As filed with the Securities and Exchange Commission on November 3, 1999
File No: 333-87141
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
FREMONT MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
(415) 284-8733
(Registrant's Telephone Number, Including Area Code)
333 Market Street, Suite 2600
San Francisco, California 94105
(Address of Principal Executive Offices)
Tina Thomas, Secretary
Fremont Mutual Funds, Inc.
333 Market Street, Suite 2600
San Francisco, California 94105
(Name and Address of Agent for Service)
Copies to:
Julie Allecta, Esq.
David Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective. The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
No filing fee is required under the Securities Act of 1933, as amended, because
an indefinite number of shares of beneficial interest, with par value $0.01 per
share, has previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
<PAGE>
CROSS REFERENCE SHEET
FORM N-14 PART A, ITEM LOCATION IN PROSPECTUS/PROXY STATEMENT
- ---------------------- --------------------------------------
1 Front Cover; Cross Reference
2 Table of Contents
3 Introduction; Description of the Proposed
Reorganization; Comparison of the Funds; Risk Factors
4 Introduction, The Transaction, The Proposal,
Description of the Proposed Reorganization
5, 6 The Transaction, Comparison of the Funds; Risk
Factors; Further Information About the International
Small Cap Fund and the International Growth Fund
7 Shares and Voting; Vote Required
8 Not Applicable
9 Not Applicable
FORM N-14 PART B, ITEM LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- ---------------------- -----------------------------------------------
10 Cover Page
11 Table of Contents
12 Incorporation of Documents by Reference in Statement
of Additional Information
13 Not Applicable
14 Incorporation of Documents by Reference in Statement
of Additional Information
FORM N-14 PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of Form N-14.
<PAGE>
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Post-Effective Amendment No. 34 of Fremont Mutual Funds, Inc., March 1,
1999 (SEC File No. 811-5632 and subsequent filings under Rule 497(e)):
Combined Prospectus for Fremont International Growth Fund and Fremont
International Small Cap Fund (with other funds of Fremont Mutual Funds,
Inc.), dated March 1, 1999.
Combined Statement of Additional Information for Fremont International
Growth Fund and International Small Cap Fund (with other funds of Fremont
Mutual Funds, Inc.), dated March 1, 1999.
As previously sent to shareholders of the Fremont International Growth Fund and
Fremont International Small Cap Fund, and as filed with the SEC pursuant to Rule
30b2-1:
Annual Report for the Fremont International Growth Fund and the Fremont
International Small Cap Fund for the fiscal year ended October 31, 1998, as
contained in the Annual Report for Fremont Mutual Funds, Inc., dated as of
and for the periods ended October 31.
Semi-Annual Report for the Fremont International Growth Fund and the
Fremont International Small Cap Fund for the six months ended April 30,
1999, as contained in the Semi-Annual Report for Fremont Mutual Funds,
Inc., dated as of and for the six months ended April 30, 1999.
<PAGE>
-----------------------------------------
PART A
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
FREMONT INTERNATIONAL SMALL CAP FUND
INTO
FREMONT INTERNATIONAL GROWTH FUND
-----------------------------------------
<PAGE>
[LETTERHEAD OF FREMONT MUTUAL FUNDS, INC.]
IMPORTANT PROXY VOTE FOR FREMONT INTERNATIONAL SMALL CAP FUND SHAREHOLDERS
PLEASE READ AND RESPOND PROMPTLY
November __, 1999
Dear International Small Cap Shareholder,
I am writing to inform you of a Special Meeting of Fremont International Small
Cap Fund Shareholders that will be held on December 14, 1999. The purpose of
this meeting is to vote on a proposal to reorganize the International Small Cap
Fund and merge its assets into the Fremont International Growth Fund. Please
read the enclosed materials and vote by signing and returning the enclosed proxy
card.
PROPOSED FUND MERGER: After completing a careful analysis of the Fremont
International Small Cap Fund's performance and holdings the Advisor recommends
that the International Small Cap Fund reorganize and merge all of its assets
into the Fremont International Growth Fund. The International Growth Fund was
selected because both Funds invest in international equities, and the portfolio
management team for the Fremont International Growth Fund has an excellent
performance track record.
Of course, should you choose a greater or lesser degree of risk than the
International Growth Fund you may liquidate prior to the merger and transfer
your proceeds to any of the Fremont Funds. Fremont has agreed to pay all
expenses associated with this merger.
This proxy is your opportunity to vote `for' or `against' the proposed merger of
these two funds. THE FREMONT FUNDS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE IN FAVOR OF THE MERGER. It is important that all Fremont
International Small Cap Fund shareholders exercise their right to vote on these
significant issues concerning their investments.
HOW TO VOTE ON THIS RESOLUTION
Voting by mail is quick and easy. Everything you need is enclosed. We encourage
you to exercise your rights as a shareholder and vote promptly. To cast your
vote, complete and sign the proxy card and return it in the enclosed
postage-paid envelope NO LATER THAN DECEMBER 8, 1999. Or, If you would like to
cast your vote in person you may do so at the special shareholder meeting that
will take place at 9:00 a.m. on December 14, 1999, in the main conference room
on the 26th floor of 333 Market Street, in San Francisco.
If you have any questions about any of these materials, please call us at
800-548-4539 (press 2).
Sincerely,
Michael H. Kosich
President
<PAGE>
FREMONT MUTUAL FUNDS, INC.
333 Market Street, 26th Floor
San Francisco, California 94105
(800) 548-4539 (press 2)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
FREMONT INTERNATIONAL SMALL CAP FUND
TO BE HELD DECEMBER 14, 1999
To the Shareholders of the International Small Cap Fund:
Fremont International Small Cap Fund will host a special meeting of
shareholders at the offices of Fremont Mutual Funds, 333 Market Street, 26th
Floor, San Francisco, California 94105 on December 14, 1999, at 9:00 A.M., local
time. At the meeting, we will ask you to vote on:
1. A proposal to reorganize the International Small Cap Fund into another
Fremont Fund, the International Growth Fund.
2. Any other business that properly comes before the meeting.
Only shareholders of record at the close of business on October 8, 1999
(the "Record Date") will be entitled to receive this notice and to vote at the
meeting.
By Order of the Board of Directors
/s/ Tina Thomas
----------------------------------------
Tina Thomas, Secretary
Fremont Mutual Funds, Inc.
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY
SHARES YOU OWNED ON THE RECORD DATE.
----------
PLEASE ENTER YOUR VOTE ON THE ENCLOSED PROXY FORM, DATE AND SIGN IT, AND RETURN
IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN
THE UNITED STATES. IN ORDER TO AVOID THE ADDITIONAL EXPENSE AND DISRUPTION OF
FURTHER SOLICITATION, WE REQUEST YOUR COOPERATION BY VOTING PROMPTLY.
<PAGE>
FREMONT MUTUAL FUNDS, INC.
333 MARKET STREET, 26TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
(800) 548-4539 (PRESS 2)
FREMONT INTERNATIONAL SMALL CAP FUND
AND
FREMONT INTERNATIONAL GROWTH FUND
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: October 29, 1999
WHAT IS THIS DOCUMENT AND WHY DID WE SEND IT TO YOU?
The Board of Directors approved a plan to reorganize the Fremont
International Small Cap Fund (the "International Small Cap Fund") into the
Fremont International Growth Fund (the "International Growth Fund") (that
transaction is referred to as the "Merger"). Approval of the shareholders of the
International Small Cap Fund is needed to proceed with the Merger. A meeting of
the International Small Cap Fund's shareholders will be held on December 14,
1999 (the "Shareholder Meeting"). We are sending this document to you for your
use in deciding whether to approve the Merger at the Shareholder Meeting.
This document includes a Notice of Special Meeting of Shareholders, a
Combined Proxy Statement and Prospectus and a form of Proxy.
As a technical matter, the Merger will have three steps:
* the transfer of the assets and liabilities of the International Small
Cap Fund to the International Growth Fund in exchange for shares of
the International Growth Fund (the "International Growth Fund Shares")
of equivalent value to the net assets transferred,
* the pro rata distribution of those International Growth Fund Shares to
shareholders of the International Small Cap Fund as of the effective
date of the Merger (the "Effective Date") in full redemption of those
shareholders' shares in the International Small Cap Fund, and
* the immediate liquidation and termination of the International Small
Cap Fund.
As a result of the Merger, each shareholder of the International Small Cap
Fund will hold International Growth Fund Shares having the same total value as
the shares of the International Small Cap Fund held immediately before the
Merger. Lawyers for the International Small Cap Fund and the International
2
<PAGE>
Growth Fund will issue an opinion to the effect that, for federal income tax
purposes, the Merger will be treated as a tax-free reorganization that will not
cause the International Small Cap Fund's shareholders to recognize a gain or
loss for federal income tax purposes. See Section II.A.3 below.
The investment objective of the International Small Cap Fund is to seek
long-term capital appreciation by investing in small capitalization companies,
those with market capitalizations less than $1 billion, based outside of the
U.S. The International Growth Fund's investment objective is to seek long-term
capital appreciation by investing primarily in international stocks of
reasonably priced, high-quality companies that are likely to grow over the long
term. The International Small Cap Fund will invest at least 65% of its total
assets in international small cap companies, while the International Growth Fund
will invest at least 90% of its total assets in issuers outside of the U.S.
This Combined Proxy Statement and Prospectus sets forth the basic
information that you should know before voting on the proposal. You should read
it and keep it for future reference.
WHAT OTHER IMPORTANT DOCUMENTS SHOULD I KNOW ABOUT?
The International Small Cap Fund and International Growth Fund (together,
the "Funds") are series of Fremont Mutual Funds, Inc. (the "Company"), an
open-end management investment company. The following documents are on file with
the Securities and Exchange Commission (the "SEC") and are deemed to be legally
part of this document:
* Combined Prospectus for the International Growth Fund and the
International Small Cap Fund (as well as other Fremont Funds) dated
March 1, 1999.
* Combined Statement of Additional Information relating to the
International Small Cap Fund and the International Growth Fund (as
well as other Fremont Funds) dated March 1, 1999.
* Statement of Additional Information relating to this Combined Proxy
Statement and Prospectus.
Those documents are available without charge by writing to the Company at
333 Market Street, 26th Floor, San Francisco, California 94105, or by calling
(800) 548-4539 (press 2).
The Annual Report to Shareholders of the International Small Cap Fund and
the International Growth Fund for the fiscal year ended October 31, 1998,
containing audited financial statements of the International Small Cap Fund and
the International Growth Fund, has been previously mailed to shareholders. The
Semi-Annual Report for those Funds containing unaudited financial statements for
the six months ended April 30, 1999 also has been mailed to shareholders. If you
3
<PAGE>
do not have a copy, additional copies of that Annual Report and Semi-Annual
Report are available without charge by writing or calling the Company at its
address and telephone number listed above. It is expected that this Combined
Proxy Statement and Prospectus will be mailed to shareholders on or about
October 29, 1999.
LIKE ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED THESE SECURITIES, NOR HAS IT PASSED ON THE ACCURACY OR ADEQUACY
OF THIS COMBINED PROXY STATEMENT AND PROSPECTUS. IT IS A CRIMINAL OFFENSE TO
REPRESENT OTHERWISE.
4
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION.......................................................... 6
A. GENERAL............................................................ 6
B. THE PROPOSAL....................................................... 6
C. COMPARISON OF EXPENSES............................................. 8
D. SHARES AND VOTING.................................................. 9
II. THE PROPOSAL.......................................................... 12
A. DESCRIPTION OF THE PROPOSED MERGER................................. 12
1. THE REORGANIZATION.............................................. 12
2. EFFECT OF THE MERGER............................................ 13
3. FEDERAL INCOME TAX CONSEQUENCES................................. 13
4. DESCRIPTION OF THE EMERGING FUND SHARES......................... 14
5. CAPITALIZATION.................................................. 14
B. COMPARISON OF THE FUNDS............................................ 16
1. INVESTMENT OBJECTIVES AND POLICIES.............................. 16
2. INVESTMENT RESTRICTIONS......................................... 16
3. COMPARATIVE PERFORMANCE INFORMATION............................. 20
4. ADVISORY FEES AND OTHER EXPENSES................................ 21
5. PORTFOLIO ADVISORS.............................................. 21
6. DISTRIBUTION AND SHAREHOLDER SERVICES........................... 22
7. REDEMPTION AND EXCHANGE PROCEDURES.............................. 22
8. INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES......... 23
9. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS................ 23
10. SHAREHOLDERS'RIGHTS............................................. 23
C. RISK FACTORS....................................................... 24
D. RECOMMENDATION OF THE BOARD OF DIRECTORS........................... 24
E. DISSENTERS'RIGHTS OF APPRAISAL..................................... 25
F. FURTHER INFORMATION ABOUT THE INTERNATIONAL SMALL CAP FUND
AND THE INTERNATIONAL GROWTH FUND.................................. 25
G. VOTE REQUIRED...................................................... 26
H. FINANCIAL HIGHLIGHTS............................................... 26
III. MISCELLANEOUS ISSUES............................................... 28
A. OTHER BUSINESS..................................................... 28
B. NEXT MEETING OF SHAREHOLDERS....................................... 29
C. LEGAL MATTERS...................................................... 29
D. EXPERTS............................................................ 29
5
<PAGE>
I. INTRODUCTION
A. GENERAL
The Fremont Funds' Board of Directors called this shareholder meeting to
allow shareholders to consider and vote on the proposed Merger of the
International Small Cap Fund into the International Growth Fund. The Board of
Directors (including a majority of the independent directors, meaning those
directors who are not "interested" persons under the Investment Company Act of
1940, as amended (the "1940 Act")) voted on September 28, 1999, to approve the
Merger subject to the approval by the International Small Cap Fund's
shareholders.
The investment advisor for each Fund is Fremont Investment Advisors, Inc.
(the "Advisor"). The Advisor has hired a subadvisor for each of the Funds. Bee &
Associates, Incorporated is the subadvisor to the International Small Cap Fund
and Capital Guardian Trust Company (CGTC) is the subadvisor to the International
Growth Fund. The Advisor recommends that you approve the Merger because it
believes the Merger can increase the managerial efficiencies of these two Funds
if they are merged. This is possible since each Fund invests in international
securities, both look for reasonably priced, good value companies with a strong
upside.
B. THE PROPOSAL AND SUMMARY COMPARISON OF THE FUNDS
At the Shareholder Meeting, the shareholders of the International Small Cap
Fund will be asked to approve the proposed Merger of the International Small Cap
Fund into the International Growth Fund. The Merger will include the transfer of
substantially all of the assets and liabilities of the International Small Cap
Fund to the International Growth Fund. All International Small Cap Fund
shareholders will receive International Growth Fund Shares in exchange. The
International Small Cap Fund will then be terminated and liquidated.
The investment objective of the International Small Cap Fund is to seek
long-term capital appreciation by investing in small capitalization companies,
those with market capitalizations less than $1 billion, based outside of the
U.S. The International Growth Fund's investment objective is to seek long-term
capital appreciation by investing primarily in international stocks of
reasonably priced, high-quality companies that are likely to grow over the long
term. The International Small Cap Fund will invest at least 65% of its total
assets in international small cap companies, while the International Growth Fund
will invest at least 90% of its total assets in issuers outside of the U.S.
Although the small-cap securities in the International Small Cap Fund and the
mid-cap securities in the International Growth Fund are subject to substantially
similar international risks, the International Growth Fund is required to invest
at least 90% of its total assets in securities of issuers based outside of the
U.S., where the International Small Cap is required to invest at least 65% in
international small cap companies.
6
<PAGE>
Each 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. The Funds may also invest in ADRs, GDRs
and in securities of issuers located in emerging market countries.
Unlike the International Small Cap Fund, the International Growth Fund is a
diversified mutual fund. This means that the International Growth Fund cannot
invest as much of its portfolio in individual companies and its share price
should be less volatile than the share price of a non-diversified fund like the
International Small Cap Fund. The International Growth Fund's investments
emphasize larger companies, which are generally less vulnerable to changing
earnings, competition and limited products and services, resulting in a
potentially less volatile share price.
The Advisor seeks to increase the managerial efficiencies of these two
Funds. The International Small Cap Fund shareholders may be able to take
advantage of a Fund that has more investment flexibility. Because of its smaller
size and limitations on the size of companies in which it invests, the
International Small Cap Fund was unable to take full advantage of investment
opportunities within its own strategy and in investment areas available to the
International Growth Fund.
The purchase, redemption and exchange arrangement of the Funds, which are
discussed in Section II.B below, are identical. The International Growth Fund
and the International Small Cap Fund shares, which are both subject to a 0.25%
Rule 12b-1 distribution plan, are sold directly to the public at their net asset
value without a sales charge. Currently, however, the 0.25% Rule 12b-1
distribution fee is not charged on the International Small Cap Fund shares. If
the Merger is completed, all shareholders of the International Small Cap Fund on
the Effective Date would receive shares of the International Growth Fund, and
become subject to that Rule 12b-1 fee.
The Advisor and the Board of Directors believe that the Merger is in the
best interest of the International Small Cap Fund shareholders, and that the
interests of existing shareholders of the International Growth Fund will not be
diluted as a result of the Merger. See Section II.D below.
The Advisor will pay the costs of the Merger, the Shareholder Meeting and
solicitation of proxies, including the cost of copying, printing and mailing
proxy materials. In addition to solicitations by mail, the Advisor and the Board
of Directors also may solicit proxies, without special compensation, by
telephone, facsimile or otherwise.
7
<PAGE>
C. COMPARISON OF EXPENSES
The following table shows the comparative fees and expenses you may pay if
you buy and hold shares of the Funds. The Funds do not impose any front-end or
deferred sales loads nor do they charge shareholders for exchanging shares or
reinvesting dividends.
Fees and Expenses of the Funds (as of October 31, 1998)
<TABLE>
<CAPTION>
Fremont Fremont Fremont
International International International
Small Cap Fund Growth Fund Growth Fund
-------------- ------------- -------------
(Current) (Pro Forma)
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid
directly from your investment)
Redemption Fee 2.00% + 0.00% 0.00%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from
Fund assets)
Management Fee 1.25% 1.00% 1.00%
Distribution/Service
(12b-1) Fee 0.00% 0.25% 0.25%
Other Expenses 1.30% 0.40% 0.40%
---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.55% 1.65% 1.65%
---- ---- ----
Fee Reduction and/or Expense
Reimbursement 1.05% 0.15% 0.15%
---- ---- ----
NET EXPENSES++ 1.50% 1.50% 1.50%
==== ==== ====
</TABLE>
+ The Fund charges a 2% redemption fee on shares held for fewer than 6
months.
++ The Advisor has contractually agreed to reduce its fees and/or absorb
expenses to limit total annual operating expenses (excluding interest, tax
and ordinary expenses) to 1.50% until March 1, 2000, which is expected to
be renewed for at least one additional year. See Section II.B.4. for a
discussion of fees.
EXAMPLE OF FUND EXPENSES: This example is intended to help you compare the cost
of investing in each Fund with the cost of investing in other mutual funds. The
table below shows what you would pay in expenses over time, whether or not you
sold your shares at the end of each period. It assumes a $10,000 initial
investment, 5% total return each year and the changes specified above. This
example is for comparison purposes only. It does not necessarily represent a
Fund's actual expenses or returns.
Fund 1 Year 3 Years 5 Years 10 Years
- ---- ------ ------- ------- --------
International Small Cap Fund $153 $793 $1,355 $2,885
International Growth Fund $153 $520 $897 $1,955
8
<PAGE>
D. SHARES AND VOTING
The Company is a Maryland corporation and is registered with the Securities
and Exchange Commission ("SEC") as an open-end management investment company.
The Company currently has thirteen operating series, or funds, including the
Funds. Each series has its own investment objective and policies and operates
independently for purposes of investments, dividends, other distributions and
redemptions. The International Small Cap Fund and the International Growth Fund
have their own fee and expense structure. Both Funds have shares that have been
issued and sold to the public.
The International Small Cap Fund's shareholders will receive shares of the
International Growth Fund in exchange for their shares if the Merger is approved
and completed. Further information about the shares of the International Growth
Fund is contained in the Funds' Combined Statement of Additional Information.
Each whole or fractional share of the International Small Cap Fund is
entitled to one vote or corresponding fraction at the Shareholder Meeting. At
the close of business on October 8, 1999, the record date for the determination
of shareholders entitled to vote at the Shareholder Meeting (the "Record Date"),
there were 1,086,802.595 shares outstanding held by 175 record holders
(including omnibus accounts representing multiple underlying beneficial owners
such as those in the names of brokers).
All shares represented by each properly signed proxy received before the
Shareholder Meeting will be voted. If a shareholder specifies how the proxy is
to be voted on any business properly to come before the Shareholder Meeting, it
will be voted in accordance with instruction given. If no choice is indicated on
the proxy, it will be voted FOR approval of the Merger, as more fully described
in this Combined Proxy Statement and Prospectus. A proxy may be revoked by a
shareholder at any time before its use by written notice to the Company, by
submission of a later-dated proxy or by voting in person at the Shareholder
Meeting. If any other matters come before the Shareholder Meeting, proxies will
be voted by the persons named as proxies in accordance with their best judgment.
The presence in person or by proxy of shareholders entitled to cast a
majority of the votes entitled to be cast at the Shareholder Meeting will
constitute a quorum. When a quorum is present, a majority of the shares voted
shall decide the proposal. The Shareholder Meeting may be adjourned from time to
time by a majority of the votes properly voting on the question of adjourning a
meeting to another date and time, whether or not a quorum is present, and the
Shareholder Meeting may be held as adjourned within a reasonable time after the
date set for the original meeting without further notice. The persons named in
the proxy will vote those shares that they are entitled to vote in favor of
adjournment if adjournment is necessary to obtain a quorum or to obtain a
favorable vote on any proposal. If the adjournment requires setting a new record
date or the adjournment is for more than 60 days from the date set for the
original meeting (in which case the Board of Directors will set a new record
9
<PAGE>
date), the Company will give notice of the adjourned meeting to the
shareholders. Business may be conducted once a quorum is present and may
continue until adjournment of the meeting.
Proxies may be voted by mail. All proxies voted, including abstentions and
broker non-votes (where the underlying holder has not voted and the broker does
not have discretionary authority to vote the shares) will be counted toward
establishing a quorum. Approval of the Merger will occur only if a sufficient
number of votes are cast FOR that proposal. Abstentions do not constitute a vote
"for" and effectively result in a vote "against." Broker non-votes do not
represent a vote "for" or "against" and are disregarded in determining whether
the proposal has received enough votes.
As of the Record Date, the International Small Cap Fund's and the
International Growth Fund's shareholders of record and (to the Company's
knowledge) beneficial owners who owned more than five percent of each Fund's
shares are as follows:
Percentage of the
International Small Cap Fund's
International Small Cap Fund Shareholder Outstanding Shares
- ---------------------------------------- ------------------
Louisa S. Sarofim 38.77%
Bevis Longstreth
1001 Fannin Street
Houston, TX 77002
Charles Schwab & Co., Inc. 14.93%
101 Montgomery Street
San Francisco, CA 94104-4122
Fremont Investors, Inc. 10.28%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Marshall F. Wallach 9.94%
Estate of Bruce B. Bee
c/o The Wallach Company Inc.
1401 17th Street, Suite 760
Denver, CO 80202-1396
Manpower Demonstration Research Co. 5.67%
16 E. 34th Street, 19th Floor
New York, NY 10016-1328
10
<PAGE>
Percentage of the
International Small Cap Fund's
International Small Cap Fund Shareholder Outstanding Shares
- ---------------------------------------- ------------------
BF Fund Limited 24.32%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Stephen D Bechtel Jr., Trust 11.61%
P.O. Box 193809
San Francisco, CA 94119-3809
Charles Schwab & Co., Inc. 6.62%
101 Montgomery Street
San Francisco, CA 94104-4122
The Officers and Directors of the Company, as a group, owned of record and
beneficially less than one percent of the outstanding voting securities of the
International Small Cap Fund or International Growth Fund as of the Record Date.
11
<PAGE>
II. THE PROPOSAL
A. DESCRIPTION OF THE PROPOSED MERGER
1. THE MERGER
If the Merger is approved, on the Effective Date the International Growth
Fund will acquire substantially all of the assets and liabilities of the
International Small Cap Fund. At that time, the International Growth Fund will
issue to the International Small Cap Fund the number of International Growth
Fund Shares determined by dividing the value of the International Small Cap
Fund's net assets so transferred by the net asset value of one International
Growth Fund Share. The net asset value of the International Growth Fund and the
net asset value of the International Small Cap Fund will be calculated at the
close of business on the date immediately preceding the Effective Date (the
"Valuation Date") in accordance with the Funds' valuation procedures described
in Fremont Mutual Funds, Inc.'s Combined Prospectus dated March 1, 1999.
At the same time as that asset transfer, the International Small Cap Fund
will distribute the International Growth Fund Shares it receives pro rata to
each remaining shareholder of the International Small Cap Fund based on the
percentage of the outstanding shares of the International Small Cap Fund held of
record by that shareholder on the Valuation Date. For example, on April 30,
1999, the value of the aggregate net assets of the International Small Cap Fund
was approximately $8,627,828. The International Small Cap Fund Shares were
valued at $7.36 per share. The net asset value of each International Growth Fund
Share was $11.33. Therefore, if the Effective Date had been April 30, 1999, the
International Small Cap Fund would then have redeemed each of its then
outstanding shares in exchange for .650 International Growth Fund Shares.
This distribution of the International Growth Fund Shares to the
International Small Cap Fund's shareholders will be accomplished by the
establishment of accounts on the International Growth Fund's share records in
the names of those shareholders, representing the respective pro rata number of
International Growth Fund Shares deliverable to them. Fractional shares will be
carried to the third decimal place. Certificates evidencing the International
Growth Fund Shares will not be issued to the International Small Cap Fund's
shareholders.
Immediately following the International Small Cap Fund's pro rata
liquidating distribution of the International Growth Fund Shares to the
International Small Cap Fund shareholders, the International Small Cap Fund will
liquidate and terminate.
Completion of the Merger is subject to approval by the shareholders of the
International Small Cap Fund. The Merger may be abandoned at any time before the
Effective Date if a majority of the Company's Board of Directors votes to
abandon it.
12
<PAGE>
The Advisor will pay all costs and expenses of the Merger, including those
associated with the Shareholder Meeting, the copying, printing and distribution
of this Combined Proxy Statement and Prospectus, and the solicitation of proxies
for the Shareholder Meeting.
The above is a summary of the Merger and is not a complete description of
the terms of the Merger, which are set forth in the Agreement and Plan of
Reorganization attached as Exhibit A to this document.
2. EFFECT OF THE MERGER
If the Merger is approved by the International Small Cap Fund's
shareholders and completed, shareholders of the International Small Cap Fund as
of the Effective Date will become shareholders of the International Growth Fund.
The total net asset value of the International Growth Fund Shares held by each
Shareholder of the International Small Cap Fund immediately after completion of
the Merger will be equivalent to the total net asset value of the International
Small Cap Fund Shares held by that same shareholder immediately before
completion of the Merger.
On or before the Effective Date the International Small Cap Fund intends to
distribute all of its then-remaining net investment income and realized capital
gains.
After the Merger, the investment advisor for the International Growth Fund
will continue to be Fremont Investment Advisors, Inc., and First Fund
Distributors, Inc., will continue to be the International Growth Fund's
Distributor. The International Growth Fund will continue to be managed in
accordance with its existing investment objective and policies.
3. FEDERAL INCOME TAX CONSEQUENCES
As a condition to closing the Merger, the International Small Cap Fund and
the International Growth Fund must receive a favorable opinion from Paul,
Hastings, Janofsky & Walker LLP, counsel to the International Growth Fund,
substantially to the effect that, for federal income tax purposes: (a) the
transfer by the International Small Cap Fund of substantially all of its assets
and liabilities to the International Growth Fund solely in exchange for the
International Growth Fund Shares, as described above, is a reorganization within
the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) no gain or loss will be recognized by the
International Small Cap Fund upon the transfer of substantially all of its
assets to the International Growth Fund in exchange solely for shares of the
International Growth Fund Shares; (c) no gain or loss will be recognized by the
International Growth Fund on receipt of the International Small Cap Fund's
assets in exchange for the International Growth Fund Shares; (d) the aggregate
tax basis of the assets of the International Small Cap Fund in the hands of the
International Growth Fund is, in each instance, the same as the basis of those
13
<PAGE>
assets in the hands of the International Small Cap Fund immediately before the
transaction; (e) the holding period of the International Small Cap Fund's assets
in the hands of the International Growth Fund includes the period during which
the assets were held by the International Small Cap Fund; (f) no gain or loss is
recognized to the shareholders of the International Small Cap Fund upon the
receipt of the International Growth Fund Shares solely in exchange for the
Fund's shares; (g) the basis of the International Growth Fund Shares received by
the International Small Cap Fund shareholders is, in each instance, the same as
the basis of the International Small Cap Fund shares surrendered in exchange
therefor; and (h) the holding period of the International Growth Fund Shares
received by the International Small Cap Fund shareholders includes the holding
period during which shares of the International Small Cap Fund were held,
provided that those shares were held as a capital asset in the hands of the
International Small Cap Fund shareholders on the date of the exchange. The
Company does not intend to seek a private letter ruling from the Internal
Revenue Service with respect to the tax effects of the Merger, and one is not
required.
4. DESCRIPTION OF THE INTERNATIONAL GROWTH FUND SHARES
Each International Growth Fund Share issued to International Small Cap Fund
shareholders pursuant to the Merger will be duly authorized, validly issued,
fully paid and nonassessable when issued, will be transferable without
restriction and will have no preemptive or conversion rights. Each International
Growth Fund Share will represent an equal interest in the assets of the
International Growth Fund. The International Growth Fund Shares will be sold and
redeemed based upon the net asset value of the International Growth Fund next
determined after receipt of the purchase or redemption request, as described in
the International Growth Fund's Prospectus.
5. CAPITALIZATION
The capitalization of the Funds as of April 30, 1999, and their pro forma
combined capitalization as of that date after giving effect to the proposed
Merger, are as follows:
14
<PAGE>
International International
Growth Small Cap Pro Forma
Fund Fund Combined
------------- ------------- ---------
Aggregate net assets $38,779,123 $8,627,828 $47,406,951
Shares outstanding* 3,423,283 1,171,713 4,184,197
Net asset value per share:
Shares $ 11.33 $ 7.36 $ 11.33
* Fremont Mutual Funds, Inc., is authorized to issue ten billion shares for
all of its series.
15
<PAGE>
B. COMPARISON OF THE FUNDS
A brief comparison of the Funds is set forth below. See Section II.F. for
more information.
1. INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the International Small Cap Fund is to seek
long-term capital appreciation by investing in small capitalization companies,
meaning those with market capitalizations less than $1 billion, based outside of
the U.S. The benchmark for this Fund is the MSCI EAFE Small Cap Index. This
index is composed of companies with a market capitalization range of $200-$800
million (U.S.), applied consistently across 20 developed markets in Europe,
Australia, and the Far East. Under normal market conditions, the International
Small Cap Fund expects to hold not more than 30 common stocks in these
companies, representing at least 65% of its total assets.
In choosing investments for the International Small Cap Fund, its portfolio
advisors generally seek companies that they believe to be undervalued relative
to growth prospects and intrinsic value measurements. In seeking to identify
financially sound companies, the Fund's subadvisor rigorously analyze all
prospective holdings by subjecting them to the following three steps of their
investment process: (1) identify companies with unique products or services; (2)
conduct an in-depth analysis of each company's current management; and (3)
analyze each company's revenue earnings and cash flow growth.
The International Growth Fund's investment objective is to seek long-term
capital appreciation by investing primarily in international stocks of
reasonably priced, high-quality companies that are likely to grow over the long
term. The benchmark for this Fund is the MSCI EAFE Index. This index is composed
of all of the publicly traded stock in 20 developed markets. Among the countries
included are Australia, France, Germany, Italy, Japan Singapore, Spain, the
United Kingdom and the United States. The subadvisor monitors the entire
portfolio to ensure sufficient regional and country diversification.
This Fund normally invests at least 90% of its assets in securities of
issuers based outside of the United States and in at least three foreign
countries. The Fund uses a multi-manager approach, with the portfolio divided
into segments and independently managed by a team member.
2. INVESTMENT RESTRICTIONS
Unlike the International Small Cap Fund, the International Growth Fund is a
diversified fund and at least 90% of the value of its total assets, under normal
circumstances, must be invested in securities of issuers based outside of the
U.S. These securities can be represented by cash and cash items, certain other
liquid securities and securities in other issuers in an amount not greater than
5% of its total assets. This is a 1940 Act requirement that the International
16
<PAGE>
Small Cap Fund, as a non-diversified fund, is not subject to (however, other,
less restrictive, limitations apply to the concentration of the International
Small Cap Fund's assets invested in a single issuer.) Therefore, the
International Small Cap Fund may invest a greater portion of its assets in the
securities of a smaller number of issuers and could be subject to a greater risk
with respect to each portfolio security. The International Growth Fund, because
of its greater diversification in individual issuers and in the types of
securities that it may invest in, may be subject to lower risks related to any
particular stock, but remains subject to other risks, such as foreign security
risks. However, the Advisor seeks to balance these risks through an active
diversification strategy applied by the International Growth Fund's subadvisor.
For these reasons, the Advisor believes that the International Growth Fund, over
the long-term, presents lower overall risk of loss than the International Small
Cap Fund.
Except for the above difference in investment restrictions, both the
International Growth Fund and the International Small Cap Fund have identical
fundamental investment restrictions, which cannot be changed without the
affirmative vote of a majority of each Fund's outstanding voting securities as
defined in the 1940 Act. Neither the International Growth Fund nor the
International Small Cap Fund may:
(1) Invest 25% or more of the value of its total assets in the securities or
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 or to tax-exempt securities issued by
state governments or political subdivisions thereof.
(2) Buy and 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 their Combined Prospectus and Combined 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 the term is defined under the
Securities Act of 1933, as amended.
(4) Make loans, except that a Fund may purchase debt securities, enter into
repurchase agreements, and make loans of portfolio securities amounting to
not more than 33% 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.
17
<PAGE>
(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 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 International Small Cap Fund and
the International Growth Fund, which are not fundamental and which may be
changed by action of the Board of Directors without shareholder approval, are as
follows: Each Fund may not:
(1) Invest in companies for the purpose of exercising control or management.
(2) 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.
(3) Invest in interests in oil, gas, or other mineral exploration or
development programs or leases.
(4) 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.
(5) 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.
(6) 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.
(7) 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 the Fund's net assets.
(8) Make short sales of securities or maintain a short position, except that a
Fund may sell short "against the box."
(9) 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
<PAGE>
(10) Acquire more than 3% of the outstanding voting securities of any one
investment company.
To the extent these restrictions reflect matters of operating policy, which
may be changed without shareholder vote, these restrictions may be amended upon
approval by the Board and notice to shareholders.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
19
<PAGE>
3. COMPARATIVE PERFORMANCE INFORMATION
The chart below shows the risks of investing in each Fund and how each
Fund's total return has varied from year-to-year. The table compares each Fund's
performance (for the year ended December 31, 1998) to commonly used indices for
its market segment. Of course, past performance is no guarantee of future
results.
International International
Small Cap Fund* Growth Fund**
- --------------------------------- -----------------------------------
1995 1996 1997 1998 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ----
2.78% 12.15% -26.52% 4.12% 7.21% 13.01% -8.38% 9.18%
* During the four-year period described above in the bar chart, the
International Small Cap Fund's best quarter was Q4 1998 (+15.97%) and its
worst quarter was Q4 1997 (-24.07%). This Fund's performance this year
through September 30, 1999 was 10.67%
** During the four-year period described above in the bar chart, the
International Growth Fund's best quarter was Q4 1998 (+16.28%) and its
worst quarter was Q3 1998 (-14.72%). This Fund's performance this year
through September 30, 1999 was 24.75%.
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Since inception of
1 Year the Fund (06/30/94)
------ -------------------
International Small Cap Fund 4.12% -4.96%
MSCI EAFE Small Cap Index+ 5.44% -5.43%
Since inception of
1 Year the (03/01/94)
------ ------------------
International Growth Fund 9.81% 3.50%
MCSI EAFE Index+ 20.00% 7.75%
+ Each index represents an unmanaged group of stocks that does not reflect
the deduction of management fees or expenses.
20
<PAGE>
MSCI EAFE SMALL CAP INDEX is a Morgan Stanley Capital Markets benchmark
composed of companies with a market capitalization range of $200-$800
million (U.S.), applied consistently across 20 developed markets in Europe,
Australia and the Far East.
MCSI EAFE INDEX is a Morgan Stanley Capital Markets benchmark that measures
performance of the international stock market. It combines the European,
Australian and Far East markets into a single measure of performance. EAFE
is market capitalization weighted, meaning that countries with larger stock
markets have a greater impact on the index.
4. ADVISORY FEES AND OTHER EXPENSES
Fremont Investment Advisors, Inc. (the "Advisor") serves as investment
advisor to both Funds pursuant to an Investment Advisory and Administration
Agreement between the Advisor and Fremont Mutual Funds, Inc. The agreement on
behalf of the International Growth Fund was first entered into on March 1, 1994,
and the agreement on behalf of the International Small Cap Fund was first
entered into on June 30, 1994. The International Growth Fund pays the Advisor a
management fee calculated at an annualized rate of 1.00% and an administrative
fee of 0.15% of the average daily net assets of the International Growth Fund.
The International Small Cap Fund pays the Advisor a management fee calculated at
an annualized rate of 1.25% and an administrative fee of 0.15% of the average
daily net assets of the International Small Cap Fund. The total annual expense
ratio of both the Funds is currently capped at 1.50% through March 1, 2000 under
an agreement with the Advisor.
For the fiscal year ended October 31, 1998, the Advisor received management
fees of approximately $511,754 from the International Growth Fund. The Advisor
accrued management fees of approximately $89,672 from the International Small
Cap Fund. Of these fees, the Advisor reduced its fees or reimbursed expenses of
the International Growth Fund and the International Small Cap Fund to
approximately $59,431 and $65,386, respectively.
5. PORTFOLIO ADVISORS
Fremont Investment Advisors, Inc., is the investment advisor of each Fund.
As of October 31, 1998, the Advisor managed approximately $2.2 billion on behalf
of roughly 27,000 investors in the Fremont Funds. The Subadvisor to the
International Growth Fund is Capital Guardian Trust Company (CGTC). Capital
Guardian Trust is part of The Capital Group Companies organization, which traces
its roots back to 1931. As of December 31, 1998, Capital Guardian managed over
$83 billion in assets primarily for institutional investors. CGTC employs a
multiple portfolio manager system. Nine individual portfolio managers and the
collective research analyst team are each given a portion of the portfolio's
assets to manage. Each manager's style varies, however, they have a unifying
investment objective: superior long term returns versus the same benchmark
index. The entire portfolio is carefully monitored to ensure sufficient regional
and country diversification.
21
<PAGE>
6. INVESTMENTS, DISTRIBUTION, AND SHAREHOLDER SERVICES
First Fund Distributors, Inc. (the "Distributor"), 4455 E. Camelback Road,
Suite 261E, Phoenix, AZ 85018 serves as the Funds' Distributor and principal
underwriter in a continuous public offering of the Fund's shares. The
Distributor does not impose any sales charge on purchases of shares. The Company
has adopted a Share Marketing Plan (the "Plan") under Rule 12b-1 with respect to
the International Small Cap Fund's shares and the International Growth Fund's
shares. Currently, no distribution fees are being charged on International Small
Cap Fund shares.
The shares of the International Growth Fund to be issued in the Merger will
not be subject to any sales charge. No sales charge is imposed by either Fund on
reinvestment of dividends or capital gains distributions.
The Funds generally require a minimum initial investment of $2,000 ($1,000
for various types of retirement accounts) and subsequent investments of $100 or
more. Shares may be purchased by mail, telephone, wire transfer of funds, and
automatically. Both Funds have automatic investment plans under which amounts
are electronically withdrawn from shareholders' accounts with banks and are
applied to purchase shares of the Funds. You may also purchase, redeem, or
exchange shares through authorized intermediaries, which may charge for their
services.
An order for the purchase of shares is priced at the Fund's net asset value
(NAV) calculated at the close of trading of the New York Stock Exchange (NYSE)
on the day the order is received, normally 4:00 p.m. Eastern Time. Orders
received after that time are processed at the next day's NAV.
7. REDEMPTION AND EXCHANGE PROCEDURES
Shareholders of each Fund may redeem their shares at the net asset value
next determined after receipt of a written redemption request or a telephone
redemption order without the imposition of any fee or other charge.
Fremont shareholders may exchange shares in one Fund for shares in another
Fund with the same shareholder account registration, taxpayer identification
number and address without the imposition of any sales charges or exchange fees.
A minimum of $100 must be exchanged into a Fund the shareholder currently owns
and a $2,000 minimum for investing in a new Fund. An exchange may result in a
realized gain or loss for tax purposes. However, because excessive exchanges can
harm a Fund's performance, the Company reserves the right to terminate, either
temporarily or permanently, the exchange privileges of any shareholder. Shares
can be exchanged by telephone at (800) 548-4539 (press 2).
Other restrictions may apply. Refer to the Combined Prospectus and the
Combined Statement of Additional Information for other exchange policies.
22
<PAGE>
8. INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Each Fund distributes substantially all of its net investment income and
net capital gains to shareholders each year, if any. The International Growth
Fund intends to distribute substantially all of its net investment income
annually, on or about December 15. Each Fund also distributes short-term net
realized capital gains, if any, once each year in October.
Each Fund has elected and qualified as a separate "regulated investment
company" under Subchapter M of the Code for federal income tax purposes and
meets all other requirements that are necessary for it (but not its
shareholders) to pay no federal taxes on income and capital gains paid to
shareholders in the form of dividends. In order to accomplish this goal, each
Fund must, among other things, distribute substantially all of its ordinary
income and net capital gains on a current basis and maintain a portfolio of
investments which satisfies certain diversification criteria.
9. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Advisor is responsible for decisions to buy and sell securities for
each Fund, broker-dealer selection, and negotiation of commission rates. In
placing orders for the Funds' portfolio transactions, the Advisor's or
Subadvisor's primary consideration is to obtain the most favorable price and
execution available, although the Advisor or Subadvisor also may consider
research and brokerage services provided by the securities broker-dealer, as
factors in considering through whom portfolio transactions will be effected. The
Funds may pay to those securities broker-dealers who provide brokerage and
research service to the Advisor or Subadvisor a higher commission than that
charged by other securities broker-dealers if the Advisor or Subadvisor
determines in good faith that the amount of the commission is reasonable in
relation to the value of those services in terms either of the particular
transaction, or in terms of the overall responsibility of the Advisor or
Subadvisor and to any other accounts over which the Advisor or Subadvisor
exercises investment discretion.
10. SHAREHOLDERS' RIGHTS
The Company is a Maryland corporation. Because each Fund is a series of the
Company, its operations are governed by the Company's By-laws and applicable
Maryland law.
The Funds normally will not hold meetings of shareholders except as
required under the Investment Company Act and Maryland law. However,
shareholders holding 10% or more of the outstanding shares of a Fund may call
meetings for the purpose of voting on the removal of one or more of the
Directors.
Shareholders of each Fund have no preemptive, conversion or subscription
rights. The shares of each Fund have non-cumulative voting rights, with each
shareholder of the Funds entitled to one vote for each full share of the Funds
(and a fractional vote for each fractional share) held in the shareholder's name
23
<PAGE>
on the books of the Funds as of the record date for the action in question. On
any matter submitted to a vote of shareholders, shares of each Fund will be
voted by that Fund's shareholders individually when the matter affects the
specific interest of that Fund only, such as approval of that Fund's investment
management arrangements. The shares of all the Funds will be voted in the
aggregate on other matters, such as the election of Directors and ratification
of the Board of Directors' selection of the Funds' independent accountants.
C. RISK FACTORS
Each of the International Small Cap Fund's and International Growth Fund's
portfolio is subject to the general risks of investing in foreign stocks. These
risks include changing market conditions, economic and political instability,
and changes in currency exchange rates. Information on foreign companies is
often limited, and financial information may be prepared following accounting
rules that are different from those used by public companies in the United
States. The International Growth Fund will invest at least 90% of its total
assets in securities of issuers based outside of the U.S. The International
Small Cap Fund invests at least 65% of its total assets in the stocks of
international small cap companies.The International Small Cap Fund is a
non-diversified mutual fund. This means that the International Smal Cap Fund may
make larger investments in individual companies and its share price may be more
volatile than the share price of a more diversified fund. The International
Small Cap Fund's investments emphasize smaller companies, which are generally
more vulnerable to changing earnings, competition and limited products and
services, resulting in a potentially more volatile share price. Because the
International Growth Fund is more diversified and invests in larger companies,
it is less likely to be significantly affected by changes in the value of a
particular stock or stocks, particularly those of international small cap
companies. Please see the discussion under Section II.B.2. for more information.
D. RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company (including a majority of the
independent Directors), after due consideration, has unanimously determined that
the Merger is in the best interests of the shareholders of the International
Small Cap Fund and that the interests of the shareholders of the International
Small Cap and International Growth Funds would not be diluted. In reaching this
conclusion, the Board specifically considered, among others, the following
factors:
* That due to its size, the International Small Cap Fund is too inefficient
and uneconomical to continue indefinitely and this situation is unlikely to
change in the near future.
24
<PAGE>
* That the expense ratio of the International Growth Fund is capped at the
same level as the International Small Cap Fund.
* The expected absence of adverse effects on the International Growth Fund by
adding the International Small Cap Fund's assets to it.
* The risks associated with an investment in the International Growth Fund
may be lower because the Fund is a diversified fund (the International
Small Cap Fund is non-diversified) and is not limited to small
capitalization companies.
---------------------------------------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE ADOPTION OF THE PROPOSAL.
---------------------------------------------------------------
E. DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of the International Small Cap Fund who object to the proposed
Merger will not be entitled to any "dissenters' rights" under Maryland law.
However, those shareholders have the right at any time up to when the Merger
occurs to redeem shares of the International Small Cap Fund at net asset value
or to exchange their shares for shares of the other Funds offered by the Company
(including the International Growth Fund) without charge. After the Merger,
shareholders of the International Small Cap Fund will hold shares of the
International Growth Fund, which may also be redeemed at net asset value in
accordance with the procedures described in the International Growth Fund's
Prospectus dated March 1, 1999, subject to applicable redemption procedures.
F. FURTHER INFORMATION ABOUT THE INTERNATIONAL SMALL CAP FUND AND THE
INTERNATIONAL GROWTH FUND
Further information about the International Small Cap Fund and the
International Growth Fund is contained in the following documents:
Combined Prospectus for the International Small Cap Fund (with other funds
of Fremont Mutual Funds, Inc.), dated March 1, 1999.
Combined Statement of Additional Information for the International Small
Cap Fund (with other funds of Fremont Mutual Funds, Inc.), dated March 1,
1999.
In addition, other documents that relate to each of the Funds are
available, without charge, by writing to the Fremont Funds at 333 Market Street,
26th Floor, San Francisco, California 94105 or by calling (800) 548-4539 (press
2).
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and it files reports, proxy
25
<PAGE>
materials and other information with the SEC. These reports, proxy materials and
other information can be inspected and copied at the Public Reference Room
maintained by the SEC at 450 Fifth Street, NW, Washington, D.C. 20549, and at
the SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of these materials can be obtained at prescribed rates from the Public
Reference Branch, Office of Consumer Affairs and Information Services, of the
SEC, Washington, D.C. 20549. Call (800) SEC-0330 toll free for more information,
or see the SEC web site at www.sec.gov.
G. VOTE REQUIRED
Approval of the proposed Merger requires the affirmative vote of the
holders of a majority of the shares of the International Small Cap Fund present
or voting by proxy at the Shareholder Meeting. If the shareholders of the
International Small Cap Fund do not approve the proposed Merger, or if the
Merger is not consummated for any other reason, then the Board of Directors will
take any further action it deems to be in the best interest of the International
Small Cap Fund and its shareholders, including liquidation, subject to approval
by the shareholders of the International Small Cap Fund if required by
applicable law.
H. FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand each Fund's past financial performance. The total returns reflect the
rate an investor would have earned or lost on an investment, assuming
reinvestment of dividends and distributions. The following selected per-share
data and ratios for each period ended October 31, were audited by
PricewaterhouseCoopers LLP. Their report appears in the 1998 Annual Report of
the Funds. The unaudited information for the six months ended April 30, 1999
appears in the Funds' 1999 Semi-Annual Report. Both reports are available by
request.
26
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP FUND
- ----------------------------------------------------------------------------------------------------------
6 MONTHS PERIOD
ENDED YEAR YEAR YEAR YEAR FROM
4/30/99 ENDED ENDED ENDED ENDED 6/30/94 TO
(UNAUDITED) 1998 1997 1996 1995 10/31/94
----------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 6.58 $ 8.23 $10.15 $ 9.00 $ 9.86 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .01 .04 .14 .14 .10 (.01)
Net realized and unrealized
gain/(loss) .78 (1.40) (1.58) 1.08 (.88) (.13)
------ ------ ------ ------ ------ ------
Total investment operations .79 (1.36) (1.44) 1.22 (.78) (.14)
----- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income (.01) (.21) (.21) (.07) (.08) --
From net realized gains -- (.08) (.27) -- -- --
------ ----- ------ ------ ------ ------
Total distributions (.01) (.29) (.48) (.07) (.08) --
------ ----- ------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD $ 7.36 $6.58 $ 8.23 $10.15 $ 9.00 $ 9.86
====== ===== ====== ====== ====== ======
TOTAL RETURN 12.04%(1) -16.76%(1) -14.56% 13.69%(1) -7.96%(1) -1.40%
- ----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $8,628 $5,694 $8,534 $9,214 $4,245 $1,768
Ratio of expenses to average net
assets(2)(3) 1.50%* 1.50% 1.50% 1.81% 2.06% 2.50%*
Ratio of gross expenses to average net
assets(2)(3) 2.67* 2.55% 1.50% 2.50% 2.50% 2.50%*
Ratio of net investment income to
average net assets 0.25%* .91% 1.97% 1.61% 1.67% -0.28%*
Portfolio turnover rate 18% 148% 56% 74% 96% --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See footnote references below.
27
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------
6 MONTHS PERIOD
ENDED YEAR YEAR YEAR YEAR FROM
4/30/99 ENDED ENDED ENDED ENDED 6/30/94 TO
(UNAUDITED) 1998 1997 1996 1995 10/31/94
----------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.34 $10.37 $ 10.40 $ 9.72 $ 9.79 $ 9.57
INCOME FROM INVESTMENT OPERATIONS
Net investment income .01 .05 .02 (.02) .10 .02
Net realized and unrealized
gain/(loss) 1.90 .03 (.02) .71 (.09) .20
------- ------ ------- ------- ------- -------
Total investment operations 1.91 .08 -- .69 .01 .22
------- ------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income -- -- (.01) (.08) --
From net realized gains (.91) (.11) (.03) -- -- --
------- ------ ------- ------- ------- -------
Total distributions (.92) (.11) (.03) (.01) (.08) --
------- ------ ------- ------- ------- -------
NET ASSET VALUE - END OF PERIOD $ 11.33 $10.34 $10.37 $ 10.40 $ 9.72 $ 9.79
======= ====== ======= ======= ======= =======
TOTAL RETURN 19.85%(1) .80%(1) -0.01% 7.07% 0.13% 2.30%
- -------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $38,779 $41,623 $38,643 $35,273 $32,156 $29,725
Ratio of expenses to average net
assets(2) 1.50%* 1.50% 1.50% 1.50% 1.50% 1.50%*
Ratio of gross expenses to average net
assets(2) 1.71% 1.65% -- -- -- --
Ratio of net investment income to
average net assets -.07%* .53% .34% -.20% 1.19% .35%*
Portfolio turnover rate 34% 106% 95% 74% 32% 30%
- -------------------------------------------------------------------------------------------------------
</TABLE>
1. TOTAL RETURN WOULD HAVE BEEN LOWER HAD THE ADVISOR NOT WAIVED AND/OR
REIMBURSED EXPENSES.
2. THE ADVISOR IS CONTRACTUALLY OBLIGATED TO LIMIT FUND EXPENSES TO 1.50%
UNTIL MARCH 1, 2000. PRIOR TO MARCH 1, 1998, THE ADVISOR RECEIVED A SINGLE
MANAGEMENT FEE (I.E., UNITARY FEE) FROM THESE FUNDS. IN THE FUTURE, THE
ADVISOR MAY BE REIMBURSED FOR WAIVED FEES UP TO THREE YEARS FOLLOWING
REIMBURSEMENT, AND IF THE BOARD OF DIRECTORS HAS APPROVED THE
REIMBURSEMENT.
3. MANAGEMENT FEES WERE VOLUNTARILY WAIVED FROM FEBRUARY 1, 1995 TO OCTOBER
31, 1996.
* ANNUALIZED
III. MISCELLANEOUS ISSUES
A. OTHER BUSINESS
The Board of Directors of the Company knows of no other business to be
brought before the Shareholder Meeting. If any other matters come before the
Shareholder Meeting, it is the Board's intention that proxies that do not
contain specific restrictions to the contrary will be voted on those matters in
accordance with the judgment of the persons named on those proxies.
28
<PAGE>
B. NEXT MEETING OF SHAREHOLDERS
The Company is not required and does not intend to hold annual or other
periodic meetings of shareholders except as required by the 1940 Act. If the
Merger is not completed, the next meeting of the shareholders of the
International Small Cap Fund will be held at such time as the Board of Directors
may determine or at such time as may be legally required. Any shareholder
proposal intended to be presented at such meeting must be received by the
Company at its office at a reasonable time before the meeting, as determined by
the Board of Directors, to be included in the Company's proxy statement and form
of proxy relating to that meeting, and must satisfy all other legal
requirements.
C. LEGAL MATTERS
Paul, Hastings, Janofsky & Walker LLP, counsel to the Company, have
rendered a legal opinion as to the legality of the shares of the International
Growth Fund to be issued and as to the tax-free nature of the Merger for federal
income tax purposes.
D. EXPERTS
The financial statements of the International Small Cap Fund for the year
ended October 31, 1998, contained in the Company's 1998 Annual Report to
Shareholders, and the financial statements of the International Growth Fund for
the year ended October 31, 1998, contained in the Company's 1998 Annual Report
to Shareholders, have been audited by PricewaterhouseCoopers LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given their authority as experts in accounting and auditing. Also
incorporated by reference are the unaudited financial statements for each of the
International Small Cap Fund and International Growth Fund for the six months
ended April 30, 1999, contained in the Company's 1999 Semi-Annual Report to
Shareholders.
-----------------------------------------------------
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
-----------------------------------------------------
29
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
this 15th day of September, 1999, by Fremont Mutual Funds, Inc., a Maryland
corporation (the "Corporation"), for itself and on behalf of the Fremont
International Growth Fund (the "Acquiring Fund"), a series of the Corporation,
and on behalf of the Fremont International Small Cap Fund (the "Acquired Fund"),
also a series of the Corporation.
In accordance with the terms and conditions set forth in this Agreement,
the parties desire that all of the assets of the Acquired Fund be transferred to
the Acquiring Fund, and that the Acquiring Fund assume the Stated Liabilities
(as defined in paragraph 1.3) of the Acquired Fund, in exchange for shares of
the Acquiring Fund ("Acquiring Fund Shares"), and that these Acquiring Fund
Shares be distributed immediately after the Closing, as defined in this
Agreement, by the Acquired Fund to its shareholders in liquidation of the
Acquired Fund. This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code").
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
covenant and agree as follows:
1. REORGANIZATION OF ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth, and on the basis of
the representations and warranties contained herein, the Acquired Fund shall
assign, deliver and otherwise transfer its assets as set forth in paragraph 1.2
(the "Fund Assets") to the Acquiring Fund and the Acquiring Fund shall assume
the Acquired Fund's Stated Liabilities. The Acquiring Fund shall, as
consideration therefor, on the Closing Date (as defined in paragraph 3.1),
deliver to the Acquired Fund full and fractional Acquiring Fund Shares, the
number of which shall be determined by dividing (a) the value of the Acquired
Fund Assets, net of the Acquired Fund's Stated Liabilities, computed in the
manner and as of the time and date set forth in paragraph 2.1, by (b) the net
asset value of one share of the Acquiring Fund computed in the manner and as of
the time and date set forth in paragraph 2.2. Such transfer, delivery and
assumption shall take place at the closing provided for in paragraph 3.1
(hereinafter sometimes referred to as the "Closing"). Immediately following the
Closing, the Acquired Fund shall distribute the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided in paragraph 1.4 hereof. Such transactions are hereinafter sometimes
collectively referred to as the "Reorganization."
1.2 (a) With respect to the Acquired Fund, the Fund Assets shall consist of all
property and assets of any nature whatsoever, including, without limitation, all
cash, cash equivalents, securities, instruments, claims and receivables
(including dividend and interest receivables) owned by the Acquired Fund, and
any prepaid expenses shown as an asset on the Acquired Fund's books on the
Closing Date.
1
<PAGE>
(b) Before the Closing Date, the Acquired Fund will provide the Acquiring
Fund with a schedule of its assets and its known liabilities, and the Acquiring
Fund will provide the Acquired Fund with a copy of the current investment
objective and policies applicable to the Acquiring Fund. The Acquired Fund
reserves the right to sell or otherwise dispose of any of the securities or
other assets shown on the list of the Acquired Fund's Assets before the Closing
Date but will not, without the prior approval of the Acquiring Fund, acquire any
additional securities other than securities which the Acquiring Fund is
permitted to purchase in accordance with its stated investment objective and
policies. Before the Closing Date, the Acquiring Fund will advise the Acquired
Fund of any investments of the Acquired Fund shown on such schedule which the
Acquiring Fund would not be permitted to hold, pursuant to its stated investment
objective and policies or otherwise. If the Acquired Fund holds any investments
that the Acquiring Fund would not be permitted to hold under its stated
investment objective or policies, the Acquired Fund, if requested by the
Acquiring Fund, will dispose of those securities prior to the Closing Date to
the extent practicable. In addition, if it is determined that the portfolios of
the Acquired Fund and the Acquiring Fund, when aggregated, would contain
investments exceeding certain percentage limitations to which the Acquiring Fund
is or will be subject with respect to such investments, the Acquired Fund, if
requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient
amount of such investments as may be necessary to avoid violating such
limitations as of the Closing Date.
1.3 The Acquired Fund will endeavor to discharge all of its known liabilities
and obligations before to the Closing Date. The Acquiring Fund will assume all
liabilities and obligations reflected on an unaudited statement of assets and
liabilities of the Acquired Fund prepared by the administrator of the
Corporation as of the Applicable Valuation Date (as defined in paragraph 2.1),
in accordance with generally accepted accounting principles consistently applied
from the prior audited period ("Stated Liabilities"). The Acquiring Fund shall
assume only the Stated Liabilities of the Acquired Fund, and no other
liabilities or obligations, whether absolute or contingent, known or unknown,
accrued or unaccrued.
1.4 Immediately following the Closing, the Acquired Fund will distribute the
Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1
pro rata to its shareholders of record determined as of the close of business on
the Closing Date ("Acquired Fund Investors") in complete liquidation of the
Acquired Fund. That distribution will be accomplished by an instruction, signed
by an appropriate officer of the Corporation, to transfer the Acquiring Fund
Shares then credited to the Acquired Fund's account on the books of the
Acquiring Fund to open accounts on the books of the Acquiring Fund established
and maintained by the Acquiring Fund's transfer agent in the names of record of
the Acquired Fund Investors and representing the respective pro rata number of
shares of the Acquiring Fund due such Acquired Fund Investor based on the
respective net asset values per share of the shares of the Acquired Fund. All
issued and outstanding shares of the Acquired Fund will be cancelled
simultaneously therewith on the Acquired Fund's books, and any outstanding share
certificates representing interests in the Acquired Fund will represent only the
right to receive such number of Acquiring Fund Shares after the Closing as
determined in accordance with paragraph 1.l.
1.5 If any request shall be made for a change of the registration of shares of
the Acquiring Fund to another person from the account of the stockholder in
which name the shares are registered in the records of the Acquired Fund, it
shall be a condition of such registration of shares that there be furnished to
the Acquiring Fund an instrument of transfer properly endorsed, accompanied by
2
<PAGE>
appropriate signature guarantees and otherwise in proper form for transfer and
that the person requesting such registration shall pay to the Acquiring Fund any
transfer or other taxes required by reason of such registration or establish to
the reasonable satisfaction of the Acquiring Fund that such tax has been paid or
is not applicable.
1.6 Following the transfer of assets by the Acquired Fund to the Acquiring Fund,
the assumption of the Acquired Fund's Stated Liabilities by the Acquiring Fund,
and the distribution by the Acquired Fund of the Acquiring Fund Shares received
by it pursuant to paragraph 1.4, the Corporation shall terminate the
qualification, classification and registration of the Acquired Fund with all
appropriate federal and state agencies. Any reporting or other responsibility of
the Corporation is and shall remain the responsibility of the Corporation up to
and including the date on which the Acquired Fund is terminated and
deregistered, subject to any reporting or other obligations described in
paragraph 4.8.
2. VALUATION
2.1 The value of the Acquired Fund's Fund Assets shall be the value of those
assets computed as of the time at which its net asset value is calculated
pursuant to the valuation procedures set forth in the Acquiring Fund's
then-current Prospectus and Statement of Additional Information on the business
day immediately preceding the Closing Date, or at such time on such earlier or
later date as may mutually be agreed upon in writing among the parties hereto
(such time and date being herein called the "Applicable Valuation Date").
2.2 The net asset value of each share of the Acquiring Fund shall be the net
asset value per share computed on the Applicable Valuation Date, using the
market valuation procedures set forth in the Acquiring Fund's then-current
Prospectus and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2 shall be made by
the Acquiring Fund's administrator in accordance with its regular practice as
pricing agent. The Acquiring Fund shall cause its administrator to deliver a
copy of its valuation report to the Corporation and to the Acquired Fund at the
Closing.
3. CLOSING(S) AND CLOSING DATE
3.1 The Closing for the Reorganization shall occur on December 14, 1999, and/or
on such other date(s) as may be mutually agreed upon in writing by the parties
hereto (each, a "Closing Date"). The Closing(s) shall be held at the offices of
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San Francisco,
California 94104 or at such other location as is mutually agreeable to the
parties hereto. All acts taking place at the Closing(s) shall be deemed to take
place simultaneously as of 10:00 A.M., local time on the Closing Date unless
otherwise provided.
3.2 The Acquiring Fund's custodian shall deliver at the Closing a certificate of
an authorized officer stating that: (a) the Fund Assets have been delivered in
proper form to the Acquiring Fund on the Closing Date and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
have been paid, or provision for payment shall have been made, by the Acquired
Fund in conjunction with the delivery of portfolio securities.
3
<PAGE>
3.3 Notwithstanding anything herein to the contrary, if on the Applicable
Valuation Date (a) the New York Stock Exchange shall be closed to trading or
trading thereon shall be restricted or (b) trading or the reporting of trading
on such exchange or elsewhere shall be disrupted so that, in the judgment of the
Corporation, accurate appraisal of the value of the net assets of the Acquiring
Fund or the Acquired Fund is impracticable, the Applicable Valuation Date shall
be postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption and reporting shall have
been restored.
4. COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED FUND
4.1 With respect to the Acquired Fund, the Corporation has called or will call a
meeting of Acquired Fund shareholders to consider and act upon this Agreement
and to take all other actions reasonably necessary to obtain the approval of the
transactions contemplated herein, including approval for the Acquired Fund's
liquidating distribution of Acquiring Fund Shares contemplated hereby, and for
the Corporation to terminate the Acquired Fund's qualification, classification
and registration if requisite approvals are obtained with respect to the
Acquired Fund. The Corporation, on behalf of the Acquired Fund, shall prepare
the notice of meeting, form of proxy and proxy statement (collectively, "Proxy
Materials") to be used in connection with that meeting.
4.2 The Corporation, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof, other than in accordance with the
terms of this Agreement.
4.3 The Corporation, on behalf of the Acquired Fund, will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of shares of the Acquired Fund.
4.4 Subject to the provisions hereof, the Corporation, on its own behalf and on
behalf of the Acquiring Fund and the Acquired Fund, will take, or cause to be
taken, all actions, and do, or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated herein.
4.5 The Corporation, on behalf of the Acquired Fund, shall furnish to the
Acquiring Fund on the Closing Date, a final statement of the total amount of the
Acquired Fund's assets and liabilities as of the Closing Date.
4.6 The Corporation, on behalf of the Acquiring Fund, has prepared and filed, or
will prepare and file, with the Securities and Exchange Commission (the "SEC") a
registration statement on Form N-14 under the Securities Act of 1933, as amended
(the "1933 Act"), relating to the Acquiring Fund Shares (the "Registration
Statement"). the Corporation, on behalf of the Acquired Fund, has provided or
will provide the Acquiring Fund with the Proxy Materials for inclusion in the
Registration Statement, prepared in accordance with paragraph 4.1, and with such
other information and documents relating to the Acquired Fund as are requested
by the Acquiring Fund and as are reasonably necessary for the preparation of the
Registration Statement.
4
<PAGE>
4.7 As soon after the Closing Date as is reasonably practicable, the
Corporation, on behalf of the Acquired Fund: (a) shall prepare and file all
federal and other tax returns and reports of the Acquired Fund required by law
to be filed with respect to all periods ending on/or before the Closing Date but
not theretofore filed and (b) shall pay all federal and other taxes shown as due
thereon and/or all federal and other taxes that were unpaid as of the Closing
Date.
4.8 Following the transfer of Fund Assets by the Acquired Fund to the Acquiring
Fund and the assumption of the Stated Liabilities of the Acquired Fund in
exchange for Acquiring Fund Shares as contemplated herein, the Corporation will
file any final regulatory reports, including but not limited to any Form N-SAR
and Rule 24f-2 filings with respect to the Acquired Fund, promptly after the
Closing Date and also will take all other steps as are necessary and proper to
effect the termination or declassification of the Acquired Fund in accordance
with the laws of the State of Maryland and other applicable requirements.
5. REPRESENTATIONS AND WARRANTIES
5.1 The Corporation, on behalf of the Acquiring Fund, represents and warrants to
the Acquired Fund as follows:
(a) The Corporation was duly incorporated pursuant to its Articles of
Incorporation, as amended, restated and supplemented (the "Articles"), by the
Directors for the purpose of acting as a management investment company under the
Investment Company Act of 1940 (the "1940 Act") and is validly existing under
the laws of the State of Maryland, and the Articles direct the Directors to
manage the affairs of the Corporation and grants them all powers necessary or
desirable to carry out such responsibility, including administering the
Corporation's business as currently conducted by the Corporation and as
described in the current prospectuses of the Corporation. The Corporation is
registered as an investment company classified as an open-end management
company, under the 1940 Act and its registration with the SEC as an investment
company is in full force and effect;
(b) The Registration Statement, including the current prospectus and
statement of additional information of the Acquiring Fund, conforms or will
conform, at all times up to and including the Closing Date, in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act and the
regulations thereunder and do not include or will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(c) The Acquiring Fund is not in violation of, and the execution, delivery
and performance of this Agreement by the Corporation for itself and on behalf of
the Acquiring Fund does not and will not (i) violate the Corporation's Articles
or By-Laws, or (ii) result in a breach or violation of, or constitute a default
under, any material agreement or material instrument, to which the Corporation
is a party or by which its properties or assets are bound;
(d) Except as previously disclosed in writing to the Acquired Fund, no
litigation or administrative proceeding or investigation of or before any court
or governmental body is presently pending or, to the Corporation's knowledge,
threatened against the Corporation or its business, the Acquiring Fund or any of
its properties or assets, which, if adversely determined, would materially and
5
<PAGE>
adversely affect the Corporation or the Acquiring Fund's financial condition or
the conduct of their business. the Corporation knows of no facts that might form
the basis for the institution of any such proceeding or investigation, and the
Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects, or is reasonably likely to materially and adversely affect,
its business or its ability to consummate the transactions contemplated herein;
(e) All issued and outstanding shares, including shares to be issued in
connection with the Reorganization, of the Acquiring Fund will, as of the
Closing Date, be duly authorized and validly issued and outstanding, fully paid
and nonassessable, the shares of each class of the Acquiring Fund issued and
outstanding before the Closing Date were offered and sold in compliance with the
applicable registration requirements, or exemptions therefrom, of the 1933 Act,
and all applicable state securities laws, and the regulations thereunder, and
the Acquiring Fund does not have outstanding any option, warrants or other
rights to subscribe for or purchase any of its shares nor is there outstanding
any security convertible into any of its shares;
(f) The execution, delivery and performance of this Agreement on behalf of
the Acquiring Fund will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Corporation, the Directors and the
Acquiring Fund, and this Agreement will constitute a valid and binding
obligation of the Corporation and the Acquiring Fund enforceable in accordance
with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors, rights and to general equity
principles;
(g) On the effective date of the Registration Statement, at the time of the
meeting of the Acquired Fund shareholders and on the Closing Date, any written
information furnished by the Corporation with respect to the Acquiring Fund for
use in the Proxy Materials, the Registration Statement or any other materials
provided in connection with the Reorganization does not and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the information provided not misleading;
(h) No governmental consents, approvals, authorizations or filings are
required under the 1933 Act, the Securities Exchange Act of 1934 (the "1934
Act"), the 1940 Act or Maryland law for the execution of this Agreement by the
Corporation, for itself and on behalf of the Acquiring Fund, or the performance
of the Agreement by the Corporation for itself and on behalf of the Acquiring
Fund, except for such consents, approvals, authorizations and filings as have
been made or received, and except for such consents, approvals, authorizations
and filings as may be required after the Closing Date;
(i) The Statement of Assets and Liabilities, Statement of Operations and
Statements of Changes in Net Assets of the Acquiring Fund as of and for the year
ended October 31, 1998, audited by PricewaterhouseCoopers LLP and unaudited
financial statements as of and for the six months ended April 30, 1999 (copies
of which have been or will be furnished to the Acquired Fund) each fairly
present, in all material respects, the Acquiring Fund's financial condition as
of such date and its results of operations for such period in accordance with
generally accepted accounting principles consistently applied, and as of such
dates there were no liabilities of the Acquiring Fund (contingent or otherwise)
known to the Corporation that were not disclosed therein but that would be
required to be disclosed therein in accordance with generally accepted
accounting principles;
6
<PAGE>
(j) Since the date of the most recent audited financial statements, there
has not been any material adverse change in the Acquiring Fund's financial
condition, assets, liabilities or business, other than changes occurring in the
ordinary course of business; or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed in writing to and accepted by the
Acquired Fund, prior to the Closing Date (for the purposes of this subparagraph
(j), neither a decline in the Acquiring Fund's net asset value per share nor a
decrease in the Acquiring Fund's size due to redemptions shall be deemed to
constitute a material adverse change);
(k) For each full and partial taxable year from its inception through the
Closing Date, the Acquiring Fund has qualified as a separate regulated
investment company under the Code and has taken all necessary and required
actions to maintain such status; and
(1) All federal and other tax returns and reports of the Corporation and
the Acquiring Fund required by law to be filed on or before the Closing Date
shall have been filed, and all taxes owed by the Corporation or the Acquiring
Fund shall have been paid so far as due, and to the best of the Corporation's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to any such return.
5.2 The Corporation, on behalf of the Acquired Fund, represents and warrants to
the Acquiring Fund as follows:
(a) The Corporation was duly incorporated pursuant to its Articles of
Incorporation, as amended, restated and supplemented (the "Articles") by the
Directors for the purpose of acting as a management investment company under the
1940 Act and is validly existing under the laws of the State of Maryland, and
the Articles direct the Directors to manage the affairs of the Corporation and
grants them all powers necessary or desirable to carry out such responsibility,
including administering the Corporation's business as currently conducted by the
Corporation and as described in the current prospectuses of the Corporation. The
Corporation is registered as an investment company classified as an open-end
management company, under the 1940 Act and its registration with the SEC as an
investment company is in full force and effect;
(b) All of the issued and outstanding shares of the Acquired Fund have been
offered and sold in compliance in all material respects with applicable
registration or notice requirements of the 1933 Act and state securities laws;
all issued and outstanding shares of each class of the Acquired Fund are, and on
the Closing Date will be, duly authorized and validly issued and outstanding,
and fully paid and non-assessable, and the Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of its shares, nor is there outstanding any security convertible into any of
its shares;
(c) The Acquired Fund is not in violation of, and the execution, delivery
and performance of this Agreement by the Corporation for itself and on behalf of
the Acquired Fund does not and will not (i) violate the Corporation's Articles
or By-Laws, or (ii) result in a breach or violation of, or constitute a default
under, any material agreement or material instrument to which the Corporation is
a party or by its properties or assets are bound;
7
<PAGE>
(d) Except as previously disclosed in writing to the Acquiring Fund, no
litigation or administrative proceeding or investigation of or before any court
or governmental body is presently pending or, to the Corporation's knowledge,
threatened against the Acquired Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect the Acquired
Fund's financial condition or the conduct of its business, the Corporation knows
of no facts that might form the basis for the institution of any such proceeding
or investigation, and the Acquired Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
that materially and adversely affects, or is reasonably likely to materially and
adversely affect, its business or its ability to consummate the transactions
contemplated herein;
(e) The Statement of Assets and Liabilities, Statements of Operations and
Statements of Changes in Net Assets of the Acquired Fund as of and for the
period ended October 31, 1998, audited by PricewaterhouseCoopers LLP and
unaudited financial statements as of and for the six months ended April 30, 1999
(copies of which have been or will be furnished to the Acquiring Fund) each
fairly present, in all material respects, the Acquired Fund's financial
condition as of such date and its results of operations for such period in
accordance with generally accepted accounting principles consistently applied,
and as of such date there were no liabilities of the Acquired Fund (contingent
or otherwise) known to the Corporation that were not disclosed therein but that
would be required to be disclosed therein in accordance with generally accepted
accounting principles;
(f) Since the date of the most recent audited financial statements, there
has not been any material adverse change in the Acquired Fund's financial
condition, assets, liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, prior to the Closing Date (for the purposes of this subparagraph
(f), neither a decline in the Acquired Fund's net asset value per share nor a
decrease in the Acquired Fund's size due to redemptions shall be deemed to
constitute a material adverse change);
(g) All federal and other tax returns and reports of the Corporation and
the Acquired Fund required by law to be filed on or before the Closing Date
shall have been filed, and all taxes owed by the Corporation or the Acquired
Fund shall have been paid so far as due, and to the best of the Corporation's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to any such return;
(h) For each full and partial taxable year from its inception through the
Closing Date, the Acquired Fund has qualified as a separate regulated investment
company under the Code and has taken all necessary and required actions to
maintain such status;
(i) At the Closing Date, the Acquired Fund will have good and marketable
title to the Fund Assets and full right, power and authority to assign, deliver
and otherwise transfer such Fund Assets hereunder, and upon delivery and payment
for such Fund Assets as contemplated herein, the Acquiring Fund will acquire
good and marketable title thereto, subject to no restrictions on the ownership
or transfer thereof other than such restrictions as might arise under the 1933
Act;
8
<PAGE>
(j) The execution, delivery and performance of this Agreement on behalf of
the Acquired Fund will have been duly authorized prior to the Closing Date by
all necessary action on the part of the Corporation, the Directors and the
Acquired Fund, and this Agreement will constitute a valid and binding obligation
the Corporation and the Acquired Fund enforceable in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other similar laws of general applicability relating
to or affecting creditors, rights and to general equity principles;
(k) From the effective date of the Registration Statement, through the time
of the meeting of the Acquired Fund Investors, and on the Closing Date, the
Proxy Materials (exclusive of the portions of the Acquiring Fund's Prospectus
contained or incorporated by reference therein, and exclusive of any written
information furnished by the Corporation with respect to the Acquiring Fund):
(i) will comply in all material respects with the applicable provisions of the
1933 Act, the 1934 Act and the 1940 Act and the regulations thereunder and (ii)
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and as of such dates and times, any written information
furnished by the Corporation, on behalf of the Acquired Fund, for use in the
Registration Statement or in any other manner that may be necessary in
connection with the transactions contemplated hereby does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the information provided not misleading; and
(1) No governmental consents, approvals, authorizations or filings are
required under the 1933 Act, the 1934 Act, the 1940 Act or Maryland law for the
execution of this Agreement by the Corporation, for itself and on behalf of the
Acquired Fund, or the performance of the Agreement by the Corporation for itself
and on behalf of the Acquired Fund, except for such consents, approvals,
authorizations and filings as have been made or received, and except for such
consents, approvals, authorizations and filings as may be required subsequent to
the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND
The obligations of the Corporation to consummate the Reorganization with
respect to the Acquired Fund shall be subject to the performance by the
Corporation, for itself and on behalf of the Acquiring Fund, of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions with respect to the Acquiring
Fund:
6.1 All representations and warranties of the Corporation with respect to the
Acquiring Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated herein, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 The Corporation, on behalf of the Acquiring Fund, shall have delivered to
the Acquired Fund at the Closing a certificate executed on behalf of the
Acquiring Fund by the Corporation's President, Vice President, Assistant Vice
President, Secretary or Assistant Secretary in a form reasonably satisfactory to
the Acquired Fund and dated as of the Closing Date, to the effect that the
9
<PAGE>
representations and warranties of the Corporation with respect to the Acquiring
Fund made herein are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated herein, and as to such
other matters as the Acquired Fund shall reasonably request.
6.3 Unless waived by the Acquired Fund, the Acquired Fund shall have received at
the Closing a favorable opinion of Paul, Hastings, Janofsky & Walker LLP,
counsel to the Corporation, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquired Fund, substantially to the effect that:
(a) the Corporation is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company under the
1940 Act is in full force and effect; (b) the Acquiring Fund is a separate
portfolio of the Corporation, which is a corporation duly incorporated pursuant
to its Articles of Incorporation, is legally existing and in good standing under
the laws of the State of Maryland, and the Articles direct the Directors to
manage the affairs of the Corporation and grants them all powers necessary or
desirable to carry out such responsibility, including administering the
Corporation's business as described in the current prospectuses of the
Corporation; (c) this Agreement has been duly authorized, executed and delivered
by the Corporation on behalf of the Corporation and the Acquiring Fund and,
assuming due authorization, execution and delivery of this Agreement on behalf
of the Acquired Fund, is a valid and binding obligation of the Corporation,
enforceable against the Corporation in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium
and other similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles; (d) the Acquiring Fund
Shares to be issued to the Acquired Fund and then distributed to the Acquired
Fund Investors pursuant to this Agreement are duly registered under the 1933 Act
on the appropriate form, and are duly authorized and upon such issuance will be
validly issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights to subscription or
purchase in respect thereof; (e) the Registration Statement has become effective
with the SEC and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or threatened; (f) no consent,
approval, authorization, filing or order of any court or governmental authority
of the United States or any state is required for the consummation of the
Reorganization with respect to the Acquiring Fund, except for such consents,
approvals, authorizations and filings as have been made or received, and except
for such consents, approvals, authorizations and filings as may be required
after the Closing Date; and (g) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before any court
or governmental body is presently pending or threatened as to the Corporation or
the Acquiring Fund or any of their properties or assets and neither the
Corporation nor the Acquiring Fund is a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body that materially
and adversely affects its business.
6.4 As of the Closing Date, there shall have been no material change in the
investment objective, policies and restrictions nor any material change in the
investment management fees, fee levels payable pursuant to any 12b-1 plan of
distribution, other fees payable for services provided to the Acquiring Fund,
fee waiver or expense reimbursement undertakings, or sales loads of the
Acquiring Fund from those fee amounts, undertakings and sales load amounts
described in the prospectus of the Acquiring Fund delivered to the Acquired Fund
pursuant to paragraph 4.1 and in the Proxy Materials.
10
<PAGE>
6.5 With respect to the Acquiring Fund, the Board of Directors of the
Corporation shall have determined that the Reorganization is in the best
interests of the Acquiring Fund and that the interests of the existing
shareholders of the Acquiring Fund would not be diluted as a result of the
Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND
The obligations of the Corporation to consummate the Reorganization with respect
to the Acquiring Fund shall be subject to the performance by the Corporation of
all the obligations to be performed by it hereunder, with respect to the
Acquired Fund, on or before the Closing Date and, in addition thereto, the
following conditions:
7.1 All representations and warranties of the Corporation with respect to the
Acquired Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date.
7.2 the Corporation, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Fund at the Closing a certificate executed on behalf of the Acquired
Fund, by the Corporation's President, Vice President, Assistant Vice President,
Secretary or Assistant Secretary, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Corporation with respect to the Acquired
Fund made herein are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated herein and as to such
other matters as the Acquiring Fund shall reasonably request.
7.3 Unless waived by the Acquiring Fund, the Acquiring Fund shall have received
at the Closing a favorable opinion from Paul, Hastings, Janofsky & Walker LLP,
counsel to the Corporation, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquiring Fund, substantially to the effect that:
(a) The Corporation is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company under the
1940 Act is in full force and effect; (b) the Acquired Fund is a separate
portfolio of the Corporation, which is a corporation duly incorporated pursuant
to its Articles of Incorporation, is validly existing and in good standing under
the laws of the State of Maryland, and the Articles direct the Directors to
manage the affairs of the Corporation and grants them all powers necessary or
desirable to carry out such responsibility, including administering the
Corporation's business as described in the current prospectuses of the
Corporation; (c) this Agreement has been duly authorized, executed and delivered
by the Corporation on behalf of the Corporation and the Acquired Fund and,
assuming due authorization, execution and delivery of this Agreement on behalf
of the Acquiring Fund, is a valid and binding obligation of the Corporation,
enforceable against the Corporation in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium
and other similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles; (d) no consent, approval,
authorization, filing or order of any court or governmental authority of the
11
<PAGE>
United Sates or any state is required for the consummation of the Reorganization
with respect to the Acquired Fund, except for such consents, approvals,
authorizations and filings as have been made or received, and except for such
consents, approvals, authorizations and filings as may be required subsequent to
the Closing Date; and (e) to the best knowledge of such counsel, no litigation
or administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Corporation or
the Acquired Fund or any of their properties or assets and neither the
Corporation nor the Acquired Fund is a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body that materially
and adversely effects its business.
7.4 With respect to the Acquired Fund, the Board of Directors of the Corporation
shall have determined that the Reorganization is in the best interests of the
Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The obligations of the Acquiring Fund and of the Acquired Fund herein are each
subject to the further conditions that on or before the Closing Date with
respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Corporation's Articles
and the requirements of the 1940 Act, and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders, approvals and
permits of federal, state and local regulatory authorities (including, without
limitation, those of the SEC and of state securities authorities) deemed
necessary by the Corporation, on behalf of the Acquiring Fund or the Acquired
Fund, to permit consummation, in all material respects, of the transactions
contemplated herein shall have been obtained, except where failure to obtain any
such consent, order or permit would not, in the opinion of the party asserting
that the condition to closing has not been satisfied, involve a risk of a
material adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund.
8.4 The Registration Statement shall have become effective under the 1933 Act,
no stop orders suspending the effectiveness thereof shall have been issued and,
to the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
8.5 The Acquired Fund shall have declared and paid a dividend or dividends
which, together with all previous such dividends, shall have the effect of
distributing to the Acquired Fund's shareholders substantially all of the
Acquired Fund's investment company taxable income for all taxable years ending
on or prior to the Closing Date (computed without regard to any deduction for
12
<PAGE>
dividends paid) and substantially all of its net capital gain realized in all
taxable years ending on or prior to the Closing Date (after reduction for any
capital loss carryover).
8.6 The Corporation shall have received the opinion of Paul, Hastings, Janofsky
& Walker LLP addressed to both the Acquiring Fund and the Acquired Fund (and
based on customary representation certificates from the Corporation, the
Acquiring Fund and the Acquired Fund) substantially to the effect that, for
federal income tax purposes:
(a) the transfer by the Acquired Fund of the Fund Assets in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the Stated
Liabilities will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code and the Acquiring Fund and the Acquired Fund each are a
"party to a reorganization" within the meaning of Section 368(b) of the Code;
(b) no gain or loss will be recognized by the Acquiring Fund upon the receipt of
the Fund Assets solely in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of the Stated Liabilities; (c) no gain or loss
will be recognized by the Acquired Fund upon the transfer of the Fund Assets to
the Acquiring Fund and the assumption by the Acquiring Fund of the Stated
Liabilities in exchange for the Acquiring Fund Shares or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to the Acquired
Fund shareholders in exchange for their shares of the Acquired Fund; (d) no gain
or loss will be recognized by the Acquired Fund Investors upon the exchange of
their Acquired Fund Shares for the Acquiring Fund Shares; (e) the aggregate tax
basis for the Acquiring Fund Shares received by each of the Acquired Fund
Investors pursuant to the Reorganization will be the same as the aggregate tax
basis of the Acquired Fund shares held by such shareholder immediately prior to
the Reorganization, and the holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Investors will include the period during which
the Acquired Fund shares exchanged therefor were held by such shareholder
(provided the Acquired Fund shares were held as capital assets on the date of
the Reorganization); and (f) the tax basis of the Acquired Fund assets acquired
by the Acquiring Fund will be same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization, and the holding period of
the assets of the Acquired Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the condition set forth in this paragraph 8.6.
9. EXPENSES
9.1 Except as may be otherwise provided herein, each of the Acquired Fund and
the Acquiring Fund shall be liable for its respective expenses incurred in
connection with entering into and carrying out the provisions of this Agreement,
whether or not the transactions contemplated hereby are consummated. The
expenses payable by the Acquired Fund hereunder shall include (i) fees and
expenses of its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with the meeting
of shareholders of the Acquired Fund referred to in paragraph 4.1 hereof; (iii)
all fees and expenses related to the liquidation of the Acquired Fund; (iv) fees
and expenses of the Acquired Fund's custodian and transfer agent(s) incurred in
connection with the Reorganization; and (v) any special pricing fees associated
with the valuation of the Acquired Fund's portfolio on the Applicable Valuation
Date. Fremont Investment Advisors, Inc., has agreed to reimburse the Acquired
13
<PAGE>
Fund for the expenses listed in items (i), (ii), (iii) (iv) and (v) above. The
expenses payable by the Acquiring Fund hereunder shall include (i) fees and
expenses of its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with preparing this Agreement and
preparing and filing the Registration Statement under the 1933 Act covering the
Acquiring Fund Shares to be issued in the Reorganization; (iii) registration or
qualification fees and expenses of preparing and filing such forms, if any, as
are necessary under applicable state securities laws to qualify the Acquiring
Fund Shares to be issued in connection with the Reorganization; (iv) any fees
and expenses of the Acquiring Fund's custodian and transfer agent(s) incurred in
connection with the Reorganization; and (v) any special pricing fees associated
with the valuation of the Acquiring Fund's portfolio on the Applicable Valuation
Date. Fremont Investment Advisors, Inc., has agreed to reimburse the Acquiring
Fund for the expenses listed in items (i), (ii), (iii), (iv) and (v) above.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties and
supersedes any prior or contemporaneous understanding or arrangement with
respect to the subject matter hereof.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated herein.
11. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time before the Closing by the mutual written consent of
the Acquiring Fund and the Acquired Fund.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Corporation, acting on behalf of the Acquired Fund and the Acquiring Fund;
provided, however, that following the meeting of the shareholders of the
Acquired Fund, no such amendment may have the effect of changing the provisions
for determining the number of shares of the Acquiring Fund to be to the Acquired
Fund Investors under this Agreement to the detriment of such Acquired Fund
Investors, or otherwise materially and adversely affecting the Acquired Fund,
without the Acquired Fund obtaining the Acquired Fund Investors' further
approval except that nothing in this paragraph 12 shall be construed to prohibit
the Acquiring Fund and the Acquired Fund from amending this Agreement to change
the Closing Date or Applicable Valuation Date by mutual agreement.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, certified mail or overnight express courier addressed to:
14
<PAGE>
For the Corporation, on behalf of itself and the Acquiring Fund and/or
Acquired Fund:
Fremont Mutual Funds
333 Market Street, Suite 2600
San Francisco, California 94105
Attention: Michael H. Kosich President
With a copy to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California St., 29th Floor
San Francisco, California 94104
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The article and paragraph headings contained herein are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All references herein to Articles, paragraphs, subparagraphs or
Exhibits shall be construed as referring to Articles, paragraphs or
subparagraphs hereof or Exhibits hereto, respectively. Whenever the terms
"hereto", "hereunder", "herein" or "hereof" are used in this Agreement, they
shall be construed as referring to this entire Agreement, rather than to any
individual Article, paragraph, subparagraph or sentence.
14.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15
<PAGE>
IN WITNESS WHEREOF, EACH OF THE PARTIES HERETO HAS CAUSED THIS AGREEMENT TO
BE DULY EXECUTED BY ITS AUTHORIZED OFFICER.
FREMONT MUTUAL FUNDS, INC. FOR ITSELF AND
ON BEHALF OF THE FREMONT INTERNATIONAL GROWTH FUND
By: /s/ Michael H. Kosich
---------------------------------
Michael H. Kosich, President
FREMONT MUTUAL FUNDS, INC. FOR ITSELF AND
ON BEHALF OF THE FREMONT INTERNATIONAL SMALL CAP FUND
By: /s/ Michael H. Kosich
---------------------------------
Michael H. Kosich, President
16
<PAGE>
PROXY
FOR THE
DECEMBER 14, 1999
SPECIAL MEETING OF SHAREHOLDERS OF
FREMONT INTERNATIONAL SMALL CAP FUND
The undersigned hereby appoints Michael H. Kosich and Tina Thomas, and each
of them, proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote all of the shares of Fremont International
Small Cap Fund (the "International Small Cap Fund") of Fremont Mutual Funds,
Inc., (the "Company") which the undersigned is entitled to vote at the Special
Meeting of Shareholders of the International Small Cap Fund to be held on
December 14, 1999, and at any adjournment thereof.
* Proposal to approve or disapprove a Merger of the International Small Cap
Fund into the Fremont International Growth Fund (the "International Growth
Fund"), a separate series of the Company, providing for (i) the transfer of
substantially all of the assets and liabilities of the International Small
Cap Fund to the International Growth Fund in exchange for shares of the
International Growth Fund of equivalent value, (ii) the pro rata
distribution of those International Growth Fund shares to the shareholders
of the International Small Cap Fund in full redemption of those
shareholders' shares in the International Small Cap Fund, and (iii) the
immediate liquidation and termination of the International Small Cap Fund,
all as described in the accompanying Combined Proxy Statement and
Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And, in their discretion, to transact any other business that may lawfully come
before the meeting or any adjournment(s) thereof.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED AS YOU DIRECT ON THIS FORM. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
Dated: ___________________________, 1999
----------------------------------------
Signature of Shareholder
----------------------------------------
Signature of Shareholder
When shares are registered jointly in the names of two or more persons, ALL must
sign. The signature(s) must correspond exactly with the name(s) shown. Please
promptly sign, date and return this proxy in the enclosed envelope.
2
<PAGE>
-----------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
FREMONT INTERNATIONAL SMALL CAP FUND
INTO
FREMONT INTERNATIONAL GROWTH FUND
-----------------------------------------
<PAGE>
FREMONT MUTUAL FUNDS, INC.
50 Beale Street, Suite 100
San Francisco, California 94105
(800) 548-4539
STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER __, 1999
FOR REGISTRATION STATEMENT ON FORM N-14
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Combined Proxy Statement and Prospectus dated
November __, 1999, which has been filed by Fremont Mutual Funds, Inc., (the
"Company") in connection with a Special Meeting of Shareholders of Fremont
International Small Cap Fund (the "International Small Cap Fund") of the Company
that has been called to vote on an Agreement and Plan of Reorganization (and the
transactions contemplated thereby). Copies of the Combined Proxy Statement and
Prospectus may be obtained at no charge by writing to Fremont Mutual Funds,
Inc., at the address indicated above or by calling toll-free (800) 546-4539.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement and Prospectus.
Further information about the Company, the Fremont International Growth
Fund (the "International Growth Fund") is contained in the International Growth
Fund's Combined Prospectus and Statement of Additional Information (including
other Fremont Funds) dated March 1, 1999, the Annual Report for the
International Growth Fund (including other Fremont Funds) for the fiscal year
ended October 31, 1998, and the Semi-Annual Report for the International Growth
Fund (including other Fremont Funds) for the six months ended April 30, 1999.
Further information about the International Small Cap Fund (the
"International Small Cap Fund") is contained in the Combined Prospectus for
Fremont International Small Cap Fund (including other Fremont Funds), dated
March 1, 1999, and in the Combined Statement of Additional Information for the
International Small Cap Fund (including other Fremont Funds) dated March 1,
1999, the Annual Report for the International Small Cap Fund (including other
Fremont Funds) for the fiscal year ended October 31, 1998, and the Semi-Annual
Report for the International Small Cap Fund (including other Fremont Funds) for
the six months ended April 30, 1999.
The Funds' Statement of Additional Information (including other Fremont
Funds), dated March 1, 1999, is incorporated by reference in this Statement of
Additional Information and is available without charge by calling Fremont Mutual
Funds toll-free at (800) 548-4539.
Pro forma financial statements are attached as EXHIBIT A.
B-1
<PAGE>
TABLE OF CONTENTS
Page
----
General Information ..................................................... B-2
Exhibit A ............................................................... B-3
GENERAL INFORMATION
The shareholders of the International Small Cap Fund are being asked to
approve a form of Agreement and Plan of Reorganization (the "Plan") combining
the International Small Cap Fund into the International Growth Fund (and the
transactions contemplated thereby). The Plan contemplates the transfer of all
substantially all of the assets and liabilities of the International Small Cap
Fund as of the Effective Date to the International Growth Fund, and the
assumption by the International Growth Fund of the liabilities of the
International Small Cap Fund, in exchange for shares of the International Growth
Fund. Immediately after the Effective Date, the International Small Cap Fund
will distribute to its shareholders of record as of the close of business on the
Effective Date the shares of the International Growth Fund received. The shares
of the International Growth Fund that will be issued for distribution to the
International Small Cap Fund's shareholders will have an aggregate net asset
value equal to the aggregate net asset value of the shares of the International
Small Cap Fund held as of the Closing Date. The Company will then take all
necessary steps to terminate the qualification, registration and classification
of the International Small Cap Fund. All issued and outstanding shares of the
International Small Cap Fund will be canceled on the International Small Cap
Fund's books. Shares of the International Growth Fund will be represented only
by book entries; no share certificates will be issued.
A Special Meeting of the International Small Cap Fund's shareholders to
consider the transaction will be held at the offices of the Company, 333 Market
Street, Suite 2600, San Francisco, California 94105 on December 14, 1999 at 9:00
A.M., local time.
For further information about the transaction, see the Combined Proxy
Statement and Prospectus. For further information about the Company and the
International Growth Fund, see the International Growth Fund's Combined
Statement of Additional Information, dated March 1, 1999, which is available
without charge by calling the Company at (800) 548-4539. For further information
about the International Small Cap Fund, see the International Small Cap Fund's
Combined Statement of Additional Information, dated March 1, 1999, which is
available without charge by calling the Company at (800) 548-4539.
B-2
<PAGE>
EXHIBIT A
PRO-FORMA FINANCIAL STATEMENTS
FREMONT INTERNATIONAL GROWTH FUND & FREMONT INTERNATIONAL SMALL CAP FUND
Pro-Forma Combined Statements of Investments in Securities and Net Assets
April 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
International International International International Pro-Forma
Growth Small Cap Country Growth Small Cap Combined
Shares Shares Security Description Code Value Value Value
- ------------ ------------ ---------------------------------------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STOCKS 96.3%
BUSINESS EQUIPMENT & SERVICES 3.2%
* 6,000 -- Teleglobe, Inc. CN $ 176,495 $ -- $ 176,495
-- 1,000,000 Hung Hing Printing Group HK -- 419,312 419,312
93,100 -- Invensys PLC UK 478,381 -- 478,381
5,166 -- Reuters Group PLC, ADR UK 422,966 -- 422,966
--------------------------------------------
1,077,842 419,312 1,497,154
--------------------------------------------
CAPITAL GOODS 7.4%
27,000 -- Bombardier, Inc. (Class B) CN 417,916 -- 417,916
* -- 57,500 Lectra Systemes FR -- 443,949 443,949
6,800 -- Siemens AG GM 501,284 -- 501,284
-- 55,000 Industria Macchine Automatiche IT -- 414,176 414,176
8,000 -- Fuji Machine MFG. Co. Ltd. JP 285,607 -- 285,607
10,000 -- Murata Manufacturing Co. Ltd. JP 572,386 -- 572,386
4,000 -- Thk Co. Ltd. JP 68,385 -- 68,385
-- 18,000 Kverneland ASA NO -- 392,061 392,061
14,000 -- ABB AB (Series B) SW 195,095 -- 195,095
7,400 -- Ericsson (L.M.) Telephone Co., ADR SW 199,800 -- 199,800
--------------------------------------------
2,240,473 1,250,186 3,490,659
--------------------------------------------
CONSUMER DURABLES 5.1%
* -- 32,500 Shermag, Inc. CN -- 196,990 196,990
1,400 -- Peugeot SA FR 232,471 -- 232,471
300 -- Bayerische Motoren Werke AG GM 212,905 -- 212,905
* 70,000 -- Fiat SPA IT 234,693 -- 234,693
* 52,000 -- Mitsubishi Motors Corp. JP 216,585 -- 216,585
77,000 -- Nissan Motor Co. Ltd. JP 295,546 -- 295,546
8,400 -- Sony Corp. JP 784,915 -- 784,915
16,000 -- Suzuki Motor Co. Ltd. JP 227,949 -- 227,949
--------------------------------------------
2,205,064 196,990 2,402,054
--------------------------------------------
CONSUMER NON-DURABLES 9.0%
45,000 -- Coca-Cola Amatil Ltd. AU 213,444 -- 213,444
700 -- Groupe Danone FR 187,310 -- 187,310
27,000 -- Asahi Breweries Ltd. JP 352,080 -- 352,080
6,000 -- Nikon Corp. JP 82,464 -- 82,464
3,400 -- Nintendo Co. Ltd. JP 317,134 -- 317,134
2,800 -- Sony Music Entertainment (Japan), Inc. JP 204,148 -- 204,148
5,000 -- Uni-Charm Corp. JP 226,692 -- 226,692
9,000 -- PanAmerican Beverages (Class A) MX 199,688 -- 199,688
5,800 -- Heineken NV NL 291,383 -- 291,383
700 -- Heinken Holding NV (Class A) NL 26,098 -- 26,098
-- 6,500 Van Melle NV NL -- 384,985 384,985
10,000 -- Orkla ASA (Series A) NO 167,843 -- 167,843
25,795 -- South African Breweries PLC SA 213,578 -- 213,578
200 -- Compagnie Financiere Richemont AG SZ 340,342 -- 340,342
100 -- Nestle SA (Registered Shares) SZ 185,194 -- 185,194
21,000 -- Cadbury Schweppes PLC UK 281,669 -- 281,669
-- 250,000 McBride PLC UK -- 408,093 408,093
16,300 -- Reckitt & Coleman PLC UK 194,774 -- 194,774
--------------------------------------------
3,483,841 793,078 4,276,919
--------------------------------------------
CONSUMER SERVICES 7.4%
25,000 -- News Corp. Ltd. AU 209,383 -- 209,383
14,500 -- The Thompson Corp. CN 436,956 -- 436,956
* -- 125,000 Norsk Lotteridrift ASA (NLD) NO -- 448,436 448,436
-- 100,000 P4 Radio Hele Norge ASA NO -- 384,374 384,374
-- 10,500 Investec-Consultoria Internacional SA PT -- 348,596 348,596
-- 900 PublicGroupe SA SZ -- 552,039 552,039
-- 1,225 The Selecta Group SZ -- 405,829 405,829
-- 75,000 Dorling Kindersley Holdings PLC UK -- 428,800 428,800
36,000 -- EMI Group PLC UK 304,104 -- 304,104
--------------------------------------------
950,443 2,568,074 3,518,517
--------------------------------------------
</TABLE>
See Notes to Pro-Forma
* Non-income producing security.
B-3
<PAGE>
<TABLE>
<CAPTION>
International International International International Pro-Forma
Growth Small Cap Country Growth Small Cap Combined
Shares Shares Security Description Code Value Value Value
- ------------ ------------ ---------------------------------------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ENERGY 4.1%
52,455 -- Broken Hill Proprietary Co. Ltd. AU $ 592,668 $ -- $ 592,668
34,000 -- Woodside Petroleum Ltd. AU 231,605 -- 231,605
* 7,000 -- Talisman Energy, Inc. CN 185,938 -- 185,938
1,200 -- Total Cie Francaise des Petroles SA (Class B) FR 164,486 -- 164,486
48,000 -- ENI SPA IT 316,280 -- 316,280
4,900 -- Norsk Hydro ASA NO 219,420 -- 219,420
32,000 -- Shell Transport & Trading Co. UK 239,747 -- 239,747
--------------------------------------------
1,950,144 -- 1,950,144
--------------------------------------------
FINANCIAL SERVICES 15.1%
37,481 -- Australia & New Zealand Banking Group Ltd. AU 296,709 -- 296,709
31,400 -- QBE Insurance Group Ltd. AU 140,381 -- 140,381
12,000 -- Westpac Banking Corp. Ltd. AU 91,552 -- 91,552
4,100 -- Westpac Banking Corp. Ltd., ADR AU 156,313 -- 156,313
10,000 -- Uniao de Bancos Brasileiros SA, GDR BR 248,125 -- 248,125
15,400 -- Bank of Nova Scotia CN 365,461 -- 365,461
8,700 -- Newcourt Credit Group, Inc. CN 242,809 -- 242,809
4,000 -- Royal Bank of Canada CN 194,781 -- 194,781
3,600 -- The Toronto-Dominion Bank CN 191,946 -- 191,946
600 -- Banque Nationale de Paris (BNP) FR 49,784 -- 49,784
1,500 -- Compagnie Financiere de Paribas FR 159,599 -- 159,599
4,444 -- Deutsche Bank AG GM 256,866 -- 256,866
9,800 -- Assicurazioni Generali SPA IT 381,949 -- 381,949
43,000 -- Mitsui Marine and Fire Insurance Co. Ltd. JP 238,559 -- 238,559
4,000 -- Nichiei Co. Ltd. (Kyoto) JP 346,952 -- 346,952
3,900 -- Orix Corp. JP 314,092 -- 314,092
600 -- Shohkoh Fund & Co. Ltd JP 351,980 -- 351,980
13,000 -- Sumitomo Bank JP 176,057 -- 176,057
1,000 -- The Nomura Securities Co. Ltd. JP 10,794 -- 10,794
5,476 -- Aegon NV NL 525,596 -- 525,596
3,500 -- ING Groep NV NL 215,813 -- 215,813
18,100 -- Development Bank of Singapore
(Foreign Registered) SG 192,269 -- 192,269
17,300 -- Barclays PLC UK 546,995 -- 546,995
7,700 -- National Westminster Bank PLC UK 185,381 -- 185,381
24,500 -- Royal & Sun Alliance Insurance Group PLC UK 208,634 -- 208,634
32,100 -- Standard Chartered PLC UK 579,231 -- 579,231
* 600 -- Fairfax Financial Holdings Ltd. US 174,646 -- 174,646
* -- 95,000 United Panam Financial Corp. US -- 290,938 290,938
--------------------------------------------
6,843,274 290,938 7,134,212
--------------------------------------------
HEALTH CARE 6.0%
1,900 -- Synthelabo FR 388,845 -- 388,845
4,000 -- Takeda Chemical Industries JP 173,797 -- 173,797
-- 27,500 Nobel Biocare SW -- 435,405 435,405
144 -- Novartis AG (Registered Shares) SZ 210,944 -- 210,944
-- 275 Stratec Holding AG SZ -- 523,174 523,174
28,317 -- Zeneca Group PLC UK 1,102,999 -- 1,102,999
--------------------------------------------
1,876,585 958,579 2,835,164
--------------------------------------------
MULTI-INDUSTRY 2.6%
8,500 -- Metallgesellschaft AG GM 163,169 -- 163,169
4,000 -- Preussag AG GM 211,318 -- 211,318
* 4,000 -- Preussag AG (Rights) GM 2,919 -- 2,919
33,000 -- Hutchison Whampoa HK 295,905 -- 295,905
40,100 -- TI Group PLC UK 333,740 -- 333,740
52,000 -- Tomkins PLC UK 219,526 -- 219,526
--------------------------------------------
1,226,577 -- 1,226,577
--------------------------------------------
RAW MATERIALS 5.6%
13,000 -- Upm-Kymmene Oyj FI 393,922 -- 393,922
1,500 -- Compagnie de Saint-Gobain FR 257,802 -- 257,802
7,000 -- Pechiney SA FR 296,142 -- 296,142
-- 12,557 Rinol AG GM -- 166,675 166,675
8,500 -- De Beers Centenary AG, ADR SA 208,250 -- 208,250
</TABLE>
See Notes to Pro-Forma
* Non-income producing security.
B-4
<PAGE>
<TABLE>
<CAPTION>
International International International International Pro-Forma
Growth Small Cap Country Growth Small Cap Combined
Shares Shares Security Description Code Value Value Value
- ------------ ------------ ---------------------------------------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1,480 -- Holderbank Financiere Glarus AG SZ $ 440,791 $ -- $ 440,791
16,100 -- BOC Group PLC UK 254,785 -- 254,785
22,000 -- Laporte PLC UK 260,585 -- 260,585
-- 132,500 Victrex PLC UK -- 372,913 372,913
--------------------------------------------
2,112,277 539,588 2,651,865
--------------------------------------------
RETAIL 2.9%
58,909 -- Coles Myer Ltd. AU 312,806 -- 312,806
* 300 -- Carrefour SA FR 237,971 -- 237,971
10,000 -- Jusco Co. Ltd. JP 199,455 -- 199,455
5,232 -- Koninklijke Ahold NV NL 194,507 -- 194,507
2,200 -- Dixons Group PLC UK 47,057 -- 47,057
63,900 -- Tesco PLC UK 189,349 -- 189,349
* 11,000 -- Cifra SA de CV US 209,768 -- 209,768
--------------------------------------------
1,390,913 -- 1,390,913
--------------------------------------------
SHELTER 0.9%
14,000 -- Thyssen Krupp AG GM 291,700 -- 291,700
* -- 9,275 Century City International
Holdings Ltd. (Warrants) HK -- 12 12
17,000 -- Cheung Kong (Holdings) Ltd. HK 154,629 -- 154,629
--------------------------------------------
446,329 12 446,341
--------------------------------------------
TECHNOLOGY 15.1%
* 4,400 -- Newbridge Networks Corp. CN 162,729 -- 162,729
15,200 -- Nokia AB, ADR FI 1,127,650 -- 1,127,650
60,000 -- Johnson Electric Holdings Ltd. HK 179,207 -- 179,207
* -- 42,400 Saville Systems PLC, ADR IR -- 511,450 511,450
* -- 10,000 Orbotech Ltd. IS -- 480,000 480,000
* -- 32,500 Tecnomatix Technologies Ltd. IS -- 483,436 483,436
6,210 -- Advantest Corp. JP 475,150 -- 475,150
4,500 -- Hirose Electronics JP 418,605 -- 418,605
2,000 -- Keyence Corp. JP 300,691 -- 300,691
22,000 -- NEC Corp. JP 262,912 -- 262,912
3,000 -- Rohm Co. Ltd. JP 362,036 -- 362,036
13,000 -- Tokyo Electron Ltd. JP 740,834 -- 740,834
11,000 -- ASM Lithography Holding NV NL 429,000 -- 429,000
* -- 3,000 Electric Farm ASA NO -- 2,306 2,306
158,000 -- Singapore Technologies Engineering Ltd SG 169,702 -- 169,702
* 6,120 -- Samsung Electronics, GDR SK 271,728 -- 271,728
800 -- Telefonaktiebolaget LM Ericsson (Class B) SW 21,016 -- 21,016
* 1,600 -- Asustek Computer, Inc. TW 21,640 -- 21,640
* 16,700 -- Taiwan Semiconductor Manufacturing Co.
Ltd., ADR TW 400,800 -- 400,800
3,400 -- STMicroelectronics NV (New York Shares) US 346,800 -- 346,800
--------------------------------------------
5,690,500 1,477,192 7,167,692
--------------------------------------------
UTILITIES 11.9%
1,100 -- Lyonnaise Des Eaux-Dumez FR 187,310 -- 187,310
13,800 -- Deutsche Telekom GM 549,523 -- 549,523
9,000 -- Mannesmann AG GM 1,179,386 -- 1,179,386
4,000 -- Veba AG GM 218,934 -- 218,934
* 63,000 -- Telecom Italia Mobile (TIM) SPA IT 375,804 -- 375,804
* 30,000 -- Telecom Italia Mobile (TIM) SPA
(Savings Shares) IT 100,583 -- 100,583
34,334 -- Telecom Italia SPA IT 365,675 -- 365,675
52,500 -- Telecom Italia SPA (Savings Shares) IT 282,631 -- 282,631
40 -- DDI Corp. JP 198,785 -- 198,785
51 -- Nippon Telegraph & Telephone Corp. JP 185,208 -- 185,208
6 -- NTT Mobile Communication Network, Inc. JP 351,980 -- 351,980
5,800 -- Telefonos de Mexico SA (Class L), ADR MX 439,350 -- 439,350
* 9,000 -- Telefonica SA SP 422,161 -- 422,161
* 9,000 -- Telefonica SA (Rights) SP 8,377 -- 8,377
1,030 -- Swisscom AG SZ 378,391 -- 378,391
* 9,800 -- COLT Telecom Group PLC UK 181,723 -- 181,723
* 17,000 -- Orange PLC UK 230,478 -- 230,478
--------------------------------------------
5,656,299 -- 5,656,299
--------------------------------------------
TOTAL STOCKS (Cost $40,317,894) 37,150,561 8,493,949 45,644,510
--------------------------------------------
</TABLE>
See Notes to Pro-Forma
* Non-income producing security.
B-5
<PAGE>
<TABLE>
<CAPTION>
International International International International Pro-Forma
Growth Small Cap Country Growth Small Cap Combined
Shares Shares Security Description Code Value Value Value
- ------------ ------------ ---------------------------------------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM SECURITIES 6.0%
2,757,726 81,723 SSgA Prime Money Market Fund US $ 2,757,726 $ 81,723 $ 2,839,449
--------------------------------------------
TOTAL SHORT-TERM SECURITIES (Cost $2,839,449) 2,757,726 81,723 2,839,449
--------------------------------------------
TOTAL INVESTMENTS (Cost $43,157,343), 102.3% 39,908,287 8,575,672 48,483,959
OTHER ASSETS AND LIABILITIES, NET, (2.3)% (1,129,164) 52,156 (1,077,008)
--------------------------------------------
NET ASSETS, 100.0% $ 38,779,123 $ 8,627,828 $ 47,406,951
============================================
</TABLE>
COUNTRY ABBREVIATIONS
AU Australia
BR Brazil
CN Canada
FI Finland
FR France
GM Germany
HK Hong Kong
IR Ireland
IS Israel
IT Italy
JP Japan
MX Mexico
NL Netherlands
NO Norway
PT Portugal
SA South Africa
SG Singapore
SK South Korea
SP Spain
SW Sweden
SZ Switzerland
TW Taiwan
UK United Kingdom
US United States
See Notes to Pro-Forma
* Non-income producing security.
B-6
<PAGE>
PRO-FORMA FINANCIAL STATEMENTS
FREMONT INTENATIONAL GROWTH FUND & FREMONT INTERNATIONAL SMALL CAP FUND
Pro-Forma Combined Statement of Assets and Liabilities April 30, 1999
(Unaudited) (All numbers in thousands except net asset value per share)
<TABLE>
<CAPTION>
International International Pro-Forma
Growth Small Cap Combined
-------- -------- --------
<S> <C> <C> <C>
Assets:
Investments in securities at cost $ 34,460 $ 8,697 $ 43,157
======== ======== ========
Investments in securities at value 39,908 8,576 48,484
Cash 175 1 176
Dividends and interest receivable 128 41 169
Receivable for securities sold 279 22 301
Receivable from sale of fund shares 26 1 27
Unrealized appreciation on foreign
currency contracts 169 -- 169
-------- -------- --------
Total assets 40,685 8,641 49,326
-------- -------- --------
Liabilities:
Payable for securities purchased 1,675 -- 1,675
Payable to management company 21 4 25
Unrealized depreciation on foreign
currency contracts 165 -- 165
Accrued expenses:
Investment advisory, administrative
and distribution fees 45 9 54
-------- -------- --------
Total Liabilities 1,906 13 1,919
-------- -------- --------
Net Assets $ 38,779 $ 8,628 $ 47,407
======== ======== ========
Net assets consist of:
Paid in capital $ 32,507 $ 11,133 $ 43,640
Undistributed net investment income 205 11 216
Unrealized appreciation in investments 5,449 (121) 5,328
Unrealized depreciation on foreign currency
contracts and other assets and liabilities (1) (1) (2)
Accumulated net realized loss 619 (2,394) (1,775)
-------- -------- --------
Net Assets $ 38,779 $ 8,628 $ 47,407
======== ======== ========
Shares of capital stock outstanding (Note 1) 3,423 1,172 4,184
======== ======== ========
Net asset value per share $ 11.33 $ 7.36 $ 11.33
======== ======== ========
</TABLE>
See "Notes to Pro-Forma Financial Statements."
B-7
<PAGE>
PRO-FORMA FINANCIAL STATEMENTS
FREMONT INTERNATIONAL GROWTH FUND & FREMONT INTERNATIONAL SMALL CAP FUND
Pro-Forma Combined Statement of Operations
For the year ended April 30, 1999 (Unaudited)
(All numbers in thousands)
<TABLE>
<CAPTION>
International International Pro-Forma Pro-Forma
Growth Small Cap Adjustments Combined
------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 87 $ 21 $ -- $ 108
Dividends 597 103 -- 700
------- ------- ------- -------
Total income* 684 124 -- 808
------- ------- ------- -------
Expenses:
Investment advisory and administrative fees (Note 2) 491 93 (16) 568
Shareholder servicing fees (Note 3) 25 21 (10) 36
Custody fees (Note 3) 35 15 (2) 48
Distribution fees (Note 2) 106 4 13 123
Accounting fees (Note 3) 26 11 (9) 28
Audit and legal fees (Note 3) 23 19 (17) 25
Directors' fees 3 4 -- 7
Reports to shareholders 3 3 -- 6
Registration fees 16 14 -- 30
Other 1 2 1 4
------- ------- ------- -------
Total expenses before reductions 729 186 (40) 875
Expenses waived and/or reimbursed by Advisor (Note 4) (89) (86) 40 (135)
------- ------- ------- -------
Total net expenses 640 100 -- 740
------- ------- ------- -------
Net investment income 44 24 -- 68
------- ------- ------- -------
Realized and unrealized gain (loss) from
investments and foreign currency:
Net relized gain (loss) from:
Investments 1,022 (96) -- 926
Foreign currency transactions (320) (25) -- (345)
Net unrealized appreciation (depreciation) on:
Investments 2,797 (169) -- 2,628
Translation of assets and liabilities in
foreign currencies 9 -- -- 9
------- ------- ------- -------
Net realized and unrealized gain (loss) from
investments and foreign currency 3,508 (290) -- 3,218
------- ------- ------- -------
Net increase (decrease) in net assets
resulting from operations $ 3,552 $ (266) $ -- $ 3,286
======= ======= ======= =======
</TABLE>
* Pro-Forma Combined Total income is net of foreign taxes withheld of $93.
See "Notes to Pro-Forma Financial Statements."
B-8
<PAGE>
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
The Fremont International Small Cap Fund is merging into the Fremont
International Growth Fund. The merger will include the transfer of substantially
all of the assets and liabilities of the International Small Cap Fund to the
International Growth Fund. All International Small Cap Fund shareholders will
receive International Growth Fund Shares in exchange. The International Small
Cap Fund will then be terminated and liquidated.
Note 1 Reflects the new shares issued. At the time of the asset transfer, the
International Small Cap Fund will distribute the International Growth
Fund Shares it receives pro rata to each remaining shareholder of the
International Small Cap Fund based on the percentage of the outstanding
shares of the International Small Cap Fund held of record by that
shareholder on the Valuation Date. The International Small Cap Fund
Shares were valued at $7.36 on April 30, 1999. The net asset value of
each International Growth Fund Share was $11.33. Therefore, if the
effective date had been April 30, 1999, the International Small Cap
Fund would then have redeemed each of its then outstanding shares in
exchange for .650 International Growth Fund Shares.
Note 2 Reflects adjustment in expenses due to proposed contract rate.
Note 3 Reflects adjustment in expenses due to elimination of duplicate
services.
Note 4 Reflects change in the amount Fremont Investment Advisors would have
waived to keep the Fund at its proposed expense limit.
B-9
<PAGE>
-----------------------------------------
PART C
FREMONT MUTUAL FUNDS, INC.
OTHER INFORMATION
-----------------------------------------
<PAGE>
FREMONT MUTUAL FUNDS, INC.
-------------------------------
FORM N-14
PART C
-------------------------------
ITEM 15. INDEMNIFICATION
Article VII(g) of the Articles of Incorporation, filed as Exhibit (1), Item
24(b), provides for indemnification of certain persons acting on behalf of
the Funds.
The officers and directors of the Funds and the Advisor are jointly insured
under an errors and omissions policy issued by American International
Specialty Lines Insurance Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act of 1933"), may be permitted to
directors, officers and controlling persons by the Registrant's charter and
bylaws, or otherwise, the Registrant has been advised that in opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in said Act, and is, therefore, unenforceable.
In particular, the Articles of the Company provide certain limitations on
liability of officers and directors. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Series of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
ITEM 16. EXHIBITS
(1) Articles of Incorporation as amended and supplemented, are
incorporated by reference to Post-Effective Amendment No. 31 filed
with the Commission on March 2, 1998 ("Post-Effective Amendment
No. 31") under File Nos. 33-23453 and 811-5632.
(2) By-Laws are incorporated by reference to Post-Effective Amendment
No. 21 filed with the Commission on January 20, 1996.
(3) Voting Trust Agreement--Not applicable.
(4) Form of Agreement and Plan of Reorganization is included in Part
A.
C-1
<PAGE>
(5) Specimen Share Certificate--Not applicable.
(6) Amended and Restated Investment Advisory and Administrative
Securities Agreement for the International Growth Fund and
Investment Advisory and Administrative Services Agreement related
to the International Small Cap Fund are incorporated by reference
to Post-Effective Amendment No. 31.
(7)(A) Distribution Agreement with First Fund Distributors, Inc.,
incorporated by reference to Post-Effective Amendment No. 28 filed
with the Commission on October 17, 1997.
(7)(B) Form of Selling Group Agreement--Not applicable.
(8) Benefit Plan(s)--Not applicable.
(9) Custody Agreement is incorporated by reference to Post-Effective
Amendment No. 31 filed with the Commission on December 15, 1998.
(10) Form of Shareholder Services Plan--Not applicable.
(11) Consent and Opinion of Counsel as to legality of shares.
(12) Opinion and Consent as to Tax Matters.
(13)(A) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement with Fremont Investment Advisors, Inc.--on file (File
No. 811-5632 under Post-Effective Amendment No. 23 filed February
28, 1997)
(13)(B) Sub-Transfer Agency Agreement with Countrywide Fund Services,
Inc.--on file (File No. 811-5632 under Post-Effective Amendment
No. 23 filed February 28, 1997)
(13)(C) Administration Agreement with Investment Company Administration
Corporation (File No. 811-5632 under Post-Effective Amendment No.
28 filed October 17, 1997)
(13)(D) License Agreement relating to the Mark "Fremont" with Fremont
Investment Advisors, Inc.--on file (File No. 811-5632)
(13)(E) Investment Accounting Agreement between Investors Fiduciary Trust
Company and Fremont Mutual Funds, Inc.--on file (File No. 811-5632
under Post-Effective Amendment No. 17 filed March 1, 1994).
(13)(F) Sub-Transfer Agency Agreement with National Financial Data
Services, Inc.--on file (File No. 811-5632 Under Post Effective
Amendment No. 31 file March 2, 1998)
(14) Independent Auditors' Consent.
C-2
<PAGE>
(15) Not Applicable.
(16) Power of Attorney--Incorporated by reference to Form N-14 filed
with the Commission on September 15, 1999.
(17) Not Applicable.
ITEM 17. UNDERTAKINGS.
(1) Registrant agrees that, before any public reoffering of the securities
registered through the use of a prospectus which is part of this
registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the information called
for by the applicable registration form for the reofferings by persons
who may be deemed underwriters, in addition to the information called
for by the other items of the applicable.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (a) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 this registration statement has
been signed on behalf of the Registrant, in the City of San Francisco and State
of California, on the 3rd day of November, 1999.
FREMONT MUTUAL FUNDS, INC.
David L. Redo*
----------------------------------------
David L. Redo
Chairman of the Board of Directors and
Chief Executive Officer
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
David L. Redo* Chairman of the Board November 3, 1999
- ---------------------- of Directors and
David L. Redo Chief Executive Officer
(Principal Executive Officer)
Jack Gee* Vice President and November 3, 1999
- ---------------------- Controller (Principal Financial
Jack Gee and Accounting Officer)
Richard E. Holmes* Director November 3, 1999
- ----------------------
Richard E. Holmes
Director November 3, 1999
- ----------------------
Donald C. Luchessa
Director November 3, 1999
- ----------------------
Kimun Lee
David L. Egan* Director November 3, 1999
- ----------------------
David L. Egan
Peter F. Landini* Director November 3, 1999
- ----------------------
Peter F. Landini
Michael F. Kosich* Director November 3, 1999
- ----------------------
Michael F. Kosich
*By: /s/ Tina Thomas
-----------------------------
Tina Thomas, Attorney-in-Fact
Pursuant to Power of Attorney
Previously filed.
C-4
<PAGE>
SEC File No. 333-87141
FREMONT MUTUAL FUNDS, INC.
FORM N-14
EXHIBIT INDEX
Number Exhibit
- ------ -------
11 Updated Consent of Counsel for
Opinion as to Legality of Shares
12 Opinion and Consent as to Tax Matters
14 Independent Auditors' Consent--PricewaterhouseCoopers LLC
C-5
<PAGE>
Law Offices of
Paul, Hastings, Janofsky & Walker LLP
A Limited Liability Partnership Including Professional Corporations
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet www.phjw.com
November 2, 1999
Fremont Mutual Funds, Inc.
333 Market Street, Suite 2600
San Francisco, California 94105
Attn: Ms. Tina Thomas
Re: Fremont Mutual Funds, Inc. (the "Registrant")
Ladies and Gentlemen:
We hereby consent to the continued use in the Registrant's Registration
Statements on Forms N-1A and N-14, until it is withdrawn in writing, of our
opinion given on March 2, 1998 (the "Prior Opinion") respecting the legality of
the shares of beneficial interest of each of the currently effective and
registered series of shares of the Registrant.
The Prior Opinion was filed as an exhibit to Post-Effective Amendment No.
31 filed with the Commission on March 2, 1998 (File Nos. 33-23453 and 811-5632).
Very truly yours,
Paul, Hastings, Janofsky & Walker LLP
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Twenty-Third Floor
Los Angeles, California 90071-2371
October 4, 1999
27300.83260
Fremont Mutual Funds, Inc.
333 Market Street, 26th Floor
San Francisco, California 94105
Re: Reorganization of Fremont International Small Cap
Fund into Fremont International Growth Fund
Ladies and Gentlemen:
You have requested our opinion as counsel for Fremont Mutual Funds, Inc., a
Maryland corporation (the "Corporation"), with respect to certain federal income
tax matters in connection with the reorganization by and between the Fremont
International Growth Fund (the "Acquiring Fund"), a series of the Corporation,
and the Fremont International Small Cap Fund (the "Acquired Fund"), also a
series of the Corporation. This opinion is rendered in connection with the
transaction described in the Agreement and Plan of Reorganization dated as of
September 15, 1999 (the "Reorganization Agreement"), by the Corporation for
itself and on behalf of the Acquiring Fund and the Acquired Fund, and adopts the
applicable defined terms therein.
This letter and the opinion expressed herein are for delivery to the
Corporation, the Acquiring Fund and the Acquired Fund and may be relied upon
only by the Corporation, the Acquiring Fund and Acquired Fund, and their
shareholders. This opinion also may be disclosed by the Corporation, the
Acquiring Fund and the Acquired Fund, or any of their shareholders in connection
with an audit or other administrative proceeding before the Internal Revenue
Service (the "Service") affecting the Corporation, the Acquiring Fund and the
Acquired Fund, or any of their shareholders or in connection with any judicial
proceeding relating to the federal, state or local tax liability of the
Corporation, the Acquiring Fund and the Acquired Fund or any of their
shareholders.
<PAGE>
Fremont Mutual Funds, Inc.
October 4, 1999
Page 2
For purposes of this opinion we have assumed the truth and accuracy of the
following facts:
The Corporation was duly organized and validly existing under the laws of
the State of Maryland. The Corporation is registered as an investment company
classified as a diversified, open-end management company, under the Investment
Company Act of 1940 (the "1940 Act").
The Acquiring Fund is a series of the Corporation duly established under
the laws of the State of Maryland, and is validly existing under the laws of
that State. The shares of the Acquiring Fund are widely held. The Acquiring Fund
has an authorized capital of an unlimited number of shares and each outstanding
share of the Acquiring Fund is fully transferable and has full voting rights.
The Acquired Fund is also a series of the Corporation duly established
under the laws of the State of Maryland, and is validly existing under the laws
of that State. The shares of the Acquired Fund are widely held. The Acquired
Fund has an authorized capital of an unlimited number of shares and each
outstanding share of the Acquired Fund is fully transferable and has full voting
rights.
For valid business purposes, the following transaction will take place in
accordance with the laws of the State of Maryland and pursuant to the
Reorganization Agreement:
(a) On the date of the closing (the "Closing Date"), the Corporation will
cause the Acquired Fund to transfer substantially all of its assets to the
Acquiring Fund. Solely in exchange therefor, the Corporation will cause the
Acquiring Fund to deliver to the Acquired Fund a number of Acquiring Fund shares
(the "Acquiring Fund Shares") of voting common stock of the Acquiring Fund and
to assume the liabilities of the Acquired Fund as stated in the Reorganization
Agreement.
(b) The Corporation will then cause the Acquired Fund to liquidate and
distribute all of the Acquiring Fund Shares to the shareholders of Acquired Fund
in proportion to their respective interests in the Acquired Fund in exchange for
their shares in the Acquired Fund.
(c) The Corporation will then cause the Acquired Fund to wind up and
dissolve as soon as practicable thereafter.
<PAGE>
Fremont Mutual Funds, Inc.
October 4, 1999
Page 3
In rendering the opinions stated below, we have examined and relied upon
the following, assuming the truth and accuracy of any statements contained
therein:
(1) The Reorganization Agreement; and
(2) Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions referred to in
this letter.
For purposes of rendering the opinions stated below, we have in addition
relied upon the following representations by the Corporation on behalf of both
the Acquired Fund and the Acquiring Fund, as applicable:
(A) The fair market value of the Acquiring Fund Shares received by each
shareholder of the Acquired Fund will be approximately equal to the fair market
value of the shares of the Acquired Fund surrendered in the exchange.
(B) There is no plan or intention by Acquiring Fund or any person related
(as defined in section 1.368-1(e)(3) of the Treasury Regulations which generally
provides that two corporations are related persons if either corporations are
members of the same affiliated group or if one corporation is a subsidiary of
the other corporation) to Acquiring Fund to acquire or redeem any of the stock
of Acquiring Fund issued in the transaction either directly or through any
transaction, agreement, or arrangement with any other person, other than
redemptions in the ordinary course of Acquiring's business as an open-end
investment company as required by section 22(e) of the 1940 Act.
(C) During the five-year period ending on the date of the proposed
transaction, neither Acquired Fund nor any person related to Acquired Fund (as
defined in section 1.368-1(e)(3) of the Treasury Regulations) will have directly
or through any transaction, agreement, or arrangement with any other person, (i)
acquired stock of Acquired Fund with consideration other than shares of
Acquiring Fund or Acquired Fund, except for stock redeemed in the ordinary
course of Acquired Fund's business as an open-end investment company as required
by section 22(e) of the 1940 Act or (ii) made distributions with respect to
Acquired Fund stock, except for (a) distributions required to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), and (b) additional distributions, to the extent such distributions
do not exceed 50 percent of the value (without giving effect to such
distributions) of the proprietary interest in Acquired Fund on the effective
date of the proposed transaction.
<PAGE>
Fremont Mutual Funds, Inc.
October 4, 1999
Page 4
(D) Prior to or in the transaction, neither Acquiring Fund nor any person
related to Acquiring Fund (as defined in section 1.368-1(e)(3) of the Treasury
Regulations) will have acquired directly or through any transaction, agreement
or arrangement with any other person, stock of Acquired Fund with consideration
other than shares of Acquiring Fund.
(E) The Acquiring Fund will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of the
gross assets held by the Acquired Fund immediately prior to the transaction. For
purposes of this representation, amounts used by the Acquired Fund to pay its
reorganization expenses, amounts paid by the Acquired Fund to shareholders who
receive cash or other property, and all redemptions and distributions (except
for distributions and redemptions occurring in the ordinary course of the
Acquired Fund's business as a series of an investment company) made by the
Acquired Fund immediately preceding the transfer have been included as assets of
the Acquired Fund held immediately prior to the transaction.
(F) After the transaction, the Acquiring Fund will use the assets acquired
from the Acquired Fund in the Acquiring Fund's business, except that all or a
portion of those assets may be sold or otherwise disposed of in the ordinary
course of the Acquiring Fund's business, or may mature, and in either case the
proceeds will be reinvested in accordance with the Acquiring Fund's investment
objectives. The Acquiring Fund has no plan or intention to sell or otherwise
dispose of the assets received in the transaction from the Acquired Fund, except
for dispositions made in the ordinary course of business.
(H) The Acquired Fund will distribute to its shareholders as soon as
practicable the shares of the Acquiring Fund it receives in the transaction.
(I) The liabilities of the Acquired Fund assumed by the Acquiring Fund and
the liabilities to which the transferred assets are subject were incurred by the
Acquired Fund in the ordinary course of business.
(J) The fair market value of the assets of the Acquired Fund transferred to
the Acquiring Fund will equal or exceed the sum of the liabilities assumed by
the Acquiring Fund, plus the amount of liabilities, if any, to which the
transferred assets are subject.
<PAGE>
Fremont Mutual Funds, Inc.
October 4, 1999
Page 5
(K) Following the transaction, the Acquiring Fund will continue the
historic business of the Acquired Fund or use a significant portion of the
Acquired Fund's historic business assets in a business.
(L) The Acquiring Fund, the Acquired Fund, and the shareholders of the
Acquired Fund will pay their respective expenses, if any, incurred in connection
with the transaction.
(M) There is no intercorporate indebtedness existing between the Acquired
Fund and the Acquiring Fund that was issued, acquired, or will be settled at a
discount.
(N) The Acquired Fund and the Acquiring Fund each meet the requirements of
a regulated investment company as defined in Sections 368(a)(2)(F)(ii) (which
requires that not more than 25% of the value of investment company's total
assets is invested in the stock and securities of any one issuer and not more
than 50% of the value of its total assets is invested in the stock and
securities of 5 or fewer issuers) and (iii) (which requires that 50% or more of
the value of the investment company's total assets are stock and securities and
80% or more of the value of its total assets are assets held for investment) of
the Code.
(O) The Acquiring Fund does not own, directly or indirectly, not has it
owned during the past five years, directly or indirectly, any stock of the
Acquired Fund.
(P) Neither the Acquired Fund nor one or more of its shareholders, or any
combination thereof, will control (within the meaning of Section 368(a)(2)(H) of
the Code which provides that control means the ownership of stock possessing at
least 50% of the total combined voting power of all classes of stock entitled to
vote, or at least 50% of the total value of shares of all classes of stock) the
Acquiring Fund immediately after the transfer.
(Q) No cash will be distributed to shareholders of the Acquired Fund in
lieu of fractional shares of the Acquiring Fund.
(R) Both the Acquired Fund and the Acquiring Fund has elected to be taxed
as a "regulated investment company" under Section 851 of the Code and, for all
of its taxable periods, (including the last short taxable period ending on the
date of the transaction for the Acquired Fund) has qualified for the special tax
treatment afforded regulated investment companies under the Code, and after the
transaction, the Acquiring Fund intends to continue to so qualify.
<PAGE>
Fremont Mutual Funds, Inc.
October 4, 1999
Page 6
(S) The Acquired Fund is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a Federal or state court.
Our opinions set forth in this letter are based upon the Code, regulations
of the Treasury Department, published administrative announcements and rulings
of the Service and court decisions, all as of the date of this letter. Based on
the foregoing facts and representations, and provided that the transaction will
take place in accordance with the terms of the Reorganization Agreement, and
further provided that the Acquired Fund distributes the shares of Acquiring Fund
received in the transaction as soon as practicable, we are of the opinion that:
(1) The transfer by the Acquired Fund of substantially all of its assets to
the Acquiring Fund solely in exchange for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of the Acquired Fund's liabilities, followed by
the distribution by the Acquired Fund of the Acquiring Fund Shares to its
shareholders in complete liquidation of the Acquired Fund will be a
reorganization within the meaning of Section 368(a) of the Code.
(2) The Acquired Fund will recognize no gain or loss on its transfer of
substantially all of its assets to the Acquiring Fund in exchange solely for the
Acquiring Fund Shares, or on distribution of such Acquiring Fund Shares to its
shareholders.
(3) The Acquiring Fund will recognize no gain or loss on its receipt of
substantially all of the assets of the Acquired Fund and the assumption of all
its liabilities in exchange solely for the Acquiring Fund Shares.
(4) The Acquiring Fund's basis in the assets received from the Acquired
Fund in the transaction will equal the basis of such assets in the hands of the
Acquired Fund immediately prior to the transaction.
(5) The Acquiring Fund's holding period for the assets received in the
transaction will include the period during which the Acquired Fund held such
assets.
(6) The shareholders of the Acquired Fund will recognize no gain or loss on
the receipt of the Acquiring Fund Shares (including any fractional share
interests to which they may be entitled) solely in exchange for their Acquired
Fund stock.
(7) The basis of the Acquiring Fund Shares received by each of the Acquired
Fund's shareholders in the transaction (including fractional shares to which
they may be entitled) will equal the basis of the Acquired Fund stock
surrendered in exchange therefor.
<PAGE>
Fremont Mutual Funds, Inc.
October 4, 1999
Page 7
(8) The holding period of the Acquiring Fund Shares received by each of the
Acquired Fund's shareholders in exchange for their Acquired Fund stock
(including fractional shares to which they may be entitled) will include the
period that the shareholder held the Acquired Fund stock exchange therefor,
provided that the shareholder held such stock as a capital asset on the date of
the exchange.
The opinions set forth above represent our conclusions as to the
application of federal income tax law existing as of the date of this letter to
the transactions described above, and we can give no assurance that legislative
enactments, administrative changes or court decisions may not be forthcoming
which would require modifications or revocations of our opinions expressed
herein. Moreover, there can be no assurance that positions contrary to our
opinions will not be taken by the Service, or that a court considering the
issues would not hold contrary to such opinions. Further, all the opinions set
forth above represent our conclusions based upon the documents and facts
referred to above. Any material amendments to such documents or changes in any
significant facts would affect the opinions referred to herein. Although we have
made such inquiries and performed such investigation as we have deemed necessary
to fulfill our professional responsibilities, we have not undertaken an
independent investigation of the facts referred to in this letter.
We express no opinion as to any federal income tax issue or other matter
except those set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Trust's Registration Statement on Form N-14 (and our being named therein) filed
by the Trust in connection with the Reorganization.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Fremont Mutual Funds, Inc., on Form N-14 of our report dated December 9, 1998,
on our audit of the financial statements and financial highlights of each of the
funds constituting Fremont Mutual Funds, Inc., appearing in the October 31,
1998, Annual Report filed with the Securities and Exchange Commission pursuant
to section 30(d) of the Investment Company Act of 1940, as amended. We also
consent to the references to our firm under the captions "Financial Highlights"
and "Experts."
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
November 2, 1999
