FREMONT
MUTUAL
FUNDS, INC.
o Money Market Fund
o Bond Fund
o Real Estate Securities Fund
o Global Fund
o Growth Fund
o International Growth Fund
o U.S. Small Cap Fund
o International Small Cap Fund
o Emerging Markets Fund
o Select Fund
o U.S. Micro-Cap Fund
March 1, 1998, as amended June 29, 1998
- ---------------------------------------
Fremont
Funds [LOGO]
<PAGE>
TABLE OF CONTENTS
Item Page
Summary of Fees and Expenses ............................................. 2
Financial Highlights ..................................................... 4
The Advisor, Sub-Advisors and the Funds .................................. 11
Investment Objectives, Policies and Risk Considerations .................. 16
General Investment Policies .............................................. 28
Investment Results ....................................................... 34
How to Invest ............................................................ 35
Shareholder Account Services and Privileges .............................. 36
How to Redeem Shares ..................................................... 37
Retirement Plans ......................................................... 38
Dividends, Distributions and Federal Income Taxation ..................... 39
Plan of Distribution ..................................................... 40
Calculation of Net Asset Value ........................................... 40
Execution of Portfolio Transactions ...................................... 41
Other Risk Considerations (Year 2000 Issue) .............................. 41
General Information ...................................................... 42
Telephone Numbers and Addresses .......................................... 43
<PAGE>
PROSPECTUS
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this
Prospectus is offering shares in eleven series or Funds (which collectively are
referred to in this Prospectus as the "Funds"):
FREMONT MONEY MARKET FUND seeks to maximize current income to the extent
consistent with preservation of capital and liquidity by investing in short-term
money market instruments. An investment in the Money Market Fund is neither
insured nor guaranteed by the U.S. Government or any other entity. The Fund will
attempt to maintain a stable net asset value of $1.00 per share, but there can
be no assurance that the Fund will be able to do so.
FREMONT BOND FUND seeks to maximize total return to the extent consistent with
the preservation of capital and prudent investment management by investing
primarily in bonds, notes, bills and money market instruments of U.S.
and foreign issuers.
FREMONT REAL ESTATE SECURITIES FUND seeks to provide total return through a
combination of income and long-term capital appreciation by investing primarily
in equity securities of companies in the real estate industry.
FREMONT GLOBAL FUND seeks to maximize total return, including income and capital
gains, while seeking to reduce risk by investing in multiple categories of U.S.
and foreign securities.
FREMONT GROWTH FUND seeks to achieve long-term capital appreciation by investing
primarily in common stocks of U.S. companies.
FREMONT INTERNATIONAL GROWTH FUND seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers domiciled
outside the United States
FREMONT U.S. SMALL CAP FUND seeks to achieve long-term capital appreciation by
investing primarily in common stocks of small capitalized companies domiciled
within the U.S.
FREMONT INTERNATIONAL SMALL CAP FUND seeks to achieve long-term capital
appreciation by investing primarily in equity securities of small capitalized
companies domiciled outside the United States.
FREMONT EMERGING MARKETS FUND seeks to achieve long-term capital appreciation by
investing primarily in equity securities of issuers domiciled in countries with
emerging or developing capital markets.
FREMONT SELECT FUND seeks to achieve long-term capital appreciation by investing
primarily in equity securities of medium capitalized U.S. companies.
FREMONT U.S. MICRO-CAP FUND seeks to achieve long-term capital appreciation by
investing primarily in equity securities of micro-cap companies domiciled within
the United States.
There can be no assurance that any Fund will achieve its investment objective.
Each of the Funds, except for the Fremont Real Estate Securities Fund, Fremont
Select Fund, Fremont Emerging Markets Fund and Fremont International Small Cap
Fund, is a diversified fund as defined by the Investment Company Act of 1940, as
amended (the "1940 Act").
Shares of each 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 FUNDS 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.
This Prospectus is dated March 1, 1998, as amended June 29, 1998.
FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION, CALL 800-548-4539.
1
<PAGE>
SUMMARY OF FEES AND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases....................None
Redemption Fees 1..........................................None
Maximum Sales Load Imposed on Reinvested Dividends.........None
Exchange Fee...............................................None
Deferred Sales Load........................................None
Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<CAPTION>
Total Fund
Management Fee 12b-1 Fees 11 Other Expenses Operating Expenses
-------------- ------------- -------------- ------------------
<S> <C> <C> <C>
Money Market Fund 2 0.21% None 0.09% 0.30%
Bond Fund 3 0.40% None 0.21% 0.61%
Real Estate Securities Fund 4 None 0.25% 0.25% 0.50%
Global Fund 0.60% None 0.25% 0.85%
Growth Fund 0.50% None 0.35% 0.85%
International Growth Fund 5 1.00% 0.25% 0.25% 1.50%
U.S. Small Cap Fund 6 1.00% 0.25% 0.25% 1.50%
International Small Cap Fund 7 1.25% 0.25% 0.30% 1.80%
Emerging Markets Fund 8 1.00% 0.25% 0.25% 1.50%
Select Fund 9 1.00% 0.25% 0.15% 1.40%
U.S. Micro-Cap Fund 10 1.88% None None 1.88%
</TABLE>
Example: You would pay the following total expens es on a $1,000 investment in
each 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
------ ------- ------- --------
Money Market Fund 2 $3 $10 $17 $38
Bond Fund 3 6 20 34 77
Real Estate Securities Fund 4 5 16 -- --
Global Fund 9 27 47 105
Growth Fund 9 27 47 105
International Growth Fund 5 15 47 82 179
U.S. Small Cap Fund 6 15 47 -- --
International Small Cap Fund 7 15 47 82 179
Emerging Markets Fund 8 15 47 82 179
Select Fund 9 15 44 -- --
U.S. Micro-Cap Fund 10 19 59 102 221
THESE EXAMPLES 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 tables above are intended to give you information and assistance in
understanding the various costs and expenses of the Funds 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, legal and audit services, costs of registration of fund
shares under applicable laws, and costs of printing and distributing reports to
shareholders. The percentages expressing annual fund operating expenses for the
Real Estate Securities Fund, the Select Fund, and the U.S. Small Cap Fund are
based on estimated amounts for the current fiscal year. The percentages
expressing annual fund operating expenses of the remaining Funds are based on
actual expenses incurred during the most recent fiscal year.
See "The Advisor, the Sub-Advisors and the Funds" section of this prospectus.
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.
For the International Small Cap Fund, a redemption fee is imposed on any
investments redeemed within six months of purchase. See "How to Redeem
Shares."
2 Administrative fees of 0.15% have been waived by the Advisor. Absent such
waiver, other expenses and total fund operating expenses of the Money Market
Fund would have been 0.24% and 0.45%, respectively, for the fiscal year ended
October 31, 1997.
2
<PAGE>
3 The Advisor will voluntarily waive 0.10% of the 0.15% administrative fee
beginning March 1, 1998. Prior to March 1, 1998, the Advisor voluntarily
waived the administrative fee in its entirety. Absent such waiver, other
expenses and total operating expenses of the Bond Fund would have been 0.36%
and 0.76%, respectively, for the fiscal year ended October 31, 1997.
4 The Advisor has voluntarily agreed to waive the management fee for the first
six months, until June 30, 1998, and will continue to waive management fees
until December 31, 1998 or until the assets in the fund reach $25 million.
Absent this limitation, the management fee, 12b-1 fee, other expenses and
total operating expenses are estimated to be 1.00%, 0.25%, 0.55% and 1.80%,
respectively.
5 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 and its shareholders. Absent
reimbursements of expenses by the Advisor, other expenses and total fund
operating expenses are estimated to be 0.53% and 1.78%, respectively, of
average daily net assets.
6 The Advisor has voluntarily agreed to currently limit the total operating
expenses to 1.50% of average net assets. Absent this limitation, the
management fee, 12b-1 fee, other expenses and total operating expenses are
estimated to be 1.00%, 0.25%, 0.55% and 1.80%, respectively.
7 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 and its shareholders. Absent
reimbursements of expenses by the Advisor, other expenses and actual total
fund operating expenses are estimated to be 0.60% and 1.80%, respectively, of
average daily net assets.
8 The Advisor has voluntarily agreed to currently limit the total operating
expenses to 1.50% of average net assets. Absent this limitation, the
management fee, 12b-1 fee, other expenses and total operating expenses would
have been 1.00%, 0.25%, 1.38% and 2.63%, respectively, for the fiscal year
ended October 31, 1997.
9 The Advisor has voluntarily agreed to currently limit the total operating
expenses to 1.40% of average net assets. Absent this limitation, the
management fee, 12b-1 fee, other expenses and total operating expenses are
estimated to be 1.00%, 0.25%, 0.63% and 1.88%, respectively.
10 The U.S. Micro-Cap Fund is obligated, under the terms of the management
agreement, to pay the Advisor an annual management fee of 2.5% of average net
assets with respect to the first $30 million, 2.0% with respect to the next
$70 million and 1.5% thereafter. However, the Advisor is obligated to pay all
of the Fund's other ordinary operating expenses. Absent waivers of management
fees, the management fee and total operating expenses would have been 1.90%
for the fiscal year ended October 31, 1997.
11 12b-1 fees may be paid to financial intermediaries for services provided
through sales program(s). Long-term shareholders may pay more than 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."
3
<PAGE>
FREMONT MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
The financial highlights of the Funds presented here and the pages following
have been audited by Coopers & Lybrand, L.L.P., independent accountants. Their
report covering each of the five fiscal years in the period ended October 31,
1997, is included in the Funds' Annual Report. Further information about the
Funds' performance is contained in the Annual Report, which is included in the
Funds' Statement of Additional Information and which may be obtained without
charge.
<TABLE>
<CAPTION>
MONEY MARKET FUND
Year Ended October 31 Period from
--------------------------------------------------------------------------------- 11/18/88 to
Selected Per Share Data 1997 1996 1995 1994 1993 1992 1991 1990 10/31/89
for one share outstanding -------- -------- -------- -------- ------- ------- ------- ------- --------
during the period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- ------- ------- ------- -------
Income from Investment Operations
Net investment income .05 .05 .06 .03 .03 .04 .06 .08 .08
-------- -------- -------- -------- ------- ------- ------- ------- -------
Total investment operations .05 .05 .06 .03 .03 .04 .06 .08 .08
-------- -------- -------- -------- ------- ------- ------- ------- -------
Less Distributions
From net investment income (.05) (.05) (.06) (.03) (.03) (.04) (.06) (.08) (.08)
-------- -------- -------- -------- ------- ------- ------- ------- -------
Total distributions (.05) (.05) (.06) (.03) (.03) (.04) (.06) (.08) (.08)
-------- -------- -------- -------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======= ======= ======= ======= =======
Total Return 1 5.39% 5.34% 5.84% 3.49% 2.66% 3.73% 6.51% 7.99% 8.52%
Ratios and Supplemental Data
Net assets, end of period
(000s omitted) $433,152 $329,652 $299,312 $224,439 $24,207 $31,832 $33,814 $62,599 $56,477
Ratio of net expenses to
average net assets 2 .30% .31% .30% .46% .67% .70% .51% .60% .65%*
Ratio of gross expenses to
average net assets 2 .45% .46% .45% .61% .82% .85% .66% .69% .65%*
Ratio of net investment income
to average net assets 5.26% 5.22% 5.70% 4.02% 2.62% 3.70% 6.44% 7.66% 8.04%*
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 10.
4
<PAGE>
FREMONT MUTUAL FUNDS
<TABLE>
<CAPTION>
BOND FUND
Year Ended October 31 Period from
--------------------------------------------------- 4/30/93 to
Selected Per Share Data 1997 1996 1995 1994 10/31/93
for one share outstanding during the period -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.99 $ 10.13 $ 9.29 $ 10.27 $ 10.04
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment income .67 .67 .65 .53 .27
Net realized and unrealized gain (loss) .25 .11 .83 (.98) .24
-------- -------- -------- -------- --------
Total investment operations .92 .78 1.48 (.45) .51
-------- -------- -------- -------- --------
Less Distributions
From net investment income (.66) (.70) (.64) (.53) (.27)
From net realized gains (.02) (.22) -- -- (.01)
-------- -------- -------- -------- --------
Total distributions (.68) (.92) (.64) (.53) (.28)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.23 $ 9.99 $ 10.13 $ 9.29 $ 10.27
======== ======== ======== ======== ========
Total Return 1 9.54% 8.18% 16.49% -4.42% 5.15%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 90,302 $ 70,577 $ 86,343 $ 64,244 $ 11,738
Ratio of net expenses to average net assets 2 .61% .68% .60% .66% .50%*
Ratio of gross expenses to average net assets 2 .76% .83% .75% 1.04% 1.23%*
Ratio of net investment income to average net assets 6.40% 6.82% 6.69% 5.76% 5.35%*
Portfolio turnover rate 191% 154% 21% 205% 7%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 10.
5
<PAGE>
FREMONT MUTUAL FUNDS
<TABLE>
<CAPTION>
GLOBAL FUND
Years Ended October 31 Period from
------------------------------------------------------------------------------ 11/18/98 to
Selected Per Share Data 1997 1996 1995 1994 1993 1992 1991 1990 10/31/89
for one share outstanding -------- -------- -------- -------- -------- -------- -------- -------- --------
during the period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.11 $ 14.24 $ 13.13 $ 13.17 $ 11.52 $ 11.25 $ 9.93 $ 10.77 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from Investment Operations
Net investment income .45 .39 .40 .26 .32 .39 .47 .54 .57
Net realized and
unrealized gain (loss) 1.31 1.49 1.24 (.03) 1.67 .40 1.34 (.82) (.79)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total investment operations 1.76 1.88 1.64 .23 1.99 .79 1.81 (.28) 1.36
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
From net investment income (.52) (.44) (.50) (.14) (.26) (.40) (.45) (.54) (.45)
From net realized gains (2.19) (.57) (.03) (.13) (.08) (.11) (.04) (.02) (.14)
Return of capital -- -- -- -- -- (.01) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (2.71) (1.01) (.53) (.27) (.34) (.52) (.49) (.56) (.59)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 14.16 $ 15.11 $ 14.24 $ 13.13 $ 13.17 $ 11.52 $ 11.25 $ 9.93 $ 10.77
======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return 13.01% 13.72% 12.78% 1.74% 17.51% 7.10% 18.38% -2.64% 13.71%
Ratios and Supplemental Data
Net assets, end of period
(000s omitted) $665,747 $572,150 $482,355 $453,623 $186,325 $101,839 $ 74,502 $ 55,028 $ 43,918
Ratio of expenses to
average net assets .85% .87% .88% .95% .99% 1.09% 1.12% 1.10% 1.02%*
Ratio of net investment income
to average net assets 2.66% 2.66% 2.98% 2.47% 2.89% 3.41% 4.34% 5.01% 5.30%*
Portfolio turnover rate 48% 71% 83% 52% 40% 50% 81% 36% 49%
Average commission rate paid 3 $ .0149 $ .0238 -- -- -- -- -- -- --
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 10.
6
<PAGE>
FREMONT MUTUAL FUNDS
<TABLE>
<CAPTION>
GROWTH FUND
Year Ended October 31 Period from
----------------------------------------------------------- 3/1/94 to
Selected Per Share Data 1997 1996 1995 1994 1993 10/31/92
for one share outstanding during the period -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.02 $ 13.06 $ 10.46 $ 11.25 $ 10.08 $ 9.92
-------- ------- ------- ------- ------- -------
Income from Investment Operations
Net investment income .20 .10 .13 .21 .13 .02
Net realized and unrealized gain (loss) 3.43 2.65 2.74 (.02) 1.16 .18
-------- ------- ------- ------- ------- -------
Total investment operations 3.63 2.75 2.87 .19 1.29 .20
-------- ------- ------- ------- ------- -------
Less Distributions
From net investment income (.22) (.08) (.17) (.18) (.12) (.04)
From net realized gains (3.47) (.71) (.10) (.80) -- --
-------- ------- ------- ------- ------- -------
Total distributions (3.69) (.79) (.27) (.98) (.12) (.04)
-------- ------- ------- ------- ------- -------
Net asset value, end of period $ 14.96 $ 15.02 $ 13.06 $ 10.46 $ 11.25 $ 10.08
======== ======= ======= ======= ======= =======
Total Return 29.26% 22.06% 28.12%1 1.72%1 12.80%1 2.00%1
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $147,641 $78,624 $59,632 $27,244 $42,306 $32,388
Ratio of net expenses to average net assets 2 .85% .92% .97% .94% .87% .94%*
Ratio of gross expenses to average net assets 2 .85% .92% 1.01% 1.08% 1.02% 1.18%*
Ratio of net investment income to average net assets 1.44% .75% 1.02% 1.31% 1.19% 1.08%*
Portfolio turnover rate 48% 129% 108% 55% 44% 11%
Average commission rate paid 3 $ .0467 $ .0429 -- -- -- --
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 10.
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
Year Ended October 31 Period from
---------------------------------- 8/14/92 to
Selected Per Share Data 1997 1996 1995 10/31/94
for one share outstanding during the period -------- -------- -------- --------
<S> <C> <C> <C> <C>
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 3 $ .0173 $ .0150 -- --
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 10.
7
<PAGE>
FREMONT MUTUAL FUNDS
U.S. SMALL CAP FUND
Period from
9/24/97 to
Selected Per Share Data 10/31/97
for one share outstanding during the period --------
Net asset value, beginning of period $ 10.00
--------
Income from Investment Operations
Net investment income .02
Net realized and unrealized loss (.42)
--------
Total investment operations (.40)
--------
Less Distributions
From net investment income (.02)
From net realized gains (.01)
--------
Total distributions (.03)
--------
Net asset value, end of period $ 9.57
========
Total Return 1 -4.06%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 5,350
Ratio of net expenses to average net assets 2 1.50%*
Ratio of gross expenses to average net assets 2 3.32%*
Ratio of net investment income to average net assets 1.81%*
Portfolio turnover rate 8%
Average commission rate paid $ .0543
For footnote references, see "Notes to Financial Highlights" on page 10.
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP FUND
Year Ended October 31 Period from
---------------------------------- 6/30/94 to
Selected Per Share Data 1997 1996 1995 10/31/94
for one share outstanding during the period -------- -------- -------- --------
<S> <C> <C> <C> <C>
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>
For footnote references, see "Notes to Financial Highlights" on page 10.
8
<PAGE>
FREMONT MUTUAL FUNDS
EMERGING MARKETS FUND
Year Period from
Ended 6/24/96 to
10/31/97 10/31/96
Selected Per Share Data -------- --------
for one share outstanding during the period
Net asset value, beginning of period $ 9.62 $ 10.00
-------- --------
Income from Investment Operations
Net investment income .17 .10
Net realized and unrealized gain (loss) 1.03 (.41)
-------- --------
Total investment operations 1.20 (.31)
-------- --------
Less Distributions
From net investment income (.06) (.07)
From net realized gains (1.18) --
-------- --------
Total distributions (1.24) (.07)
-------- --------
Net asset value, end of period $ 9.58 $ 9.62
======== ========
Total Return 1 12.55% -3.12%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 12,175 $ 3,772
Ratio of net expenses to average net assets 2 .26% --
Ratio of gross expenses to average net assets 2 2.63% 4.95%*
Ratio of net investment income to average net assets 2.04% 3.32%*
Portfolio turnover rate 208% 7%
Average commission rate paid $ .0038 $ .0063
For footnote references, see "Notes to Financial Highlights" on page 10.
<TABLE>
<CAPTION>
U.S. MICRO-CAP FUND
Year Ended October 31 Period from
---------------------------------- 6/30/94 to
Selected Per Share Data 1997 1996 1995 10/31/94
for one share outstanding during the period -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.63 $ 14.34 $ 10.34 $ 10.00
-------- -------- -------- --------
Income from Investment Operations
Net investment income (loss) (.10) (.04) (.05) .02
Net realized and unrealized gain 5.60 5.83 4.05 .34
-------- -------- -------- --------
Total investment operations 5.50 5.79 4.00 .36
-------- -------- -------- --------
Less Distributions
From net investment income -- -- -- (.02)
From net realized gains (2.44) (.50) -- --
-------- -------- -------- --------
Total distributions (2.44) (.50) -- (.02)
-------- -------- -------- --------
Net asset value, end of period $ 22.69 $ 19.63 $ 14.34 $ 10.34
======== ======== ======== ========
Total Return 28.80% 1 41.46% 1 38.68% 1 3.60%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $171,507 $102,481 $ 7,792 $ 2,052
Ratio of net expenses to average net assets 2 1.88% 1.96% 2.04% 2.50%*
Ratio of gross expenses to average net assets 2 1.90% 2.22% 2.50% 2.50%*
Ratio of net investment income (loss) to average net assets (.67)% (.51)% (.67)% .68%*
Portfolio turnover rate 125% 81% 144% 44%
Average commission rate paid 3 $ .0505 $ .0541 -- --
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 10.
9
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FREMONT MUTUAL FUNDS
NOTES TO FINANCIAL HIGHLIGHTS
The following notes are being used as reference items in the Financial
Highlights of the Funds presented on pages 4 through 9.
1 Total returns would have been lower had the Advisor not waived and/or
reimbursed expenses.
2 For the most recent period ended 10/31/97, the Advisor has voluntarily waived
and/or reimbursed some of its fees for the following Funds: Money Market
Fund, Bond Fund, Growth Fund, U.S. Small Cap Fund, International Small Cap
Fund, Emerging Markets Fund and the U.S. Micro-Cap Fund. Except for the U.S.
Small Cap Fund, all fees waived in the past will not be recouped in the
future. The waivers are voluntary and may be changed in the future.
Ratios of expenses have been disclosed both before and after the impact of
these various waivers and/or reimbursements under each Fund's Financial
Highlights table.
For the Money Market Fund, the Advisor is voluntarily waiving the
administrative fee in its entirety.
For the Bond Fund, the Advisor is voluntarily waiving the administrative fee
in its entirety.
For the Growth Fund, administrative fees were voluntarily waived from August
14, 1992 to March 31, 1995.
For the U.S. Small Cap Fund, the Advisor is voluntarily limiting the Fund's
total operating expenses to 1.50% of average net assets. The Fund may
reimburse the Advisor for any reductions in the Advisor's fees during the
three years following that reduction if such reimbursement is requested by
the Advisor, if such reimbursement can be achieved within the foregoing
expense limit, and if the Board of Directors approves the reimbursement at
the time of the request as not inconsistent with the best interests of the
Fund and its shareholders. Because of these substantial contingencies, the
potential reimbursements will be accounted for as contingent liabilities that
are not recordable on the balance sheet of the Fund until payment is
probable.
For the International Small Cap Fund, management fees were voluntarily waived
from February 1, 1995 to October 31, 1997.
For the Emerging Markets Fund, the Advisor voluntarily waived advisory, 12b-1
and administrative fees and reimbursed all other operating expenses from June
24, 1996 to September 18, 1997, after which the Advisor limited the total
operating expenses to 1.50% of average net assets.
For the U.S. Micro-Cap Fund, the Advisor is voluntarily limiting the advisory
fee to a reduced rate of no greater than 1.98% of average net assets.
3 Disclosure not required for years prior to 1996.
* Annualized
10
<PAGE>
FREMONT MUTUAL FUNDS
THE ADVISOR, THE SUB-ADVISORS AND THE FUNDS
Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment
company which under this Prospectus is offering shares in eleven series, or
Funds. The Board of Directors of the Investment Company is permitted to create
additional funds at any time. Each 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 each 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 each 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 Funds. As described
more fully below, the Advisor has retained investment management firms (each a
"Sub-Advisor" and collectively the "Sub-Advisors") to provide certain of the
Funds with portfolio management services. The Advisor's Investment Committee
oversees the portfolio management of the Funds.
The professional investment management 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 applicable 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.
Investment Company Administration Corporation (the "Sub-Administrator"),
pursuant to an administrative agreement with the Advisor, supervises the
administration of 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 the Sub-Advisor, see
"Investment Advisory and Other Services" in the Statement of Additional
Information.
Money Market Fund
Under the terms of the Advisory Agreement, the Money Market Fund pays the
Advisor an annual advisory fee, computed daily and paid monthly, of 0.30% of the
first $50 million of the Fund's average net assets and 0.20% of such assets in
excess of $50 million. The Advisory Agreement also provides that the Fund will
pay to the Advisor an annual administrative fee of 0.15% of average net assets.
The Advisor is currently waiving the entire administrative fee with respect to
the Fund. For further information, see "Other Expenses of the Funds" below.
Norman Gee is the Senior Portfolio Manager for the Money Market Fund, Vice
President of the Advisor and a member of the Advisor's Fixed Income Committee.
Mr. Gee has 19 years of experience in portfolio management and analysis. He is a
graduate of San Francisco State University.
Bond Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
fee, computed daily and paid monthly, of 0.40% of the Fund's average net assets.
The Advisory Agreement also provides that the Fund will pay to the Advisor an
annual administrative fee of 0.15% of average net assets. The Advisor is
currently waiving 0.10% of the 0.15% administrative fee with respect to the
Fund. For further information, see "Other Expenses of the Funds" below.
Pacific Investment Management Company ("PIMCO"), 840 Newport Center Drive, Suite
360, Newport Beach, California, 92660, serves as Sub-Advisor for the Fund
pursuant to a Portfolio Management Agreement. PIMCO is an investment counseling
firm founded in 1971, and as of March 31, 1998, had $127 billion in assets under
management. PIMCO is one of seven investment management subsidiaries of PIMCO
Advisors Holding L.P., the controlling partner. The ownership of PIMCO Advisors
Holdings L.P. is represented by the following approximate positions; 30% Pacific
Life, 30% management, 40% public. PIMCO is registered as an investment advisor
with the Securities and Exchange Commission ("SEC") and as a commodity trading
advisor with the Commodity Futures Trading Commission. William H. Gross, CFA,
Chairman and Chief Investment Officer of PIMCO, is the portfolio manager of the
Fund and has served in that capacity since March 1, 1994. A founder of the firm,
Mr. Gross has been associated with PIMCO for 27 years. He received his
bachelor's degree from Duke University and his MBA from the UCLA Graduate School
of Business.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the Fund), the Advisor and the Sub-Advisor provides
that the Sub-Advisor will manage the investment and reinvestment of the assets
of the Fund and 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 0.25% of the Fund's assets managed by the Sub-Advisor. The Portfolio
Management Agreement with the Sub-
11
<PAGE>
FREMONT MUTUAL FUNDS
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.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
Real Estate Securities Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
advisory fee, computed daily and paid monthly, of 1.00% of the Fund's average
net assets. The Fund also pays the Advisor an annual 12b-1 fee of 0.25%, subject
to the terms of a plan of distribution more fully described under "Plan of
Distribution." 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. For further information, see "Other Expenses of the
Funds" below.
Kensington Investment Group, 4 Orinda Way, Suite 220D, Orinda, California,
94563, serves as Sub-Advisor for the Fund pursuant to a Portfolio Management
Agreement. Kensington Investment Group is an SEC-registered investment advisor
that specializes in the management of both publicly traded and non-traded real
estate securities portfolios. Kensington was founded in 1993 by principals who
have been active in real estate securities research, trading and portfolio
management since 1985. As of March 31, 1998, Kensington managed over $100
million, which was invested in traded real estate investment trusts, real estate
related operating companies and existing real estate limited partnerships. John
P. Kramer, President and founding partner of Kensington Investment Group, is
involved in all aspects of the organization and is primarily responsible for
directing the firm's investment policies. Paul Gray, Vice President and
Portfolio Manager, is responsible for securities investment decisions on behalf
of Kensingtonportfolios.
The Kensington Investment Group accounts were not registered under the
Investment Company Act of 1940 and therefore were not subject to certain
investment restrictions, nor specific tax restrictions imposed by that Act or
Subchapter M of the Internal Revenue Code. If the accounts had been registered
under the 1940 Act, their performance may have been different. Total return for
the Kensington-managed accounts in the following table was calculated using a
methodology that incorporates a time-weighted total rate of return concept and
is adjusted for cash flows. This methodology of calculating total return differs
from the methodology required to be employed by a mutual fund in calculating
total return, which is not time-weighted or dollar-weighted, but simply measures
the total return of an investment in the Fund over a period of time. The Advisor
believes, however, that the performance would be substantially the same if it
was recalculated in accordance with mutual fund performance rules.
The following table depicts the Sub-Advisor's performance on all separately
managed accounts that contain publicly traded real estate securities and are
managed with an investment objective, policies, and strategy substantially
similar to that of the Fremont Real Estate Securities Fund. The performance
information has been adjusted to back-out the Sub-Advisor's performance fee and
all expenses and has been restated to reflect what the performance results would
have been had the Sub-Advisor charged a fee equal to the Fund's anticipated
gross expense ratio. This performance information is based on historical data
and is not indicative of the future performance of the Fund.
AVERAGE ANNUAL TOTAL RETURNS FOR
PERIOD ENDED DECEMBER 31, 1997
1 Year Inception-to-Date 1
------ -------------------
Kensington Investment Group 29.14% 25.30%
NAREIT Total Return Index 2 18.86% 19.48%
S&P 500 Index 3 33.36% 27.79%
1 Inception-to-Date returns incorporate the period July 10, 1994 through
December 31, 1997.
2 The National Association of Real Estate Investment Trusts Composite Total
Return Index (NAREIT Index) is comprised of all publicly traded real estate
investment trusts; dividends are reinvested monthly. Unlike Kensington
Investment Group net returns, Index returns do not reflect any fees or
expenses.
3 The Standard & Poor's 500 Index is an unmanaged market value-weighted measure
of 500 widely-held common stocks listed on the New York Stock Exchange, the
American Stock Exchange, and the over-the-counter market. Index returns are
computed monthly and assume reinvestment of dividends.
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
0.50% of the Fund's average daily net assets managed by the Sub-Advisor. Both
the Advisor and the Sub-Advisor will waive their fees for the first six months,
and will then continue to waive fees until the earlier of December 31, 1998, or
until assets in the Fund reach $25 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.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
Global Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
advisory fee, computed daily and paid monthly, of 0.60% of the Fund's average
net assets. The Advisory Agreement also provides that the Fund will pay to the
Advisor an annual administrative fee of 0.15% of average net assets. For fur-
12
<PAGE>
FREMONT MUTUAL FUNDS
ther information, see "Other Expenses of the Funds" below.
The Advisor's Asset Allocation Committee, whose members are Robert J. Haddick,
Alexandra Kinchen, Albert W. Kirschbaum, Peter F. Landini, and David L. Redo,
manages the Global Fund.
o Robert J. Haddick, CFA, is Senior Vice President of the Advisor and a member
of its Investment and U.S. Equity Committees. His primary responsibilities
include developing global asset allocation and investment management
strategies. Mr. Haddick earned his B.A. and M.B.A. from the University of
Illinois.
o Alexandra Kinchen is Vice President of the Advisor and a member of its
Investment and Fixed Income Committees. Ms. Kinchen earned her B.A. and
M.B.A. from Golden Gate University, San Francisco, California.
o Albert W. Kirschbaum is a Managing Director of the Advisor. He is also
Chairman of the Advisor's Fixed Income Committee and a member of its
Investment Committee. Mr. Kirschbaum received an undergraduate degree from
Washington University and has done course work at Princeton and Wharton.
o Peter F. Landini is a Managing Director and Chief Operating Officer of the
Advisor and a member of its Investment Committee. He is also Chairman of the
Advisor's U.S. Equity and Asset Allocation Committees. Mr. Landini graduated
from the University of Santa Clara with a degree in Accounting and received
an M.B.A. from Golden Gate University, San Francisco, California.
o David L. Redo is a Director of Fremont Mutual Funds and President, CEO and
Chief Investment Officer for the Advisor. He has overall responsibility for
the management of approximately $5 billion of marketable securities
portfolios including the Fremont Mutual Funds. Mr. Redo received a B.S. in
Electrical Engineering from the University of California, Berkeley and an
M.B.A. from the University of Santa Clara.
Growth Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
advisory fee, computed daily and paid monthly, of 0.50% of the Fund's average
net assets. The Advisory Agreement also provides that the Fund will pay to the
Advisor an annual administrative fee of 0.15% of average net assets. For further
information, see "Other Expenses of the Funds" below.
The portfolio managers for the Growth Fund are W. Kent Copa, John B. Kosecoff
and Peter F. Landini, who have managed the Fund since January 1995, November
1996, and inception, respectively.
o W. Kent Copa, CFA, is Vice President of the Advisor and a member of its U.S.
Equity Committee. Mr. Copa earned his B.A. and M.B.A. from Brigham Young
University.
o John B. Kosecoff is Vice President of the Advisor and a member of its U.S.
Equity Committee. Mr. Kosecoff earned his B.A. from the University of
California at Berkeley and his M.B.A. from Cornell University. He was
previously employed as a senior analyst and portfolio manager at RCM Capital
Management from December 1993 to December 1996, and as a hedge fund analyst
and portfolio manager at Omega Advisors from November 1992 to November 1993.
For a discussion of the business experience of Peter F. Landini, chairman of the
Advisor's U.S. Equity Committee, please refer to the Global Fund section of this
Prospectus.
International Growth Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
advisory fee, computed daily and paid monthly, of 1.00% of the Fund's average
net assets. The Advisory agreement also provides that the Fund will pay to the
Advisor an annual administrative fee of 0.15% of the average net assets. The
Fund also pays the Advisor an annual 12b-1 fee of 0.25%, subject to the terms of
a plan of distribution more fully described under "Plan of Distribution". 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. For further information, see "Other Expenses
of the Funds" below.
Capital Guardian Trust Company ("Capital Guardian"), 333 South Hope Street, Los
Angeles, California, 90071, serves as Sub-Advisor for the fund pursuant to a
Portfolio Management Agreement. 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
13
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FREMONT MUTUAL FUNDS
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 0.75% of the first $25 million of the
Fund's average daily net assets managed by the Sub-Advisor, 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.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
U.S. Small Cap Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
advisory fee, computed daily and paid monthly, of 1.00% of the Fund's average
net assets. The Advisory Agreement also provides that the Fund will pay to the
Advisor an annual administrative fee of 0.15% of average net assets. 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.
For further information, see "Other Expenses of the Funds" below.
Kern Capital Management LLC, ("KCM"), 114 West 47th Street, Suite 1926, New
York, New York 10036, serves as Sub-Advisor for the Fund pursuant to a Portfolio
Management Agreement. The controlling members of the Sub-Advisor are Robert E.
Kern, David G. Kern and the Advisor. Consequently, the Advisor is an affiliate
of the Sub-Advisor. The portfolio management team for the Fund is headed by
portfolio manager David G. Kern. The senior investment managers are Robert E.
Kern, Judy R. Finger and David G. Kern.
o David G. Kern, Managing Member and Executive Vice President of KCM, was Vice
President of the Advisor from May 1997 until September 1997, and from January
1995 until April 1997 was employed as portfolio manager. From February 1997
until April 1997, he was also employed as Vice President of Founders Assets
Management, Inc., a registered investment advisor located in Denver,
Colorado. Mr. Kern also served as Vice President and Assistant Portfolio
Manager for the Delaware Management Company of Philadelphia, Pennsylvania
from February 1990 until December 1994.
o Robert E. Kern, Managing Member, President and Chief Executive Officer of
KCM, has over 30 years of investment management experience and was a Senior
Vice President of the Advisor from April 1997 to August 1997. He also was
employed by Morgan Grenfell Asset Management, Inc. from 1986 through April
1997, where he headed Morgan Grenfell's Smaller Capitalization Equities Team.
o Judy R. Finger, Member and Senior Vice President of KCM, was employed from
June 1995 to August 1997 as Vice President and Assistant Portfolio Manager
for the Delaware Management Company of Philadelphia, Pennsylvania, and from
June 1992 to June 1995 as a Senior Analyst at Fred Alger Management located
in New York.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the Fund), the Advisor and the Sub-Advisor provides
that the Sub-Advisor will manage the investment and reinvestment of the assets
of the Fund and 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 0.65% of the Fund's average daily net assets managed by the
Sub-Advisor. The Sub-Advisor has agreed to waive its fee until January 1, 1999,
or until the Fund reaches $25 million in assets, whichever occurs first. 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.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
International Small Cap Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
advisory fee, computed daily and paid monthly, of 1.25% of the Fund's average
net assets. The Advisory Agreement also provides that the Fund will pay to the
Advisor an annual administrative fee of 0.15% of the average net assets. The
Fund also pays the Advisor an annual 12b-1 fee of 0.25%, subject to the terms of
a plan of distribution more fully described under "Plan of Distribution." 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. For further information, see "Other Expenses
of the Funds" below.
Bee & Associates, Incorporated ("Bee & Associates"), 370 Seventeenth Street,
Suite 3560, Denver Colorado, 80202, serves as Sub-Advisor for the Fund pursuant
to a Portfolio Management Agreement. Bee & Associates is an independent,
Denver-based registered investment advisor founded in 1989. Its principal
business is providing investment management services. As of March 31, 1998, it
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
U.S. $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.
14
<PAGE>
FREMONT MUTUAL FUNDS
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%. By utilizing this investment approach, Bee & Associates
seeks to make its portfolios more tax efficient than comparable portfolios.
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 (i)
March 2, 1999, or (ii) 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 managed by the Sub-Advisor. 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.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
Emerging Markets
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
fee, computed daily and paid monthly, of 1.00% of the Fund's average net assets.
The Advisory Agreement also provides that the Fund will pay to the Advisor an
annual administrative fee of 0.15% of average daily net assets. The Advisor is
currently capping fees at 1.50%. For further information, see "Other Expenses of
the Funds" below.
Nicholas-Applegate Capital Management (Hong Kong) LLC ("Nicholas-Applegate HK"),
Three Exchange Square, 38 Connaught Place, 6th floor, Hong Kong, serves as
Sub-Advisor for the Fund pursuant to a Portfolio Management Agreement.
Nicholas-Applegate HK is a limited liability company which is an affiliate of
Nicholas-Applegate Capital Management, a California limited partnership. Its
managing member is Nicholas-Applegate Capital Management Holdings, L.P., a
California limited partnership, the general partner of which is
Nicholas-Applegate Capital Management Holdings, Inc., a California corporation
owned by Arthur E. Nicholas. As of December 31, 1997, the Nicholas-Applegate
group of companies managed approximately $30 billion of discretionary assets for
numerous types of clients, including employee benefit plans of corporations,
public retirement systems and unions, university endowments, foundations, and
other institutional investors and individuals.
Until terminated, the Portfolio Management Agreement between the Investment
Company, (with respect to the Fund), the Advisor and the Sub-Advisor provides
that the Sub-Advisor will manage the investment and reinvestment of the assets
of the Fund and 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 0.50% of the Fund's average daily net assets managed by the
Sub-Advisor. 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.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
Select Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
advisory fee, computed daily and paid monthly, of 1.00% of the Fund's average
net assets. This advisory fee is higher than for most mutual funds. The Fund
also pays the Advisor an annual 12b-1 fee of 0.25%, subject to the terms of a
plan of distribution, more fully described in "Plan of Distribution." The
Advisor anticipates waiving fees and reimbursing the Fund for other operating
expenses in order to limit total operating expenses to 1.40% of average daily
net assets. For further information, see "Other Expenses of the Funds" below.
The portfolio managers for the Fund, since inception, are John B. Kosecoff,
Debra L. McNeill and Peter F. Landini.
o Debra L. McNeill received her B.S. from the University of California at
Berkeley. She was previously employed as a portfolio manager with C.M.
Bidwell & Associates from July 1990 to January 1996 and as a quantitative
analyst with RCM Capital Management from November 1986 to July 1990.
For a discussion of the business experience of John B. Kosecoff, please refer to
the Growth Fund section of this Prospectus.
For a discussion of the business experience of Peter F. Landini, please refer to
the Global Fund section of this Prospectus.
U.S. Micro Cap Fund
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
fee, computed daily and paid monthly, of 2.50% of the Fund's average net assets
with respect to the first $30 million, 2.00% with respect to the next $70
million of such assets, and 1.50% of such assets in excess of $100 million.
Under this agreement, the Advisor has agreed to bear all of the Fund's expenses,
except extraordinary expenses (as designated by a majority of the investment
company's disinterested directors) and interest, brokerage commissions and other
transaction charges relating to the investing activities of the Fund.
Kern Capital Management LLC, ("KCM"), 114 West 47th Street,
15
<PAGE>
FREMONT MUTUAL FUNDS
Suite 1926, New York, New York 10036, serves as Sub-Advisor for the Fund
pursuant to a Portfolio Management Agreement. The controlling members of the
Sub-Advisor are Robert E. Kern, David G. Kern and the Advisor. Consequently, the
Advisor is an affiliate of the Sub-Advisor. The portfolio management team for
the Fund is headed by portfolio manager Robert E. Kern. The senior investment
managers are Robert E. Kern, Judy R. Finger and David G. Kern.
For a discussion of the business experience of each of David G. Kern, Robert E.
Kern and Judy R. Finger, please refer to the U.S. Small Cap section of this
Prospectus.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the Fund), the Advisor and the Sub-Advisor provides
that the Sub-Advisor will manage the investment and reinvestment of the assets
of the Fund and 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 1.50% of the first $30 million of the Fund's average net assets managed
by the Sub-Advisor, 1.00% of the next $70 million of such assets and .75% of
such assets in excess of $100 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.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
Other Expenses of the Funds. In addition to the fees described above, the Funds
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 interest persons of the Advisor or the Sub-Advisor;
costs and expenses of calculating daily net assets 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 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.
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.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of each Fund are stated below. A broad
range of objectives and policies is offered because the Funds are intended to
offer investment alternatives for a broad range of investors, who are expected
to have a wide and varying range of investment objectives. All of the Funds
(except the Money Market Fund) are 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.
Money Market Fund
The Money Market Fund seeks to maximize current income to the extent consistent
with preservation of capital and liquidity. The Fund pursues its objective by
investing primarily in the following types of U.S. dollar denominated "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; and other
debt securities having no more than 397 days to maturity. The Fund also may
enter into repurchase agreements, and though it has no current intention to do
so, the Fund may in the future enter into reverse repurchase agreements.
The Fund seeks to maintain a constant net asset value of $1.00 per share by
valuing its securities using the amortized cost method. To do so, it must invest
only in readily marketable short-term securities with remaining maturities of
not more than 397 days (in accordance with federal securities regulations) which
are of high quality and present minimal credit risks as determined by the
Advisor, using guidelines approved by the Board of Directors. The portfolio must
maintain a dollar-weighted average maturity of not more than 90 days, and at
least 25% of the Fund's assets will have a maturity of not more than 90 days.
The Fund will invest in short-term securities which, at the time of purchase,
are considered to be "First Tier" securities, defined as: (i) rated in the top
rating category by at least two Nationally Recognized Statistical Rating
Organizations ("NRSROs"), or (ii) in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or (iii) if unrated by an
NRSRO, have been determined to be of comparable quality by the Advisor, using
guidelines approved by the Board of Directors. There are currently five NRSROs:
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service ("Moody's"),
Duff & Phelps Credit Rating Co. ("DCR"), Fitch IBCA, Inc. ("Fitch"), and Thomson
Bankwatch, Inc. ("TBW"). Generally, high quality short-term secu-
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<PAGE>
FREMONT MUTUAL FUNDS
rities must be issued by an entity with an outstanding debt issue rated single
"A" or better by an NRSRO, or if unrated by an NRSRO, by an entity deemed to be
of comparable quality by the Advisor, using guidelines approved by the Board of
Directors. Obligations of foreign banks, foreign corporations and foreign
branches of domestic banks must be payable in U.S. dollars. See Appendix A of
the Statement of Additional Information for a description of rating categories.
The Fund may invest no more than 5% of its total assets in the securities of any
one issuer, other than U.S. government securities, except in times of unexpected
shareholder redemptions or purchases. In such circumstances, the Fund may invest
temporarily in the securities of any one issuer in excess of 5%, but not to
exceed 25%, of the Fund's total assets for up to three business days after the
purchase to allow the Fund to manage its portfolio liquidity. The Fund will not
invest more than 10% of its net assets in time deposits with a maturity of
greater than seven days. The Fund may make loans of its portfolio securities and
enter into repurchase agreements as described in the Statement of Additional
Information, except that such repurchase agreements with a maturity of greater
than seven days and other securities and assets that are not readily marketable
shall not exceed 10% of the value of the Fund's net assets. For a description of
these investments, see "General Investment Policies."
Bond Fund
The Bond Fund seeks to maximize total return consistent with the preservation of
capital and prudent investment management.
Under normal market conditions, the Fund will invest at least 65% of the value
of its total assets in debt securities, such as obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; obligations issued or
guaranteed by a foreign government, or any of its political subdivisions,
authorities, agencies or instrumentalities or by supranational organizations
(such as the World Bank); obligations of domestic or foreign corporations and
other entities; and mortgage-related and other asset-backed securities. These
obligations may have fixed, variable or floating interest rates and, depending
upon the level of interest rates, the average maturity of these securities will
typically vary from five to fifteen years. In addition, the Fund may invest in
obligations of domestic and foreign commercial banks and bank holding companies
(such as commercial paper, bankers' acceptances, certificates of deposit and
time deposits).
The Fund will invest primarily in securities rated Baa or better by Moody's, BBB
or better by S&P or, if not rated by one of these NRSROs, has been determined by
the Fund's Sub-Advisor, to be of comparable quality. The Fund also may invest up
to 10% of its total assets in corporate debt securities that are not investment
grade but are rated B or higher by Moody's or S&P. Although long-term securities
generally produce higher income than short-term securities, long-term securities
are more susceptible to market fluctuations resulting from changes in interest
rates. Generally, when interest rates decline, the value of a portfolio invested
at higher yields can be expected to rise. Conversely, when interest rates rise,
the value of a portfolio invested at lower yields can generally be expected to
decline. See "Corporate Debt Securities" below for more information on quality
ratings and risks involved with lower rated securities.
The Fund may invest in convertible debentures (which are convertible to equity
securities) and preferred stocks (which may or may not pay a dividend) using the
same quality and rating criteria noted above. The Fund may also invest in a
small percentage of assets in common stocks consistent with its investment
objectives.
In addition, the Fund may invest directly in foreign currency-denominated debt
securities which meet the credit quality guidelines set forth for U.S. holdings.
Under normal market conditions, at least 60% of the Fund's total assets will be
invested in securities of U.S. issuers and at least 80% of the Fund's total
assets, adjusted to reflect the Fund's net exposure after giving effect to
currency transactions and positions, will be denominated in U.S. dollars. The
Fund may not invest more than 25% of its total assets in the securities of
issuers domiciled in a single country other than the United States.
In selecting securities and currencies for the Fund's portfolio, the Sub-Advisor
utilizes economic forecasting, interest rate expectations, credit and call risk
analysis and other security and currency selection techniques. The proportion of
the Fund's assets invested in securities with particular characteristics (such
as maturity, type, and coupon rate) may vary based on the Sub-Advisor's outlook
for the economy, the financial markets, and other factors. The Fund's
investments will be concentrated in certain areas of the bond market (based on
quality, sector, coupon or maturity) that the Sub-Advisor believes are
relatively undervalued.
When the Sub-Advisor deems it advisable because of unusual economic or market
conditions, the Fund may invest all or a portion of its assets in cash or cash
equivalents, such as obligations of banks, commercial paper and short-term
obligations of U.S. or foreign issuers. The Fund may also employ certain active
currency and interest rate management techniques. These techniques may be used
both to hedge the foreign currency and interest rate risks associated with the
Fund's portfolio securities, and, in the case of certain techniques, to seek to
increase the total return of the Fund. Such active management techniques include
foreign currencies, options on securities, futures contracts, options on futures
contracts and currency, and swap agreements. See "General Investment Policies"
and the Statement of Additional Information for further information regarding
these securities and other instruments.
Fixed-income securities of the type held by the Fund generally appreciate in
value when market interest rates decline. If the currency in which a security is
denominated appreciates against the U.S. dollar, the dollar value of the
security will increase. Conversely, a rise in interest rates or a decline in the
exchange rate of the currency would generally result in a depreciation in value
or may adversely affect the value of the security expressed in dollars.
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<PAGE>
FREMONT MUTUAL FUNDS
The Fund will not use futures and options contracts for the purpose of
leveraging its portfolio. The Fund will set aside cash, cash equivalents or high
quality debt securities or hold a covered position against any potential
delivery or payment obligations under any outstanding option or futures
contracts. Although these investment practices will be used primarily to enhance
total return 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: the imperfect correlation between the prices of options and
futures contracts and movement in the price of securities being hedged; the
possible absence of a liquid secondary market; in the case of over-the-counter
("OTC") options, the risk of default by the counter party; and the dependence
upon the Sub-Advisor's ability to correctly predict movements in the direction
of interest rates and securities prices. The Fund currently intends to commit no
more than 5% of its net assets to premiums when purchasing options and to limit
its writing of options so that the aggregate value of the securities underlying
such options, as of the date of sale of the options, will not exceed 5% of the
Fund's net assets. A more thorough description of these investment practices and
their associated risks is contained in "General Investment Policies" and the
Statement of Additional Information.
Corporate Debt Securities. The Fund's investments in dollar-denominated and
non-dollar-denominated corporate debt securities of domestic or foreign issuers
are limited to corporate debt securities (corporate bonds, debentures, notes and
other similar corporate debt instruments) which meet the minimum ratings
criteria set forth for the Fund, or, if unrated by an NRSRO, have been
determined by the Sub-Advisor to be comparable in quality to corporate debt
securities in which the Fund may invest.
Securities which are rated BBB by S&P or Baa by Moody's are considered
investment grade but may have speculative characteristics. Changes in economic
conditions may lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than is the case with higher-rated
securities. The securities rated below Baa by Moody's or BBB by S&P (sometimes
referred to as "junk bonds"), which the Fund may invest to a limited extent,
will have speculative characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price volatility based upon
interest rate sensitivity, questionable credit worthiness and relative liquidity
of the secondary trading market. Because such lower-rated bonds have been found
to generally be more sensitive to adverse economic changes or individual
corporate developments and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could disrupt the market for such
bonds and adversely affect the value of outstanding bonds and the ability of
issuers to repay principal and interest. In addition, in a declining interest
rate market, issuers of lower-rated bonds may exercise redemption or call
provisions, which may force the Fund, to the extent it owns such securities, to
replace those securities with lower yielding securities. This could result in a
decreased return for investors. For further information, see the Statement of
Additional Information.
Real Estate Securities Fund
The Real Estate Securities Fund seeks to provide total return through a
combination of income and long-term capital appreciation by investing primarily
in equity securities of companies in the real estate industry. Equity securities
include common stocks (including shares or units in real estate investment
trusts), rights or warrants to purchase common stocks, limited partnership
interests in master limited partnerships, securities convertible into common
stocks, and preferred stocks.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities of companies principally engaged in the real
estate industry. For purposes of the Fund's investment policies, a company is in
the real estate industry if it derives at least 50% of its revenues from the
ownership, construction, financing, management or sale of commercial,
industrial, or residential real estate or if it has at least 50% of its assets
in such real estate. Companies in the real estate industry may include: real
estate investment trusts ("REITs"), real estate operating companies, companies
operating businesses which own a substantial amount of real estate such as
hotels and assisted living facilities, and development companies.
A substantial portion of the Fund's assets will be invested in REITs. REITs pool
investors' funds for investment primarily in income producing real estate or
real estate related loans or interests. A REIT is not taxed on income
distributed to shareholders if it complies with several requirements relating to
its organization, ownership, assets, and income and a requirement that it
distribute to its shareholders at least 95% of its taxable income (other than
net capital gains) for each taxable year. REITs can generally be classified as
Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the
majority of their assets directly in real property, derive their income
primarily from rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs, which invest the
majority of their assets in real estate mortgages, derive their income primarily
from interest payments. Hybrid REITs combine the characteristics of both Equity
REITs and Mortgage REITs.
The Fund will not invest in real estate directly, but only in securities issued
by real estate companies. However, the Fund may be subject to risks similar to
those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy of concentration in these
securities of companies in the real estate industry. These risks include
declines in the value of real estate, risks related to general and local
economic conditions, dependency on management skill, increases in interest
rates, possible lack of availability of mortgage funds, overbuilding, extended
vacancies of properties, increased competition, increases in property taxes and
operating expenses, changes in zoning laws, losses due to costs resulting from
the clean-up of environmental prob-
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<PAGE>
FREMONT MUTUAL FUNDS
lems, casualty or condemnation losses, limitations on rents, changes in
neighborhood values and the appeal of properties to tenants. Certain REITs have
relatively small capitalization, which may tend to increase the volatility of
the market price of securities issued by such REITs.
Rising interest rates may cause investors in REITs to demand a higher annual
yield from future distributions, which may in turn decrease market prices for
equity securities issued by REITs. Rising interest rates also generally increase
the costs of obtaining financing, which could cause the value of the Fund's
investments to decline. During periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors elect to prepay, and such
prepayment may diminish the yield on securities issued by such mortgage REITs.
In addition, mortgage REITs may be affected by the borrowers' ability to repay
when due the debt extended by the REIT and equity REITs may be affected by the
tenants' ability to pay rent.
In addition to these risks, Equity REITs may be affected by changes in the value
of the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit extended. Further, Equity and Mortgage
REITs are dependent upon management skills and generally may not be diversified.
Also, Equity and Mortgage REITs could possibly fail to qualify for tax free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code"), or to maintain their exemptions from registration under the 1940 Act.
The above factors may also adversely affect a borrower's or a lessee's ability
to meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.
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.
Although the Fund invests primarily in common stocks, for liquidity purposes it
will normally invest a portion of its assets in high quality debt securities and
money market instruments with remaining maturities of one year or less,
including repurchase agreements. 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 these instruments. During times
that the Fund is investing defensively, the Fund will not be pursuing its stated
investment objective.
The Fund may also hold other types of securities from time to time, including
convertible and non-convertible bonds and preferred stocks, when the Advisor and
Sub-Advisor believe that these investments offer opportunities for capital
appreciation. The Fund will invest in preferred stocks and bonds which, at the
time of purchase, are rated Baa or better by Moody's, BBB or better by S&P or,
if not rated by one of these NRSROs, have been determined by the Advisor and/or
Sub-Advisor to be of comparable quality. Bonds and preferred stocks rated Baa by
Moody's or BBB by S&P are considered investment grade but may have speculative
characteristics. Changes in the economy or other circumstances may lead to a
weakened capacity of the issuers of such securities to make principal and
interest payments or to pay the preferred stock obligations than would occur
with bonds and preferred stocks in higher categories. See Appendix A to the
Statement of Additional Information for a description of rating categories.
Global Fund
The Global Fund seeks to maximize total return (including income and capital
gains) while reducing risk. In pursuing this objective, the Fund intends to
allocate assets and periodically review the asset allocation to emphasize assets
that the Advisor believes have the most favorable return outlook, consistent
with the Fund's objective of minimizing price volatility.
The Fund may invest in U.S. stocks, U.S. bonds, foreign stocks, foreign bonds,
real estate securities, precious metals and cash equivalents, and adjust the
level of investment maintained in each asset category in response to changing
market conditions. The Advisor determines the allocation of assets based on its
evaluation of projections of risk, market conditions, asset value and expected
return. This evaluation process is described in more detail below. The Fund
seeks to provide a systematic, disciplined approach to reduce overall portfolio
risk through asset diversification and to weight the portfolio toward asset
categories which, at the time of evaluation, appear to have the best expected
return potential. The Fund is designed for investors who wish to accept the
risks inherent in investments in foreign securities and securities denominated
in various currencies. See "General Investment Policies - Risk Factors and
Special Considerations for International Investing."
Description of Classes Of Assets. Under normal circumstances, the Fund will
invest in securities of issuers located in at least three different countries,
including the United States. The Advisor will allocate the assets of the Fund
among the following categories of assets:
o U.S. Stocks - The Fund may invest in common and preferred stocks of
U.S.-based companies traded on a U.S. exchange or in the OTC market. The Fund
may also invest in stock index futures contracts, options on index futures
and options on stock indexes.
o U.S. Dollar-Denominated Debt Securities - The Fund may invest in the
following: obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; U.S. dollar-denominated corporate debt
securities of domestic or foreign issuers; mortgage and other asset-backed
securities; variable
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FREMONT MUTUAL FUNDS
and floating rate debt securities; convertible bonds; U.S. dollar-denominated
obligations of a foreign government, or any of its political subdivisions,
authorities, agencies or instrumentalities or by supranational organizations
(such as the World Bank); and securities that are eligible as short-term cash
equivalents. The Fund will not invest more than 5% of its net assets in
variable and floating rate debt securities, nor will the Fund invest more
than 5% of its net assets in guaranteed investment contracts. The Fund may
invest in interest rate futures and options on such futures. See "General
Investment Policies" and the Statement of Additional Information for further
information regarding these securities.
Most of the debt securities in which the Fund will invest are rated Baa or
better by Moody's, BBB or better by S&P or, if unrated by one of these NRSROs,
have been determined by the Advisor to be of comparable quality. Securities
rated Baa by Moody's or BBB by S&P are considered investment grade but may have
speculative characteristics. Changes in economic conditions may lead to a
weakened capacity of the issuers of such securities to make principal and
interest payments than is the case with higher-rated securities. The Fund also
may invest up to 10% of its assets in corporate debt securities rated Ba by
Moody's or BB by S&P, (sometimes referred to as "junk bonds") which will have
speculative characteristics, including the possibility of default or bankruptcy
of the issuers of such securities, market price volatility based upon interest
rate sensitivity, questionable creditworthiness and relative liquidity of the
secondary trading market. Because such lower-rated bonds have been found to be
more sensitive to adverse economic changes or individual corporate developments
and less sensitive to interest rate changes than higher-rated investments, an
economic downturn could disrupt the market for such bonds and adversely affect
the value of outstanding bonds and the ability of issuers to repay principal and
interest. In addition, in a declining interest rate market, issuers of
lower-rated bonds may exercise redemption or call provisions, which may force
the Fund, to the extent it owns such securities, to replace those securities
with lower yielding securities. This could result in a decreased return for
investors. For further information, see the Statement of Additional Information.
o Foreign Stocks - The Fund may purchase stock of foreign-based companies,
including securities denominated in foreign currencies and issues of American
Depository Receipts ("ADRs") and European Depository Receipts ("EDRs")
representing shares of foreign companies. See "General Investment Policies"
for a discussion of ADRs. EDRs are similar to ADRs but are designed for use
in the European securities markets. The Fund may invest in foreign stock
index futures, options on index futures and options on foreign stock indexes.
The Advisor may engage in foreign currency hedging for assets in specific
countries based on the Advisor's outlook for the currencies being considered.
Hedging may be undertaken through the purchase of currency futures or
otherwise. For a discussion of these transactions, see "Options and Futures"
and "Forward Currency, Futures and Options Transactions" in the "General
Investment Policies" section of this Prospectus.
o Foreign Bonds - The Fund may invest in non-U.S. dollar denominated bonds,
notes and bills of foreign governments, their agencies and corporations that
the Advisor believes are of a quality comparable to the U.S.
dollar-denominated debt securities described above. The Advisor will invest
the assets in this class based on its outlook for interest rates and currency
trends in a particular country. The Advisor may engage in foreign currency
hedging from time to time based on its outlook for currency values.
For a discussion of the risk factors associated with foreign investing, see
"General Investment Policies - Risk Factors and Special Considerations for
International Investing."
o Real Estate Securities - The Fund may invest in the equity securities of
publicly traded and private REIT which invest in real estate. A REIT is an
entity that concentrates its assets in investments related to equity real
estate and/or interests in mortgages on real estate. The shares of publicly
traded REITs are traded on a national securities exchange or in the OTC
market. Shares of private REITs are not publicly traded, and will be treated
as illiquid securities. The Fund will limit its investments in illiquid
securities, including private REITs, to 15% of its net assets.
o Precious Metals and Commodities Futures - The Fund may hold gold, other
precious metals, or commodity futures positions and/or securities of
companies principally engaged in producing or distributing gold, precious
metals or commodities in the United States and/or in foreign countries. Such
companies are defined as those that generate a substantial portion of their
gross income or net profits from gold, precious metals, or commodities
activities and/or have a substantial portion of their assets productively
engaged in these activities. The Fund may purchase and sell futures and
options contracts on commodities.
The Fund will maintain the remainder of its assets in cash or cash equivalents.
The objective of the cash equivalent portfolio is to maximize current income to
the extent consistent with preservation of capital and liquidity.
Other Considerations with Respect to the Fund. The Advisor will allocate
investments among securities of particular issuers based on its views as to the
best values then currently available in the marketplace. Such values of the
fixed income portion of the Fund's portfolio are a function of yield, maturity,
issue classification and quality characteristics, coupled with expectations
regarding the economy, movements in the general level and term of interest
rates, currency values, political developments, and variations of the supply of
funds available for investment. Under normal economic and market conditions, the
fixed-income portion of the Fund's portfolio will be invested primarily in debt
instruments with short to intermediate maturities (which are defined as debt
instruments with 1 to 10 years to maturity). However, there are no restrictions
20
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FREMONT MUTUAL FUNDS
on the maturity composition of the Fund's portfolio. If market interest rates
decline, fixed-income securities generally appreciate. If the currency in which
a security is denominated appreciates against the U.S. dollar, the dollar value
of the security will increase. Conversely, a rise in interest rates or a decline
in the exchange rate of the currency would adversely affect the value of the
security expressed in dollars. In seeking to achieve the Fund's objective of
total return, the Advisor may increase the average maturity of the fixed income
portion of the Fund's portfolio in times of declining interest rates and
decrease such average maturity in times of rising interest rates. The Advisor
generally evaluates currencies based on fundamental economic criteria (e.g.,
relative inflation and interest rate levels and trends, growth rate forecasts,
balance of payments status and economic policies), as well as technical and
political data.
In seeking current income or to reduce principal volatility, the Fund may also
(i) enter into futures contracts, including contracts for the future delivery of
debt securities of the types described above, stock index futures contracts with
respect to the S&P 500 Index or other similar broad-based stock market indices
and commodities futures, 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, indexes, commodities or futures contracts, the premiums of which are
limited to 5% of the Fund's total assets.
Further information concerning options and futures and their associated risks is
contained in "General Investment Policies - Options and Futures Contracts" and
in the Statement of Additional Information.
The Fund may enter into forward currency contracts and currency futures
contracts, and may purchase put and call options on currencies. 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 to be fully exchangeable into U.S. dollars without legal restriction.
The Fund may purchase securities that are issued by the government or a
corporation or financial institution of one nation but denominated in the
currency of another country. See "General Investment Policies - Forward
Currency, Futures and Options Transactions."
A portion of the Fund's assets may be invested in mortgage-related and other
asset-backed securities. See "General Investment Policies" for a discussion of
these securities.
The Fund may invest in convertible debentures (convertible to equity securities)
and preferred stocks (which may or may not have a dividend yield) using the same
quality and rating criteria noted above.
Growth Fund
The Growth Fund seeks to achieve long term capital appreciation and, although
not an investment objective, may also provide income. The Fund pursues its
objective by investing primarily in a diversified portfolio of common stocks.
Under normal conditions, at least 65% of the Fund's total assets will be
invested in U.S. common stocks. In addition, the Fund may purchase securities
convertible into common and preferred stocks, as well as restricted securities.
Preferred stocks held by the Fund will, at the time of purchase, have a rating
of B or better from a NRSRO.
The Fund may also invest in common and preferred stocks of U.S. based companies
which are traded on a U.S. exchange or on the OTC market and in stock index
futures contracts, options on index futures and options on stock indexes.
Additionally, the Fund may invest a portion of its assets in the equity
securities of a diversified group of small, emerging growth companies that the
Advisor believes will eventually become well-recognized as well as in the equity
securities of larger companies which the Advisor believes offer improved growth
possibilities because of rejuvenated management, changes in product or some
other development that might stimulate earnings growth. No assurance can be
given that any of these expectations will be met.
Because the Fund may invest in small, emerging growth companies, investors
should realize that the very nature of investing in smaller companies involves
greater risk than is customarily associated with more established companies.
Smaller companies often have limited product lines, markets or financial
resources, and may be dependent upon one-person management. The securities of
smaller companies may have limited marketability and may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general. Because the Fund invests in companies based on their
intrinsic value, and because intrinsic value may not be immediately recognized
in the market, investors should consider this Fund a long-term or value-oriented
growth fund.
Although the Fund invests primarily in common stocks, for liquidity purposes it
will normally invest a portion of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. When a
temporary defensive posture in the market is appropriate in the Advisor's
opinion, the Fund may temporarily invest up to 100% of its assets in these
instruments. The Fund may also hold other types of securities from time to time,
including bonds.
The Fund may invest up to 35% of its total assets in stocks of foreign-based
companies denominated in foreign currencies and issues of ADRs and EDRs
representing shares of foreign companies. See "General Investment Policies" for
a discussion of ADRs. The Fund may invest in foreign stock index futures,
options on index futures and options on foreign stock indexes. The Advisor may
engage in foreign currency hedging for assets in specific countries based on its
outlook for the currencies involved. Hedging may be undertaken through the use
of currency futures or otherwise. For a discussion of the risk factors
associated with forward currency, futures and options transactions, see "General
Investment Policies - Forward Currency, Futures and Options Transactions" and
the Statement of Additional Information.
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When the Fund holds bonds, the Fund will be invested primarily in debt
instruments with short to intermediate maturities (which are defined as debt
instruments with 1 to 10 years to maturity). These bonds, including
convertibles, will, at the time of purchase, have a rating of A or better by
Moody's, S&P, or if unrated by one of these NRSROs, have been determined by the
Advisor to be comparable in quality. However, there are no restrictions on the
maturity composition of the Fund's portfolio. If market interest rates decline,
fixed-income securities generally appreciate in value. In seeking to achieve the
Fund's objective of growth of capital, the Advisor may increase the average
maturity of the fixed income portion of the Fund's portfolio in times of
declining interest rates and decrease such average maturity in times of rising
interest rates.
The Fund may invest in non-U.S. dollar denominated bonds, notes and bills of
foreign governments, their agencies and corporations of a quality comparable to
the U.S. dollar-denominated debt securities described above. The dollar-weighted
average maturity of the Fund's foreign bonds may range from 2 to 8 years. The
Advisor will invest the assets in this class based on its outlook for interest
rates and currency trends in a particular country. The Advisor may engage in
foreign currency hedging from time to time based on its outlook for currency
values.
For a discussion of the risk factors associated with foreign investing, see
"General Investment Policies - Risk Factors and Special Considerations for
International Investing."
The Fund will maintain the remainder of its assets in cash or cash equivalents
and other fixed income securities. Cash and cash equivalents will be denominated
in U.S. dollars. The objective of the cash equivalent portfolio is to maximize
current income to the extent consistent with preservation of capital and
liquidity.
The Advisor will allocate investments among the securities of particular issuers
on the basis of its views as to the best values then currently available in the
marketplace. Such values are a function of growth potential, relative valuation
yield, maturity, issue classification and quality characteristics, coupled with
expectations regarding the economy, movements in the general level of interest
rates, political developments, and variations of the supply of funds available
for investment.
International Growth
The International Growth Fund seeks to achieve long-term capital appreciation 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 "General Investment Policies - Risk Factors and Special
Considerations for International Investing."
Under normal market conditions, at least 90% of the Fund's total 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 ADRs, 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. For purposes of 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, 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 certain investments
in equity securities of companies in emerging markets offer the opportunity for
significant long-term investment returns. However, these investments involve
certain risks, as discussed in "General Investment Policies - 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-equivalent instruments 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 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 the Advisor and/or
Sub-Advisor believe to be undervalued in the marketplace in relation to factors
such as the company's revenues,
22
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FREMONT MUTUAL FUNDS
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, the Sub-Advisor 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."
U.S. Small Cap Fund
The U.S. Small Cap Fund seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of common stocks.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in common stocks of small, rapidly growing U.S. companies. Typically,
these companies are not listed on a national securities exchange but trade on
the OTC market. Although the Fund will normally invest in common stocks of U.S.
companies, up to 25% of the Fund's total assets, at the time of purchase, may be
invested in securities of companies domiciled outside the United States,
including sponsored and unsponsored ADRs and EDRs. See "General Investment
Policies" for a discussion of ADRs. The Fund may also invest in stock index
futures contracts, options on index futures, and options on portfolio securities
and stock indices.
The Advisor and/or Sub-Advisor generally selects the Fund's portfolio securities
among small capitalization ("small cap") companies, which the Fund defines as
companies whose individual market capitalizations would place them in the
smallest 20% of market capitalization of companies in the United States as
measured by the Wilshire 5000 Index. As of December 31, 1997, these companies
had a market capitalization of about $1.8 billion or less. Many small cap
companies in which the Fund is likely to invest may be more vulnerable than
larger companies to adverse business or market developments, may have limited
product lines, markets, or financial resources, and may lack management depth.
In addition, many small cap companies are not well-known to the investing
public, do not have significant institutional ownership, and are followed by
relatively few securities analysts. Consequently, there may tend to be less
publicly available information concerning such companies compared to the
information that is available for larger capitalization securities. Finally, the
securities of small cap companies traded in the OTC market may have fewer market
makers, wider spreads between their quoted bid and asked prices, and lower
trading volumes, resulting in comparatively greater price volatility and less
liquidity than the securities of companies that have larger market
capitalizations and/or that are traded on the New York or American Stock
Exchanges or the market averages in general. Thus, an investment in the Fund may
involve considerably more risk than an investment in an investment company that
invests in the more liquid equity securities of companies traded on the New York
or American Stock Exchanges.
The Advisor and/or Sub Advisor believe that an investment in shares of 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.
The Fund generally selects its portfolio securities among small cap companies
which the Advisor and/or Sub-Advisor believe are still in the developing stages
of their life cycles and have potential for rapid growth in both sales and
earnings. The Advisor and/or Sub-Advisor believe that capable management and
fertile operating areas are two of the most important characteristics of such
companies and seek those companies that employ sound financial and accounting
policies; demonstrate effective research and successful product development and
marketing; provide efficient service; and possess pricing flexibility. The
Advisor and/or Sub-Advisor will seek to avoid investing in companies where
operating results may be adversely affected by excessive competition, severe
governmental regulation, or unsatisfactory productivity. The investable universe
provides what the Advisor and/or Sub-Advisor believes is a broad range of stock
selection opportunities.
Although the Fund invests primarily in common stocks, for liquidity purposes, it
will normally invest a portion of its assets in high quality debt securities and
money market instruments with remaining maturities of one year or less,
including repurchase agreements. 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 these instruments. During times
that the Fund is investing defensively, the Fund will not be pursuing its stated
investment objective.
The Fund may also hold other types of securities from time to time, including
convertible and non-convertible bonds and preferred stocks, when the Advisor
and/or Sub-Advisor believe that these investments offer opportunities for
capital appreciation. Preferred stocks and bonds will, at the time of purchase,
be rated Baa or higher by Moody's, BBB or higher by S&P or, if unrated by
23
<PAGE>
FREMONT MUTUAL FUNDS
one of these NRSROs, have been determined by the Advisor and/or Sub-Advisor to
be of comparable quality. Securities rated Baa by Moody's or BBB by S&P are
considered investment grade, but may have speculative characteristics. Changes
in economic conditions may lead to a weakened capacity of the issuers of such
securities to make principal and interest payments than is the case with
higher-rated securities. See Appendix A to the Statement of Additional
Information for a description of rating categories.
International Small Cap Fund
The International Small Cap Fund seeks to provide 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 "General Investment Policies - Risk Factors and Special
Considerations for International Investing."
Under normal market conditions, at least 65% of the Fund's total 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.
In addition to investing directly in equity securities, the Fund may invest in
instruments such as sponsored and unsponsored ADRs and 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 management 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. For purposes of 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 for their major
industries, a need to develop basic economic infrastructures and rapid economic
growth. The Advisor and/or Sub-Advisor believe that certain investments in
24
<PAGE>
FREMONT MUTUAL FUNDS
equity securities of companies in emerging markets offer the opportunity for
significant long-term investment returns. However, these investments involve
certain risks, as discussed below in "General Investment Policies - 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-equivalent instruments 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 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."
Emerging Markets Fund
The Emerging Markets Fund seeks to provide long-term capital appreciation by
investing primarily in equity securities of issuers domiciled in countries with
emerging or developing capital markets. Investments in emerging or developing
capital markets may exhibit substantially greater price volatility and risk of
principal than investments in developed markets.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities of issuers in emerging markets (as defined below).
The Fund will not necessarily seek to diversify investments on a geographical
basis or on the basis of the level of economic development of any particular
country. However, the Fund will be invested in a minimum of three countries
defined as emerging markets. The Fund's portfolio of equity securities will
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 equity securities of issuers in emerging
markets.
In addition to investing directly in equity securities, the Fund may invest in
instruments such as sponsored and unsponsored ADRs and EDRs. See "General
Investment Policies" for a discussion of ADRs.
An issuer will be deemed to be in an emerging market if: (i) the principal
securities trading market for such issuer is in an emerging market country; (ii)
such issuer derives at least 50% of its revenues or earnings, either alone or on
a consolidated basis, from goods produced or sold, investments made or services
performed in an emerging market country, or has at least 50% of its total assets
situated in one or more emerging markets countries; or (iii) such issuer is
organized under the laws of, and with a principal office in, an emerging market
country. Determinations as to whether an issuer is an emerging markets issuer
will be made by the Sub-Advisor based on publicly available information and
inquiries made to the issuers.
For purposes of 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, India, Israel, the Philippines, South Korea, Taiwan and
certain Latin American countries.
Emerging markets tend to be in the less economically developed regions of the
world. General characteristics of emerging market countries also include lower
degrees of political stability, high demand for capital investment, high
dependence on export markets for their major industries, and the need to develop
basic economic infrastructures and rapid economic growth. The Advisor and/or
Sub-Advisor believe that investments in equity securities of issuers in emerging
markets offer the opportunity for significant long-term investment returns.
However, these investments involve not only the risks discussed below with
respect to foreign securities (see "General Investment Policies-Risk Factors and
Special Considerations for International Investing"), but certain other risks.
For example, investments in emerging markets may exhibit greater price
volatility, have less liquidity and have settlement arrangements which are less
efficient than in developed markets. Furthermore, the economies of countries
with emerging markets generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely affected by
adjustments in currency values and protectionist measures imposed or negotiated
by the countries with which they trade. These emerging market economies also
have been and may continue to be adversely affected by economic and market
conditions in the countries with which they trade.
The Fund may invest a portion of its assets in equity securities of smaller- to
medium-sized growth companies. Investing in small companies involves certain
special risks. Small companies may have limited product lines, markets, or
financial resources, and their management may be dependent on a limited number
of key individuals. The securities of small companies may have limited market
liquidity and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general.
The governments in some emerging markets have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The Advisor and/or Sub-Advisor believe that
privatizations may offer opportunities for significant capital appreciation and
intend to invest assets of the Fund in privatizations in appropriate
circumstances. In certain emerging markets, the ability of foreign entities such
as the Fund to participate in privatizations may be limited by local law.
25
<PAGE>
FREMONT MUTUAL FUNDS
Terms on which the Fund may be permitted to participate may be less advantageous
than those afforded local investors. There can be no assurance that governments
in emerging markets will continue to sell companies currently owned or
controlled by them or that privatization programs will be successful.
Because the Fund is non-diversified, it may invest a larger percentage of its
assets in individual issuers than a diversified fund. To the extent the Fund
makes investments in excess of 5% of its total assets in a single issuer, its
exposure to credit and market risks associated with that issuer is increased.
The Fund may invest in debt securities of both governmental and corporate
issuers in emerging markets which, at the time of purchase, are rated Baa or
higher by Moody's, BBB or higher by S&P or, if unrated by these NRSROs, have
been determined by the Advisor and/or Sub-Advisor to be of comparable quality.
Securities which are rated BBB by S&P or Baa by Moody's are considered
investment grade, but may have speculative characteristics. Changes in economic
conditions may lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than is the case with higher rated
securities. See Appendix A to the Statement of Additional Information for a
description of rating categories.
Debt securities are susceptible to market fluctuations resulting from, among
other things, changes in interest rates. Typically, when interest rates decline,
the value of a portfolio invested at higher yields can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested at lower
yields can be expected to decline. Capital appreciation in debt securities in
which the Fund invests may arise as a result of favorable changes in relative
foreign exchange rates, in relative interest rate levels and/or in the
creditworthiness of issuers. The receipt of income from debt securities owned by
the Fund is incidental to the Fund's objective of long-term capital
appreciation.
Whenever, in the judgment of the Advisor 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-equivalent investments or in high quality debt securities with maturities
of one year or less. During times that the Fund is investing defensively, the
Fund will not be pursuing its stated investment objective. For liquidity
purposes, the Fund may invest up to 10% of its assets in U.S. dollar-denominated
or foreign currency-denominated cash-equivalent investments or in high quality
debt securities with maturities of one year or less.
In seeking to protect against the effect of adverse changes in the financial
markets in which the Fund invests, or against currency exchange rate changes
that are adverse to the present or prospective positions of the Fund, the Fund
may use forward currency contracts, options on securities, options on indices,
options on currencies, and futures contracts and options on futures contracts on
securities and currencies. These instruments are often referred to as
"derivatives," which may be defined as financial instruments whose performance
is derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities). There can be no assurance that
the Fund's risk management policies will succeed. These techniques are described
below in "General Investment Policies" and are further detailed in the Statement
of Additional Information.
Select Fund
The Select Fund seeks to achieve long-term capital appreciation by investing
primarily in equity securities of established medium capitalization U.S.-based
companies. Under normal market conditions, the Fund expects to hold not more
than 30 common stocks representing at least 80% of its total assets.
While limiting the number of securities in the portfolio, the Fund will not
purchase a security if, as a result, more than 15% of the assets of the Fund
would be invested in the voting securities of a single issuer. Additionally, the
Fund may not invest more than 25% of its total assets in any one industry and,
although the Fund will normally invest in common stocks of U.S. companies, up to
10% of the Fund's assets, at the time of purchase, may be invested in securities
of companies domiciled outside the United States. The Fund may also invest in
stock index futures contracts, options on index futures and options on portfolio
securities and stock indices.
The Advisor defines medium market capitalization companies as those companies
whose market capitalization falls within the capitalization range of the Russell
MidCap Index. This index measures the performance of the 800 smallest securities
in the Russell 1000 Index. The Russell 1000 Index is composed of the 1000
largest U.S. securities as determined by total market capitalization. As of
April 30, 1998, 92% of the companies in the Russell MidCap Index had market
capitalizations of between $1 billion and $11 billion. These companies represent
approximately 35% of the capitalization of the total market.
Investing in medium capitalization stocks may involve greater risk than
investing in large capitalization stocks because, among other things, they can
be subject to more abrupt or erratic price movements. Although the Fund may
provide some current income, the Advisor and/or Sub-Advisor will not emphasize
stocks that produce such income.
Medium capitalization companies tend to involve less risk than stocks of small
capitalization companies. Smaller companies, which often have limited product
lines, markets, and/or financial resources and may be dependent on one-person
management, may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of medium and large cap companies or
the market averages in general. Conversely, medium capitalization companies may
have less rapid growth potential than smaller companies and may be able to react
less quickly to changes in the market place.
The Fund, while focusing on securities of medium capitalization companies, may
also purchase securities of companies with higher
26
<PAGE>
FREMONT MUTUAL FUNDS
or lower capitalizations. Stock selection is based, first, on "bottom up"
fundamental research that focuses on what the Advisor and/or Sub-Advisor believe
are superior business growth prospects and, secondly, on statistical valuation
which, at the time of purchase, is measurably below the historic relative worth
of such securities.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on, among other things, changes in a company's financial
condition and overall market and economic conditions.
Over the long term, the Advisor and/or Sub-Advisor believe that owning equity
interests in well-run, quality businesses should ease the effect of market
volatility in the Fund. The Advisor and/or Sub-Advisor also believe that through
the exercise of disciplined valuation, the Fund's portfolio typically should
encompass less market risk than other medium capitalization growth funds as
measured by the Fund's price-to-normal-earnings, price-to-book-value, and
enterprise-value-to-internal-cash-flow ratios.
The Advisor and/or Sub-Advisor believe that an investment in shares of 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.
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
securities of fewer 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.
Although the Fund invests primarily in common stocks, for liquidity purposes it
will normally invest a portion of its assets in high quality debt securities and
money market instruments with remaining maturities of one year or less,
including repurchase agreements. 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 these instruments. During times
that the Fund is investing defensively, the Fund will not be pursuing its stated
investment objective.
The Fund may invest in several types of equity securities as well as other types
of securities, including convertible and non-convertible securities and
preferred stocks, and warrants when the Advisor and/or Sub-Advisor believe that
these investments offer opportunities for capital appreciation. Preferred stocks
and bonds will be rated, at the time of purchase, Baa or higher by Moody's, BBB
or higher by S&P or, if unrated by these NRSROs, have been determined by the
Advisor and/or Sub-Advisor to be of comparable quality. Bonds and preferred
stocks rated Baa by Moody's, or BBB by S&P, are considered investment grade, but
may have speculative characteristics. Changes in the economy or other
circumstances may lead to a weakened capacity of such securities to make
principal and interest payments or to pay the preferred stock obligations than
would occur with bonds and preferred stocks in higher categories. See Appendix A
to the Statement of Additional Information for a description of rating
categories.
U.S. Micro-Cap Fund
The U.S. Micro-Cap Fund seeks to achieve long-term capital appreciation. The
Fund pursues its objective by investing primarily in a diversified portfolio of
common stocks and securities convertible into common stock.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities of U.S. micro-cap companies. These securities will
typically trade on a U.S. exchange or on the OTC market. However, up to 25% of
the Fund's total assets, at the time of purchase, may be invested in securities
of micro-cap companies domiciled outside the United States, including sponsored
and unsponsored ADRs and EDRs. See "General Investment Policies" for a
discussion of ADRs.
The Fund may also invest in stock index futures contracts, options on index
futures and options on portfolio securities and stock indices. See "General
Investment Policies" for a discussion of these investment practices.
The Advisor and/or Sub-Advisor generally selects the Fund's portfolio securities
among micro-cap companies, which the Fund defines as companies whose individual
market capitalizations would place them in the smallest 10% of market
capitalization of companies in the United States as measured by the Wilshire
5000 Index. As of December 31, 1997, these companies had a market capitalization
of about $870 million or less. Under normal market conditions, the weighted
average capitalization of the portfolio will be less than the market
capitalization of the largest company in the bottom 5% of the market value of
all U.S. equities as measured by the Wilshire 5000 Index (which was about $400
million as of December 31, 1997).
Many micro-cap companies in which the Fund is likely to invest may be more
vulnerable than larger companies to adverse business or market developments, may
have limited product lines, markets or financial resources and may lack
management depth. In addition, many micro-cap companies are not well-known to
the investing public, do not have significant institutional ownership and are
followed by relatively few securities analysts. Consequently, there may tend to
be less publicly available information concerning such companies compared to
what is available for larger capitalization securities. Finally, the securities
of micro-cap companies traded in the OTC market may have fewer market makers,
wider spreads between their quoted bid and asked prices and lower trading
volumes, resulting in comparatively greater price volatility and less liquidity
than the securities of companies that have larger market capitalizations and/or
that are traded on the New York or American Stock Exchanges or the market
averages in general. Thus, an investment in the Fund may involve considerably
more
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FREMONT MUTUAL FUNDS
risk than an investment in an investment company investing in the more liquid
equity securities of companies traded on the New York or American Stock
Exchanges.
The Advisor and/or Sub-Advisor believe that an investment in shares of the Fund
provides an opportunity for greater rewards but may involve more risk than an
investment in a fund which seeks capital appreciation from investment in common
stocks of larger, better-known companies. This is due to, among other things,
the likelihood of greater opportunities for superior returns from companies with
small stock market capitalizations which are not as well-known to the general
public. These shares may have less investor following, and, therefore, may
provide opportunities for investment gains due to the inefficiencies in this
sector of the marketplace.
The Fund seeks to invest in those companies that the Advisor and/or Sub-Advisor
believe are in the early stages of an emerging growth cycle, where the Advisor
and/or Sub-Advisor believe earnings will grow faster than both inflation and the
economy in general, and where it believes such growth has not yet been fully
reflected in the market price of these stocks. In seeking investments, the
Advisor and/or Sub-Advisor will typically give weight to companies possessing a
variety of characteristics including quality of management, companies which have
gone public in recent years, an entrepreneurial management team, a narrow
product line focus, or established companies where the growth potential has been
significantly enhanced by new product developments, new market opportunities,
mergers or divestitures, or new management. The investable universe provides
what the Advisor and/or Sub-Advisor believe is a broad range of stock selection
opportunities.
Although the Fund invests primarily in common stocks and securities convertible
into common stock, for liquidity purposes it will normally invest a portion of
its assets in high quality debt securities and money market instruments with
remaining maturities of one year or less, including repurchase agreements.
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 these instruments. During times that the Fund is investing
defensively, the Fund will not be pursuing its stated investment objective. The
Fund may also hold other types of securities from time to time, including
non-convertible bonds and preferred stocks, in an amount not exceeding 5% of its
net assets. Preferred stocks and bonds will, at the time of purchase, be rated
Aaa or Aa by Moody's, AAA or AA by S&P or, if unrated by one of these NRSROs,
have been determined by the Advisor and/or Sub-Advisor to be of comparable
quality. See Appendix A to the Statement of Additional Information for a
description of rating categories.
GENERAL INVESTMENT POLICIES
Money Market Instruments. The Funds 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 Funds 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 NRSROs or, in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or, if not rated by an
NRSRO, must be determined to be of comparable quality 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, using
guidelines approved by the Board of Directors. 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. Each 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
government; 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. Each 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).
Each Fund (except for the Bond Fund) will not purchase securities the value of
which is greater than 5% of its net assets on a when-issued basis. 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. The Funds 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 a 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,
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FREMONT MUTUAL FUNDS
which may take substantially more than three business days for non-U.S.
securities, are not treated by the Funds 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. Each 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 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 that 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. A
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
Funds will invest only in investment companies which do not charge a sales load;
however, the Funds 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
Funds, however, will not invest in any investment company or trust unless the
Advisor and/or Sub-Advisor believe that the potential benefits of such
investment are sufficient to warrant the payment of any such premium.
As an exception to the above, each 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. A Fund will notify its shareholders before
initiating such an arrangement.
Repurchase Agreements. As part of its cash reserve position, each 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 period of less than one 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% (or 10% in the case of the Money
Market Fund) of the value of its net assets would then be invested in such
repurchase agreements. A 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, a 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 subnormal
levels of income and lack of access to income during this period; and (iii)
expenses of enforcing the Fund's rights.
Portfolio Turnover. Each Fund (except for the Money Market 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, each 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 each 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 Funds 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. Each Fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors in an
amount not exceeding 331 1/43% 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. A 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.
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<PAGE>
FREMONT MUTUAL FUNDS
Borrowing. Each 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, 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 cost, earnings or net asset value would decline faster
than otherwise would be the case.
Restricted Securities. Each Fund may purchase securities that are not registered
under federal securities laws ("restricted securities"), but can be offered and
sold to "qualified institutional buyers." However, the Fund will not invest more
than 15% (or 10% with respect to the Money Market Fund) 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. Restricted securities will be deemed to be illiquid 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
will be ultimately responsible for the determinations.
Warrants or Rights. Warrants or rights may be acquired by a 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 each 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 Funds in units or attached to securities will
be deemed to be without value for purposes of this restriction.
Options and Futures Contracts. (Except for the Money Market Fund.) When a Fund
is not fully invested, strategies such as buying calls, writing puts, and buying
futures may be used to increase its exposure to price changes in stocks or debt
securities. When the Advisor and/or Sub-Advisor wishes to hedge against market
fluctuations, strategies such as buying puts, writing calls and selling futures
may be used to reduce market exposure. Because most stock index futures and
options are based on broad stock market indices, their performance tends to
track the performance of common stocks, which may or may not correspond to the
types of securities in which the Funds invests. Each Fund will maintain a
segregated account 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, a 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 net 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.
A 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.
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 a Fund's
return. A 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 a Fund's income due
to the use of hedging, the possible reduction in value of both the securities
hedged and the hedging instrument, and possible loss in excess of the initial
margin payment; options and futures contracts imperfect correlation between the
contract and the underlying security, commodity or index and unsuccessful
hedging transactions due to incorrect forecasts of market trends; writing
covered call options - the inability to effect closing transactions at favorable
prices and the inability to participate in the appreciation of the underlying
securities above the exercise price and 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.
Mortgage-Related And Other Asset-Backed Securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect, "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). The total return on
mortgage-related securities typically varies with changes in the general level
of interest rates. The maturities of mortgage- related securities are variable
and unknown when issued because their maturities depend on pre-payment rates.
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a Fund to a
lower rate of return upon rein-
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FREMONT MUTUAL FUNDS
vestment of principal. In addition, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Mortgage prepayments generally increase with falling interest
rates and decrease with rising interest rates. Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
that of other fixed income securities.
A Fund may invest in GNMA certificates, which are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Because both interest and principal payments (including prepayments)
on the underlying mortgage loans are passed through to the holder of the
certificate, GNMA certificates are called "pass-through" securities.
Although most mortgage loans in the pool will have stated maturities of up to 30
years, the actual average life or effective maturity of the GNMA certificates
will be substantially less because the mortgages are subject to normal
amortization of principal and may be repaid prior to maturity. Prepayment rates
may vary widely over time among pools and typically are affected by the
relationship between the interest rates on the underlying loans and the current
rates on new home loans. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of the
GNMA certificates. Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
GNMA certificates. Accordingly, it is not possible to predict accurately the
average life of a particular pool. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of principal at current
market rates, GNMA certificates can be less effective than typical bonds of
similar maturities at "locking in" yields during periods of declining interest
rates. GNMA certificates may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
A Fund may invest also in mortgage-related securities issued by the FNMA or by
the FHLMC. FNMA, a federally chartered and privately owned corporation, issues
pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
Government. FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but the certificates, as noted above, are not backed by
the full faith and credit of the U.S. Government. As is the case with GNMA
securities, the actual maturity of and realized yield on particular FNMA and
FHLMC pass-through securities will vary based on the prepayment experience of
the underlying pool of mortgages.
A Fund may also invest in mortgage-related securities issued by financial
institutions, such as commercial banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or separate trusts or affiliates of such
institutions established to issue these securities).
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities.
Real Estate Mortgage Investment Conduits are CMO vehicles that qualify for
special tax treatment under the Internal Revenue Code and invest in mortgages
principally secured by interests in real property and other investments
permitted by the Internal Revenue Code.
Stripped Mortgage Securities are derivative multiclass mortgage securities
issued by agencies or instrumentalities of the United States Government, or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Stripped Mortgage Securities are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. A common type
of Stripped Mortgage Security will have one class receiving all of the interest
from the mortgage assets (the interest-only or "IO" class), while the other
class will receive the entire principal (the principal-only or " class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments and prepayments on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is rated AAA or Aaa,
and could even lose its investment entirely. Although Stripped Mortgage
Securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. Consequently, established trading markets have not yet
developed for certain Stripped Mortgage Securities. Investments in Stripped
Mortgage Securities for which there is no established market are considered
illiquid, and together with other illiquid securities, will not exceed 15% (10%
for the Money Market Fund) of a Fund's net assets.
Other asset-backed securities (unrelated to mortgage loans) have been offered to
investors, such as Certificates for Automobile Receivables(SM) ("CARS(SM)") and
interests in pools of credit card receivables. CARS(SM) represent undivided
fractional interests in a trust whose assets consist of a pool of motor vehicle
retail installment sales contracts and security interests in the vehicles
securing
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FREMONT MUTUAL FUNDS
the contracts. CARS(SM) will be deemed to be illiquid securities and subject to
the limitation on investments in illiquid securities. Certificates representing
pools of credit card receivables have similar characteristics to CARS(SM)
although the underlying loans are unsecured.
As new types of mortgage-related securities and other asset-backed securities
are developed and offered to investors, the Advisor and/or Sub-Advisor may
consider investments in such securities, provided they conform with the Fund's
investment objective, policies and quality-of-investment standards, and are
subject to the review and approval of the Investment Company's Board of
Directors.
The Funds may invest only in high quality mortgage-related (or other
asset-backed) securities either (i) issued by U.S. government sponsored
corporations or (ii) rated in one of the three highest categories by Moody's or
S&P or, if not rated, of equivalent investment quality as determined by the
Advisor and/or Sub-Advisor. The Advisor and/or Sub-Advisor will monitor the
ratings of securities held by a Fund and the creditworthiness of their issuers.
An investment-grade rating will not protect the Fund from loss due to changes in
market interest rate levels or other particular financial market changes that
affect the value of, or return due on, an investment.
Forward Currency, Futures and Options Transactions. (Except for the Money Market
Fund.) The Funds 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 that might adversely affect the value of a Fund's portfolio
securities. A 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.
A 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 anticipate 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 believe that a particular currency may decline
compared to the U.S. dollar or another currency, a 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 believe
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 believe that the U.S. dollar may suffer a substantial decline
against a foreign currency or currencies, a 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 OTC, or on organized commodities or securities exchanges.
Consequently, 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 a 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, a 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, a 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 OTC 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 a Fund may not exceed 5% of the Fund's net assets.
Although a 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 a 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 OTC market, on foreign exchanges, and through
private transactions.
Swap Agreements. (Except for the Money Market Fund.) The Funds may enter into
interest rate, index and currency exchange rate swap agreements to seek 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
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FREMONT MUTUAL FUNDS
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 a 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.
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 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 a Fund's
obligations under such agreements, together with other illiquid assets and
securities, will not exceed 15% of the Fund's net assets.
Risk Factors and Special Considerations for International Investing. (Except for
the Money Market Fund.) Investment in securities of foreign entities and
securities denominated in foreign currencies involves risks typically not
present to the same degree in domestic investments.
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 that 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 as different 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 a 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 a Fund due to subsequent declines in
value of a portfolio security or, if a 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 a 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 a 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 Funds 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 Funds 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 a 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 Funds may invest restrict, to varying
degrees, foreign investments in their securities markets.
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FREMONT MUTUAL FUNDS
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 Funds may
invest in such countries through the purchase of shares of investment companies
organized under the laws of such countries.
A Fund's interest and dividend income from foreign issuers may be subject to
non-U.S. withholding taxes. A 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 Funds 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 Funds. See "Dividends,
Distributions and Federal Income Taxation."
American Depository Receipts. (Except for the Money Market Fund.) 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 Funds will purchase, sell and be paid dividends on ADRs in U.S.
dollars. These risks include fluctuations in currency exchange rates, which are
affected by international balances of payments and other economic and financial
conditions; government intervention; speculation; and other factors. With
respect to certain foreign countries, there is the possibility of expropriation
or nationalization of assets, confiscatory taxation and political, social and
economic instability. The Funds 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.
Other Risk Considerations. Each of the Fremont Real Estate Securities Fund,
Fremont Select Fund, Fremont Emerging Markets Fund and Fremont International
Small Cap Fund are a non-diversified portfolio and are not limited by the 1940
Act in the proportion of its assets that may be invested in the obligations of a
single issuer. The Funds, therefore, may invest a greater proportion of their
respective assets in the securities of a smaller number of issuers and each will
be subject to a greater risk with respect to their respective portfolio
securities. Any economic, regulatory, or political developments affecting the
value of the securities held in each of the Funds could have a greater impact on
the total value of the Fund's holdings than would be the case if the Funds were
classified as diversified under the 1940 Act.
Investment Restrictions. Each 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
Each 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. The
Fund may also be mentioned in newspapers, magazines, or other media from time to
time. All reported figures are based on historical performance data and are not
intended to be indicative of future performance. With respect to each Fund,
except the Money Market Fund, the investment return on and principal value of an
investment in the Funds will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The Money Market
Fund seeks to maintain a stable net asset value of $1.00 per share.
Each Fund, except for the Money Market 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 aver-
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FREMONT MUTUAL FUNDS
age annual compounded rate of return over various periods may also be computed
by utilizing ending redeemable values as determined above.
From time to time, the Bond Fund and the Money Market Fund may advertise their
yield. The Funds' yield is calculated according to methods that are standardized
for all mutual funds. Because yield calculation methods differ from the methods
used for other purposes, the Fund's yield may not equal its distribution rate,
the income paid to a shareholder's account, or the income reported in the Fund's
financial statements. With respect to the Money Market Fund, the yield refers to
the income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). The Money Market Fund's net income
per share for such period (excluding realized gains and losses, if any) will be
divided by the Fund's net asset value of $1.00 and annualized on a 365-day
basis. An effective yield quotation, taking into account the effects of a
shareholder's assumed reinvestment of income (compounded), may also be used. For
the Bond Fund, yield refers to the income generated by an investment in the fund
over a 30-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that period is assumed to be generated each 30 days over a
365-day period and is shown as a percentage of the investment.
A Fund's investment results will vary from time to time depending upon 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 a Fund's investment results with
those published for other investment companies, other investment vehicles, and
unmanaged indices. The comparison of a Fund to an alternative investment should
be made with consideration of differences in features and expected performance.
The Funds assume no responsibility for the accuracy of such data. A 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 Funds will be included in the
Funds' annual report, which will be mailed to shareholders without charge.
HOW TO INVEST
The shares of each 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 Funds.
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 Funds. 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 Funds 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 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. 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, however,
extraordinary circumstances and market volatility may cause it to close earlier)
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 a Fund may also be purchased through broker-dealers or other financial
intermediaries who have made appropriate arrangements with the Funds. 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 Funds, 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 placed the order must reim-
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FREMONT MUTUAL FUNDS
burse the Funds 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
Funds, 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 Funds, 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 Funds 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 that is 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 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.
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 Funds, 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. This allows a shareholder to 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, however,
extraordinary circumstances and market volatility may cause it to close earlier)
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
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FREMONT MUTUAL FUNDS
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
Except for the International Small Cap Fund, 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. The
International Small Cap Fund is subject to a 2% redemption fee imposed on
redemptions of shares within six months of purchase.1
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, however, extraordinary
circumstances and market volatility may cause it to close earlier) 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 than 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, however,
extraordinary circumstances and market volatility may trigger it to close
earlier) 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.
Check Redemption Privilege. (Money Market Fund and Bond Fund only.) The Transfer
Agent will, upon request, provide each shareholder of the Fund (except for
retirement accounts) with free checks which may be made payable by shareholders
to the order of anyone in any amount of at least $250 The Fund will arrange for
checks to be honored by State Street Bank and Trust Company, Kansas City,
Missouri (the "Bank") for this purpose. The Bank has the right to refuse any
check which does not conform with its requirements. The shareholder will be
subject to the Bank's rules and regulations governing checking accounts. When
such a check is presented to the Transfer Agent for payment, the Transfer Agent,
as the shareholder's agent, will cause the Investment Company to redeem a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. Since it is not possible to predict the exact
value of a shareholder's account when a redemption check is cleared,
shareholders may not close an account with a check.
The Check Redemption Privilege enables the shareholder to continue receiving
dividends on those shares equaling the amount being
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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FREMONT MUTUAL FUNDS
redeemed by check until such time as the check is presented to the Transfer
Agent for payment. The Check Redemption Privilege may be modified or terminated
by the Investment Company or the Transfer Agent upon three days' notice to
shareholders.
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. 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 Funds 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 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 applicable 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 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 Fund will be processed.
RETIREMENT PLANS
Shares of the Funds 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.
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FREMONT MUTUAL FUNDS
Retirement plan participants may receive additional services related to their
plan at no extra cost to any shareholder.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION
Each Fund intends to qualify 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.
Each Fund intends to distribute all of its net investment income according to
the following schedule:
The Money Market Fund and the Bond Fund declare dividends daily and will
distribute net investment income monthly.
The Global Fund intends to distribute substantially all of its net investment
income four times a year, at the end of March, June, September and on or about
December 15. The Fund will also distribute short-term net realized capital
gains, if any, once each year in October.
Each of the Growth Fund, International Growth Fund, U.S. Small Cap Fund,
International Small Cap Fund, Emerging Markets Fund, Select Fund and U.S. Micro
Cap Fund intends to distribute substantially all of its net investment income
once each year in October. The Real Estate Securities Fund intends to distribute
all of its net investment income in October and December or January.
Each 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. Corporate investors may be entitled to the "dividends received"
deduction on all or a portion of the dividends paid by the Fund. Availability of
the "dividends received" deduction is subject to certain holding period and debt
financing limitations.
Shareholders may elect:
o to have all dividends and capital gain distributions automatically reinvested
in additional shares; or
o to receive income dividends and short-term capital gain distributions in cash
and accept long term capital gain distributions in additional shares; or
o to receive all distributions of income dividend and capital gain in cash; or
o 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 Funds and paid in January are taxable as if paid in
December. Each Fund will provide to its shareholders federal tax information
annually by January 31, including information about dividends and distributions
paid during the year. Because REITs invested in by the Real Estate Securities
Fund do not provide complete information about the taxability of their
distributions until after the calendar year end, the Advisor may not be able to
determine how much of the Real Estate Securities Fund's distribution is taxable
to the shareholder until after the January 31 deadline for issuing Form
1099-DIV. Consequently, the Real Estate Securities Fund may request permission
each year from the Internal Revenue Service to extend the deadline to issue Form
1099-DIV to February 28.
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
Funds 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 sharehold-
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FREMONT MUTUAL FUNDS
er'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 Funds 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 a 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 a 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 Funds will
report annually to its shareholders the amount per share of such withholding, if
any.
Because of the nature of REIT investments, REITs may generate significant
non-cash deductions (i.e., depreciation on real estate holdings) while having a
greater cash flow to distribute to its shareholders. If a REIT distributes more
cash than it has taxable income, a "return on capital" results. A return on
capital represents a portion of the shareholder's original investment that is
generally non-taxable when distributed, or returned, to the investor. If a
shareholder does not reinvest distributions, the cost basis of their shares will
be decreased by the amount of returned capital, which may result in a larger
capital gain when the shares are sold. Although a return of capital is generally
non-taxable to a shareholder upon distribution, it would be taxable to a
shareholder as a capital gain if their cost basis in the shares is reduced to
zero. This could occur if the shareholder does not reinvest distributions and
the returns on capital are significant.
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 Funds.
PLAN OF DISTRIBUTION
(This section applies to the Real Estate Securities Fund, International Growth
Fund, U.S. Small Cap Fund, International Small Cap Fund, Select Fund and
Emerging Markets Fund ONLY.) Pursuant to Rule 12b-1 under the 1940 Act, the
above Funds have adopted a plan of distribution (the "Plan") under which the
Funds 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 Funds 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 Funds; 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
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 a
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
Each 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. Except for the International Small Cap Fund, there is no sales charge in
connection with purchases or redemptions of Fund shares.2
Each 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 (excluding banking holidays, in the case of the Money
Market Fund). Investments, including options, are stated at value based on
recorded closing sales on a national securities exchange or, in the
2 For the International Small Cap Fund, 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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FREMONT MUTUAL FUNDS
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 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 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, however, extraordinary
circumstances and market volatility may cause it to close earlier) 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.
Amortized Cost Method of Valuation - Money Market Fund Only
The Money Market Fund seeks to maintain a stable net asset value of $1.00 per
share by valuing its assets on the basis of amortized cost. This involves
initially valuing a portfolio instrument at its cost 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.
Although the Fund seeks to maintain a stable net asset value of $1.00 per share,
there can be no assurance that a stable net asset value will be maintained.
As is generally the case with other money market funds, on any day that the
Money Market Fund experiences a decline in net asset value below $1.00 per
share, the Fund may offset any such amount against the shareholder dividends
accrued during the month. Alternatively, to maintain the net asset value of its
shares at $1.00, the Fund may redeem or declare a dividend of shares. Any such
action would not change a shareholder's pro rata share of net assets, but would
reflect the increase or decrease in the value of the shareholder's holdings
which resulted from the change in net asset value.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for each 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 Funds, 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 Funds may invest are generally traded in the 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 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 an affiliated person of such person.
OTHER RISK CONSIDERATIONS (YEAR 2000 ISSUE)
Like other mutual funds and financial and business organizations around the
world, the Funds 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 Funds 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. Should the Funds'
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FREMONT MUTUAL FUNDS
due diligence uncover any serious problems with such a firm's Year 2000
preparedness, the Funds and Advisor will seek to take appropriate action in an
effort to protect the interest of the Funds.
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.
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.
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FREMONT MUTUAL FUNDS
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 Guaran tees."
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
Fremont Institutional U.S. Micro-Cap 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:
National Financial Data Services
1004 Baltimore Avenue
Kansas City, MO 64105
Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, MO 64105
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.
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FREMONT MUTUAL FUNDS
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45
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Fremont
Funds [LOGO]
For general information: 800-548-4539 (press 1), or 816-435-1777 (outside U.S.)
Please visit our website at: www.fremontfunds.com
50 Beale Street, Suite 100, San Francisco, CA 94105 o 888-502-3253
3000 Post Oak Blvd., Suite 100, Houston, TX 77056 o 800-735-2705
9801 Washingtonian Blvd., Suite 105, Gaithersburg, MD 20878 o 888-373-6684
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
Copyright 1998 Fremont Mutual Funds, Inc. All rights reserved.
P013-9806
<PAGE>
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 June 29, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
Investment Objectives, Policies; and Risk Considerations .................. 1
The Funds (Including the Fremont Money Market Fund) Generally ............. 12
Investment Restrictions ................................................... 22
Investment Company Directors and Officers ................................. 25
Investment Advisory and Other Services .................................... 27
Plan of Distribution (U.S. Small Cap Fund, International
Growth Fund, International Small Cap Fund, Real Estate
Securities Fund, Select Fund and Emerging Markets Fund Only) .............. 32
Execution of Portfolio Transactions ....................................... 33
How to Invest ............................................................. 35
Other Investment and Redemption Services .................................. 39
Taxes - Mutual Funds ...................................................... 40
Additional Information .................................................... 45
Investment Results ........................................................ 49
Appendix A: Description of Ratings ................................ Appendix 1
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, FREMONT U.S. MICRO-CAP FUND, AND FREMONT CALIFORNIA
INTERMEDIATE TAX-FREE 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, the Fremont U.S. Micro-Cap Fund,
and the Fremont California Intermediate Tax-Free 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
-1-
<PAGE>
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.
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
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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.
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
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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
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currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a put option
may be purchased in order to protect unrealized appreciation of a security or
currency where the Advisor or Sub-Advisor deems it desirable to continue to hold
the security or currency because of tax considerations. The premium paid for the
put option and any transaction costs would reduce any capital gain otherwise
available for distribution when the security or currency is eventually sold.
The 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
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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.
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
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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 contracts, no assurance can
be given that a liquid market will exist for the contracts at any
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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
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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 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
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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 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
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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
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which the Fund anticipates purchasing securities.
Currency options may be either listed on an exchange or traded over-the-counter
(OTC). Listed options are third-party contracts (i.e., performance of the
obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The 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 International Small Cap
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
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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 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
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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 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
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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
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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.
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
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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. 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
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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.
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
331 1/43% 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
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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.
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
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(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 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
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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.
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
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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:
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."
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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 331 1/43% of its net assets calculated at the time of
the securities lending.
5. Borrow money, except from banks for temporary or emergency purposes not
in excess of 30% of the value of the Fund's total assets. 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.
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.
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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.
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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 and Business
Name and Address Date of Birth Positions Held Experience for Past Five Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David L. Redo(1) (2) (4) 9-1-37 Chairman, Chief President and Director, Fremont Investment
Fremont Investment Advisors, Inc. Executive Officer and Advisors, Inc., Managing Director, Fremont
333 Market Street, 26th Floor Director Group, L.L.C. and Fremont Investors, Inc.;
San Francisco, CA 94105 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, Senior Vice President and
Fremont Investment Advisors, Inc. Director, Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor 10/77-7/96, Senior Vice President, Business
San Francisco, CA 94105 Development, Benham Management
Richard E. Holmes(3) 5-14-43 Director Vice President & Director, BelMar Advisors,
P.O. Box 479 Inc. (marketing firm)
Sanibel, FL 33957
Donald C. Luchessa(3) 2-18-30 Director Principal, DCL Advisory (marketer for
DCL Advisory investment advisors)
345 California Street, 10th Floor
San Francisco, CA 94104
David L Egan(3) 5-1-34 Director President, Fairfield Capital Associates,
Fairfield Capital Associates, Inc. Inc. Founding Partner of China Epicure, LLC
1640 Sylvaner and Palisades Trading Company, LLC
St. Helena, CA 94574
Albert W. Kirschbaum (4) 8-17-38 Senior Vice President Senior Vice President and Director, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Peter F. Landini (1) (4) 5-10-51 Executive Vice President, Executive Vice President, Chief Operating
Fremont Investment Advisors, Inc. Treasurer and Director Officer and Director, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; Director, J.P. Morgan
San Francisco, CA 94105 Securities, Asia
John Kosecoff 10-9-51 Vice President 10/96-present, Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.; 12/93-9/96,
333 Market Street, 26th Floor Senior Analyst and Portfolio Manager, RCM
San Francisco, CA 94105 Capital Management; 11/92-12/93, Hedge Fund
Analyst and Portfolio Manager, Omega Advisors
William M Feeney 3-27-56 Vice President Vice President, Fremont Investment Advisors,
Fremont Investment Advisors, Inc. Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Norman Gee 3-27-56 Vice President Vice President, Fremont Investment Advisors,
Fremont Investment Advisors, Inc. Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Alexandra W. Kinchen (4) 4-25-45 Vice President Vice President, Fremont Investment Advisors,
Fremont Investment Advisors, Inc. Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
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<CAPTION>
Principal Occupations and Business
Name and Address Date of Birth Positions Held Experience for Past Five Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew L. Pang (4) 4-15-49 Vice President Vice President, Fremont Investment Advisors,
Fremont Investment Advisors, Inc. Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Robert J. Haddick (4) 2-26-60 Senior Vice President Senior Vice President, Fremont Investment
Fremont Investment Advisors, Inc. Advisors, Inc.; Fund Group, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Tina Thomas 8-7-49 Vice President, Secretary, 6/96-present, Vice President and Chief
Fremont Investment Advisors, Inc. and Chief Compliance Compliance Officer, Fremont Investment
333 Market Street, 26th Floor Officer Advisors, Inc.; 9/88-5/96, Chief Compliance
San Francisco, CA 94105 Officer and Vice President, Bailard, Biehl
and Kaiser, Inc.; Treasurer, Bailard, Biehl
and Kaiser International Fund Group, Inc.
and Bailard, Biehl and Kaiser Fund Group;
Principal, BB&K Fund Services, Inc.
Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont Investment Advisors,
Fremont Investment Advisors, Inc. Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont Investment Advisors,
Fremont Investment Advisors, Inc. Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Jack Gee 9-12-59 Vice President & 10/97-present, Vice President and
Fremont Investment Advisors, Inc. Controller Controller, Fremont Investment Advisors,
333 Market Street, 26th Floor Inc.; 11/95-10/97, Chief Financial Officer,
San Francisco, CA 94105 SIFE, Inc.; 6/91-6/95, Controller, Concord
General Corporation
Greg Hand 10-9-61 Assistant Controller Assistant Treasurer
Fremont Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Allyn Hughes 6-12-60 Vice President Vice President, Fremont Investment Advisors,
Fremont Investment Advisors, Inc. Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Dean Boebinger 11-21-55 Vice President 12/95-present, National Sales Manager,
Fremont Investment Advisors, Inc. Fremont Investment Advisors, Inc.;
3000 Post Oak Blvd., Suite 100 8/94-12/95, Regional Sales Manager;
Houston, TX 77056 3/92-7/94, Certified Financial Planner and
Account Executive, GNA, Inc.
</TABLE>
(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 24, 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.
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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 (except 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 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. The
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
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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
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 Kensington Investment Group
International Growth Fund Capital Guardian Trust Company
International Small Cap Fund Bee & Associates
U.S. Small Cap Fund Kern Capital Management LLC
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<PAGE>
Emerging Markets Fund Nicholas-Applegate Capital Management (HK) LLC
U.S. Micro-Cap fund Kern Capital Management LLC
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 .50% to Kensington Investment Group
International Growth Fund: Capital Guardian Trust Company:
.75% on the first $25 million
.60% 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: .65% to Kern Capital Management LLC
Emerging Markets Fund: .50% to Nicholas Applegate Capital Management
(Hong Kong) LLC
U.S Micro-Cap Fund: 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 Capital 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 (net of voluntary fee
waivers) of $198,574, $81,991, and $364,583,
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<PAGE>
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 2020 East Financial Way,
Suite 100, 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,
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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 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 SECURITIES 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
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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 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
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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 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 11,444,571 8,854 11,850
Fund
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
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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.
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; however, extraordinary circumstances and market volatility may cause it to
close earlier) each day the New York Stock Exchange is open as set forth
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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:
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
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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
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
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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
Fundprice 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.
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
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<PAGE>
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
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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 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
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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 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
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(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 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.
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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.
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
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(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. Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, 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.
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
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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 Qualified Employees 51.83%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Sequoia Ventures, Inc. 11.72%
50 Fremont Street, Ste 3600
San Francisco, Ca 94105-2239
Bond Fund Bechtel Mast Trust for Qualified Employees 76.01%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Sequoia Ventures, Inc. 5.32%
50 Fremont Street, Ste 3600
San Francisco, Ca 94105-2239
Real Estate Securities Fund Charles Schwab & Co., Inc. 40.22%
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
Fremont Investment Advisors, Inc. 10.00%
333 Market Street, Ste. 2600
San Francisco, Ca 94105-2127
Global Fund Bechtel Mast Trust for Qualified 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
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International Growth Fund BF Fund Limited 71.50%
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 Cap Fund Charles Schwab & Co., Inc. 18.72%
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 Fund Charles Schwab & Co., Inc. 21.99%
101 Montgomery Street
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
FBO Sal Vella 7.45%
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
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<PAGE>
California Intermediate BF Fund Limited 71.44%
Tax-Free Fund 50 Fremont Street, Ste. 3600
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.
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 1997 are as
follows (source: Fremont Investment Advisors, Inc.):
<TABLE>
<CAPTION>
U.S. FOREIGN INTERMEDIATE FOREIGN MONEY MARKET
STOCKS STOCKS U.S. BONDS BONDS SECURITIES NAREIT
------ ------ ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
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%
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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%
</TABLE>
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:
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<PAGE>
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7 -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:
P(1+T)n = ERV
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the Board of
Directors; and (2) a complete redemption at the end of any period illustrated.
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:
YIELD = 2[((a - b)/cd + 1)6 - 1]
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<PAGE>
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:
(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.
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<PAGE>
(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.
(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
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<PAGE>
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 IBCA, Inc. 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 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
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<PAGE>
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 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
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<PAGE>
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 Fundhistorical 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 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
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<PAGE>
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 _ 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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<PAGE>
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.
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<PAGE>
16) Supply, consumption, demand, and growth in demand of certain products,
services, and industries, including, but not limited to, electricity,
water, transportation, construction materials, natural resources,
technology, other basic infrastructure, financial services, health
care services and supplies, consumer products and services, and
telecommunications equipment and services (sources of such information
may include, but would not be limited to, The World Bank, OECD, IMF,
Bloomberg, and Datastream).
17) Standard deviation and performance returns for U.S. and non-U.S.
equity and bond markets: Morgan Stanley Capital International.
18) Political and economic structure of countries: Economist Intelligence
Unit.
19) Government and corporate bonds - credit ratings, yield to maturity and
performance returns: Salomon Brothers, Inc.
20) Dividend for U.S. and non-U.S. companies: Bloomberg.
In advertising and sales materials, the Advisor or 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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APPENDIX A: DESCRIPTION OF RATINGS
DESCRIPTION OF COMMERCIAL PAPER RATINGS:
MOODY'S INVESTORS SERVICE. Ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. Moody's employs the designation
"Prime-1" to indicate commercial paper having the highest ability for timely
repayment.
Issuers rated Prime-1 "have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; 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 SERVICES' 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 strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation."
FITCH IBCA, 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. "+" or "-" may be appended to a rating to denote relative
status within major rating categories.
F1 - "Highest Credit Quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptional strong credit feature."
DUFF & PHELPS CREDIT RATING CO. employs the designation "D-1" to indicate
high-grade short-term debt.
D-1+ - "Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources or funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations."
D-1 - "Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are very
small."
D-1- - "High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small."
Appendix 1
<PAGE>
THOMSON BANKWATCH assigns short-term debt ratings ranging from "TBW-1" to
"TBW-4." Important factors that may influence its assessment are the overall
financial health of the particular company, and the probability that the
government will come to the aid of a troubled institution in order to avoid a
default or failure.
TBW-1 - "The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis."
DESCRIPTION OF OTHER SHORT-TERM RATINGS
MOODY'S INVESTORS SERVICE has four rating categories for short-term obligations
that define an investment grade situation. These designations range from MIG 1
for best quality through MIG 4 for adequate quality.
MIG 1/VMIG 1 - "denotes best quality. There is present strong protection by
established cash flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing."
MIG 2/VMIG 2 - "denotes high quality. Margins of protection are ample although
not so large as in preceding group."
STANDARD & POOR'S RATINGS SERVICES' short-term issue credit ratings range from
SP-1 to SP-3.
SP-1 - "Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation."
SP-2 - "Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes."
DESCRIPTION OF BOND RATINGS:
MOODY'S INVESTORS SERVICE 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 bonds
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 larger
than the Aaa securities."
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
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susceptibility to impairment sometime in the future."
Baa - Medium grade obligations. "Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well."
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 SERVICES' 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. "The obligor's capacity to meet its financial commitment
on the obligation is extremely strong."
AA - "An obligation rated AA differs from the highest-rated obligation only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong."
A - "An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong."
BBB - "exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation."
BB, B, CCC, CC, and C - "Obligations rated BB, B, CCC, CC, and C are regarded as
having speculative characteristics. BB indicates the least degree of speculation
and C the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions."
FITCH IBCA, 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 - "Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely
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to be diversely affected by foreseeable events."
AA - "Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events."
A - "High credit quality. `A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings."
BBB - "Good credit quality. `BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category."
BB - "Speculative. `BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade."
B - "Highly speculative. `B' rating indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.."
DUFF & PHELPS CREDIT RATING CO. rates the long-term debt securities of various
entities in categories ranging from "AAA" to "DD." The ratings from "AA" through
"B" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Investment ratings are as follows:
AAA - "Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt."
AA - "High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions."
A - "Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress."
BBB - "Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles."
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
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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."
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 5
