion to such loss.
Moreover, the lessee only agrees to include lease payments in its annual budget
for the current fiscal year. In case of a default under the lease, the only
remedy available against the lessee is that of reletting the property; no
acceleration of lease payments is permitted. Each of these factors presents a
risk that the lease financing obligations held by the Fund would not be paid in
a timely manner.
Certain debt obligations held by the Fund may be obligations which are payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care, and selective contracting by health insurers for
care of their own beneficiaries now in effect under California and federal law
may adversely affect these revenues and, consequently, payment on those debt
obligations.
Debt obligations payable solely from revenues of health care institutions may
also be insured by the state of California pursuant to a mortgage insurance
program operated by the Office of Statewide Health Planning and Development (the
"Office"). If a default occurs on such insured debt obligations, the Office may
either continue to make debt service payments on the obligations, or foreclose
on the mortgage and request the State Treasurer to issue debentures payable from
a reserve fund established under the insurance program or from unappropriated
state funds. Reports and studies prepared most recently a decade ago indicated
that the reserve fund was under-funded. Moreover, moneys in the reserve fund may
be and have been reappropriated by the California Legislature for other purposes
in the past, and the California legislature reserves the right to do so in the
future. The Investment Company cannot predict what, if any, impact the
underfunding of the reserve fund may have on such debt obligations.
Certain debt obligations held by the Fund may be obligations which are secured
in whole or in part by a mortgage or deed of trust on real property. California
has five principal statutory provisions which limit the remedies of a creditor
secured by a mortgage or deed of trust. To limit the creditor's right to obtain
a deficiency judgment, one limitation is based on the method of foreclosure, and
the second on the type of debt secured. Under the former, a deficiency judgment
is barred when the foreclosure is accomplished by means of nonjudicial trustee's
sale. Under the latter, a deficiency judgment is barred when the foreclosed
mortgage or deed of trust secures certain purchase money obligations. A third
statutory provision, commonly known as the "one form of action" rule, requires
creditors secured by real property to exhaust their real property security by
foreclosure before bringing a personal action against the debtor. A fourth
statutory provision limits any deficiency judgment obtained by a creditor
secured by real property following a judicial sale of such property to the
excess of the outstanding debt over the fair value of the property at the time
of the sale, thus preventing the creditor from obtaining a large deficiency
judgment against the debtor as a result of low bids at a judicial sale. Finally,
a fifth statutory provision gives the debtor the right to redeem the real
property
<PAGE>
from any judicial foreclosure sale as to which a deficiency judgment may be
ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power of sale
contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. Therefore, the effective
minimum period of foreclosing on a mortgage could be in excess of seven months
after the initial default. Such time delays in collections could disrupt the
flow of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "state action," and could hold that the private right-of-sale
proceedings violate the due process requirements of the federal or state
constitutions, consequently preventing an issuer from using the nonjudicial
foreclosure remedy described above.
Certain debt obligations held by the Fund may be obligations which finance the
acquisition of single-family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family, owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage loans
may be imposed only with respect to voluntary prepayments made during the first
five years during the term of the mortgage loan, and cannot in any event exceed
six months' advance interest on the amount prepaid in excess of 20% of the
original principal amount of the mortgage loan. This limitation could affect the
flow of revenues available to an issuer for debt service on the outstanding debt
obligations which finance such home mortgages.
Guaranteed Investment Contracts (Fremont Global Fund). The Global Fund may enter
into agreements known as guaranteed investment contracts ("GICs") with banks and
insurance companies. GICs provide to the Fund a fixed rate of return for a fixed
period of time, similar to any fixed income security. While there is no ready
market for selling GICs and they typically are not assignable, the Fund will
only invest in GICs if the financial institution permits a withdrawal of the
principal (together with accrued interest) after the Fund gives seven days'
notice. Like any fixed income security, if market interest rates at the time of
such withdrawal have increased from the guaranteed rate, the Fund would be
required to pay a premium or penalty upon such withdrawal. If market rates
declined, the Fund would receive a premium on withdrawal. Since GICs are
considered illiquid, the Fund will not invest more than 15% of its net assets in
GICs and other illiquid assets.
<PAGE>
Reduction in Bond Rating (Fremont Global Fund and Fremont Bond Fund). The Global
Fund and the Bond Fund may each invest up to 10% of its net assets in debt
securities rated below BBB or Baa, but not lower than B. In the event that the
rating for any security held by the Funds drops below the minimum acceptable
rating applicable to that 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.
Concentration (Fremont Real Estate Securities Fund). The Real Estate Securities
Fund will concentrate its investments in real estate investment trusts
("REITs"). As a result, an economic, political or other change affecting one
REIT also may affect other REITs. This could increase market risk and the
potential for fluctuations in the net asset value of the Fund's shares.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental investment policies and
restrictions in addition to the policies and restrictions discussed in its
prospectus. With respect to each Fund, the policies and restrictions listed
below cannot be changed without approval by the holders of a "majority of the
outstanding voting securities" of that 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 no Fund may:
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, or to investments by the Money Market Fund in
securities of domestic banks, of foreign branches of domestic banks
where the domestic bank is unconditionally liable for the security,
and domestic branches of foreign banks subject to the same
regulation of domestic banks, or to investments by the Real Estate
Securities Fund in real estate investment trusts. See "Investment
Objective, Policies, And Risk Considerations."
2. Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Funds 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 a 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.
<PAGE>
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. A Fund
will not purchase securities while such borrowings are outstanding.
6. Change its status as either a diversified or a non-diversified
investment company.
7. Issue senior securities, except as permitted under the 1940 Act, and
except that the Investment Company and the Funds may issue shares of
common stock in multiple series or classes.
8. Notwithstanding any other fundamental investment restriction or
policy, each 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
that Fund.
<PAGE>
Other current investment policies of the Funds, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. A 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 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.
14. 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.
15. Acquire securities or assets for which there is no readily available
market or which are illiquid, if, immediately after and as a result
of the acquisition, the value of such securities would exceed, in
the aggregate, 15% of that Fund's net assets, except that the value
of such securities may not exceed 10% of the Money Market Fund's net
assets.
16. Make short sales of securities or maintain a short position, except
that a Fund may sell short "against the box."
17. Invest in securities of an issuer if the investment would cause a
Fund to own more than 10% of any class of securities of any one
issuer.
18. Acquire more than 3% of the outstanding voting securities of any one
investment company.
<PAGE>
INVESTMENT COMPANY DIRECTORS AND OFFICERS
The Bylaws of Fremont Mutual Funds, Inc. (the "Investment Company"), the
Maryland investment company of which the Fund is a series, authorize a Board of
Directors of between three and 15 persons, as fixed by the Board of Directors. A
majority of directors may fill vacancies caused by the resignation or death of a
director, or the expansion of the Board of Directors. Any director may be
removed by vote of the holders of a majority of all outstanding shares of the
Investment Company qualified to vote at the meeting.
<TABLE>
<CAPTION>
Principal Occupations
Date of and Business Experience
Name and Address Birth Positions Held for Past Five Years
<S> <C> <C> <C>
David L. Redo(1)(2)(4) 9-1-37 Chairman, Chief Executive President and Director, Fremont
Fremont Investment, Advisors, Inc. Officer and Director Investment Advisors, Inc.;
333 Market Street, 26th Floor Managing Director, Fremont
San Francisco, CA 94105 Group, L.L.C. and Fremont
Investors, Inc.; Director,
Sequoia Ventures, Sit/Kim
International Investment Associates,
and J.P. Morgan Securities Asia.
Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present
Fremont Investment Advisors, Inc. Senior Vice President and
333 Market Street, 26th Floor Director, Fremont Investment
San Francisco, CA 94105 Advisors, Inc. 10/77 - 7/96 Senior Vice
President Business Development
Benham Management.
Richard E. Holmes(3) 5-14-43 Director Vice President and Director,
P.O. Box 479 BelMar Advisors, Inc.
Sanibel, FL 33957 (marketing firm).
Donald C. Luchessa(3) 2-18-30 Director Principal, DCL Advisory
DCL Advisory (marketer for investment
4105 Shelter Bay Avenue advisors).
Mill Valley, CA 94941
David L. Egan(3) 5-1-34 Director President, Fairfield Capital
Fairfield Capital Associates, Inc. Associates, Inc.
1640 Sylvaner Founding Partner of China Epicure, LLC
St. Helena, CA 94574 and Palisades Trading Company, LLC
Albert W. Kirschbaum(4) 8-17-38 Senior Vice President Senior Vice President and
Fremont Investment Advisors, Inc. Director, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.
San Francisco, CA 94105
Peter F. Landini(4) 5-10-51 Executive Vice President, Executive Vice President, COO and
Fremont Investment Advisors, Inc. Treasurer and Director Director, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.
San Francisco, CA 94105 Director, J.P. Morgan Securities, Asia
John Kosecoff 10-29-51 Vice President 10/96 - Present
Fremont Investment Advisors, Inc. Vice President, Fremont
333 Market Street, 26th Floor Investment Advisors, Inc.
San Francisco, CA 94105 12/93 - 9/96 Senior Analyst and Portfolio
Manager, RCM Capital Management
11/92 - 12/93 Hedge Fund Analyst and
Portfolio Manager, Omega Advisors
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
William M. Feeney 3-27-56 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Norman Gee 3-29-50 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Alexandra W. Kinchen(4) 4-25-45 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Andrew L. Pang(4) 4-15-49 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Robert J. Haddick(4) 2-26-60 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Tina Thomas 8-7-49 Vice President, Secretary, 6/96 - Present Vice President, Secretary
Fremont Investment Advisors, Inc. and Chief Compliance and Chief Compliance Officer,
333 Market Street, 26th Floor Officer Fremont Investment Advisors, Inc.
San Francisco, CA 94105 9/88 - 5/96 Chief Compliance
Officer and Vice President,
Bailard, Biehl & Kaiser, Inc.;
Treasurer, Bailard, Biehl & Kaiser International
Fund Group, Inc. and Bailard, Biehl & Kaiser Fund
Group; Principal, BB&K Fund Services, Inc.
Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26h Floor
San Francisco, CA 94105
Allyn Hughes 6-12-60 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Greg Hand 10-9-61 Assistant Treasurer Assistant Treasurer.
Fremont Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Jack Gee 9-12-59 Vice President and 10/97 - Present, Vice President and
Fremont Investmetnt Avisors, Inc. Controller Controller, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 11/95-10/97, Chief
San Francisco, CA 94105 Financial Officer and Tresurer,
Sife, Inc.;6/91-6/95, Controller,
Concord General Corp.
Dean Boebinger 11-21-55 Vice President 12/95 - Present
Fremont Investment Advisors, Inc. National Sales Manager,
3000 Post Oak Blvd., Suite 100 Fremont Investment
Houston, TX 77056 Advisors, Inc.
8/94 - 12/95 Regional Sales Manager
3/92 - 7/94 Certified Financial Planner
and Account Executive, GNA, Inc.
</TABLE>
<PAGE>
(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, 1997, Richard E. Holmes, William W.
Jahnke, and David L. Egan each received $13,500 and Donald C. Luchessa received
$12,000 for serving as directors of the Investment Company.
As of February 16, 1998 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.
-24-
<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 Funds acquired by certain
retirement plans.
Each Fund (other than the International Growth Fund, the International Small Cap
Fund and the U.S. Micro-Cap 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); legal and
auditing expenses; and the costs of stationery and forms prepared exclusively
for the Fund.
With respect to the International Growth Fund and the International Small Cap
Fund, the Advisor has agreed to bear all of each Fund's ordinary operating
expenses in return for receiveing a monthly fee of 1.5% per annum of each Fund's
average daily net assets. With respect to the U.S. Micro-Cap Fund, the Advisor
has agreed to bear all of the Fund's ordinary operating expenses in return for
receiving a monthly fee of 2.5% per annum of the Fund's average daily net assets
with respect to the first $30 million, 2.0% with respect to the next $70
million, and 1.5% thereafter. Each Fund will bear all expenses relating to
interest, brokerage commissions, other transaction charges relative to investing
activities of the Fund, and extraordinary expenses (including for example,
litigation expenses, if any).
The allocation of general Investment Company expenses among the Funds is made on
a basis that the directors deem fair and equitable, which may be based on the
relative net assets of each Fund or the nature of the services performed and
relative applicability to each Fund.
The directors of the Advisor are David L. Redo, Jon S. Higgins, Peter F.
Landini, Michael H. Kosich and Albert W. Kirschbaum.
The Investment Advisory and Administration Agreement (the "Advisory Agreement")
with respect to each Fund 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 a 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 with respect to any Fund 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).
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The following table depicts the advisory fees (net of voluntary waivers) paid by
the Funds to the Advisor for the fiscal years ended October 31, 1997, 1996 and
1995:
Fiscal Year Ended October 31,
(In '000's)
---------------------------------
1997 1996 1995
------- ------- ------
Money Market Fund $ 837 $ 650 $ 621
Bond Fund 303 317 274
Real Estate Securities Fund -- -- --
Global Fund 3,850 3,198 2,735
Growth Fund 604 341 196
International Growth Fund 618 549 440
International Small Cap Fund 149 158 57
Select Fund -- -- --
U.S. Small Cap Fund 5 -- --
Emerging Markets Fund 17 Waived --
U.S. Micro-Cap Fund 3,050 890 77
CA Tax-Free Fund 183 153 164
The Advisory Agreements with respect to the Money Market Fund, the Bond Fund,
the Global Fund, the Growth Fund, and the Emerging Markets Fund also provide for
the payment of an administrative fee to the Advisor at the annual rate of .15%
of average net assets. The following table depicts the administrative fee (net
of voluntary waivers) paid by the Funds to the Advisor for the fiscal years
ended October 31, 1997, 1996 and 1995:
Fiscal Year Ended October 31,
(In '000's)
------------------------------------
1997 1996 1995
------- ------- ------
Money Market Fund Waived Waived Waived
Bond Fund Waived Waived Waived
Real Estate Securities Fund N/A N/A N/A
Global Fund 962 800 684
Growth Fund 181 102 43
International Growth Fund N/A N/A N/A
International Small Cap Fund N/A N/A N/A
Select Fund N/A N/A N/A
U.S. Small Cap Fund 1 N/A N/A
Emerging Markets Fund 3 Waived N/A
U.S. Micro-Cap Fund N/A N/A N/A
Ca Tax Free Fund 3 3 3
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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 from the Advisor's compliance officer in order to purchase
or sell a security for the employee's own account. Purchases or sales of
securities which are not eligible for purchase or sale by the Funds 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 personal securities transactions.
The Sub-Advisors - Fremont Bond Fund, Fremont Real Estate Securities Fund,
Fremont International Growth Fund, Fremont International Small Cap Fund, Fremont
U.S. Small Cap Fund, Fremont Emerging Markets Fund, Fremont U.S. Micro-Cap Fund.
The Advisory Agreements authorize the Advisor, at its option and at its sole
expense, to appoint a Sub-Advisor, which may assume all or a portion of the
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 affected Fund. Pursuant to this
authority, the following table summarizes the Sub-Advisor:
Fund Sub-Advisor
- ---- -----------
Bond Fund Pacific Investment Management Company
Real Estate Securities Fund Kensignton Investment Group
International Growth Fund Capital Guardian Trust Company
International Small Cap Fund Bee & Associates
U.S. Small Cap Fund Kern Capital Management LLC
Emerging Markets Fund Nicholas-Applegate Capital Management (HK) LLC
U.S. Micro-Cap fund Kern Capital Management LLC
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The current Portfolio Management Agreements provide that the Sub-Advisors agree
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 Funds' current
Prospectus and Statement of Additional Information), as interpreted from time to
time by the Board of Directors.
For their services under the Portfolio Management Agreements, the Advisor has
agreed to pay the Sub-Advisors an annual fee equal to the percentages set forth
below of the value of the applicable Fund's average net assets, payable monthly:
Bond Fund: .25% to Pacific Investment Management
Company
Real Estate Securities Fund 0.50% to Kensington Investment Group
International Growth Fund Capital Guardian Trust Company
.750% on the first $25 million
.600% on the next $25 million
.425% on the next $200 million
.375% on assets in excess of $250
million
International Small Cap Fund: .80% to Bee & Associates
U.S. Small Cap Fund: 0.65% to Kern Capital Management LLC
Emerging Markets Fund: .50% to Nicholas Applegate Capital
Management (Hong Kong) LLC
U.S. Micro-Cap Fund: to Kern Capital Management LLC:
1.50% on the first $30 million
1.00% on the next $70 million
.75% on assets in excess of $100
million
For the fiscal year ended October 31, 1997, Pacific Investment Management
Company, Sit Investment Associates, Inc., Morgan Grenfell Capital Management,
Inc., Kern Capitla Management LLC and Nicholas-Applegate Capital Management
received from the Advisor (not the Funds) subadvisory fees (net of voluntary fee
waivers) of $189,286, $11,699, $835,014, $359,873, and $15,039 respectively. For
the fiscal year ended October 31, 1996, Pacific Investment Management Company,
Sit Investment Associates, Inc., and Morgan Grenfell Capital Management, Inc.
received from the Advisor (not the Funds) subadvisory fees
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(net of voluntary fee waivers) of $198,574, $81,991, and $364,583, respectively.
Acadian Asset Management, Inc. waived its subadvisory fees for the fiscal year
ended October 31, 1997 and 1996. For the fiscal year ended October 31, 1995,
Pacific Investment Management Company, Sit Investment Associates, Inc., and
Sit/Kim International Investment Associates, Inc. received from the Advisor
subadvisory fees (net of voluntary waivers) of $181,386, $57,522 and $165,172,
respectively. Acadian Asset Management, Inc. and Morgan Grenfell Capital
Management, Inc. each waived its subadvisory fees for the fiscal year ended
October 31, 1995.
The Portfolio Management Agreements for each Fund continue 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. Each 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, each Agreement automatically terminates in the event of its
assignment.
Principal Underwriter. The Fund's principal underwriter is First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018
(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 and is not paid either directly or
indirectly by the Investment Company. The Distributor will receive compensation
of $50,000 from the Advisor with respect to the fiscal year ended October 31,
1998 for services as Distributor.
Transfer Agent. The Advisor is the Funds transfer Agent and has engaged State
Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri,
64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder
service agent. The Custodian is not involved in determining investment policies
of the Fund or its portfolio securities transactions. Its services do not
protect shareholders against possible depreciation of their assets. The fees of
State Street Bank and Trust Company are paid by the Fund and thus borne by the
Fund's shareholders. State Street Bank and Trust Company has contracted with
National Financial Data Services to serve as shareholder servicing agent. A
depository account has been established at United Missouri Bank of Kansas City
("United Missouri Bank") through which all payments for the funds will be
processed.
Administrator. The Advisor has retained Investment Company Administration
Corporation (the "Sub-Administrator"), with offices at 2025 East Financial Way,
Suite 101, Glendora, California 91741. The Administration Agreement provides
that the Sub-Administrator will prepare and coordinate reports and other
materials supplied to the Directors; prepare and/or supervise the preparation
and filing of securities filings, periodic financial reports, prospectuses,
statements of additional information, marketing materials, shareholder reports
and other regulatory reports or filings required of the Fund; prepare all
required filings necessary to maintain the Fund's notice filings to sell shares
in all states where the Fund currently does, or intends to do, business;
coordinate the preparation, printing and mailing of
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<PAGE>
materials required to be sent to shareholders; and perform such additional
services as may be agreed upon by the Advisor and the Sub-Administrator. For its
services, the Advisor (not the Fund) pays the Sub-Administrator an annual fee
equal to .02% of the first $1 billion of the Fund's average daily net assets,
0.015% thereafter, subject to a minimum annual fee of $20,000.
PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH FUND,
INTERNATIONAL SMALL CAP FUND, REAL ESTATE SECURTIES FUND, SELECT FUND AND
EMERGING MARKETS FUND ONLY)
As stated in the Prospectus, the above referenced Funds have adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act which
permits the Funds to compensate the Advisor 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 permits payments in any
fiscal year up to a maximum of .25% of the average daily net assets of the
Funds. It is possible that the Advisor could receive compensation under the Plan
that exceeds the Advisor's costs and related distribution expenses, thus
resulting in a profit to the Advisor.
Agreements implementing the Plan (the "Implementation Agreements") are in
writing and have been approved by the Board of Directors. All payments made
pursuant to the Plan are made in accordance with written agreements and are
reviewed by the Board of Directors at least quarterly.
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 Funds.
In the event the Plan is terminated in accordance with its terms, the Funds will
not be required to make any payments for expenses incurred by the Advisor after
the termination date. Each Implementation Agreement terminates automatically in
the event of its assignment and may be terminated at any time by a vote of a
majority of the Independent Directors or by a vote of the holders of a majority
of the outstanding shares of the Funds 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 Funds 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
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<PAGE>
growth of the Funds, which will benefit the Funds and its shareholders through
increased economies of scale, greater investment flexibility, greater portfolio
diversification, and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Directors make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, the costs to and expenses incurred by the
Advisor pursuant to the Plan and the purposes underlying such cash and
expenditures must be reported quarterly to the Board of Directors for its
review. In addition, the selection and nomination of those Directors who are not
interested persons of the Investment Company are committed to the discretion of
the Independent Directors during such period.
Pursuant to the Plan, the Funds 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 Funds 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 Funds
may from time to time purchase securities issued by banks which provide such
services; however, in selecting investments for the Funds, no preference will be
shown for such securities.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for a Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other 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 a Fund, they will be effected
only when the Advisor or Sub-Advisor believes that to do so will be in the best
interest of such 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 other series of the Investment Company.
The Bond Fund, the Global Fund, the Growth Fund, the International Growth Fund,
the International Small Cap Fund, the Select Fund, the Emerging Markets Fund,
and the U.S. Micro-Cap Fund contemplate 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 these Funds will endeavor to achieve the
best net results on their portfolio transactions. There is generally less
government supervision and regulation of
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<PAGE>
foreign stock exchanges and brokers than in the United States. Foreign security
settlements may in some instances be subject to delays and related
administrative uncertainties.
Foreign equity securities may be held by the Global Fund, the Growth Fund, the
International Growth Fund, the International Small Cap Fund, the Select Fund,
the Emerging Markets Fund, and the U.S. Micro-Cap 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 a Fund may invest are
generally traded in the over-the-counter markets.
No brokerage commissions have been paid by the Money Market Fund during the last
three fiscal years. The aggregate dollar amount of brokerage commissions paid by
the other Funds during the last three years are as follows:
Fiscal Year Ended October 31,
--------------------------------------
1997 1996 1995
----------- --------- ---------
Bond Fund $ 6,238 $ 11,855 $ 17,243
Global Fund 457,345,985 1,069,049 1,545,310
Growth Fund 133,423,420 141,414 102,857
International Growth Fund 68,701,854 344,243 99,089
International Small Cap Fund 11,444,571 8,854 11,850
U.S. Small Cap Fund 1,642,365 --- ---
Emerging Markets Fund 27,789,638 20,196 ---
U.S. Micro-Cap Fund 93,816,069 68,850 4,326
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 a
Fund and/or 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
each Fund's portfolio.
Subject to the requirements of the Investment Company Act of 1940 and procedures
adopted by the Board of Directors, the Funds may execute portfolio transactions
through any broker or dealer and pay brokerage commissions to a broker which is
an affiliated person of the Investment Company, the Advisor, or a Sub-Advisor,
or an affiliated person of such person. It is presently anticipated that certain
affiliates of the Sub-Advisor(s) will effect brokerage transactions of the Funds
in certain markets and receive compensation for such services.
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As of October 31, 1997, the Money Market Fund owned securities of the Investment
Company's regular brokers or dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: Goldman, Sachs & Co. - $4,990,000,
J.P. Morgan & Co. - $4,981,000 and Merrill Lynch & Co., Inc. -$4,879,000. As of
October 31, 1997, the Bond Fund owned securities of the Investment Company's
regular brokers or dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: Salomon, Inc. - $3,501,000 and
Morgan Stanley - $1,012,000. As of October 31, 1997, the Global Fund owned
securities of the Investment Company's regular brokers or dealers or their
parents (as defined in Rule 10b-1 promulgated under the 1940 Act) as follows:
Merrill Lynch & Co., Inc. - $4,998,000, Lehman Brothers - $3,059,000, Salomon,
Inc. - $3,021,000 and HSBC Holdings PLC - $2,938,000. As of October 31, 1997,
the Growth Fund owned securities of the Investment Company's regular brokers or
dealers or their parents (as defined in Rule 10b-1 promulgated under the 1940
Act) as follows: J.P. Morgan & Co., Inc. - $889,000. As of October 31, 1997, the
International Growth Fund owned securities of the Investment Company's regular
brokers or dealers or their parents (as defined in Rule 10b-1 promulgated under
the 1940 Act) as follows: Merrill Lynch & Co., Inc. - $1,899,000.
HOW TO INVEST
Price of Shares. The price to be paid by an investor for shares of a 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, Martin Luther King 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
Money Market Fund will also observe additional federal holidays that are not
observed by the New York Stock Exchange: Columbus Day, and Veterans Day.
Each Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). The Bond Fund's, the
Global Fund's, the Growth Fund's, the International Growth Fund's, the
International Small Cap Fund's, the Select Fund's, the Emerging Market Fund's,
and the U.S. Micro-Cap 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
these Funds may be significantly affected by such trading on days when a
shareholder has no access to the Funds. 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 Funds."
Fremont Bond Fund, Fremont Real Estate Securities Fund, Fremont Global Fund,
Fremont Growth Fund, Fremont International Growth Fund, Fremont International
Small Cap Fund, Fremont Select Fund, Fremont U.S. Small Cap Fund, Fremont
Emerging Markets Fund, and Fremont U.S. Micro-Cap Fund:
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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 Funds amortize to maturity
all securities with 60 days or less remaining to maturity based on
their cost to the Funds if acquired within 60 days of maturity or,
if already held by a Fund on the 60th day, based on the value
determined on the 61st day. Options on currencies purchased by the
Funds 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
Funds' 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 these Funds 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 these Funds' calculation of net asset value unless the Board of
Directors deems that the particular event would materially affect
net asset value, in which case an adjustment will be made
4. With respect to the Global Fund, gold bullion and bullion-type coins
are valued at the closing price of gold on the New York Commodity
Exchange
5. 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
6. Each Fund's liabilities, including proper accruals of taxes and
other expense items, are deducted from total assets and a net asset
figure is obtained
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<PAGE>
7. 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.
Fremont Money Market Fund:
It is the Money Market Fund's policy to use its best efforts to maintain a
constant per share price for the Money Market Fund equal to $1.00.
The portfolio instruments of the Money Market Fund are valued on the basis of
amortized cost. This involves valuing an instrument at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value, as determined by amortized cost,
is higher or lower than the price the Money Market Fund would receive if it sold
the instrument.
The valuation of the Money Market Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of a per share net asset value at
$1.00 are permitted by Rule 2a-7 adopted by the Securities and Exchange
Commission ("SEC"). Under this rule, the Money Market Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less as allowed by
regulations under the 1940 Act, and invest only in securities determined by the
Board of Directors to be of high quality with minimal credit risks. In
accordance with this rule the Board of Directors has established procedures
designed to stabilize, to the extent reasonably practicable, the Money Market
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the portfolio holdings by the Board of
Directors at such intervals as it may deem appropriate, to determine whether the
net asset value of the Money Market Fund calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost. The rule also provides that a deviation between the Money Market
Fund's net asset value based upon available market quotations or market
equivalents and $1.00 per share net asset value based on amortized cost
exceeding $0.005 per share must be examined by the Board of Directors. In the
event the Board of Directors determines that the deviation may result in
material dilution or is otherwise unfair to investors or existing shareholders,
the Board of Directors must cause the Money Market Fund to take such corrective
action as it regards as necessary and appropriate, including: selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations.
In the event that a security meeting the Money Market Fund's quality
requirements is acquired and subsequently is assigned a rating below "First
Tier" by one or more of the rating organizations, the Board of Directors must
assess promptly whether the security presents minimal credit risks and direct
the Money Market Fund to take such action as the Board of Directors determines
is in the best interest of the Money Market Fund and its shareholders. This
responsibility cannot be delegated to the Advisor. However, this assessment by
the Board of Directors is not required if the security is disposed of (by sale
or otherwise) or matures within five Business Days of the time the Advisor
learns of the lower rating. However, in such a case the Board of Directors must
be notified thereafter.
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<PAGE>
In the event that a security acquired by the Money Market Fund either defaults
(other than an immaterial default unrelated to the issuer's financial
condition), or is determined no longer to present minimal credit risks, the
Money Market Fund must dispose of the security (by sale or otherwise) as soon as
practicable unless the Board of Directors finds that this would not be in the
Money Market Fund's best interest.
Fremont California Intermediate Tax-Free Fund:
Portfolio securities 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 the equivalent value of
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.
The Fund deems the maturities of variable or floating rate instruments, or
instruments which the Fund has the right to sell at par to the issuer or dealer,
to be the time remaining until the next interest rate adjustment date or until
they can be resold or redeemed at par.
Where market quotations are not readily available, the Fund values securities
(including restricted securities which are subject to limitations as to their
sale) at fair value as determined in good faith by or under the direction of the
Board of Directors.
The fair value of any other assets is added to the value of securities, as
described above to arrive at total assets. The Fund's liabilities, including
proper accruals of taxes and other expense items, are deducted from total assets
and a net asset figure is obtained. 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 a 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 Sub-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 Sub-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 and be made payable to Fremont Mutual Funds. Third party checks,
credit cards and cash will not be accepted. All investment checks are subject to
a ten day holding period.
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<PAGE>
As a condition of this offering, if an order to purchase shares is cancelled due
to nonpayment (for example, because of a check returned for "not sufficient
funds"), the person who made the order will be responsible for reimbursing the
Advisor for any loss incurred by reason of such cancellation. If such purchaser
is a shareholder, that Fund shall have the authority as agent of the shareholder
to redeem shares in the shareholder's account for the then-current net asset
value per share to reimburse that Fund for the loss incurred. Such loss shall be
the difference between the net asset value of that 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
Sub-Transfer Agent (or other arrangements made with the Investment Company, in
the case of orders utilizing wire transfer of funds) and payment has been
received. To protect existing shareholders, the Investment Company reserves the
right to reject any offer for a purchase of shares by any individual.
Redemption in Kind. The Investment Company may elect to redeem shares in assets
other than cash but must pay in cash all redemptions with respect to any
shareholder during any 90-day period in an amount equal to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of a Fund at the beginning of such
period.
Suspension of Redemption Privileges. The Investment Company may suspend
redemption privileges with respect to any Fund or postpone the date of payment
for more than seven calendar 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." Each Fund will be treated under the
Code as a separate entity, and each Fund has elected and intends to continue to
qualify to be treated 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, a 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 a 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, a 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;
and (b) 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
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<PAGE>
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 a Fund controls and which
are engaged in the same or similar trades or businesses. Income and gain from
investing in gold or other commodities will not qualify in meeting the 90% gross
income test.
Even though a Fund qualifies as a "regulated investment company," it may be
subject to certain federal excise taxes unless that 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 a Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
a Fund pays income tax for the year. Each Fund intends to meet these
distribution requirements to avoid the excise tax liability.
If for any taxable year a 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.
Special Tax Considerations for the Real Estate Securities Fund. The Fund may
invest in REITs that hold residual interests in real estate mortgage investment
conduits ("REMICs"). Under Treasury regulations that have not yet been issued,
but which may apply retroactively, a portion of the Fund's income from a REIT
that is attributable to the REITs residual interest in a REMIC (referred to in
the Code as an "excess inclusion") will be subject to federal income tax in all
events. These regulations are also expected to provide that excess inclusion
income of a regulated investment company, such as the Fund, will be allocated to
shareholders of the regulated investment company in proportion to the dividends
received by such shareholders, with the same consequences as if the shareholders
held the related REMIC residual interest directly. In general, excess inclusion
income allocated to shareholders (i) cannot be offset by net operating losses
(subject to a limited exception for certain thrift institutions), (ii) will
constitute unrelated business taxable income to entities (including a qualified
pension plan, an individual retirement account, a 401(k) plan or other
tax-exempt entity) subject to tax on unrelated business income, thereby
potentially requiring such an entity that is allocated excess inclusion income,
and otherwise might not be required to file a tax return, to file a tax return
and pay tax on such income, and (iii) in the case of a foreign shareholder, will
not qualify for any reduction in U.S. federal withholding tax. In addition, if
at any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
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<PAGE>
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations.
Even though the Fund intends to qualify 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. It is possible that
the Fund will not receive cash distributions from the real estate investment
trusts ("REITs") in which it invests in sufficient time to allow the Fund to
satisfy its won distribution requirements using these REIT distributions.
Accordingly, the Fund might be required to generate cash to make its own
distributions, which may cause the Fund to sell securities at a time not
otherwise advantageous to do so, or to borrow money to fund a distribution.
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 a
Fund in the same manner whether such dividends are received as shares or in
cash. If a Fund does not receive any dividend income from U.S. corporations,
dividends from that Fund will not be eligible for the dividends received
deduction allowed to corporations. To the extent that dividends received by a
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. The
maximum federal capital gains rate for individuals is 28% with respect to
capital assets held for more than 12 months, but not more than 18 months, and
20% with respect to capital assets held more than 18 months. The maximum capital
gains for corporate shareholders is the same as the maximum tax rate for
ordinary income.
Net Capital Gains. Any distributions designated as being made from a Fund's net
capital gains will be taxable as long-term capital gains or mid-term capital
gains, as the case may be, regardless of the holding period of the shareholders
of that Fund's shares. 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 during
the 90-day period that begins 45 days before the stock becomes ex-divided with
respect to the dividend without protection from risk of loss. Similar
requirements apply to the Fund with respect to each qualifying dividend the Fund
receives. Shareholders are
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<PAGE>
advised to consult their tax advisor regarding application of these rules to
their particular circumstances.
Capital loss carryforwards result when a Fund has net capital losses during a
tax year. These are carried over to subsequent years and may reduce
distributions of realized gains in those years. Unused capital loss
carryforwards expire in eight years. Until such capital loss carryforwards are
offset or expire, it is unlikely that the Board of Directors will authorize a
distribution of any net realized gains.
Non-U.S. Shareholders. Under the Code, distributions of net investment income by
a 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 a 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 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 a 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 Funds will attempt to
monitor Section 988 transactions to avoid an adverse tax impact. See also
"Investment Objectives, Policies, and Risk Considerations" in this Statement of
Additional Information.
Any loss realized on redemption or exchange of a 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 redeemed or
exchanged.
Under the Code, a 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. A Fund may be required to pay
withholding and other taxes imposed by foreign countries generally at rates from
10% to 40% which would reduce such Fund's investment income. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is not anticipated that shareholders (except with respect to the
Global Fund, the International Growth Fund, the International Small Cap Fund,
and the Emerging Markets Fund) will be entitled to a foreign tax credit or
deduction for such foreign taxes.
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<PAGE>
With respect to the Global Fund, the International Growth Fund, the
International Small Cap Fund, or the Emerging Markets Fund, so long as it (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 applicable 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 foregoing is a general abbreviated summary of present United States federal
income taxes on dividends and distributions by each Fund. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state, and local taxes applicable to dividends and
distributions received.
ADDITIONAL INFORMATION
Custodian. The Northern Trust Company, 50 South LaSalle Street, Chicago,
Illinois 60675, acts as Custodian for the Investment Company's assets, and as
such safekeeps the Funds' 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 each
Fund, assist in the preparation of each 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 Funds as of October 31, 1997 incorporated herein by reference
are audited. Such financial statements are included herein 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 of common stock offered hereby will
be passed upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street,
San Francisco, California 94104. In addition to acting as counsel to the
Investment Company, Paul, Hastings, Janofsky & Walker 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.
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<PAGE>
Shareholder Voting Rights. The Investment Company currently issues shares in
thirteen 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.
Certain Shareholders. To the best knowledge of the Funds, shareholders owning 5%
or more of the outstanding shares of the Funds as of record are set forth below:
<TABLE>
<CAPTION>
Shareholder % held as of
----------- ------------
Fund Name & Address February 19, 1998
- ---- -------------- -----------------
<S> <C> <C>
Money Market Fund Bechtel Mast Trust for Qualifed Employees 51.83%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Sequoia Ventures, Inc. 11.72%
50 Fremont Streeet, Ste 3600
San Francisco, Ca 94105-2239
Bond Fund Bechtel Mast Trust for Qualifed Employees 76.01%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Sequoia Ventures, Inc. 5.32%
50 Fremont Streeet, Ste 3600
San Francisco, Ca 94105-2239
Real Estate Charles Schwab & Co., Inc. 40.22%
Securities Fund 101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp 14.42%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003
Donald Lufkin & Jenrette 12.52%
Mutual Funds, 7th Floor
1 Pershing Plaza
Jersey City, NJ 07399-0001
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Fremont Investment Advisors, Inc. 10.00%
333 Market Street, Ste. 2600
San Francisco, Ca 94105-2127
Global Fund Bechtel Mast Trust for Qualifed Employees 43.33%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
BF Fund Limited 6.05%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Growth Fund BF Fund Limited 54.01%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
International Growth BF Fund Limited 71.50%
Fund 50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Fremont Investors, Inc. 5.11%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
International Small Charles Schwab & Co., Inc. 18.72%
Cap Fund 101 Montgomery Street
San Francisco, CA 94104-4122
Fremont Investors, Inc. 15.92%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Fremont Investment Advisors, Inc. 14.29%
333 Market Street, Ste. 2600
San Francisco, Ca 94105-2127
Fremont Group 11.31%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Gary L. Bergstrom 8.21%
303 Marsh Street
Belmont MA 02178-1733
Select Fund Fremont Investors, Inc. 96.72%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
U.S. Small Cap Fund Fremont Investors, Inc. 83.23%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Emerging Markets Charles Schwab & Co., Inc. 21.99%
Fund 101 Montgomery Street
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
San Francisco, CA 94104-4122
Fremont Investors, Inc. 15.04%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Fremont Investment Advisors, Inc. 13.38%
333 Market Street, Ste. 2600
San Francisco, Ca 94105-2127
Fremont Group 10.69%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
U.S. Micro-Cap Fund Charles Schwab & Co., Inc. 29.36%
101 Montgomery Street
San Francisco, CA 94104-4122
Goodness Limited 12.73%
P.O. Box N-7776
Nassau, Bahamas
National Financial Services Corp 7.45%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003
Donald Lufkin & Jenrette 6.32%
Mutual Funds, 7th Floor
1 Pershing Plaza
Jersey City, NJ 07399-0001
California BF Fund Limited 71.44%
Intermediate Tax- 50 Fremont Street, Ste. 3600
Free Fund San Francisco, CA 94105-2239
Charles Schwab & Co., Inc. 13.02%
101 Montgomery Street
San Francisco, CA 94104-4122
Willis S. Slusser and Marion B. Slusser 5.86%
200 Deer Valley Road, #1D
San Rafael, CA 94903-5513
</TABLE>
Other Investment Information. The Advisor directs the management of over $4.7
billion of assets and internally manages over $1.9 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 Global Fund's investment objectives are similar to the objectives of Bechtel
Trust & Thrift Plan, Fund A. The Bond Fund's investment objectives are the same
as the objectives of Bechtel Trust & Thrift Plan, Fund B. The Money Market
Fund's investment objectives are the same as the objectives of Bechtel Trust &
Thrift Plan, Fund C.
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<PAGE>
Historical annual returns of various market indices may be used to represent the
returns of various asset classes as follows:
(1) U.S. Stocks: Standard & Poor's 500 Index;
(2) Foreign Stocks: Morgan Stanley Europe, Australia and Far East (EAFE)
Index;
(3) Intermediate U.S. Bonds: Lehman Brothers Intermediate
Government/Corporate Bond Index;
(4) Foreign Bonds: Salomon Brothers Non-U.S. Dollar Bond Index;
(5) Money Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate:
1987-1997 Donoghue First Tier Money Market Fund Average; and
(6) The National Association of Real Estate Investment Trusts' (NAREIT)
Equity REIT Index.
The total returns for the above indices for the years 1980 through 1996 are as
follows (source: Fremont Investment Advisors, Inc.):
Money
Foreign Intermediate Foreign Market
U.S. Stocks Stocks U.S. Bond Bonds Securities NAREIT
----------- ------ --------- ----- ---------- ------
1980 32.4% 24.4% 6.4% 14.2% 11.8% 28.02%
1981 -5.0% -1.0% 10.5% -4.6% 16.1% 8.58%
1982 21.3% -0.9% 26.1% 11.9% 10.7% 31.64%
1983 22.3% 24.6% 8.6% 4.4% 8.6% 25.47%
1984 6.3% 7.9% 14.4% -1.9% 10.0% 14.82%
1985 31.8% 56.7% 18.1% 35.0% 7.5% 5.92%
1986 18.7% 70.0% 13.1% 31.4% 5.9% 19.18%
1987 5.1% 24.9% 3.7% 35.2% 6.0% -10.67%
1988 16.8% 28.8% 6.7% 2.4% 6.9% 11.36%
1989 31.4% 11.1% 12.8% -3.4% 8.5% -1.81%
1990 -3.2% -23.0% 9.2% 15.3% 7.5% -17.35%
1991 30.6% 12.9% 14.6% 16.2% 5.5% 35.68%
1992 7.7% -11.5% 7.2% 4.8% 3.3% 12.18%
1993 10.0% 33.3% 8.8% 15.1% 2.6% 18.55%
1994 1.3% 8.1% -1.9% 6.0% 3.6% 0.81%
1995 37.5% 11.2% 15.3% 19.6% 5.3% 18.31%
1996 23.0% 6.1% 4.1% 4.5% 4.8% 35.75%
1997 33.4% 1.8% 7.9% -4.3% 5.0% 29.14%
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<PAGE>
The Bond Fund, the Real Estate Securities Fund, the Global Fund, the Growth
Fund, the International Growth Fund, the International Small Cap Fund, the
Select Fund, the U.S. Small Cap Fund, the Emerging Markets Fund, and the U.S.
Micro-Cap Fund are best suited as long-term investments. While they offer higher
potential total returns than certificates of deposit or money market funds
(including the Money Market Fund), they involve added return volatility or risk.
The prospective investor must weigh this potential for higher return against the
associated higher risk.
INVESTMENT RESULTS
The Investment Company may from time to time include information on the
investment results (yield or total return) of a Fund in advertisements or in
reports furnished to current or prospective shareholders.
Current yield for the Money Market Fund will be calculated based on the net
change, exclusive of capital changes, over a seven-day period, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent. As of October 31,
1997, the seven-day current yield for the Money Market Fund was 5.33%.
Effective Yield (or 7-day compound yield) for the Money Market Fund will be
calculated based on the net change, exclusive of capital changes, over a
seven-day period, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and then dividing the
difference by the value of the account, at the beginning of the base period to
obtain this base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) -1].
The resulting yield figure is carried to at least the nearest hundredth of one
percent. As of October 31, 1997, the effective yield for the Money Market Fund
was 5.47%.
With respect to the Bond Fund, the Global Fund, the Growth Fund, the
International Growth Fund, the International Small Cap Fund, the Emerging
Markets Fund, and the U.S. Micro-Cap Fund, 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:
n
P(1+T) = 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
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end of any period illustrated. Each 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, each Fund will provide
lifetime average annual total return figures.
The average annual total returns of the Funds for the periods ended October 31,
1997 are as follows:
Since
1 Year 5 Years Inception
Money Market Fund 5.39% 4.54% 5.51%
Bond Fund 9.54% --- 7.54%
Global Fund 13.01% 11.62% 10.44%
Growth Fund 29.26% 18.25% 17.96%
International Growth Fund -0.01% --- 2.55%
International Small Cap Fund -14.56% --- -3.71%
U.S. Small Cap Fund --- --- -4.06%*
Emerging Markets Fund 12.55% --- 6.61%
U.S. Micro-Cap Fund 28.80% --- 33.43%
*Unannualized
The Bond Fund may quote its yield, which is computed by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period, according to the
following formula:
6
YIELD = 2[((a - b)/cd + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
The Bond Fund's 30-day yield as of October 31, 1997 was 5.94%.
Each Fund's investment results will vary from time to time depending upon market
conditions, the composition of a Fund's portfolio and operating expenses of a
Fund, so that current or past yield or total return should not be considered
representations of what an investment in a 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 a Fund's investment
results with those published for other investment companies and other investment
vehicles. A Fund's results also should be considered relative to the risks
associated with such Fund's investment objective and policies.
The Investment Company may from time to time compare the investment results of a
Fund with, or refer to, the following:
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(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During certain periods, the maximum rates paid on some
savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other
goods and services that people buy for day-to-day living).
(3) Statistics reported by Lipper Analytical Services, Inc., which ranks
mutual funds by overall performance, investment objectives, and
assets.
(4) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
large publicly traded U.S. common stocks.
(5) Dow Jones Industrial Average.
(6) CNBC/Financial News Composite Index.
(7) Russell 1000 Index, which reflects the common stock price changes of
the 1,000 largest publicly traded U.S. companies by market
capitalization.
(8) Russell 3000 Index, which reflects the common stock price changes of
the 3,000 largest publicly traded U.S. companies by market
capitalization.
(9) 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.
(10) 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.
(11) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.
(12) Morgan Stanley Europe, Australia and Far East (EAFE) Index, which is
composed of foreign stocks.
(13) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.
(14) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.
(15) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed-income securities.
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(16) 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.
(17) 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.
(18) 90-day U.S. Treasury Bills Index, which is a measure of the
performance of constant maturity 90-day U.S. Treasury Bills.
(19) Donoghue First Tier Money Fund Average, which is an average of the
30-day yield of approximately 250 major domestic money market funds.
(20) Salomon Brothers Non-U.S. World Government Bond Index, which is the
World Government Bond index excluding its U.S. market component.
(21) Salomon Brothers Non-Dollar Bond Index, which is composed of foreign
corporate and government fixed income securities.
(22) 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.
(23) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(24) 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.
(25) Datastream and Worldscope, which is an on-line database retrieval
service for information including but not limited to international
financial and economic data.
(26) International Financial Statistics, which is produced by the
International Monetary Fund.
(27) Various publications and annual reports such as the World
Development Report, produced by the World Bank and its affiliates.
(28) Various publications from the International Bank for Reconstruction
and Development/The World Bank.
(29) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch Investors Service, and
Standard Poor's Ratings Group.
(30) Various publications from the Organization for Economic Cooperation
and Development.
(31) Bechtel Trust & Thrift Plan, Fund A (Global Multi-Asset Fund), Fund
B (Bond Fund), Fund C (Money Market Fund), and Fund D (U.S. Stock
Fund).*
* Bechtel Trust & Thrift Plan performance results include reinvestment of
dividends, interest, and other income, and are net of investment management
fees. Results for
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Fund A, Fund B, and Fund D were in part achieved through the efforts of
investment managers selected by Fremont Investment Advisors or its
predecessor organizations.
Indices prepared by the research departments of such financial organizations as
the Sub-Advisor of the Funds; 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 of Chicago, Illinois
("Ibbotson") 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 Funds are an appropriate investment for long-term
investment goals including, but not limited to, funding retirement, paying for
education, or purchasing a house. The Funds do not represent a complete
investment program, and investors should consider the Funds 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 Funds may own the securities of these companies.
From time to time, the Investment Company may refer to the number of
shareholders in a 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.
A 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 Funds 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 Funds differ from bank investments in several
respects. The Funds may offer greater liquidity or higher potential returns than
CDs; but unlike CDs, the Funds will have a fluctuating share price and return
and are not FDIC insured.
A 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
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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, a 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 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 Funds. The
Funds 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.
A Fund may discuss its NASDAQ symbol, CUSIP number, and its current portfolio
management team.
From time to time, a Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, the Funds 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 Funds 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 Funds may quote various measures of volatility and benchmark correlation
such as beta, standard deviation, and R2 in advertising. In addition, the Funds
may compare these measures to those of other funds. Measures of volatility seek
to compare a 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 Funds 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
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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 Funds 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.
A 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 an investor
to make pre-tax contributions. Because of their advantages, these retirement
accounts and plans may produce returns superior to comparable non-retirement
investments. The Funds may also discuss these accounts and plans which include
the following:
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). Married couples
with a non-working spouse or a spouse not covered by an employers plan can make
a completely deductible IRA contribution for that spouse as long as their
combined adjusted gross income does not exceed $150,000. 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 SIMPLE IRAs: Simplified employee pension (SEP) plans and SIMPLE
plans provide employers and 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.
Roth IRA: The Roth IRA allows investment of after-tax dollars in a retirement
account that provides tax-free growth. Funds can be withdrawn without federal
income tax or penalty after the account has been open for five years and the age
of 59 1/2 has been attained.
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).
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The Advisor may from time to time in its sales methods and advertising discuss
the risks inherent in investing. The major types of investment risk are market
risk, industry risk, credit risk, interest rate risk, and inflation risk. Risk
represents the possibility that you may lose some or all of your investment over
a period of time. A basic tenet of investing is the greater the potential
reward, the greater the risk.
From time to time, the Funds 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, and 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,
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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 a 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.
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FREMONT INVESTMENT ADVISORS
Innovative Investment
Management and
Advisory Services
A subsidiary of Fremont Investors, Inc.
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THE FREMONT GROUP
The Fremont Group manages over $6 billion in four key business areas.
Fremont Investment Advisors, Inc. (FIA), is a subsidiary of Fremont
Investments, Inc., which is affiliated with The Fremont Group. Fremont
Investors, Inc. employs over 200 professionals in offices throughout the United
States and manages over $6 billion in four key business areas.
Direct Investments - Fremont holds significant equity positions in
companies from a broad range of industries including:
o Crown Pacific -- timber/lumber
o Petro Shopping Centers -- full-service truck stops
o Trinity Ventures -- venture capital
Real Estate - Fremont Properties, Inc., a subsidiary of Fremont Investors, Inc.
acquires and develops commercial, retail and industrial real estate. Fremont
Properties also manages over 6 million square feet of real estate in 29
properties across the U.S.
Energy - Activities of The Fremont Group's energy affiliate, Fremont Energy
L.P., include oil and natural gas exploration and development
Securities Management - Through its affiliated company, Fremont Investment
Advisors, The Fremont Group manages over $4.7 billion in global investment
portfolios.
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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 Advisors' 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 eleven no-load mutual funds in a
wide variety of investment areas.
Fremont Investment Advisors formed the Fremont Mutual Funds in 1988 in response
to retiring Bechtel employees who were taking their retirement savings out of
the Bechtel Retirement Plan. These employees were looking for low cost mutual
fund options for their personal investments and retirement plan distributions.
The Fremont Family of Funds includes eleven 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.
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INNOVATIVE INVESTMENT MANAGEMENT
Fremont Investment Advisors utilizes both internal and external
investment management expertise.
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:
International Stock Investments
--Acadian Asset Management
--Nicholas Applegate Capital Management (Hong Kong) LLC
Bond Investments
--Pacific Investment Management Company
(PIMCO)
-- U.S. Micro-Cap and Small Cap Investment
Kern Capital Management LLC
(KCM)
For more information about Fremont or the Fremont Funds,
please call 800-548-4539 (press 1).
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THE FREMONT GROUP
ORGANIZATION
| | | |
| | | |
| | | |
Direct Investments| | | |
| | |
Real Estate| | |
| |
Energy| |
|
Securities Management
|
|
Fremont Fremont
Investment -- Mutual
Advisors Funds
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APPENDIX A: DESCRIPTION OF RATINGS
Description of Commercial Paper Ratings:
Moody's Investors Service, Inc. employs the designation "Prime-1" to indicate
commercial paper having the highest capacity for timely repayment.
Issuers rated Prime-1 "have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protections; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity."
Standard & Poor's Ratings Group's ratings of commercial paper are graded into
four categories ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 - "This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation."
Fitch Investors Services, Inc.'s short-term ratings apply to debt obligations
that are payable on demand or have original maturities of generally up to three
years, including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes. The short-term rating places greater
emphasis than a long-term rating on the existence of liquidity necessary to meet
the issuer's obligations in a timely manner.
F-1+ - "Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment."
F-1 - "Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+."
Duff & Phelps Credit Rating Co. employs the designation "D-1" to indicate
high-grade short-term debt.
D-1+ - "Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources or funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations."
Appendix-1
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D-1 - "Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor."
D-1- - "High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small."
IBCA Limited's short-term ratings range from "A1" for the highest quality
obligation to "C" for the lowest.
A1 - "Obligations supported by the highest capacity for timely repayment. Where
issues possess a particularly strong credit feature, a rating of 'A1+' is
assigned."
Thomson BankWatch assigns short-term debt ratings ranging from "TBW-1" to
"TBW-4." Important factors that may influence its assessment are the overall
financial health of the particular company, and the probability that the
government will come to the aid of a troubled institution in order to avoid a
default or failure.
TBW-1 - "The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis."
Description of Bond Ratings:
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities from "Aaa" to "C." The ratings from "Aa" through "B" may be
modified by the addition of 1, 2 or 3 to show relative standing within the major
rating categories. Investment ratings are as follows:
Aaa - Best quality. These securities "carry the smallest degree of investment
risk and are generally referred to as 'gilt edge.' Interest payments are
protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues."
Aa - High quality by all standards. "They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
A - Upper medium grade obligations. These bonds possess many favorable
investment attributes. "Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
Appendix-2
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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."
Ba - "Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class."
B - "Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
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."
BB, B, CCC, CC - "Debt rated BB, B, CCC, or CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions."
Appendix-3
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Fitch Investors Services, Inc. rates the long-term debt securities of various
entities in categories ranging from "AAA" to "D." The ratings from "AA" through
"C" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Investment ratings are as follows:
AAA - "Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events."
AA - "Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA.' Because bonds are rated 'AAA'
and 'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated 'F-1+'."
A - "Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings."
BBB - "Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds and, therefore,
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings."
BB - "Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which could
assist the obligor in satisfying its debt service requirements."
B - "Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue."
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."
Appendix-4
-64-
<PAGE>
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."
BB - "Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category."
B - "Below investment grade and possessing risk that obligations will not be met
when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade."
IBCA Limited rates the long-term debt securities of various entities in
categories ranging from "AAA" to "C." The ratings below "AAA" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories. Investment ratings are as follows:
AAA - "Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk substantially."
AA - "Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic
or financial conditions may increase investment risk, albeit not very
significantly."
A - "Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk."
BBB - "Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in other
categories."
Appendix-5
-65-
<PAGE>
BB - "Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists, but
is susceptible over time to adverse changes in business, economic or financial
conditions."
B - "Obligations for which investment risk exists. Timely repayment of principal
and interest is not sufficiently protected against adverse changes in business,
economic or financial conditions."
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."
BB - "While not investment grade, the BB rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations."
B - "Issues rated B show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse developments could
negatively affect the payment of interest and principal on a timely basis."
Appendix-6
-66-
<PAGE>
FREMONT MUTUAL FUNDS, INC.
PART C; OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS
(a) Financial Statements:
(1) Investment Portfolio as of a October 31, 1997;
Statement of Assets and Liabilities as October 31,
1997; Statement of Operations for the year ended
October 31, 1997; Statement of Changes in Net Assets
for the years ended October 31, 1997 and 1996;
Condensed Financial Information - Financial Highlight
for the years ended October 31, 1993 through October
31, 1997; related notes; and the Report of
Independent Certified Public Accountants for the
Fremont Mutual Funds, Inc. (the "Funds") dated
October 31, 1997 are incorporated by reference to the
Annual Report to Shareholders of the Fund for the
fiscal year ended October 31, 1997 -- on file (File
No. 811-5632 under Post-Effective Amendment No. 31
filed March 2, 1998)
(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)
<PAGE>
(h) Articles Supplementary relating to shares of the
Emerging Markets Fund -- on file (File No. 811-5632
under Post-Effective Amendment No. 22 filed April 10,
1996)
(i) Articles Supplementary relating to shares of the
Institutional U.S. Micro Cap Fund -- on file (File
No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998)
(j) Articles Supplementary relating to shares of the U.S.
Small Cap Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(k) Articles Supplementary relating to shares of the Real
Estate Securities Funds -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2,
1998)
(l) Articles Supplementary relating to shares of the
Select Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(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 relating to Money
Market Fund, Global Fund, California Intermediate
Tax-Free Fund, Bond Fund, Growth Fund and Emerging
Markets Fund -- on file (File No. 811-5632)
(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)
<PAGE>
(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 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)
(f) Form of Portfolio Management Agreement with Credit
Lyonnais International Asset Management (HK) Limited
for Emerging Markets Fund -- on file (File No.
811-5632 under Post-Effective Amendment No. 22 filed
April 10, 1996)
(g) Investment Advisory and Administrative Services
Agreement relating to Institutional U.S. Micro Cap
Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(h) Investment Advisory and Administrative Services
Agreement relating to U.S. Small Cap Fund -- on file
(File No. 811-5632 Under Post-Effective Amendment No.
31 file March 2, 1998)
(i) Investment Advisory and Administrative Services
Agreement relating to Real Estate Securities Fund --
on file (File No. 811-5632 Under Post-Effective
Amendment No. 31 file March 2, 1998)
(j) Investment Advisory and Administrative Services
Agreement relating to Select Fund -- on file (File
No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998)
(h) Portfolio Management Agreement with Kern Capital
Management LLC and Fremont Investment Advisors, Inc.
for U.S. Micro-Cap Fund -- on file (File No. 811-5632
under Post-Effective Amendment No. 31 file March 2,
1998)
(i) Portfolio Management Agreement with Kern Capital
Management LLC and Fremont Investment Advisors, Inc.
for Institutional U.S. Micro-Cap Fund -- on file
(File No. 811-5632 Under Post-Effective Amendment No.
31 file March 2, 1998)
(j) Portfolio Management Agreement with Kern Capital
Management LLC and Fremont Investment Advisors, Inc.
for U.S. Small-Cap Fund -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2,
1998)
<PAGE>
(k) Portfolio Management Agreement with Kensington
Investment Group and Fremont Investment Advisors,
Inc. for Real Estate Securities Fund -- on file (File
No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998)
(l) Portfolio Management Agreement with Bee & Associates,
Inc. and Fremont Investment Advisors, Inc. for
International Small Cap Fund - file herewith
(m) Portfolio Management Agreement with Capital Guardian
Trust Company and Fremont Investment Advisors, Inc.
for International Growth Fund - file herewith
(6) Distribution Agreement with First Fund Distributors, Inc.
-- on file (File No. 811-5632 under Post-Effective
Amendment No. 28 filed October 17, 1997)
(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, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with Fremont Investment
Advisors, Inc. -- on file (File No. 811-5632 under
Post-Effective Amendment No. 23 filed February 28,
1997)
(b) Sub-Transfer Agency Agreement with Countrywide Fund
Services, Inc. -- on file (File No. 811-5632 under
Post-Effective Amendment No. 23 filed February 28,
1997)
(c) Administration Agreement with Investment Company
Administration Corporation (File No. 811-5632 under
Post-Effective Amendment No. 28 filed October 17,
1997)
(d) License Agreement relating to the Mark "Fremont" with
Fremont Investment Advisors, Inc. -- on file (File
No. 811-5632)
(e) 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)
<PAGE>
(f) Sub-Transfer Agency Agreement with National Financial
Data Services, Inc. - -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2,
1998)
(10)
(a) Opinion and Consent of Counsel -- on file (File No.
811-5632)
(b) Institutional U.S. Micro-Cap Fund -- on file (File
No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998)
(c) U.S. Small Cap Fund -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2,
1998)
(d) Real Estate Securities Fund -- on file (File No.
811-5632 Under Post-Effective Amendment No. 31 file
March 2, 1998)
(e) Select Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(11) Consent of Independent Public Accountants (filed herewith)
(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 -- on
file (File No. 811-5632 under Post-Effective
Amendment No. 31 file March 2, 1998)
<PAGE>
(16) Inapplicable
(17) Financial Data Schedules as of October 31, 1997
FREMONT GLOBAL FUND
FREMONT MONEY MARKET FUND
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
FREMONT GROWTH FUND
FREMONT BOND FUND
FREMONT INTERNATIONAL GROWTH FUND
FREMONT U.S. MICRO-CAP FUND
FREMONT INTERNATIONAL SMALL CAP FUND
FREMONT EMERGING MARKETS FUND
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
FREMONT U.S. SMALL CAP FUND
(18) Inapplicable
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
Stephen D. Bechtel, Jr. and members of his family, including trusts
for family members, would be considered controlling persons under
applicable Securities and Exchange Commission regulations, on account
of their shareholdings in the Funds.
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Holders as of
TITLE OF CLASS February 24, 1998
Capital Stock -- Money Market Fund 1,705
Capital Stock -- Global Fund 3,442
Capital Stock -- California Intermediate 169
Tax-Free Fund
Capital Stock -- Bond Fund 505
Capital Stock -- Growth Fund 2,178
Capital Stock -- International Growth Fund 220
Capital Stock -- International Small Cap Fund 233
Capital Stock -- U.S. Micro-Cap Fund 6,635
Capital Stock -- Emerging Markets Fund 430
Capital Stock -- Institutional U.S. Micro- 16
Cap Fund
<PAGE>
Capital Stock -- U.S. Small Cap Fund 94
Capital Stock -- Real Estate Securities Fund 264
Capital Stock -- Select Fund 30
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 American International Specialty Lines Insurance
Company.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons by the Registrant's charter and bylaws, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act, and is,
therefore, unenforceable. In particular, the Articles of the Company provide
certain limitations on liability of officers and directors. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Series of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issues.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The information required by this item is contained in the Form
Adv of the following entities and is incorporated herein by reference:
Name of investment advisor File No.
-------------------------- -------------
Kern Capital Management LLC 801-44964
Pacific Investment Management Company 801-48187
Nicholas-Applegate Capital Mgmt. (HK) LLC 801-54681
Kensington Investment Group 801-44964
Capital Guardian Trust
Bee & Associates
<PAGE>
Item 29. Principal Underwriter.
(a) First Fund Distributors, Inc. is the principal underwriter for the
following investment companies or series thereof:
Advisors Series Trust
- American Trust Allegiance Fund
- InformationTech 100(R) Fund
- Kaminski Poland Fund
- Rockhaven Funds (The)
Fleming Capital Mutual Fund Group, Inc.
Fremont Mutual Funds, Inc.
Jurika & Voyles Fund Group
RNC Mutual Fund Group, Inc.
PIC Investment Trust
Professionally Managed Portfolios
- Avondale Total Return Fund
- Perkins Opportunity Fund
- Osterweis Fund
- Pacific Gemini Partners Fund Group
- ProConscience Women's Equity Mutual Fund
- Academy Value Fund
- Kayne, Anderson Rising Dividends Fund
- Trent Equity Fund
- Leonetti Balanced Fund
- Lighthouse Growth Fund
- U.S. Global Leaders Growth Fund
- Boston Managed Growth Fund
- Harris Bretall Sullivan & Smith Growth Fund
- Insightful Investor Growth Fund
- Hodges Fund
- Penza Growth Fund
- Titan Investment Fund
Purisima Total Return Fund
Rainier Investment Management
(b) The following information is furnished with respect to the officers of
First Fund Distributors, Inc.:
Name and Principal Position and Offices with First Positions and Offices
Business Address* Fund Distributors, Inc. with Registrant
- ------------------ ------------------------------- ---------------------
Robert H. Wadsworth President and Treasurer Assistant Secretary
Steven J. Paggioli Vice President and Secretary None
Eric M. Banhazl Vice President Assistant Treasurer
* The principal business address of persons and entities listed is 4455 E.
Camelback Road, Suite 261E, Phoenix, AZ 85018.
<PAGE>
(c) The distributor receives and annual fee of $50,000 per year.
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., 333 Market Street, 26th 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' Sub-Transfer Agent,
National Financial Data Services, Inc., 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 Fremont Real Estate
Securities Fund and the Fremont Select Fund which need not be
certified, within four to six months from the effective date
of such Fund.
(c) The information required by part 5A of the Form N-1A is or
will be contained in the latest annual report to shareholders,
and Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge.
(d) The Registrant undertakes that within five business days after
receipt of a written application by shareholders holding in
the aggregate at least 1% of the shares then outstanding or
shares then having a net asset value of $25,000, which is
less, each of whom shall have been a shareholder for at least
six months prior to the date of application (hereinafter the
"Petitioning Shareholders"), requesting to communicate with
other shareholders with a view to obtaining signatures to a
request for a meeting for the purpose of voting upon removal
of any Director 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 to its
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 15th day of April, 1998.
FREMONT MUTUAL FUNDS, INC.
By: /S/ DAVID L. REDO
------------------------
DAVID L. REDO
Chairman
Pursuant to the requirements of the Securities Act of 1933
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities listed, and each on April 15, 1998.
PRINCIPAL EXECUTIVE OFFICER:
/S/ David L. Redo Chairman and Chief
- -------------------------- Executive Officer
David L. Redo
PRINCIPAL ACCOUNTING OFFICER:
/S/ Jack Gee Vice President and Controller
- --------------------------
Jack Gee
<PAGE>
DIRECTORS:
/S/ RICHARD E. HOLMES* Director
- --------------------------
Richard E. Holmes
/S/ DONALD C. LUCHESSA* Director
- --------------------------
Donald C. Luchessa
/S/ DAVID L. EGAN* Director
- --------------------------
David L. Egan
/S/ PETER F. LANDINI Director
- --------------------------
Peter F. Landini
/S/ DAVID L. REDO Director
- --------------------------
David L. Redo
/S/ MICHAEL H. KOSICH Director
- --------------------------
Michael H. Kosich
*By:/s/ Robert M. Slotky
- --------------------------
Robert M. Slotky
Pursuant to Power of Attorney -- on file
(File No. 811-5632 under Post-Effective
Amendment No. 31 file March 2, 1998)
PORTFOLIO MANAGEMENT AGREEMENT
THIS AGREEMENT dated and effective as of March 1, 1998, among Bee &
Associates Incorporated, a Colorado corporation (the "Sub-Advisor"); Fremont
Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont
Mutual Funds, Inc., a Maryland corporation (the "Fund").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company and is authorized to issue separate series (the "Series"),
each of which may offer a separate class of shares of beneficial interest, each
Series having its own investment objective, policies and limitations; and
WHEREAS, the Fund presently offers shares of a particular series named
the Fremont International Small Cap Fund (the "International Small Cap Series");
and
WHEREAS, the Fund has retained the Advisor to render investment
management and administrative services to the International Small Cap Series;
and
WHEREAS, the Advisor and the Fund desire to retain the Sub-Advisor to
furnish portfolio management services to the International Small Cap Series in
connection with Advisor's investment management activities on behalf of the
Series, and the Sub-Advisor is willing to furnish such services to the Advisor
and the International Small Cap Series;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Sub-Advisor, the Advisor and the Fund
as follows:
1. Appointment. The Advisor and the Fund hereby appoint Sub-Advisor to
provide sub-investment advisory services to the Advisor and the Fund with
respect to certain assets of the International Small Cap Series for the periods
and on the terms set forth in this Agreement. The Sub-Advisor accepts such
appointment and agrees to furnish the services herein set forth, for the
compensation herein provided.
2. Sub-Advisor Duties. Subject to the supervision of the Advisor, the
Sub-Advisor shall have full discretionary authority as agent and
attorney-in-fact with respect to the portion of assets of the International
Small Cap Series' portfolio assigned to the Sub-Advisor, from time to 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
<PAGE>
through such brokers, dealers, or issuers as Sub-Advisor may select. The
Sub-Advisor will provide the services under this Agreement in accordance with
the International Small Cap Series' registration statement filed with the
Securities and Exchange Commission ("SEC"), as amended. The Advisor will provide
the Sub-Advisor with a copy of each registration statement promptly after it has
been filed with the SEC. Investments by the Sub-Advisor shall conform with the
provisions of Appendix B attached hereto, as such may be revised from time to
time at the discretion of the Advisor and the Fund. Subject to the foregoing,
the Sub-Advisor will vote proxies with respect to the securities and investments
purchased with the assets of the International Small Cap Series' portfolio
managed by the Sub-Advisor. The Sub-Advisor further agrees that it will:
(a) conform with all applicable rules and regulations of the
Securities and Exchange Commission.
(b) select brokers and dealers to execute portfolio
transactions for the International Small Cap Series and select the markets on or
in which the transaction will be executed. In providing the International Small
Cap Series with investment management, it is recognized that the Sub-Advisor
will give primary consideration to securing the most favorable price and
efficient execution considering all circumstances. Within the framework of this
policy, the Sub-Advisor may consider the financial responsibility, research and
investment information and other research services and products provided by
brokers or dealers who may effect or be a party to any such transaction or other
transactions to which the Sub-Advisor's other clients may be a party. It is
understood that it is desirable for the Fund that the Sub-Advisor have access to
brokerage and research services and products and security and economic analysis
provided by brokers who may execute brokerage transactions at a higher cost to
the International Small Cap Series than broker-dealers that do not provide such
brokerage and research services. Therefore, in compliance with Section 28(e) of
the Securities Exchange Act of 1934 (the "1934 Act"), the Sub-Advisor is
authorized to place orders for the purchase and sale of securities for the
International Small Cap Series with such brokers, that provide brokerage and
research products and/or services that charge an amount of commission for
effecting securities transactions in excess of the amount of commission another
broker would have charged for effecting that transaction, provided the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research products
and/or services provided by such broker viewed in terms of either that
particular transaction or the overall responsibilities of the Sub-Advisor for
this or other advisory accounts, subject to review by the Fund from time to time
with respect to the extent and continuation of this practice. It is understood
that the information, services and products provided by such brokers may be
useful to the Sub-Advisor in connection with the Sub-Advisor's services to other
clients. On occasions when the Sub-Advisor deems the purchase or sale of a
security to be in the best interest of the International Small Cap Series as
well as other clients of the Sub-Advisor, the Sub-Advisor, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation
2
<PAGE>
to, aggregate the securities to be sold or purchased in order to obtain the most
favorable price of lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, shall be made by the Sub-Advisor in the
manner the Sub-Advisor considers to be the most equitable and consistent with
its fiduciary obligations to the International Small Cap Series and to such
other clients.
(c) make available to the Advisor and the Fund's Board of
Directors promptly upon their request all its investment records and ledgers
relating to the International Small Cap Series to assist the Advisor and the
Fund in their compliance with respect to the International Small Cap Series'
securities transactions as required by the 1940 Act and the Investment Advisers
Act of 1940 ("Advisers Act"), as well as other applicable laws. The Sub-Advisor
will furnish the Fund's Board of Directors with respect to the International
Small Cap Series such periodic and special reports as the Advisor and the
Directors may reasonably request in writing.
(d) maintain detailed records of the assets managed by the
Sub-Advisor as well as all investments, receipts, disbursements and other
transactions made with such assets. Such records shall be open to inspection and
audit during Sub-Advisor's normal business hours upon reasonable notice by any
person designated by the Advisor or the Fund. The Sub-Advisor shall provide to
the Advisor or the Fund and any other party designated by either the Advisor or
the Fund: (i) monthly statements of the activities with regard to the assets for
the month and of the assets showing each asset at its cost and, for each
security listed on any national securities exchange, its value at the last
quoted sale price reported on the composite tape on the valuation date or, in
the cases of securities not so reported, by the principal exchange on which the
security traded or, if no trade was made on the valuation date or if such
security is not listed on any exchange, its value as determined by a nationally
recognized pricing service used by the Sub-Advisor specified by such pricing
service on the valuation date, and for any other security or asset in a manner
determined in good faith by the Sub-Advisor to reflect its then fair market
value; (ii) statements evidencing any purchases and sales as soon as practicable
after such transaction has taken place, and (iii) a quarterly review of the
assets under management.
3. Expenses. During the term of this Agreement, the Sub-Advisor will
pay all expenses incurred by it, its staff and their activities, in connection
with its portfolio management activities under this Agreement. The Sub-Advisor
shall not be responsible for any expense incurred by the Advisor or the Fund,
except as provided in Section 6 below.
4. Compensation. For the services provided to the International Small
Cap Series, the Advisor will pay the Sub-Advisor the fees as set forth in
Appendix A hereto at the times set forth in Appendix A hereto.
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5. Books and Records; Custody. (a) In compliance with the requirements
of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records
which it maintains for the International Small Cap Series are the property of
the Fund and further agrees to surrender promptly to the Fund any of such
records upon the Fund's request. The Sub-Advisor further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act and to preserve the records
required by Rule 204-2 under the Advisers Act for the period specified in the
Rule.
(b) Title to all investments shall be made in the name of the
Fund, provided that for convenience in buying, selling, and exchanging
securities (stocks, bonds, commercial paper, etc.), title to such securities may
be held in the name of the Fund's custodian bank, or its nominee. The Fund shall
advise the Sub-Advisor of the identity of its custodian bank and shall give the
Sub-Advisor 15 days' written notice of any changes in such custody arrangements.
Neither the Sub-Advisor, nor any parent, subsidiary or related
firm, shall take possession of or handle any cash, securities, mortgages or
deeds of trust, or other indicia of ownership of the Fund's investments, or
otherwise act as custodian of such investments. All cash and the indicia of
ownership of all other investments shall be held by the Fund's custodian bank.
The Fund shall instruct its custodian bank to (a) carry out
all investment instructions as may be directed by the Sub-Advisor with respect
thereto (which may be orally given if confirmed in writing); and (b) provide the
Sub-Advisor with all operational information necessary for the Sub-Advisor to
trade on behalf of the Fund.
6. Indemnification. The Sub-Advisor agrees to indemnify and hold
harmless the Advisor, the Fund, any affiliated person within the meaning of
Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund
(other than the Sub-Advisor) and each person, if any, who, within the meaning of
Section 15 of the Securities Act of 1933 (the "1933 Act"), controls
("controlling person") the Advisor or the Fund against any and all losses,
claims, damages, liabilities or litigation (including reasonable legal and other
expenses) to which the Advisor, the Fund or such affiliated person or
controlling person may become subject under the 1933 Act, 1940 Act, the Advisers
Act, or under any other statute, at common law or otherwise, which (1) may be
based upon any wrongful act or omission by the Sub-Advisor, any of its employees
or representatives or any affiliate of or any person acting on behalf of the
Sub-Advisor or (2) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering the shares of the Fund or any amendment thereof or any supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance upon
information furnished to the
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Fund or any affiliated person of the Fund by the Sub-Advisor or any affiliated
person of the Sub-Advisor; provided, however, that in no case is the
Sub-Advisor's indemnity in favor of the Advisor or the Fund or any affiliated
person or controlling person of the Advisor or the Fund deemed to protect such
person against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of his or its duties or by reason of his or its reckless disregard
of obligations and duties under this Agreement or under any law.
The Fund agrees not to hold the Sub-Advisor or any of its officers or
employees liable for, and to indemnify and hold harmless, the Sub-Advisor and
its directors, officers, employees, affiliated persons and controlling persons
("Indemnified Parties") against, any act or omission of any other Sub-Advisor
providing investment management services to the Fund, and against any costs and
liabilities the Indemnified Parties may incur as a result of a claim against the
Indemnified Parties regarding actions taken in good faith exercise of their
powers hereunder excepting matters as to which the Indemnified Parties have been
grossly negligent, engaged in willful misfeasance, bad faith, reckless disregard
of the obligations and duties under this Agreement or have been in violation of
applicable law or regulations.
7. Other Investment Activities of Sub-Advisor. The Fund and Advisor
acknowledge that Sub-Advisor may have investment responsibilities or render
investment advice to, or perform other investment advisory services for, other
individuals or entities ("Affiliated Accounts"). It is also understood that the
services of the Sub-Advisor provide a competitive advantage to the Fund and the
Advisor, and the Sub-Advisor agrees that it will not provide investment advisory
or subadvisory services to any other United States, publicly offered, SEC
registered investment company with investment objectives and policies similar to
those of the International Small Cap Series for the duration of this agreement.
The Sub-Advisor further agrees that the subadvisory fee paid by the Advisor to
the Sub-Advisor under this Agreement will at all times be no less favorable than
the advisory fee paid by any institutional client of the Sub-Advisor (including
clients of the Sub-Advisor who are separate accounts, limited partnerships,
United States publicly offered SEC registered investment companies, or any other
investment vehicles). If after the execution of this Agreement the Sub-Advisor
enters into an advisory agreement with an institutional client with a fee
arrangement more favorable to the one set forth in this Agreement, then the
Sub-Advisor shall promptly notify the Advisor of such more favorable fee
arrangement and shall submit to the Advisor a written modification of this
Agreement reflecting such fee arrangement. The foregoing sentence, however, does
not apply in the case of a renewal of an existing advisory agreement between the
Sub-Advisor and an institutional client that was initially entered into before
January 1, 1996. Subject to the provisions of paragraph 2 hereof, the Fund
agrees that the Sub-Advisor may give advice or exercise investment
responsibility and take other action with respect to other Affiliated Accounts
which may differ from advice given or the timing or nature of action taken with
respect to the International Small Cap Series; provided that the Sub-Advisor
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<PAGE>
acts in good faith, and provided further that it is the Sub-Advisor's policy to
allocate, within its reasonable discretion, investment opportunities to the
International Small Cap Series over a period of time on a fair and equitable
basis relative to the Affiliated Accounts, taking into account the investment
objectives and policies of the International Small Cap Series and any specific
investment restrictions applicable thereto. The Fund acknowledges that one or
more of the Affiliated Accounts may at any time hold, acquire, increase,
decrease, dispose of or otherwise deal with positions in investments in which
the International Small Cap Series may have an interest from time to time,
whether in transactions which may involve the International Small Cap Series or
otherwise. Sub-Advisor shall have no obligation to acquire for the International
Small Cap Series a position in any investment which any Affiliated Account may
acquire, and the Fund shall have no first refusal, co-investment or other rights
in respect of any such investment either for the International Small Cap Series
or otherwise.
8. (a) Duration. This Agreement shall become effective on the date
hereof. Unless terminated as herein provided, this Agreement shall remain in
full force and effective for a period of two years from the date of this
Agreement, and shall continue in full force and effect for periods of one year
thereafter so long as such continuance is approved at least annually (i) by
either the Board of Directors of the Fund or by a vote of a majority (as defined
in the 1940 Act) of the outstanding voting securities of the International Small
Cap Series, and (ii) by the Advisor, and (iii) by the vote of a majority of the
Board of Directors of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
(b) Termination. This Agreement may be terminated at any time,
without payment of any penalty, by the Board of Directors of the Fund or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the International Small Cap Series, or by the Advisor, on thirty
(30) days' written notice to the Sub-Advisor, or by the Sub-Advisor on like
notice to the Board of Directors of the Fund and to the Advisor. Payment of fees
earned through the date of termination shall not be construed as a penalty.
(c) Automatic Termination. This Agreement shall automatically
and immediately terminate in the event of its assignment.
9. Amendments. No provision of this agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought and no amendment of this Agreement shall be effective
until approved by a vote of a majority of the outstanding voting securities of
the International Small Cap Series, if such approval is required by applicable
law.
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10. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State
of California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for
convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
(c) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the
Sub-Advisor as an agent of the Fund or the Advisor.
(e) This Agreement supersedes any prior agreement relating to
the subject matter hereof between the parties.
(f) This Agreement may be executed in counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered, shall be deemed an original and all of which
counterparts shall constitute but one and the same agreement.
11. Use of Name. It is understood that the name "Bee & Associates
Incorporated" or the name of any of its affiliates, or any derivative associated
with those names, are the valuable property of the Sub-Advisor and its
affiliates and that the Fund and/or the Fund's distributor have the right to use
such name(s) or derivative(s) in offering materials and sales literature of the
Fund so long as this Agreement is in effect. Upon termination of the Agreement
the Fund shall forthwith cease to use such name(s) or derivative(s).
12. Receipt of Brochure. The Advisor and the Fund have received from
Bee & Associates Incorporated the disclosure statement or "brochure" required to
be delivered pursuant to Rule 204-3 of the Advisers Act, which disclosure
statement or brochure was received by the Advisor and the Fund more than 48
hours prior to entering into this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
BEE & ASSOCIATES INCORPORATED
By: ______________________________
(Title)___________________________
FREMONT INVESTMENT ADVISORS, INC.
By: ______________________________
(Title)____________________________
FREMONT MUTUAL FUNDS, INC.
By: ______________________________
(Title)____________________________
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APPENDIX A
TO PORTFOLIO MANAGEMENT AGREEMENT
Bee & Associates Incorporated
Sub-Advisor to the Fremont International Small Cap Fund
SCHEDULE OF FEES
----------------
Fremont Investment Advisors, Inc. will pay to Bee & Associates Incorporated a
fee computed at the annual rate of 1.00% (100 basis points) of the International
Small Cap Fund's average value of the daily net assets under management by Bee &
Associates Incorporated. Notwithstanding the foregoing, until the earlier of (1)
the end of a twelve-month period starting from the effective date of this
Agreement as set forth on page 1 above, or (2) the total assets of the
International Small Cap Fund reach $15 million, Fremont Investment Advisors,
Inc. will pay to Bee & Associates Incorporated a fee computed at the annual rate
of 0.80% (80 basis points) of the International Small Cap Fund's average value
of the daily net assets under management by Bee & Associates Incorporated.
Fremont Investment Advisors, Inc. also reserves day-to-day authority to increase
or decrease the amount of the International Small Cap Fund's assets under
management by Bee & Associates Incorporated.
Fee will be billed after the end of each calendar month. Fees will be prorated
for any period less than one month. Fees shall be due and payable within thirty
(30) days after an invoice has been delivered to Fremont Investment Advisors,
Inc.
<PAGE>
APPENDIX B
TO PORTFOLIO MANAGEMENT AGREEMENT
Bee & Associates Incorporated
Sub-Advisor to the Fremont International Small Cap Fund
INVESTMENT OBJECTIVES AND GUIDELINES
------------------------------------
Overall Investment Objective:
- -----------------------------
The objective of the Fremont International Small Cap Fund is to achieve
long-term capital appreciation by investing primarily in equity securities of
small cap companies domiciled outside the United States.
Policy and Guidelines for Sub-Advisor:
- --------------------------------------
The Sub-Advisor will adhere to the Investment Objective and to policies in the
Fremont International Small Cap Fund prospectus.
Performance Objective for Sub-Advisor:
- --------------------------------------
The Sub-Advisor is expected to achieve a competitive rate of return over a 3 to
5 year time horizon and/or a complete market cycle, relative to other funds as
compiled by Lipper Analytical Services and/or Morningstar. A competitive rate of
return is defined as Fund performance in the top one-third of such funds.
PORTFOLIO MANAGEMENT AGREEMENT
THIS AGREEMENT dated and effective as of March 2, 1998, among Capital
Guardian Trust Company, a California corporation (the "Sub-Advisor"); Fremont
Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont
Mutual Funds, Inc., a Maryland corporation (the "Fund").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company and is authorized to issue separate series (the "Series"),
each of which may offer a separate class of shares of beneficial interest, each
Series having its own investment objective, policies and limitations; and
WHEREAS, the Fund presently offers shares of a particular series named
the Fremont International Growth Fund (the "International Growth Series"); and
WHEREAS, the Fund has retained the Advisor to render investment
management and administrative services to the International Growth Series; and
WHEREAS, the Advisor and the Fund desire to retain the Sub-Advisor to
furnish portfolio management services to the International Growth Series in
connection with Advisor's investment management activities on behalf of the
Series, and the Sub-Advisor is willing to furnish such services to the Advisor
and the International Growth Series;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Sub-Advisor, the Advisor and the Fund
as follows:
1 Appointment. The Advisor and the Fund hereby appoint Sub-Advisor to
provide sub-investment advisory services to the Advisor and the Fund with
respect to certain assets of the International Growth Series for the periods and
on the terms set forth in this Agreement. The Sub-Advisor accepts such
appointment and agrees to furnish the services herein set forth, for the
compensation herein provided. The Sub-Advisor shall have no duty with respect to
the management or operation of the Fund or the International Growth Series
except as expressly provided under this Agreement. The Advisor and the Fund
hereby represent and warrant that they shall: (1) file all required registration
statements and other documents for the Fund with the U.S. Securities and
Exchange Commission and any other relevant state or federal agencies or
commissions, and will be responsible for the adequacy and accuracy of the
content thereof (except for any materials supplied by the Sub-Advisor in writing
that have been provided for the express purpose of inclusion in such documents);
and (2) file any sales literature used in connection with the sale or
distribution of shares of the Fund with all appropriate regulatory agencies as
required.
2. Sub-Advisor Duties. Subject to the supervision of the Advisor, the
Sub-Advisor shall have full discretionary authority as agent and
attorney-in-fact with respect to the portion of assets of the International
Growth Series' portfolio assigned to the Sub-Advisor, from time to time by the
Advisor, including authority to: (a) buy, sell, exchange, convert or otherwise
trade in any stocks without limitation and (b) place orders for the execution of
such securities transactions with or through such brokers, dealers, or issuers
as Sub-Advisor may select. The Sub-Advisor will provide the services under this
Agreement in accordance with the International Growth Series' registration
statement filed with the Securities and Exchange Commission ("SEC"), as amended.
The Advisor
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will provide the Sub-Advisor with a copy of each registration statement promptly
after it has been filed with the SEC. Investments by the Sub-Advisor shall
conform with the provisions of Appendix B attached hereto, as such may be
revised from time to time at the discretion of the Advisor and the Fund and as
provided to the Sub-Advisor. Subject to the foregoing, the Sub-Advisor will vote
proxies with respect to the securities and investments purchased with the assets
of the International Growth Series' portfolio managed by the Sub-Advisor. The
Sub-Advisor further agrees that it will:
(a) conform with all requirements set out in the Fund's
compliance manual to be mutually agreed upon by the Advisor and the Sub-Advisor.
(b) select brokers and dealers to execute portfolio
transactions for the International Growth Series and select the markets on or in
which the transaction will be executed. In providing the International Growth
Series with investment management, it is recognized that the Sub-Advisor will
give primary consideration to seeking best execution for all portfolio
transactions and in doing so the Sub-Advisor may consider the financial
responsibility, research and investment information and other research services
and products provided by brokers or dealers who may effect or be a party to any
such transaction or other transactions to which the Sub-Advisor's other clients
may be a party. It is understood that it is desirable for the Fund that the
Sub-Advisor have access to brokerage and research services and products and
security and economic analysis provided by brokers who may execute brokerage
transactions at a higher cost to the International Growth Series than
broker-dealers that do not provide such brokerage and research services.
Therefore, in compliance with Section 28(e) of the Securities Exchange Act of
1934 (the "1934 Act"), the Sub-Advisor is authorized to place orders for the
purchase and sale of securities for the International Growth Series with such
brokers, that provide brokerage and research products and/or services that
charge an amount of commission for effecting securities transactions in excess
of the amount of commission another broker would have charged for effecting that
transaction, provided the Sub-Advisor determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage and
research products and/or services provided by such broker viewed in terms of
either that particular transaction or the overall responsibilities of the
Sub-Advisor for this or other advisory accounts, subject to review by the Fund
from time to time with respect to the extent and continuation of this practice.
It is understood that the information, services and products provided by such
brokers may be useful to the Sub-Advisor in connection with the Sub-Advisor's
services to other clients. On occasions when the Sub-Advisor deems the purchase
or sale of a security to be in the best interest of the International Growth
Series as well as other clients of the Sub-Advisor, the Sub-Advisor, to the
extent permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be sold or purchased subject to best
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, shall be made by the
Sub-Advisor in the manner the Sub-Advisor considers to be the most equitable and
consistent with its fiduciary obligations to the International Growth Series and
to such other clients.
(c) make available to the Advisor and the Fund's Board of
Directors promptly upon their request all its investment records and ledgers
relating to the International Growth Series to assist the Advisor and the Fund
in their compliance with respect to the International Growth Series' securities
transactions as required by the 1940 Act and the Investment Advisers Act of 1940
("Advisers Act"), as well as other applicable laws. The Sub-Advisor will furnish
the Fund's Board of Directors with respect to the International Growth Series
such periodic and special reports as the Advisor and the Directors may
reasonably request in writing.
(d) maintain detailed records of the assets managed by the
Sub-Advisor as well as all investments, receipts, disbursements and other
transactions made with such assets. Such records shall be open to inspection and
audit during Sub-Advisor's normal business hours upon
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<PAGE>
reasonable notice by any person designated by the Advisor or the Fund. The
Sub-Advisor shall provide to the Advisor or the Fund and any other party
designated by either the Advisor or the Fund: (i) monthly statements of the
activities with regard to the assets for the month and of the assets showing
each asset at its cost and its fair market value as determined according to the
reasonable procedures established by the Sub-Advisor and (ii) a quarterly review
of the assets under management.
3. Expenses. During the term of this Agreement, the Sub-Advisor will
pay all expenses incurred by it, its staff and their activities, in connection
with its portfolio management activities under this Agreement. The Sub-Advisor
shall not be responsible for any expense incurred by the Advisor or the Fund,
except as provided in paragraph 6 below.
4. Compensation. For the services provided to the International Growth
Series, the Advisor will pay the Sub-Advisor the fees as set forth in Appendix A
hereto at the times set forth in Appendix A hereto.
5. Books and Records; Custody. (a) In compliance with the requirements
of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records
which it maintains for the International Growth Series are the property of the
Fund and further agrees to surrender promptly to the Fund any of such records
upon the Fund's request. The Sub-Advisor further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act and to preserve the records required
by Rule 204-2 under the Advisers Act for the period specified in the Rule.
(b) Title to all investments shall be made in the name of the
Fund, provided that for convenience in buying, selling, and exchanging
securities (stocks, bonds, commercial paper, etc.), title to such securities may
be held in the name of the Fund's custodian bank, or its nominee. The Fund shall
advise the Sub-Advisor of the identity of its custodian bank and shall give the
Sub-Advisor 15 days' written notice of any changes in such custody arrangements.
Neither the Sub-Advisor, nor any parent, subsidiary or related
firm, shall take possession of or handle any cash, securities, mortgages or
deeds of trust, or other indicia of ownership of the Fund's investments, or
otherwise act as custodian of such investments. All cash and the indicia of
ownership of all other investments shall be held by the Fund's custodian bank.
The Sub-Advisor shall have no liability with respect to custody arrangements or
the acts, conduct or omission of the Fund's custodian.
The Fund shall instruct its custodian bank to (a) carry out
all investment instructions as may be directed by the Sub-Advisor with respect
thereto (which may be orally given if confirmed in writing); and (b) provide the
Sub-Advisor with all operational information necessary for the Sub-Advisor to
trade on behalf of the Fund. The Advisor and the Fund hereby acknowledge that as
of the inception of the Sub-Advisor's management duties with respect to the
International Growth Series, the Sub-Advisor shall be relying on the Fund
Custodian's identification of the assets and liabilities in the International
Growth Series as well as their availability for sale and settlement. The
Sub-Advisor may reasonably rely without further inquiry upon any information
furnished to it by the Fund's Custodian, and the Sub-Advisor shall not be
responsible for any errors or omission arising from any inaccuracies or
incompleteness in such information.
6. Sub-Advisor's Liabilities. In the absence of willful misconduct, bad
faith, negligence or reckless disregard of obligations and duties under this
Agreement, the Sub-Advisor shall not be subject to liability to the Advisor or
the Fund for any act or omission in the course of rendering services under this
Agreement.
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<PAGE>
7. Indemnification. The Sub-Advisor agrees to indemnify and hold
harmless the Advisor, the Fund, any affiliated person within the meaning of
Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund
(other than the Sub-Advisor) and each person, if any, who, within the meaning of
Section 15 of the Securities Act of 1933 (the "1933 Act"), controls
("controlling person") the Advisor or the Fund (collectively, the "Indemnified
Advisor Parties") against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses) to which the Advisor,
the Fund or such affiliated person or controlling person may become subject
under the 1933 Act, 1940 Act, the Advisers Act, or under any other statute, at
common law or otherwise, which (1) may be based upon the willful misconduct, bad
faith or gross negligence by the Sub-Advisor, any of its employees or
representatives or any affiliate of or any person acting on behalf of the
Sub-Advisor (it being understood that broker/dealers are not deemed to be acting
on behalf of the Sub-Advisor) or (2) may be based upon any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering the shares of the Fund or any amendment thereof
or any supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such a statement or omission was made with reasonable
reliance upon written information furnished to the Fund or any affiliated person
of the Fund by the Sub-Advisor or any affiliated person of the Sub-Advisor
supplied for the express purpose of inclusion in such registration statement or
prospectus; provided, however, that in no case is the Sub-Advisor's indemnity in
favor of the Advisor or the Fund or any affiliated person or controlling person
of the Advisor or the Fund deemed to protect such person against any liability
to which any such person would otherwise be subject by reason of willful
misconduct, bad faith or negligence in the performance of his or its duties or
by reason of his or its reckless disregard of obligations and duties under this
Agreement or under any law applicable to the Advisor.
The Advisor and the Fund agree to indemnify and hold harmless the
Sub-Advisor, its affiliates, and their respective directors, officers, employees
and affiliated persons and controlling persons (collectively, the "Indemnified
Sub-Advisor Parties") against any and all losses, claims, damages, liabilities
or litigation (including reasonable legal and other expenses) to which any of
the Indemnified Sub-Advisor Parties may become subject under the 1933 Act, 1940
Act, the Advisers Act, or under any other statute, at common law or otherwise
which does not require the Sub-Advisor to provide an indemnity under the
previous paragraph, provided that none of the Indemnified Sub-Advisor Party has
acted in a manner that involves willful misconduct, bad faith or negligence in
the performance of his or its duties or by reason of his or its reckless
disregard of obligations and duties under this Agreement or under any law
applicable to the Sub-Advisor.
In order to provide for just and equitable contribution in
circumstances in which the indemnities provided above are for any reason
unenforceable or unavailable to or otherwise insufficient to hold harmless an
indemnified party, the Indemnified Advisor Parties and the Indemnified
Sub-Advisor Parties shall contribute to the aggregate losses, claims, damages,
liabilities and legal and other expenses based upon the relative fault of the
Indemnified Advisor Parties and the Indemnified Sub-Advisor Parties shall be
determined by reference to amongst other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact or the inaccurate or alleged inaccurate representation and or
warranty relates to information supplied by the Indemnified Advisor Parties or
the Indemnified Sub-Advisor Parties.
8. Other Investment Activities of Sub-Advisor. The Fund and Advisor
acknowledge that Sub-Advisor, or one or more of its affiliates, may have
investment responsibilities or render investment advice to, or perform other
investment advisory services for, other individuals or entities ("Affiliated
Accounts"). Subject to the provisions of paragraph 2 hereof, the Fund agrees
that the Sub-
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Advisor or its affiliates may give advice or exercise investment responsibility
and take other action with respect to other Affiliated Accounts which may differ
from advice given or the timing or nature of action taken with respect to the
International Growth Series; provided that the Sub-Advisor acts in good faith,
and provided further that it is the Sub-Advisor's policy to allocate, within its
reasonable discretion, investment opportunities to the International Growth
Series over a period of time on a fair and equitable basis relative to the
Affiliated Accounts, taking into account the investment objectives and policies
of the International Growth Series and any specific investment restrictions
applicable thereto. The Fund acknowledges that one or more of the Affiliated
Accounts may at any time hold, acquire, increase, decrease, dispose of or
otherwise deal with positions in investments in which the International Growth
Series may have an interest from time to time, whether in transactions which may
involve the International Growth Series or otherwise. Sub-Advisor shall have no
obligation to acquire for the International Growth Series a position in any
investment which any Affiliated Account may acquire, and the Fund shall have no
first refusal, co-investment or other rights in respect of any such investment
either for the International Growth Series or otherwise.
9. (a) Duration. This Agreement shall become effective on the date
hereof. Unless terminated as herein provided, this Agreement shall remain in
full force and effective for a period of two years from the date of this
Agreement, and shall continue in full force and effect for periods of one year
thereafter so long as such continuance is approved at least annually (i) by
either the Board of Directors of the Fund or by a vote of a majority (as defined
in the 1940 Act) of the outstanding voting securities of the International
Growth Series, and (ii) by the Advisor, and (iii) by the vote of a majority of
the Board of Directors of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
(b) Termination. This Agreement may be terminated at any time,
without payment of any penalty, by the Board of Directors of the Fund or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the International Growth Series, or by the Advisor, on thirty (30)
days' written notice to the Sub-Advisor, or by the Sub-Advisor on like notice to
the Board of Directors of the Fund and to the Advisor. Payment of fees earned
through the date of termination shall not be construed as a penalty.
(c) Automatic Termination. This Agreement shall automatically
and immediately terminate in the event of its assignment.
10. Amendments. No provision of this agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought and no amendment of this Agreement shall be effective
until approved by a vote of a majority of the outstanding voting securities of
the International Growth Series, if such approval is required by applicable law.
11. 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.
5
<PAGE>
(c) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the
Sub-Advisor as an agent of the Fund or the Advisor except to the extent
specifically stated in paragraph 2.
(e) This Agreement supersedes any prior agreement relating to
the subject matter hereof between the parties.
(f) This Agreement may be executed in counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered, shall be deemed an original and all of which
counterparts shall constitute but one and the same agreement.
12. Use of Name. It is understood that the name "Capital Guardian" or
the name of any of its affiliates, or any derivative or logo/trademark
associated with those names, are the valuable property of the Sub-Advisor and
its affiliates and that the Fund and/or the Fund's distributor have the right to
use such name(s) or derivative(s) in offering materials and sales literature of
the Fund with the written approval of the Sub-Advisor which shall not be
unreasonably withheld so long as this Agreement is in effect. Upon termination
of the Agreement the Fund shall forthwith cease to use such name(s) or
derivative(s). The Advisor agrees that it will review with Sub-Advisor any
advertisement, sales literature or notice prior to its use that makes reference
to the Sub-Advisor.
13. Receipt of Brochure. The Advisor and The Fund hereby acknowledge
that the Sub-Advisor is a "bank" under Section 202(a)(2) of the Advisers Act and
is therefore exempt under the Advisors Act from registration and Form ADV filing
and disclosure requirements.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
CAPITAL GUARDIAN TRUST COMPANY
By: ___________________________
(Title) ___________________________
FREMONT INVESTMENT ADVISORS, INC.
By: ___________________________
(Title) ___________________________
FREMONT MUTUAL FUNDS, INC.
By: ___________________________
(Title) ___________________________
7
<PAGE>
APPENDIX A
TO PORTFOLIO MANAGEMENT AGREEMENT
Capital Guardian Trust Company
Sub-Advisor to the Fremont International Growth Fund
SCHEDULE OF FEES
----------------
Fremont Investment Advisors, Inc. will pay to Capital Guardian a fee computed at
the annual rate of .75% (75 basis points) of the first $25 million of the
average value of the daily net assets of the Fremont International Growth Fund,
.60% (60 basis points) of the next $25 million, .425% (42.5 basis points) of the
next $200 million and .375% (37.5 basis points) of the average value of the
daily assets of the International Growth Fund in excess of $250 million. For
purposes of calculating the fee stated above, other assets managed by the
Sub-Advisor for the Advisor might be considered.
Fee will be billed after the end of each calendar month. Fees will be prorated
for any period less than one month. Fees shall be due and payable within thirty
(30) days after an invoice has been delivered to Fremont Investment Advisors,
Inc.
<PAGE>
APPENDIX B
TO PORTFOLIO MANAGEMENT AGREEMENT
Capital Guardian Trust Company
Sub-Advisor to the Fremont International Growth Fund
INVESTMENT OBJECTIVES AND GUIDELINES
------------------------------------
Overall Investment Objective:
- -----------------------------
The objective of the Fremont International Growth Fund is to achieve long-term
capital appreciation by investing primarily in equity securities of issuers
domiciled outside the United States. Under normal market conditions, at least
90% of the Fund's assets will be invested in equity securities outside the
United States.
Policy and Guidelines for Sub-Advisor:
- --------------------------------------
The Sub-Advisor will adhere to the Investment Objective and to policies in the
Fremont International Growth Fund prospectus.
Performance Objective for Sub-Advisor:
- --------------------------------------
The Sub-Advisor is expected to achieve a competitive rate of return over a 3 to
5 year time horizon and/or a complete market cycle, relative to other funds as
compiled by Lipper Analytical Services and/or Morningstar. A competitive rate of
return is defined as Fund performance in the top one-third of such funds.
CONSENT OF INDEPENDENT ACCOUNTANTS
----------
We consent to the incorporation by reference in Post-Effective Amendment No. 32
to the Registration Statement of Fremont Mutual Funds, Inc. on Form N-1A (File
No. 33-23453 ) of our report dated December 9, 1997 on our audit of the
financial statements of Fremont Mutual Funds, Inc., which report is included in
the annual report to shareholders for the year ended October 31, 1997, which is
incorporated by reference in the Registration Statement.
COOPERS & LYBRAND L.L.P.
San Francisco, California
April 14, 1998
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<NAME> FREMONT MUTUAL FUNDS, INC.
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<NAME> FREMONT MUTUAL FUNDS, INC.
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<CIK> 837389
<NAME> FREMONT MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 7
<NAME> FREMONT U.S. MICRO-CAP FUND
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
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<PERIOD-TYPE> 12-MOS
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<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
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<INVESTMENTS-AT-VALUE> 172162
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8428
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11612
<NET-ASSETS> 171507
<DIVIDEND-INCOME> 182
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<OTHER-INCOME> 0
<EXPENSES-NET> 3018
<NET-INVESTMENT-INCOME> (1081)
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<APPREC-INCREASE-CURRENT> 11176
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 16002
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<NUMBER-OF-SHARES-SOLD> 18493
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