File Nos. 33-23453
811-5632
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 34
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 37
FREMONT MUTUAL FUNDS, INC.
(Exact Name of Registration as Specified in Charter)
333 Market Street, Suite 2600
SAN FRANCISCO, CALIFORNIA 94105
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(415) 284-8733
Tina Thomas, Secretary
Fremont Mutual Funds, Inc.
333 Market Street, Suite 2600
SAN FRANCISCO, CALIFORNIA 94105
(Name and Address of Agent for Service)
copy to:
Julie Allecta
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th floor
SAN FRANCISCO, CA 94104-2635
It is proposed that this filing will become effective (check
appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on __________ pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(ii)
<PAGE>
FREMONT MUTUAL FUNDS
CONTENTS OF REGISTRATION STATEMENT
THIS REGISTRATION STATEMENT CONTAINS THE FOLLOWING DOCUMENTS:
FACING SHEET
CONTENTS OF REGISTRATION STATEMENT
CROSS-REFERENCE SHEETS FOR THE PROSPECTUS CONTAINING THE FOLLOWING FREMONT
FUNDS:
FREMONT GLOBAL FUND
FREMONT INTERNATIONAL GROWTH FUND
FREMONT INTERNATIONAL SMALL CAP FUND
FREMONT EMERGING MARKETS FUND
FREMONT GROWTH FUND
FREMONT U.S. SMALL CAP FUND
FREMONT U.S. MICRO-CAP FUND
FREMONT REAL ESTATE SECURITIES FUND
FREMONT BOND FUND
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
FREMONT MONEY MARKET FUND
CROSS-REFERENCE SHEETS FOR THE PROSPECTUS CONTAINING THE FOLLOWING FREMONT
FUND:
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
PART A - PROSPECTUS FOR THE FOLLOWING FREMONT MUTUAL FUNDS:
FREMONT GLOBAL FUND
FREMONT INTERNATIONAL GROWTH FUND
FREMONT INTERNATIONAL SMALL CAP FUND
FREMONT EMERGING MARKETS FUND
FREMONT GROWTH FUND
FREMONT U.S. SMALL CAP FUND
FREMONT U.S. MICRO-CAP FUND
FREMONT REAL ESTATE SECURITIES FUND
FREMONT BOND FUND
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
FREMONT MONEY MARKET FUND
PART A - PROSPECTUS FOR THE FOLLOWING FREMONT MUTUAL FUND:
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
PART B - STATEMENT OF ADDITIONAL INFORMATION FOR THE FOLLOWING FREMONT
MUTUAL FUNDS:
FREMONT GLOBAL FUND
FREMONT INTERNATIONAL GROWTH FUND
FREMONT INTERNATIONAL SMALL CAP FUND
FREMONT EMERGING MARKETS FUND
FREMONT GROWTH FUND
FREMONT U.S. SMALL CAP FUND
FREMONT U.S. MICRO-CAP FUND
FREMONT REAL ESTATE SECURITIES FUND
FREMONT BOND FUND
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
FREMONT MONEY MARKET FUND
PART B - STATEMENT OF ADDITIONAL INFORMATION FOR THE FOLLOWING FREMONT
MUTUAL FUND:
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
PART C - OTHER INFORMATION
SIGNATURE PAGE
EXHIBITS
<PAGE>
FREMONT MUTUAL FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(For Combined Prospectus)
<TABLE>
<CAPTION>
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NEW N-1A LOCATION IN THE REGISTRATION STATEMENT
ITEM NO. ITEM BY HEADING
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Front and Back Cover Pages Front and Back Cover Pages
- -------------------------------------------------------------------------------------------------------
2. Risk/Return Summary: Investment, "Objective and Strategy," "Main
Risks and Performance Risks," "Performance" "Comparative
Returns," "Understanding Investment
Risk'
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3. Risk/Return Summary: Fee Table "Fees and Expenses"
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4. Investment Objective, Principal Investment "Objective and Strategy," "Main
Strategies and Related Risks" Risks," "Understanding Investment
Risk"
- -------------------------------------------------------------------------------------------------------
5. Management's Discussion of Fund Performance "Performance," "Comparative Returns"
- -------------------------------------------------------------------------------------------------------
6. Management, Organization and Capital Structure "Portfolio Management," "About the
Advisor"
- -------------------------------------------------------------------------------------------------------
7. Shareholder Information "Types of Accounts Available," How to
Invest," "How to Sell Your Shares"
- -------------------------------------------------------------------------------------------------------
8. Distribution Arrangements "Dividends and Distribution"
- -------------------------------------------------------------------------------------------------------
9. Financial Highlights Information "Financial Highlights"
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</TABLE>
<PAGE>
FREMONT MUTUAL FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(For the Fremont Institutional U.S. Micro-Cap Fund)
<TABLE>
<CAPTION>
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NEW N-1A LOCATION IN THE REGISTRATION STATEMENT
ITEM NO. ITEM BY HEADING
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Front and Back Cover Pages Front and Back Cover Pages
- -------------------------------------------------------------------------------------------------------
2. Risk/Return Summary: Investment, "Objective and Strategy," "Main
Risks and Performance Risks," "Performance" "Comparative
Returns," "Understanding Investment
Risk"
- -------------------------------------------------------------------------------------------------------
3. Risk/Return Summary: Fee Table "Fees and Expenses"
- -------------------------------------------------------------------------------------------------------
4. Investment Objective, Principal Investment "Objective and Strategy," "Main
Strategies and Related Risks" Risks," "Understanding Investment
Risk"
- -------------------------------------------------------------------------------------------------------
5. Management's Discussion of Fund Performance "Performance," "Comparative Returns"
- -------------------------------------------------------------------------------------------------------
6. Management, Organization and Capital Structure "Portfolio Management," "About the
Advisor"
- -------------------------------------------------------------------------------------------------------
7. Shareholder Information "Types of Accounts Available," How to
Invest," "How to Sell Your Shares"
- -------------------------------------------------------------------------------------------------------
8. Distribution Arrangements "Dividends and Distribution"
- -------------------------------------------------------------------------------------------------------
9. Financial Highlights Information "Financial Highlights"
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FREMONT MUTUAL FUNDS, INC.
Part B: Information Required in Statement of Additional Information
(For Combined SAI)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NEW N-1A OLD N-1A
ITEM NO. ITEM NO. ITEM LOCATION IN THE REGISTRATION STATEMENT BY HEADING
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10. Cover Page and Table of Contents Cover Page and Table of Contents
- -----------------------------------------------------------------------------------------------------------
10. Cover Page Cover Page
- -----------------------------------------------------------------------------------------------------------
11. Table of Contents Table of Contents
- -----------------------------------------------------------------------------------------------------------
11. 12. Fund History "The Corporation"
- -----------------------------------------------------------------------------------------------------------
12. 13. Description of the Fund and Its "Investment Objective, Policies, And Risk
Investments and Risks Considerations," "Investment Restrictions,"
"Appendix A: Description Of Ratings"
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13. 14. Management of the Fund "Investment Company Directors And Officers,"
"Investment Advisory And Other Services"
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14. 15. Control Persons and Principal "Investment Company Directors And Officers,"
Holders of Securities "Investment Advisory And Other Services"
"Additional Information"
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15. 16. Investment Advisory and Other "Investment Advisory And Other Service,"
Services "Additional Information"
- -----------------------------------------------------------------------------------------------------------
16. 17. Brokerage Allocation and Other "Execution Of Portfolio Transactions"
Practices
- -----------------------------------------------------------------------------------------------------------
17. 18. Capital Stock and Other "Additional Information"
Securities
- -----------------------------------------------------------------------------------------------------------
18. 19. Purchase, Redemption and Pricing "How to Invest," "Other Investment And Redemption
of Securities Being Offered Services"
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19. 20. Taxation of the Fund "Taxes - Mutual Funds"
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20. 21. Underwriters "Investment Advisory And Other Services"
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21. 22. Calculation of Performance Data "Investment Results"
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22. 23. Financial Statements "Financial Statements"
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</TABLE>
<PAGE>
FREMONT MUTUAL FUNDS, INC.
Part B: Information Required in Statement of Additional Information
(For Fremont Institutional U.S. Micro-Cap Fund)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NEW N-1A OLD N-1A
ITEM NO. ITEM NO. ITEM LOCATION IN THE REGISTRATION STATEMENT BY HEADING
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10. Cover Page and Table of Contents Cover Page and Table of Contents
- -----------------------------------------------------------------------------------------------------------
10. Cover Page Cover Page
- -----------------------------------------------------------------------------------------------------------
11. Table of Contents Table of Contents
- -----------------------------------------------------------------------------------------------------------
11. 12. Fund History "The Corporation"
- -----------------------------------------------------------------------------------------------------------
12. 13. Description of the Fund and Its "Investment Objective, Policies, And Risk
Investments and Risks Considerations," "Investment Restrictions,"
"Appendix A: Description Of Ratings"
- -----------------------------------------------------------------------------------------------------------
13. 14. Management of the Fund "Investment Company Directors And Officers,"
"Investment Advisory And Other Services"
- -----------------------------------------------------------------------------------------------------------
14. 15. Control Persons and Principal "Investment Company Directors And Officers,"
Holders of Securities "Investment Advisory And Other Services"
"Additional Information"
- -----------------------------------------------------------------------------------------------------------
15. 16. Investment Advisory and Other "Investment Advisory And Other Service,"
Services "Additional Information"
- -----------------------------------------------------------------------------------------------------------
16. 17. Brokerage Allocation and Other "Execution Of Portfolio Transactions"
Practices
- -----------------------------------------------------------------------------------------------------------
17. 18. Capital Stock and Other "Additional Information"
Securities
- -----------------------------------------------------------------------------------------------------------
18. 19. Purchase, Redemption and Pricing "How to Invest," "Other Investment And Redemption
of Securities Being Offered Services"
- -----------------------------------------------------------------------------------------------------------
19. 20. Taxation of the Fund "Taxes - Mutual Funds"
- -----------------------------------------------------------------------------------------------------------
20. 21. Underwriters "Investment Advisory And Other Services"
- -----------------------------------------------------------------------------------------------------------
21. 22. Calculation of Performance Data "Investment Results"
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22. 23. Financial Statements "Financial Statements"
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</TABLE>
<PAGE>
PART C OF FORM N-1A
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Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
<PAGE>
As filed with the Securities and Exchange
Commission on March 1 1999
Registration No. 33-23453
File No. 811-5632
================================================================================
Part A
of
Form N-1A
REGISTRATION STATEMENT
FREMONT MUTUAL FUNDS, INC.
================================================================================
<PAGE>
- -------------
MARCH 1, 1999
- -------------
FREMONT MUTUAL FUNDS, INC.
PROSPECTUS
o Global Fund
o International Growth Fund
o International Small Cap Fund
o Emerging Markets Fund
o Growth Fund
o U.S. Small Cap Fund
o U.S. Micro-Cap Fund
o Real Estate Securities Fund
o Bond Fund
o California Intermediate
Tax-Free Fund
o Money Market Fund
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 prospectus. It is a criminal offense to represent otherwise.
Fremont
Funds [LOGO]
<PAGE>
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TABLE OF CONTENTS
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- --------------------
FREMONT MUTUAL FUNDS
- --------------------
Detailed descriptions of objectives and strategies, main risks, performance,
fees, and portfolio management
Global Fund .............................................................. 2
International Growth Fund ................................................ 4
International Small Cap Fund ............................................. 6
Emerging Markets Fund .................................................... 8
Growth Fund .............................................................. 10
U.S. Small Cap Fund ...................................................... 12
U.S. Micro-Cap Fund ...................................................... 14
Real Estate Securities Fund .............................................. 16
Bond Fund ................................................................ 18
California Intermediate Tax-Free Fund .................................... 20
Money Market Fund ........................................................ 22
Understanding Investment Risk ............................................ 24
About the Advisor ........................................................ 26
- -----------------
SHAREHOLDER GUIDE
- -----------------
Managing your Fremont account
Types of Accounts ........................................................ 27
How to Invest ............................................................ 28
How to Sell Your Shares .................................................. 30
Dividends, Distributions, and Taxes ...................................... 33
- --------
APPENDIX
- --------
Investment Terms ......................................................... 35
Financial Highlights ..................................................... 37
<PAGE>
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FREMONT MUTUAL FUNDS
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- -------------------
FREMONT GLOBAL FUND
- -------------------
OBJECTIVE AND STRATEGY
The Fremont Global Fund seeks to maximize total return while reducing risk by
investing in U.S. and international stocks, bonds, and short-term securities (or
cash).
The Fund seeks to minimize risk through prudent asset allocation among stocks
(including stock index futures), bonds, cash, and global diversification.
Normally, the Fund will invest in at least three countries, including the United
States.
To determine the allocation to each asset class, Fund management:
o Develops forecasts of economic growth, inflation, and interest rates which
they use to identify those regions and individual countries offering the best
investment opportunities.
o Examines financial market valuations to determine the most advantageous mix
of stocks, bonds, and cash.
o Selects individual securities based on intensive quantitative and fundamental
analysis.
MAIN RISKS
The Fund is designed for investors who are willing to accept the risks of
investing in both domestic and foreign securities. Investments in foreign
securities are subject to risks such as changing market conditions, economic and
political instability, and currency exchange rate fluctuations.
Investing in any foreign or domestic stock, including stock index futures,
carries a degree of risk. Stock markets move up and down, which can cause
temporary or lengthy fluctuations in the value of stocks in the Fund.
Several factors may affect the Fund's investments in bonds; these include:
changes in interest rates, the credit worthiness of the bond issuers, and
economic conditions. Generally, when interest rates rise, the value of a bond
will fall. These factors may lower the values of individual bonds or the entire
bond portfolio.
Because the Fund's portfolio management team actively allocates money among
different types of investments, investors are subject to the risk that the
team's investment decisions may increase the potential for a loss, especially
over short time periods.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 0.60%
Distribution (12b-1) Fees .... None
Other Expenses ............... 0.25%
Total Annual Fund
Operating Expenses ..... 0.85%
+The Transfer Agent charges a $10 service fee on wire redemptions.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Global Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$87 $271 $471 $1,049
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
12.10% for the quarter ending 12/31/98. The lowest return for a quarter was
- -8.93% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1989 15.92%
1990 -1.77%
1991 18.64%
1992 5.21%
1993 19.60%
1994 -4.17%
1995 19.28%
1996 13.97%
1997 9.93%
1998 10.01%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Global Fund
1 Yr 5 Yrs 10 Yrs
- --------------------------
10.01% 9.52% 10.35%
MSCI EAFE Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
20.00% 9.20% 5.54%
S&P 500(R) Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
28.58% 24.05% 19.17%
Salomon Non-U.S. Gov't. Bond Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
11.53% 9.41% 8.66%
Lehman Bros. Gov't./Corp. Bond Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
9.47% 7.30% 9.33%
The "Comparative Returns" table above compares the performance of the Fremont
Global Fund to that of its benchmark indices: Morgan Stanley Capital
International Europe, Australia, and Far East (MSCI EAFE) Index; the Standard &
Poor's 500(R) Composite Stock Index; the Salomon Non-U.S. Government Bond Index;
and the Lehman Brothers Intermediate Gov't./Corp. Bond Index. (See "Investment
Terms" on page 35 for a description of these indices.)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fund is managed by a team of six portfolio managers from Fremont Investment
Advisors, Inc. On average, each of the managers has more than 20 years of
investment experience. The team consists of:
o David L. Redo, CEO and chief investment officer of Fremont Investment
Advisors, Inc.
o Robert J. Haddick, CFA, senior vice president
o Alexandra Kinchen, vice president
o Albert W. Kirschbaum, managing director
o Peter F. Landini, managing director and chief operating officer
o Andrew Pang, vice president
[PHOTO] [PHOTO] [PHOTO]
David L. Redo, Robert J. Haddick, Alexandra Kinchen
[PHOTO] [PHOTO] [PHOTO]
Albert W. Kirschbaum, Peter F. Landini, Andrew Pang
Why is a "benchmark" index important?
Every mutual fund has to report its performance compared to a broad-based
benchmark, such as the S&P 500(R)Index. Most often, the index tracks the
performance of securities similar to those in which the fund invests.
A benchmark index can help investors judge how a fund has performed compared to
an objective standard. When you compare your fund to the benchmark, remember
that actively managed funds do not always invest in all the securities contained
in an index. Therefore, a fund is likely to perform differently from its
benchmark.
Pages 2 and 3
<PAGE>
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FREMONT MUTUAL FUNDS
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- ---------------------------------
FREMONT INTERNATIONAL GROWTH FUND
- ---------------------------------
OBJECTIVE AND STRATEGY
The Fremont International Growth Fund seeks long-term capital appreciation by
investing primarily in international stocks. Fund management focuses its
investments on reasonably priced, high-quality companies that they believe are
likely to grow over the long term.
Normally, Fund management will invest at least 90% of the Fund's total assets in
securities of issuers based outside of the U.S. The Fund will also include
investments in at least three countries outside of the U.S.
The Fund employs a unique multi-manager approach:
o The Fund's portfolio is divided into segments and independently managed by a
team member.
o Portfolio managers benefit from far-reaching international research networks
consisting of more than 150 investment professionals who annually visit
approximately 15,000 firms in more than 65 countries around the world.
MAIN RISKS
The Fund is designed for investors who are willing to accept the 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.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES*
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 1.00%
Distribution (12b-1) Fees .... 0.25%
Other Expenses ............... 0.40%
Total Annual Fund
Operating Expenses ..... 1.65%
Less: Fees waived and
Reimbursed++ ........... 0.15%
Net Operating Expenses ....... 1.50%
*Expenses restated to reflect current fees.
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 1.50% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont International Growth Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$153 $520 $897 $1,955
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
16.28% for the quarter ending 12/31/98. The lowest return for a quarter was
- -14.72% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1995 7.21%
1996 13.01%
1997 -8.38%
1998 9.81%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont International Growth Fund
Since Inception
1 Yr (3/1/94)
- ----------------------
9.81% 3.50%
MSCI EAFE Index
Since
1 Yr (3/1/94)
- ----------------------
20.00% 7.76%
The table above compares the performance of the Fremont International Growth
Fund to that of its benchmark index, the Morgan Stanley Capital International
Europe, Australia and Far East (MSCI EAFE) Index. (See "Investment Terms" on
page 35 for a description of the index.) Capital Guardian Trust Company began
managing the Fund on March 1, 1998.
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PORTFOLIO MANAGEMENT
The Fremont International Growth Fund is managed by Sub-Advisor, Capital
Guardian Trust Company. 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.
The members of the portfolio management team have an average of 24 years of
international investment experience.
[PHOTO] [PHOTO] [PHOTO]
David I. Fisher, Nilly Sikorsky, Hartmut Giesecke
[PHOTO] [PHOTO] [PHOTO]
Nancy J. Kyle, Robert Ronus, John McIlwraith
[PHOTO] [PHOTO] [PHOTO]
Lionel M. Sauvage, Rudolf M. Staehlin Richard N. Havas
How do shareholders benefit from the Fund's multi-manager approach?
Portfolio management believes that the multi-manager approach offers
International Growth Fund shareholders several advantages:
o Diversification in investment styles.
o Close monitoring of every stock in the portfolio by the person who knows it
best.
o Reduced overall portfolio volatility--over any given period, the Fund's
performance will never be as good as that of the best performing segment of
the portfolio or as bad as the worst.
Pages 4 and 5
<PAGE>
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FREMONT MUTUAL FUNDS
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- ------------------------------------
FREMONT INTERNATIONAL SMALL CAP FUND
- ------------------------------------
OBJECTIVE AND STRATEGY
The Fremont International Small Cap Fund seeks 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 Fund will invest at least
65% of its total assets in the stocks of these international small cap
companies.
Fund management looks for companies in fast-growing industries with:
o unique products or services.
o experienced management.
o strong revenue, earnings, and cash flow growth.
Most important, the stock must be priced reasonably relative to the company's
actual value.
Using a four-step stock selection process, Fund management:
1 Identifies between 200 and 300 companies that appear to be worth further
investigation.
2 Visits with company management to evaluate their business plans.
3 Analyzes company financials to see if the firm's stock is currently
undervalued by the market.
4 Selects 30 to 35 companies to build a concentrated portfolio diversified by
country and industry group.
MAIN RISKS
The Fund is designed for investors who are willing to accept the risks of
investing in foreign stocks. These risks include changing market conditions,
economic and political instability, and changes in currency exchange rates.
The Fund is also subject to the risks associated with investments in small
companies, such as fast-changing earnings, competitive conditions, limited
earnings history and a reliance on a limited number of products. Information on
these companies is often limited.
As a non-diversified fund, the Fund may make larger investments in individual
companies. Therefore, the Fund's share price may be more volatile than the share
price of a more diversified fund.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES*
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 1.25%
Distribution (12b-1) Fees .... None
Other Expenses ............... 1.30%
Total Annual Fund
Operating Expenses ..... 2.55%
Less: Fees waived and
Reimbursed++ ........... 1.05%
Net Operating Expenses ....... 1.50%
*Expenses restated to reflect current fees.
+The Fund charges a 2% redemption fee on shares held less than 6 months. The
Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor is
contractually obligated to limit the Fund's expenses to 1.50% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont International
Small Cap Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$153 $793 $1,355 $2,885
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
15.97% for the quarter ending 12/31/98. The lowest return for a quarter was
- -24.07% for the quarter ending 12/31/97. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1995 2.78%
1996 12.15%
1997 -26.52%
1998 4.12%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont International
Small Cap Fund
Since Inception
1 Yr (6/30/94)
- ----------------------
4.12% -4.96%
MSCI EAFE Small Cap Index
Since
1 Yr (6/30/94)
- ----------------------
5.44% -5.43%
The table above compares the performance of the Fremont International Small Cap
Fund to that of its benchmark index, the Morgan Stanley Capital International
Europe, Australia, and Far East (MSCI EAFE) Small Cap Index. (See "Investment
Terms" on page 35 for a description of the index.) Bee & Associates,
Incorporated, began managing the Fund on March 1, 1998.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont International Small Cap Fund is managed by Sub-Advisor, Bee &
Associates, Incorporated. Bruce Bee is the portfolio manager of the Fund, and
president and director of Bee & Associates. Mr. Bee has been actively involved
in the financial markets since 1970, and in foreign stock markets since 1980.
Mr. Bee formed Bee & Associates in 1989 to focus, as an investment manager,
exclusively on finding investments in smaller companies worldwide. As of
December 31, 1998, Bee & Associates managed over $500 million for foundations,
endowments, retirement plans, and a select group of private clients.
[PHOTO]
Bruce B. Bee
Why does the International Small Cap Fund have a short-term redemption fee?
The Fund charges a 2% redemption fee if an investor sells shares after owning
them for less than six months.
This fee is designed to encourage shareholders to have a long-term time horizon
when investing in the Fund. Short-term trading of Fund shares increases
transaction costs for all shareholders.
Selling small stocks on foreign exchanges can be expensive and time-consuming.
Minimizing short-term trading allows Fund management to plan its buy/sell
strategies and keep expenses low.
Pages 6 and 7
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- -----------------------------
FREMONT EMERGING MARKETS FUND
- -----------------------------
OBJECTIVE AND STRATEGY
The Fremont Emerging Markets Fund seeks long-term capital appreciation by
investing in stocks of companies in emerging or developing countries.
Around the globe, many countries that once relied on agriculture, natural
resources, or low-level manufacturing are developing growing industrial
economies. The Fund seeks to identify the stocks of companies with good
prospects for growth, trading at reasonable prices.
Fund management establishes a country allocation policy, and members of the
regional investment team conduct rigorous fundamental research, including
company visits, to select individual stocks within each market.
The Fund will normally invest:
o At least 65% of its total assets in stocks of companies in emerging or
developing countries.
o In at least three emerging markets countries.
o In companies that earn at least 50% of their revenues from their activities
in an emerging market country or that have at least 50% of their assets in
these countries.
MAIN RISKS
The Fund is designed for investors who are willing to accept the risks of
investing in foreign stocks. These risks include changing market conditions,
economic and political instability, and changes in currency exchange rates.
Underdeveloped and developing countries have a greater risk of political and
economic instability, which may cause the Fund's investments to exhibit greater
price movement and may be harder to sell than investments in more developed
markets.
The Fund is also subject to the risks associated with investments in newly
emerging companies, such as fast-changing earnings, competitive conditions,
limited earnings history and a reliance on a limited number of products.
Information on these companies is often limited.
As a non-diversified fund, the Fund may make larger investments in individual
companies. Therefore, the Fund's share price may be more volatile than the share
price of a more diversified fund.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 1.00%
Distribution (12b-1) Fees .... 0.25%
Other Expenses ............... 1.09%
Total Annual Fund
Operating Expenses ..... 2.34%
Less: Fees waived and
Reimbursed++ ........... 0.84%
Net Operating Expenses ....... 1.50%
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 1.50% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Emerging Markets Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$153 $730 $1,250 $2,676
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
12.63% for the quarter ending 6/30/97. The lowest return for a quarter was
- -26.09% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1997 10.40%
1998 -38.27%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Emerging Markets Fund
Since Inception
1 Yr. (6/24/96)
- ----------------------
- -38.27% -14.46%
MSCI EMF Index
Since
1 Yr. (6/24/96)
- ----------------------
- -25.34% -16.73%
The table above compares the performance of the Fremont Emerging Markets Fund to
that of its benchmark index, the Morgan Stanley Capital International Emerging
Markets Free (MSCI EMF) Index. (See "Investment Terms" on page 35 for a
description of the index.)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont Emerging Markets Fund is managed by Sub-Advisor, Nicholas-Applegate
Capital Management (HK) LLC. Henry Thornton is the portfolio manager for the
Fund, and utilizes the resources of Nicholas-Applegate's investment teams in
London, Hong Kong, Singapore and San Diego.
Mr. Thornton has over a decade of investment experience. He has been employed by
Nicholas-Applegate as a portfolio manager since it acquired Credit Lyonnais in
1997. Before that, Mr. Thornton spent seven years at Credit Lyonnais as an
emerging markets portfolio manager.
[PHOTO]
Henry Thornton
What is an "emerging market" country?
The Fund makes investments in stocks of companies in "emerging market"
countries. These countries are typically characterized as less developed, with
relatively small numbers of publicly held companies within them. Usually,
emerging market countries have relatively low per-capita income levels, but are
trying to improve the performance of their economies.
Some current examples of emerging countries are Thailand, Indonesia, India,
Israel, the Philippines, South Korea, Taiwan and certain Latin American
countries.
Pages 8 and 9
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- -------------------
FREMONT GROWTH FUND
- -------------------
OBJECTIVE AND STRATEGY
The Fremont Growth Fund seeks long-term capital appreciation by investing in the
stocks of large U.S. companies. Normally, the Fund will invest at least 65% of
its total assets in these large cap stocks.
With the help of quantitative analysis, Fund management seeks "growth at a
reasonable price," meaning they look for stocks with superior growth prospects
that are also good values. Their goal is to build a diversified portfolio with
both growth potential and minimal risk.
When implementing this investment strategy, Fund management:
o Uses a sophisticated computer model to evaluate approximately 2,000 of the
largest U.S. stocks.
o Identifies stocks that are relatively inexpensive and have rising earnings
expectations.
o Aims to keep the portfolio turnover rate well below the industry average,
which should reduce capital gains taxes.
MAIN RISKS
The Fund is designed for investors who understand the risks of investing in
stocks and realize that the value of the Fund's investments and its shares may
decline due to a drop in the stock markets.
The Fund intends to purchase stocks for the long term. However, sudden changes
in the valuation, growth expectations, or risk characteristics, may cause the
Fund to sell stocks after only a short holding period.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 0.50%
Distribution (12b-1) Fees .... None
Other Expenses ............... 0.32%
Total Annual Fund
Operating Expenses ..... 0.82%
+The Transfer Agent charges a $10 service fee on wire redemptions.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Growth Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$84 $262 $455 $1,014
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
22.13% for the quarter ending 12/31/98. The lowest return for a quarter was
- -13.42% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1993 6.41%
1994 0.41%
1995 33.60%
1996 25.10%
1997 28.96%
1998 15.88%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Growth Fund
Since Inception
1 Yr 5 Yrs (8/14/92)
- --------------------------------
15.88% 20.19% 18.09%
S&P 500(R) Index
Since
1 Yr 5 Yrs (8/14/92)
- --------------------------------
28.58% 24.05% 21.11%
The table above compares the performance of the Fremont Growth Fund to that of
its benchmark index, the Standard & Poor's 500(R) Composite Stock Index. (See
"Investment Terms" on page 35 for a description of the index.)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont Growth Fund is managed by Fremont Investment Advisors, Inc. W. Kent
(Ken) Copa, CFA, vice president, is the portfolio manager of the Fund. The Fund
is co-managed by Debra L. McNeill, CFA, and Peter F. Landini.
Mr. Copa was assistant portfolio manager for the Fund at its inception in 1992,
and assumed the role of portfolio manager in 1995.
Ms. McNeill has been an associate portfolio manager/senior analyst with the
Advisor since 1996, and was previously employed as a portfolio manager with C.D.
Bidwell & Associates for over five years.
Mr. Landini has managed the Fund since its inception in 1992.
[PHOTO]
W. Kent Copa
What do you mean by "growth at a reasonable price?"
Looking for "growth at a reasonable price" is one of several different
approaches fund managers can use to help them pick which stocks to include in
their portfolio. The Growth Fund's managers use this approach to look for stocks
for which they can answer "yes" to the following two questions:
o Does the stock show signs of superior growth?
o Is the stock available at an attractive price relative to its long-term
growth rate?
Page 10 and 11
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- ---------------------------
FREMONT U.S. SMALL CAP FUND
- ---------------------------
OBJECTIVE AND STRATEGY
The Fremont U.S. Small Cap Fund seeks long-term capital appreciation by
investing in the stocks of small, rapidly growing U.S. companies, those with
market capitalizations less than $2 billion. Normally, the Fund will invest at
least 65% of its total assets in these U.S. small cap companies.
Fund management utilizes a fundamental research process to identify small
companies with superior growth potential. This process includes analyzing
financial statements, investigating competitors, and when possible, meeting with
key corporate decision-makers to discuss the company's strategies for future
growth.
Fund management will normally:
o Focus on business sectors where they believe the level of innovation is
greatest, such as technology, health care, consumer products and services.
o Use fundamental analysis to identify small, relatively unknown, and
financially sound companies that exhibit the potential to become much larger
and more successful companies.
o Seek to invest in companies whose superior growth potential has not yet been
fully reflected in the firm's stock price.
MAIN RISKS
This Fund is designed for investors who are willing to accept the risks of
investing in small company stocks. These risks include a relatively short
earnings history, competitive conditions, and a reliance on a limited number of
products.
Securities of these companies may have limited market liquidity (due, for
example, to low trading volume), and may be subject to more abrupt or erratic
market movements than larger companies.
The stocks of many small companies are traded on the over-the-counter (OTC)
market rather than on the New York or American Stock Exchanges. Sometimes buyers
and sellers of these stocks are difficult to find. As a result, the value of the
Fund's investments, and its shares, may also be subject to rapid and significant
price changes.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 1.00%
Distribution (12b-1) Fees .... 0.25%
Other Expenses ............... 1.60%
Total Annual Fund
Operating Expenses ..... 2.85%
Less: Fees waived and
Reimbursed++ ........... 1.35%
Net Operating Expenses ....... 1.50%
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 1.50% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont U.S. Small Cap Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$153 $883 $1,504 $3,176
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
40.65% for the quarter ending 12/31/98. The lowest return for a quarter was
- -25.02% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1998 17.63%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont U.S. Small Cap Fund
Since Inception
1 Yr (9/24/97)
- ----------------------
17.63% 9.67%
Russell 2000 Index
Since
1 Yr (9/24/97)
- ---------------------------
- -2.55% 3.84%
The table above compares the performance of the Fremont U.S. Small Cap Fund to
that of its benchmark index, the Russell 2000 Index. (See "Investment Terms" on
page 35 for a description of the index.)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont U.S. Small Cap Fund is managed by Sub-Advisor, Kern Capital
Management LLC, ("KCM"). David G. Kern, CFA, has been lead portfolio manager of
the Fund since its inception in 1997. The Fund is co-managed by Robert E. Kern,
Jr., and Judy R. Finger, CFA.
KCM was founded in 1997 by Bob Kern, president and CEO, and David Kern,
executive vice president. David Kern was employed as a portfolio manager for
Founders Asset Management from 1995 to 1997. He also served as an assistant
portfolio manager with Delaware Management Company, Inc., from 1990 through
1994. Prior to forming KCM, Bob Kern was employed as a portfolio manager by
Morgan Grenfell Asset Management for 10 years.
Judy Finger, senior vice president, joined KCM in 1997. From 1995 to 1997, she
was vice president and assistant portfolio manager for Delaware Management
Company, Inc. She was employed as a senior analyst at Fred Alger Management from
1992 to 1995.
[PHOTO]
David G. Kern
What does "small cap" mean?
"Small cap" stocks that the Fund invests in are generally the smallest 20% of
all publicly traded U.S. stocks. As of December 31, 1998, the market
capitalization of these stocks ranged from $10 million to $2 billion.
Generally, small cap companies are in the early stages of their development and
have potential for rapid growth. However, small cap stocks typically rise and
fall more sharply than the stocks of larger, better-established companies.
Page 12 and 13
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- ---------------------------
FREMONT U.S. MICRO-CAP FUND
- ---------------------------
OBJECTIVE AND STRATEGY
The Fremont U.S. Micro-Cap Fund seeks long-term capital appreciation by
investing in stocks of U.S. micro-cap companies, those with market
capitalizations less than $550 million. Normally, the Fund will invest at least
65% of its total assets in these U.S. micro-cap stocks.
Fund management seeks to identify companies early in their growth cycle.
Emphasis is placed on those companies possessing a variety of characteristics,
such as quality management, an entrepreneurial management team, or a narrow
product line focus. Fund management may also consider companies whose growth
potential has been enhanced by new products, new market opportunities, or new
management.
To select stocks, Fund management:
o Focuses on business sectors where they believe the level of innovation is
greatest, such as technology, health care, consumer products, and services.
o Uses fundamental analysis to identify small, relatively unknown companies
that exhibit the potential to become much larger and more successful
companies.
o Meets with corporate managers to discuss business plans and strategies.
MAIN RISKS
The Fund is designed for investors who are willing to accept the risks of
investing in micro-cap companies. These risks may include a relatively short
earnings history, competitive conditions, less information publicly available,
and a reliance on a limited number of products.
Since these companies may still be dominated by their founder, they may lack
depth of managerial talent.
Securities of these companies may have limited market liquidity (due, for
example, to low trading volume), and may be subject to more abrupt or erratic
market movements than larger companies.
The stocks of many small companies are traded on the over-the-counter (OTC)
market rather than on the New York or American Stock Exchanges. Sometimes buyers
and sellers of these stocks are difficult to find. As a result, the value of the
Fund's investments and its shares may also be subject to rapid and significant
price changes.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees++ ............ 1.94%
Distribution (12b-1) Fees .... None
Other Expenses ............... None
Total Annual Fund
Operating Expenses ..... 1.94%
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 1.98% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont U.S. Micro-Cap Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$197 $609 $1,047 $2,264
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
44.06% for the quarter ending 12/31/98. The lowest return for a quarter was
- -29.02% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1995 54.04%
1996 48.70%
1997 6.99%
1998 2.86%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont U.S. Micro-Cap Fund
Since Inception
1 Yr (6/30/94)
- ----------------------
2.86% 23.19%
Russell 2000 Index
Since
1 Yr (6/30/94)
- ----------------------
- -2.55% 14.94%
The table above compares the performance of the Fremont U.S. Micro-Cap Fund to
that of its benchmark index, the Russell 2000 Index. (See "Investment Terms" on
page 35 for a description of the index.)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont U.S. Micro-Cap Fund is managed by Sub-Advisor, Kern Capital
Management LLC, ("KCM"). Robert E. Kern, Jr. has been lead portfolio manager of
the Fund since its inception in 1994. The Fund is co-managed by David G. Kern,
CFA, and Judy R. Finger, CFA.
KCM was founded in 1997, by Bob Kern, president and CEO, and David Kern,
executive vice president. Prior to forming KCM, Bob Kern was employed as a
portfolio manager by Morgan Grenfell Asset Management for 10 years, and David
Kern was employed as a portfolio manager for Founders Asset Management from 1995
to 1997. David Kern also served as an assistant portfolio manager with Delaware
Management Company, Inc. from 1990 through 1994.
Judy Finger, senior vice president, joined KCM in 1997. From 1995 to 1997, she
was vice president and assistant portfolio manager for Delaware Management
Company, Inc. She was employed as a senior analyst at Fred Alger Management from
1992 to 1995.
[PHOTO]
Robert E. Kern, Jr.
What is a "micro-cap" stock?
A "micro-cap" stock has a total stock market capitalization that places it among
the smallest 10% of publicly traded stocks in the United States.
The Fund's investment universe represents the least efficient segment of the
equities market and is a breeding ground for entrepreneurial companies.
Micro-cap companies typically receive less Wall Street research coverage. The
key to successful micro-cap investing is identifying these up-and-coming
companies before they are recognized by others.
Pages 14 and 15
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- -----------------------------------
FREMONT REAL ESTATE SECURITIES FUND
- -----------------------------------
OBJECTIVE AND STRATEGY
The Fremont Real Estate Securities Fund seeks a combination of income and
long-term capital appreciation by investing in stocks of companies principally
engaged in the real estate industry. Normally, the Fund will invest at least 65%
of its total assets in these types of companies.
Fund management believes that the commercial real estate industry is in the
early stages of a major transformation. Many privately held real estate empires
are being replaced by financially strong, well-managed, publicly traded
companies which own and operate commercial property throughout the U.S.
In seeking its objective, Fund management carefully:
o Monitors factors such as real estate trends and industry fundamentals of the
different real estate sectors including office, apartment, retail, hotel, and
industrial.
o Selects stocks by evaluating each real estate company's management record,
earnings potential and value--relative to other publicly traded real estate
companies.
The Fund will close to new investors when it reaches 0.3% of the Real Estate
Investment Trust (REIT) market capitalization. As of December 31, 1998 the REIT
market capitalization was $138 billion.
MAIN RISKS
Since the Fund invests in stocks issued by real estate companies, investors are
subject to the risk that the real estate sector of the market, as well as the
overall stock market, could decline.
There is also the risk that real estate stocks could be adversely affected by
events such as rising interest rates or changes in income tax regulations. The
Fund may invest in small capitalization REITs that can change rapidly in price.
As a non-diversified fund, the Fund may make larger investments in individual
companies. Therefore, the Fund's share price may change more frequently than the
share price of a more diversified fund.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES*
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 1.00%
Distribution (12b-1) Fees .... 0.25%
Other Expenses ............... 0.55%
Total Annual Fund
Operating Expenses ..... 1.80%
Less: Fees waived and
Reimbursed++ ........... 0.30%
Net Operating Expenses ....... 1.50%
*Expenses restated to reflect current fees.
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 1.50% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Real Estate Securities Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$153 $566 $975 $2,116
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
1.80% for the quarter ending 3/31/98. The lowest return for a quarter was
- -11.72% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1998 -17.75%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Real Estate Securities Fund
1 Yr
- -------
- -17.75%
NAREIT Equity Index
1 Yr
- -------
- -18.82%
The table above compares the performance of the Fremont Real Estate Securities
Fund to that of its benchmark index, the National Association of Real Estate
Investment Trusts (NAREIT) Equity Index. (See "Invest-ment Terms" on page 35 for
a description of the index.)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont Real Estate Securities Fund is managed by Sub-Advisor, Kensington
Investment Group. John P. Kramer and Paul Gray are co-founders of Kensington and
co-portfolio managers of the Fund. Founded in 1993, Kensington specializes in
the management of both publicly traded and non-traded real estate securities
properties.
Mr. Kramer is president of Kensington and Mr. Gray is vice president, and both
serve as portfolio managers at the firm. The two have been investing in public
and private real estate companies since 1987.
[PHOTO]
John P. Kramer
What is a "REIT"?
A "REIT" or Real Estate Investment Trust (pronounced reet) is a corporation or
business trust that owns, manages and develops pools of properties -- from
apartments and office buildings to self-storage facilities. Like a stock, REIT
shares are traded freely and may be listed on a major stock exchange.
Pages 16 and 17
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- -----------------
FREMONT BOND FUND
- -----------------
OBJECTIVE AND STRATEGY
The Fremont Bond Fund seeks to maximize total return consistent with the
preservation of capital by investing in debt securities such as high quality
corporate, mortgage-backed, international, and government bonds. Normally, the
Fund will invest at least 65% of its total assets in these types of bonds.
In its effort to provide consistently attractive returns, Fund management:
o Focuses on three- to five-year economic, demographic, and political forecasts
to identify long-term interest rate trends.
o Annually updates its long-term outlook by determining a general
maturity/duration range for the portfolio in relation to the market.
o Attempts to manage duration to help control risk.
o Invests primarily in securities rated Aa or AA, or better, by Moody's or S&P,
respectively, or those of comparable quality.
MAIN RISKS
The Fund is designed for investors who are willing to accept the risks of
investing in corporate, mortgage-backed, and government bonds. Bonds are subject
to changes in value resulting from changes in interest rates. Generally, as
interest rates rise, the value of a bond will fall.
Another risk of investing in bonds is that the issuer may be unable to make
timely interest or principal payments. This credit risk extends to bonds issued
by foreign governments.
Changes in interest rates, the credit-worthiness of the bond issuers, and
economic conditions may lower the value of individual bonds or the entire bond
portfolio. From time-to-time it may be difficult to sell certain bonds in a
timely manner, and this could negatively impact the price of the bonds affected.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES*
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 0.40%
Distribution (12b-1) Fees .... None
Other Expenses ............... 0.32%
Total Annual Fund
Operating Expenses ..... 0.72%
Less: Fees waived and
Reimbursed++ ........... 0.05%
Net Operating Expenses ....... 0.67%
*Expenses restated to reflect current fees.
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to waive 0.05% of the 0.15% administrative fee until
March 1, 2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Bond Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$68 $230 $401 $894
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
6.38% for the quarter ending 6/30/95. The lowest return for a quarter was -2.78%
for the quarter ending 3/31/94. Past performance is no indication of future
performance.
ANNUAL PERFORMANCE
1994 -4.01%
1995 21.24%
1996 5.22%
1997 9.71%
1998 9.99%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Bond Fund
Since Inception
1 Yr 5 Yrs (4/30/93)
- --------------------------------
9.99% 8.12% 7.94%
Lehman Bros. Aggregate Bond Index
Since
1 Yr 5 Yrs (4/30/93)
- --------------------------------
8.67% 7.27% 7.25%
The table above compares the performance of the Fremont Bond Fund to that of its
benchmark index, the Lehman Brothers Aggregate Bond Index. (See "Investment
Terms" on page 35 for a description of the index.) Pacific Investment Management
Company began managing the Fund on March 1, 1994.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont Bond Fund is managed by Sub-Advisor, Pacific Investment Management
Company (PIMCO). William H. Gross, portfolio manager of the Fund since March
1994, is a founder and managing director of PIMCO. He has 26 years of
professional fixed-income investment experience.
In addition to serving as the sub- advisor to the Fremont Bond Fund, PIMCO
manages over $157 billion in fixed-income investments for institutional clients
as of December 31, 1998.
[PHOTO]
William H. Gross
What do "maturity" and "duration" mean?
A bond's "maturity" is the date by which a bond issuer promises to repay the
principal amount of the bond.
"Duration" measures how bond prices change in response to interest rate changes.
Keeping duration at a relatively moderate level can help control risk inherent
in a bond fund.
Pages 18 and 19
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- ---------------------------------------------
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
- ---------------------------------------------
OBJECTIVE AND STRATEGY
The Fremont California Intermediate Tax-Free Fund seeks to provide income that
is free from both federal income taxes and California state income taxes. The
Fund typically invests in intermediate-term California municipal bonds, and is
intended for investment by California residents.
Normally, the Fund will invest at least 80% of its net assets in California
municipal securities with a quality comparable to the four highest ratings
categories of Moody's or S&P. The average maturity of these intermediate-term
securities is normally 3-10 years.
Fund management seeks to achieve its objective by:
o Identifying interest rate trends and adjusting the portfolio's duration
accordingly.
o Shortening duration when interest rates are rising, and lengthening duration
when interest rates are coming down.
o Focusing on those market sectors and individual securities believed to be
undervalued.
MAIN RISKS
The Fund is designed for investors who are California residents. Since the Fund
concentrates its investments in California municipal securities, the value of
your investment will be affected by factors that impact the California economy
or its political, geographic, and demographic conditions. The value of
individual bonds or the entire portfolio may be adversely impacted by changes
that impact the ability of the state or local governments to impose taxes or
authorize spending.
Changes in interest rates, the credit-worthiness of individual bond issuers, and
general economic conditions in California, may depress the value of individual
bonds or the entire bond portfolio. Generally, when interest rates rise, the
value of a bond will fall. Occasionally it may be difficult to sell certain
bonds in a timely manner and this could negatively impact the price of those
bonds.
Additionally, the Fund is non-diversified. That means that the Fund may make
larger investments in individual bond issues or in issues of a single
governmental unit. The net asset value (NAV) of the Fund may therefore change
more frequently than would the NAV of a more diversified fund.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 24.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 0.36%
Distribution (12b-1) Fees .... None
Other Expenses ............... 0.31%
Total Annual Fund
Operating Expenses ..... 0.67%
Less: Fees waived and
Reimbursed++ ........... 0.18%
Net Operating Expenses ....... 0.49%
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 0.49% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont California Intermediate
Tax-Free Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$50 $214 $373 $835
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
6.41% for the quarter ending 3/31/95. The lowest return for a quarter was -4.05%
for the quarter ending 3/31/94. Past performance is no indication of future
performance.
ANNUAL PERFORMANCE
1991 10.71%
1992 7.30%
1993 9.95%
1994 -4.90%
1995 14.89%
1996 4.06%
1997 7.27%
1998 5.71%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont California Intermediate
Tax-Free Fund
Since Inception
1 Yr 5 Yrs (11/16/90)
- --------------------------------
5.71% 5.21% 6.76%
Lehman Bros. 5-Yr. State G.O. Index
Since
1 Yr 5 Yrs (11/16/90)
- --------------------------------
5.84% 5.11% 6.58%
The table above compares the performance of the Fremont California Intermediate
Tax-Free Fund to that of its benchmark index, the Lehman Brothers 5-Year State
General Obligation Index. (See "Investment Terms" on page 35 for a description
of the index.) Rayner Associates, Inc. began managing the Fund on August 1,
1998.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont California Intermediate Tax-Free Fund is managed by Sub-Advisor,
Rayner Associates, Inc. Arno A. Rayner is the president of Rayner Associates and
William C. Williams is senior vice president of the firm. Both have served as
portfolio managers at the firm since its founding in 1977, and now act as
co-managers of the Fund.
As of December 31, 1998, Rayner Associates managed over $65 million in fixed
income assets for private clients. Mr. Rayner and Mr. Williams were formerly
portfolio managers with Industrial Indemnity Company, one of the largest
institutional owners of California municipal bonds.
[PHOTO]
Arno A. Rayner
Important Tax Note:
A portion of the Fund's distribution may be subject to federal, state, or local
taxes, or the alternative minimum tax (AMT).
Pages 21 and 22
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- -------------------------
FREMONT MONEY MARKET FUND
- -------------------------
OBJECTIVE AND STRATEGY
The Fremont Money Market Fund seeks to maximize current income consistent with
preservation of capital and liquidity. The Fund invests primarily in high
quality short-term money market instruments with maturities of 397 days or less.
Fund management believes it can deliver consistently superior performance by:
o conducting independent research.
o managing maturities.
o careful trading.
As it seeks to meet its objective, Fund management attempts to:
o Determine short-term interest rate trends.
o Adjust average portfolio maturity to take advantage of interest rate
forecasts. Generally, average maturity is shortened if interest rates are
projected to trend higher, and lengthened if interest rates are projected to
fall.
o Identify opportunities presented by companies offering higher yields than
similarly rated firms.
MAIN RISKS
An investment in the Fremont Money Market Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation (FDIC) or any other government agency.
Although the Fund seeks to preserve the net asset value (NAV) of your investment
at $1.00 per share, it is possible to lose money by investing in the Fund.
For more information on investment risks, please turn to page 24.
FEES AND EXPENSES*
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 0.21%
Distribution (12b-1) Fees .... None
Other Expenses ............... 0.23%
Total Annual Fund
Operating Expenses ..... 0.44%
*Expenses restated to reflect current fees.
+The Transfer Agent charges a $10 service fee on wire redemptions.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Money Market Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------
$45 $141 $246 $555
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
2.30% for the quarter ending 6/30/89. The lowest return for a quarter was 0.64%
for the quarter ending 3/31/94. Past performance is no indication of future
performance.
ANNUAL PERFORMANCE
1989 8.89%
1990 7.95%
1991 6.04%
1992 3.37%
1993 2.64%
1994 3.96%
1995 5.87%
1996 5.28%
1997 5.43%
1998 5.41%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Money Market Fund
1 Yr 5 Yrs 10 Yrs
- --------------------------
5.41% 5.19% 5.47%
IBC First Tier Taxable Average
1 Yr 5 Yrs 10 Yrs
- --------------------------
4.91% 4.70% 5.08%
The table above compares the performance of the Fremont Money Market Fund to
that of its benchmark index, the IBC Money Market First Tier Taxable Average.
(See "Investment Terms" on page 35 for a description of the index.)
Yield Information
You can obtain the Fund's current 7-day yield any time by calling 800-548-4539
(press 3).
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont Money Market Fund is managed by Fremont Investment Advisors, Inc.
Norman Gee is the portfolio manager of the Fund.
Mr. Gee has 16 years of professional money market investment experience. He has
served as portfolio manager of the Fund since its inception on November 18,
1988.
[PHOTO]
Norman Gee
Important Money Market Fund Features
The Fremont Money Market Fund has three features that should be of interest to
people who have money to invest over the short term:
o Share price of $1.00-- The Fund is committed to maintaining a net asset value
of $1.00 per share.
o Monthly dividends -- dividends are calculated daily and paid monthly.
o Checkwriting -- checks are free; a $250 minimum applies.
Pages 22 and 23
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
UNDERSTANDING INVESTMENT RISK
GENERAL RISKS OF INVESTING
(All Funds)
o Market Risk: The market value of individual securities may go up or down,
sometimes rapidly and unpredictably. These changes may occur over long or
short periods of time, and may cause a Fund's shares to be worth more or less
than they were at the time of purchase. Market risk could apply to individual
securities, a segment of the market, or the market overall.
o Liquidity Risk: From time to time, certain fund investments may be illiquid,
or difficult to sell, and this could affect performance. If, for example, a
fund is not able to sell certain stocks or bonds at the desired time and
price, this may limit its ability to buy other securities.
o Portfolio Turnover: The Funds generally intend to purchase securities for
long-term investment rather than short-term gains. However, a security may be
held for a shorter than expected period of time if, among other things, the
manager needs to raise cash or feels that the investment has met its
objective. Also, stocks or bonds may be sold sooner than anticipated due to
unexpected changes in the markets, or in the company that issued the
securities. Portfolio turnover rates are generally not a factor in making buy
and sell decisions. A high portfolio turnover rate may result in higher costs
relating to brokerage commissions, dealer mark-ups and other transaction
costs. The sale of securities may also create taxable capital gains.
o Temporary Defensive Measures: From time to time, a Fremont mutual fund may
invest a portion of its assets in money market securities as a temporary
defensive measure. Of course, a Fund cannot pursue its stated investment
objective while taking these defensive measures.
o Year 2000 Risk: The operation of a fund's service providers could be
disrupted due to computer problems related to the Year 2000. This situation
exists across all industries and may negatively impact the companies in which
the Funds invest and, by extension, the value of Fund shares. Fremont is
actively monitoring its service providers and is developing a contingency
plan in the event that such service providers fail to adequately adapt their
systems in time. Fremont does not expect the costs related to the Year 2000
problem to be substantial to the Funds since those costs are borne by the
service providers and not directly by the Funds.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN FOREIGN SECURITIES
(Global Fund, International Growth Fund, International Small Cap Fund, and
Emerging Markets Fund)
o Currency Risk: A fund's portfolio may be affected by a change in the rate of
exchange from local currencies to U.S. dollars or if a counterparty to a
forward currency contract were unable to meet its obligation. Changes in
exchange rates could reduce or even eliminate profits made on the investments
in securities.
o Political and Economic Risk: A fund's portfolio may be affected by social,
political, or economic events occurring in the home countries of the issuers.
Underdeveloped and developing countries may have relatively unstable
governments and economies based on only a few industries. There is the
possibility that government action or a change in political control in one or
more of these countries could adversely affect the value of a fund's
portfolio.
o Information Risk: Companies in foreign countries are generally not subjected
to the same accounting, auditing, and financial standards as U.S. companies.
Their financial reports may not reflect the same information on the company
as would be available in the U.S.
o Foreign Market Risk: Certain countries may require payment for securities
before delivery, and delays may be encountered in settling securities
transactions. In certain markets there may not be protection against failure
by other parties to complete transactions. Foreign stock exchanges may be
(continued next page)
24 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
RISKS OF INVESTING IN FOREIGN SECURITIES (CON'T)
less stringent in overseeing companies than those in the U.S.
Additionally, the costs to buy and sell securities, including brokerage
commissions, taxes, and custodian fees, are generally higher in foreign
markets than for transactions in the U.S. markets.
o Euro Conversion Risk: Several European Countries, including Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain, adopted a single uniform currency known as the "euro,"
effective January 1, 1999. During transition, the euro conversion could have
potential adverse effects on the Funds' ability to value their portfolio
holdings in foreign securities, and could increase Fund operating expenses.
The Funds and the Advisor are working with the providers of services to the
Funds in the areas of clearance and settlement of trades in an effort to
avoid any material impact on the Funds due to the euro conversion; there can
be no assurance, however, that the steps taken by the Funds or the Advisor
will be sufficient to avoid any adverse impact on the Funds.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN BONDS
(Global Fund, Bond Fund, and California Intermediate Tax-Free Fund)
o Interest Rate Risk: Fixed-rate debt securities will usually decline in value
as interest rates rise, which will result in a decline in the value of a
fund.
o Credit Risk: A fund's value may decline if any of the bonds it holds decrease
in value because its issuer is unable to make interest or principal payments
on the debt.
o Mortgage Pre-payment Risk: If the principal amount of a mortgage-backed
security is paid off early, the fund may not be able to reinvest the proceeds
at a comparable return rate.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN REAL ESTATE SECURITIES
(Real Estate Securities Fund)
o Real Estate Securities Risk: The Fremont Real Estate Securities Fund may be
subject to risks similar to those associated with the direct ownership of
real estate (in addition to general securities markets risks) because of its
policy of concentration in the securities of companies in the real estate
industry. Certain REITs have relatively small capitalizations, which may tend
to increase the volatility of the market price of securities issued by such
REITs. Rising interest rates may cause investors in REITs to demand a higher
annual yield from future distributions, which may in turn decrease market
prices for equity securities issued by REITs. Rising interest rates also
generally increase the costs of obtaining financing, which could cause the
value of the Fund's investments to decline. In addition, mortgage REITs may
be affected by the ability of borrowers to repay the debt extended by the
REIT on time. Equity REITs may be similarly affected by the ability of
tenants to pay rent. In addition to these risks, equity REITs may be affected
by changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended.
Further, equity and mortgage REITs are dependent upon management skills and
generally may not be diversified.
WWW.FREMONTFUNDS.COM 25
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
ABOUT THE ADVISOR
Fremont Investment Advisors, Inc. (referred to in this prospectus as the
"Advisor"), located at 333 Market Street, Suite 2600, San Francisco, California,
provides Fremont Mutual Funds (the "Funds") with investment management and
administrative services. The Advisor was formed in 1986 by a group of investment
professionals that served as the in-house investment management team for Bechtel
Group, Inc., the global engineering firm.
These professionals have provided investment management services to the Bechtel
Retirement Plan and the Bechtel Foundation since 1978. The Advisor now manages
investments for institutions and individuals, in addition to continuing to
service the Bechtel Group. The Advisor's Investment Committee oversees the
portfolio management of the Funds.
What a Sub-Advisor does
In addition to directly managing some of the Funds, the Advisor has hired
investment management firms (refer red to as "sub-advisors") to manage the
portfolios of certain funds. Sub-Advisors are used to provide shareholders with
access to world-class investment talent usually available only to the largest
institutional investors. Even though the Advisor may hire sub-advisors, the
Advisor may choose to manage all or a portion of each Fund's portfolio directly.
Sub-advisors are paid by the Advisor and not by the Funds.
In 1996, the Funds and the Advisor obtained from the Securities and Exchange
Commission an order that permits the Advisor to hire and terminate sub-advisors,
and modify sub-advisory agreements without the prior approval of shareholders.
The Funds' Board of Directors reviews and approves the hiring of new
sub-advisors. If the Advisor hires a new sub-advisor or materially changes a
sub-advisory agreement, the Advisor will notify shareholders of all changes
including sub-advisory fees.
Kern Capital Management LLC, the sub-advisor to the Fremont U.S. Micro-Cap Fund
and the Fremont U.S. Small Cap Fund, is partially owned by the Advisor.
- --------------------------------------------------------------------------------
Management Fees
This table shows the management fee paid to the Advisor over the past fiscal
year:
- --------------------------------------------------------------------------------
FREMONT FUND ANNUAL RATE FREMONT FUND ANNUAL RATE
- --------------------------------------------------------------------------------
Global 0.60% U.S. Micro-Cap 1.94%+
International Growth 1.15% Real Estate Securities 1.00%
International Small Cap 1.35% Bond 0.40%
Emerging Markets 1.00% California Intermediate
Growth 0.50% Tax Free 0.36%
U.S. Small Cap 1.00% Money Market 0.21%
+The Advisor receives a single management fee from the Fund and is obligated to
pay all Fund expenses except extraordinary expenses and interest, brokerage
commissions, and other transaction charges relating to the Fund's investment
activities.
- --------------------------------------------------------------------------------
26 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
TYPES OF ACCOUNTS AVAILABLE
Once you choose the mutual funds that are right for you, you should choose the
type of account you want to invest in. Fremont offers you a variety of accounts
designed for your investment needs. Review the types of accounts described below
to find the account that is best for you.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ACCOUNT TYPE PURPOSE DESCRIPTION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDIVIDUAL For your general investment needs. Individual accounts are owned by one
person.
- ----------------------------------------------------------------------------------------------------------
JOINT TENANTS For the general investment needs of Joint tenant accounts are owned by
two or more people. more than
one person.
- ----------------------------------------------------------------------------------------------------------
GIFT TO MINOR To invest for a minor's education or Gift or Transfer to Minor
other future needs. (UGMA/UTMA)
custodial accounts provide a way to
invest on behalf of a minor.
- ----------------------------------------------------------------------------------------------------------
TRUST For money being invested by a trust, The trust or plan must be
employee benefit plan, or established before an account can be
profit-sharing plan. opened.
- ----------------------------------------------------------------------------------------------------------
CORPORATION, PARTNERSHIP For investment needs of You will need to provide a certified
OR OTHER ENTITY corporations, associations, corporate resolution with your
partnerships, institutions, or other application.
groups.
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
RETIREMENT ACCOUNTS These accounts require a specific application. To order, call 800-548-4539 (press 1).
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRADITIONAL IRA Allows you to make deductible or This type of retirement account
non-deductible contributions to your allows anyone under age 701/2 with
retirement account, and defer paying earned income to save up to $2,000
taxes on your earnings until after per tax year. If your spouse has
you withdraw the money from your less than $2,000 in earned income,
account -- usually after retirement. he or she may still contribute up to
$2,000 to an IRA, as long as you and
your spouse's combined earned income
is at least $4,000.
- ----------------------------------------------------------------------------------------------------------
ROTH IRA Allows you to make non-deductible Single taxpayers with income up to
contributions to your retirement $95,000 per year, and married
account today, and withdraw your couples with income up to $150,000
earnings tax-free after you are per year, may contribute up to
591/2 and have had the account for $2,000 each, or $4,000 per couple,
at least 5 years. respectively, per year.
- ----------------------------------------------------------------------------------------------------------
SIMPLIFIED EMPLOYEE Allows owners and employees of small SEP-IRAs allow small business owners
PENSION PLAN businesses with fewer than 5 or those with self-employment income
(SEP-IRA) employees to invest tax-deferred for to make tax-deductible contributions
retirement. of up to 15% of the first $160,000
of compensation per year for
themselves and any eligible
employees.
- ----------------------------------------------------------------------------------------------------------
SIMPLE IRA Allows owners and employees of small This type of IRA must be established
businesses with 5 to 99 participants by an employer (including a
to invest tax-deferred for self-employed person).
retirement. SIMPLE IRAs enable all employees of
the employer to invest up to $6,000
of pre-tax income, deferring taxes
until retirement. The employer is
also generally required to make a
contribution for each employee who
elects to contribute.
- ----------------------------------------------------------------------------------------------------------
OTHER A Fremont Mutual Fund may be used as
RETIREMENT an investment in many other kinds of
PLANS employer-sponsored retirement
plans. All of these accounts need
to be established by the trustee of
the plan.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
WWW.FREMONTFUNDS.COM 27
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO INVEST
There are a number of ways to invest at Fremont. The minimum initial investment
is $2,000 for a regular account and $1,000 for an IRA. Establish an Automatic
Investment Plan when opening an account and Fremont will waive the new account
minimum.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
INVESTMENT METHOD TO OPEN AN ACCOUNT TO ADD TO YOUR INVESTMENT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Mail in an Account Application with Mail your check or money order
your check or money order payable to payable to Fremont Mutual Funds for
Fremont Mutual Funds. Fremont will $100 or more.
not accept third party checks.
- ----------------------------------------------------------------------------------------------------------
BY TELEPHONE Use the Telephone Exchange Privilege Use the Telephone Exchange Privilege
(TELEPHONE EXCHANGE to move $2,000 or more ($1,000 for to move your investment from one
PRIVILEGE) IRAs) from an existing Fremont Fund Fremont fund to another. Please
account into a new, identically note that exchanges between Funds
registered account. To use the are subject to capital gains taxes.
Telephone Exchange Privilege, you
must first sign up for the privilege
by checking the appropriate box on
your Account Application. After you
sign up, please allow time for
Fremont to open your account.
- ----------------------------------------------------------------------------------------------------------
BY TELEPHONE -- Transfer money from your bank to
(AUTOBUY PROGRAM) your Fremont account by telephone.
You must sign up for this privilege
on your Account Application, and
attach a voided check.
- ----------------------------------------------------------------------------------------------------------
BY WIRE -- Call 800-548-4539 (press 2) to
request bank routing information for
wiring your money to Fremont. Not
available for IRA accounts.
- ----------------------------------------------------------------------------------------------------------
BY AUTOMATIC -- Use the Automatic Investment Plan to
INVESTMENT PLAN move money ($50 minimum) from your
financial institution (via Automated
Clearing House) to your Fremont
account once or twice each month.
For more information about the
Automatic Investment Plan, see the
text immediately below. To
participate, call to request an
Automatic Investment Plan Request
form.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
FREMONT MAKES IT EASY TO INVEST
The Automatic Investment Plan
This convenient service allows you to automatically transfer money once or twice
a month from your predesignated bank account to your Fremont account.
o The amount of the monthly investment must be at least $50.
o Open your account with the Automatic Investment Plan, and we will waive the
new account minimum.
o If your transfer date falls on a weekend or holiday, we will process the
transaction on the previous business day.
To change the amount or frequency of your automatic investments, or to stop
future investments, you must notify us in writing or by calling 800-548-4539
(press 2). We must receive your request at least 5 days prior to your next
scheduled investment date.
28 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
WHAT YOU SHOULD KNOW WHEN MAKING AN INVESTMENT
How a mutual fund is priced
A Fund's net asset value, or NAV, is the price of a single share. The NAV is
computed by adding up the value of the Fund's investments, cash, and other
assets, subtracting its liabilities, and then dividing the total by the number
of shares outstanding.
The Fund's NAV is calculated after the close of trading on the New York Stock
Exchange (NYSE), usually 4:00 p.m. Eastern time, on each day that the exchange
is open for trading ("Closing Time").
The Money Market Fund values its assets based on an amortized cost method which
approximates value. This method is not affected by changes in the market.
All other Fremont Funds value their portfolio securities and assets using price
quotes from the primary market in which they are traded. If prices are not
readily available, values will be determined using a method adopted by the
Funds' Board of Directors. This value may be higher or lower than the
securities' closing price in their relevant markets.
Pricing foreign securities
Values of foreign securities are translated from the local currency into U.S.
dollars using that day's exchange rates. Because of the different trading hours
in various foreign markets, the calculation of NAV does not take place at the
same time as the determination of the prices of many foreign securities held by
the Funds. These timing differences may have a significant effect on a Fund's
NAV.
When an order to buy (or sell) is considered received
Your investment and your application must both be received by Closing Time in
order for you to receive that day's price.
All orders received after Closing Time will be processed with the next day's
NAV.
An order is considered received when the application (for a new account) or
information identifying the account and the investment is received in good order
by National Financial Data Services (NFDS), Fremont's transfer agent.
Other purchasing policies
All of your purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks. Fremont Mutual Funds does not accept third party checks, cash,
credit cards, or credit card checks.
If you purchase shares by check, and then you sell those shares, the payment may
be delayed until your purchase check has cleared.
If Fremont receives notice of insufficient funds for a purchase made by check or
Autobuy, the purchase will be canceled and you will be liable for any related
losses or fees the Fund or its transfer agent incurs.
During times of drastic economic or market conditions, it may be difficult to
purchase shares by telephone. The transfer agent will do its best to accommodate
all Fremont shareholders, but you should consider using overnight mail if you
find that you are unable to get through on the telephone.
Fund exchange limits
In order to keep fund expenses low for all shareholders, Fremont will not allow
frequent exchanges, purchases or sales of fund shares. If a shareholder exhibits
a pattern of frequent trading, the Advisor reserves the right to refuse to
accept further purchase or exchange orders from that shareholder. Fremont may
modify the exchange privileges by giving 60 days' written notice to
shareholders.
Distribution plan fees
Several of the Fremont Funds have adopted a plan under Rule 12b-1 that allows
the fund to pay for the sale and distribution of its shares. Because these fees
are paid out of the Fund's assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
Investing through other investment firms
You may purchase or redeem shares of the Funds through authorized
broker-dealers, banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to which you may
use the services offered by Fremont Mutual Funds.
WWW.FREMONTFUNDS.COM 29
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO SELL YOUR SHARES
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
calculated NAV, or share price, after your request is received in good order. We
will not process a redemption request until the documentation described below
has been received in good order by the transfer agent.
When you sell your shares, you may choose one of the selling methods described
in the table below, as well as how you would like to receive your money.
Fremont has put several safeguards in place which are intended to protect the
interests of our shareholders. By providing all the information requested when
you sell your shares, you help us to complete your order in as timely a manner
as possible.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SELLING METHOD FEATURES AND REQUIREMENTS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Mail your instructions to: If you are using overnight mail:
Fremont Mutual Funds, Inc. Fremont Mutual Funds, Inc.
c/o National Financial Data Services c/o National Financial Data Services
P.O. Box 419343 330 W. 9th Street
Kansas City, MO 64141-6343 Kansas City, MO 64105
- -----------------------------------------------------------------------------------------------------------------
BY TELEPHONE The Telephone Redemption Privilege allows you to redeem your shares by phone. You must
(TELEPHONE REDEMPTION make your telephone redemptions by Closing Time to receive that day's price. You must
PRIVILEGE) provide written authorization to add this privilege to your account prior to making the
request.
- -----------------------------------------------------------------------------------------------------------------
BY AUTOMATIC The Automatic Withdrawal Plan (explained more fully below) lets you set up automatic
WITHDRAWAL PLAN monthly, quarterly, or annual redemptions from your account in specified dollar amounts
($100 minimum). To establish this feature, complete an Automatic Withdrawal Request
form which is available by calling 800-548-4539 (press 2).
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
How would you like to receive your money?
o By Check - Your check will be sent by regular mail to your address on file.
o By Wire - There is a $10 service fee.
o By Electronic Transfer - Please allow 3 business days. Before placing your
order, check to make sure that your financial institution can receive
electronic transfers made through the Automated Clearing House.
SPECIAL SERVICES AVAILABLE:
Automatic Withdrawal Plan
This convenient service allows you to arrange to receive as little as $100 from
a Fremont account on either a monthly, quarterly, or annual basis. There is
currently no charge for this service, but there are several policies you should
be aware of:
o Redemptions by check will be made on the 15th and/or the last business day of
the month.
o Redemptions made by electronic transfer will be made on the date you indicate
on your Automatic Withdrawal Form.
o If the withdrawal date falls on a weekend or holiday we will process the
transaction on the prior business day.
o You may also request automatic exchanges and transfers of a specified dollar
amount.
Wire Transfer
You may wish to wire the proceeds of a redemption from your Fremont account to
another financial institution. If you wire money from your Fremont account,
shares from your Fremont account are sold on the day we receive your
instructions (if you call before the Closing Time).
Generally, the wire transfer is processed the next business day. The
(continued next page)
30 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
SPECIAL SERVICES AVAILABLE (CON'T)
money should arrive at your financial institution the same day the wire is sent.
In order to use the wire redemption feature, bank account instructions must be
established prior to the requests. You may authorize the wire privilege on your
new account application, or by written instruction with a signature guarantee,
and provide Fremont with bank account instructions. A $10 fee applies each time
you wire money from your Fremont account.
Check Redemption Privilege
The Fremont Money Market Fund, the Fremont Bond Fund, and the Fremont California
Intermediate Tax-Free Fund offer check redemption privileges for your account,
except for retirement accounts. Please note that:
o There is no charge for the checks.
o The check must be written for at least $250.
o On the date that the check is presented for payment, the amount of the check
will be deducted from your account.
o You may not close your account by writing a check.
- --------------------------------------------------------------------------------
WHAT YOU SHOULD KNOW BEFORE REDEEMING SHARES:
How we determine the redemption price
The price at which your shares will be redeemed is determined by the time of day
National Financial Data Services (NFDS), Fremont's transfer agent, or another
authorized agent, receives your redemption request.
If a request is received before Closing Time, the redemption price will be the
Fund's net asset value reported for that day. If a request is received after
Closing Time, the redemption price will be the Fund's net asset value reported
for the next day the market is open.
How to redeem at today's price
If you have signed up for the Telephone Redemption Privilege, you may call in
your redemption request before Closing Time to receive that day's share price.
Or, you may arrange to have your written redemption request, with a signature
guarantee, if required, and any supporting documents, delivered to NFDS before
Closing Time.
Fees for redeeming shares
o If you sell shares of the International Small Cap Fund after holding them for
less than six months, the Fund will deduct a 2% short-term redemption fee on
these shares.
o All wire transactions are subject to a $10 fee.
Redemptions in Kind
In extreme conditions, there is a possibility that Fremont may honor all or some
of a redemption amount as a "redemption in kind." This means that you could
receive some or all of your redemption in readily marketable securities held by
the Fund.
About redemption checks
Normally, redemption proceeds will be mailed within three days after
(continued next page)
- --------------------------------------------------------------------------------
REDEMPTION CHECKLIST:
Fremont would like to fulfill your request to sell shares as quickly as
possible. Here are reminders to help you avoid some of the common problems that
can delay the sale process:
[X] Include all your account information -- your name, the fund's name, and
your account number.
[X] Provide your preferred redemption method -- check, wire, or electronic
transfer.
[X] Specify the dollar amount or number of shares you are redeeming. For IRA
accounts, specify the percent of your holdings that you would like withheld
for taxes.
[X] Have all account owners sign the letter of instruction -- if you send us a
letter of instruction, make sure that all account owners have signed the
letter requesting the sale.
[X] Have signature(s) guaranteed when needed -- review the signature guarantee
requirements on page 32. Be sure to provide one if your sale meets those
requirements.
WWW.FREMONTFUNDS.COM 31
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
OTHER POLICIES YOU SHOULD KNOW ABOUT (CON'T.)
your redemption request is received although it can take up to 10 days. A Fund
may hold payment on redemptions until it is reasonably satisfied that it has
received payment for a recent purchase.
Redemption checks are made payable to the shareholder(s) of record; if you wish
for the check to be made payable to someone other than the account owners, you
must submit your request in writing, and the signatures of all shareholders of
record must be guaranteed. For more information about a "signature guarantee,"
please see below.
When you can't redeem
Redemptions may be suspended or payment dates postponed on days when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
During times of drastic economic or market conditions, it may be difficult to
sell shares by telephone. Fremont will do its best to accommodate all
shareholders, but you should consider using overnight mail if you find that you
are unable to get through by telephone.
When additional documentation is required
Certain accounts (such as trust accounts, corporate accounts and custodial
accounts) may require documentation in addition to the redemption request. For
more information, please call 800-548-4539 (press 2).
When you need a signature guarantee
Certain requests must include a signature guarantee, which is designed to
protect you and Fremont from fraudulent activities. Your request must be made in
writing and include a signature guarantee if any of the following situations
applies:
o You wish to redeem more than $50,000 worth of shares.
o The check is being mailed to an address different from the one on your
account (address of record).
o The check is being made payable to someone other than the account owner.
o You are instructing us to change your bank account information.
How to obtain a signature guarantee
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
If you would like more information about the signature guarantee, or would like
to sign up for the Telephone Redemption Privilege after you have already opened
your account, please call 800-548-4539 (press 2).
- --------------------------------------------------------------------------------
MONITORING YOUR INVESTMENT
There are a variety of ways to track your mutual fund investment. Most major
newspapers carry daily mutual fund listings, and you can also find daily prices
on the Fremont Funds web site (www.fremontfunds.com) 24 hours a day.
You can check fund prices, your account balances, and process transactions by
calling our 24-hour automated line at 800-548-4539 (press 3).
In addition, you will receive statements and reports regarding your account on a
regular basis:
o Confirmation statements will be sent when you make a transaction in your
account or change your account registration.
o Quarterly statements for Fremont stock funds, with account information as of
the end of March, June, September and December.
o Monthly statements are issued for the Fremont Money Market Fund, Fremont Bond
Fund, and Fremont California Intermediate Tax-Free Fund.
o Annual and Semi-Annual Reports for shareholders.
You can request duplicate statements or copies of your historical account
information by calling 800-548-4539 (press 2).
32 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions help your investment grow
When you open a taxable account, you should specify on your application how you
would like to receive your distributions and dividends.
A Fund pays dividends based on the income that it has received from its
investments. The dividends may be taxed as ordinary income. Distributions occur
when your Fund pays out the capital gains it has realized over the past year.
Your distributions could be taxable, depending on how long the Fund held the
investments that lead to the capital gain. Long-term capital gains are those
from securities held more than 12 months, and short-term gains are from
securities held less than 12 months.
Four options are available
As an investor, there are four different ways you can choose to receive
dividends and distributions:
o Automatically reinvest all dividends and capital gain distributions in
additional shares.
o Receive income dividends and short-term capital gain distributions in cash
and accept long-term capital gain distributions in additional shares.
o Receive all distributions of income dividends and capital gains in cash.
o Invest all dividends and capital gain distributions in another Fremont Mutual
Fund owned through an identically registered account.
If circumstances change after you make your selection, you can always change
your options by calling 800-548-4539 (press 2).
Policies and Procedures
For IRA accounts, all distributions are automatically reinvested. Otherwise,
payment of distributions in cash would be a taxable distribution from your IRA,
and might be subject to income taxes and penalties if you are under 59 1/2 years
old. After you reach age 59 1/2, you may request payment of distributions in
cash.
When you reinvest dividends and distributions, the reinvestment price is the
Fund's NAV at the close of business on the payable date.
Your Tax ID Number is required
If you have not provided a correct taxpayer identification number, usually a
Social Security number, the Fund is required by the Internal Revenue Service to
withhold 31% from any dividend and/or redemption that you receive.
- --------------------------------------------------------------------------------
FREMONT FUND DIVIDENDS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Global Quarterly Annually
International Growth Annually Annually
International Small Cap Annually Annually
Emerging Markets Annually Annually
Growth Annually Annually
U.S. Small Cap Annually Annually
U.S. Micro-Cap Annually Annually
Real Estate Securities Quarterly Annually
Bond Monthly Annually
California Intermediate Tax Free Monthly Annually
Money Market Monthly Annually
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS
Tax planning is essential
As with any investment, you should consider how your investment in a Fund will
be taxed. If your account is tax-deferred or tax-exempt (for example, an IRA or
an employee benefit plan account), the information on these two pages does not
apply. If your account is not tax-deferred or tax-exempt, however, you should be
aware of these tax rules.
Distributions may be taxable.
A distribution is a payout of realized investment gains on securities in a
Fund's portfolio. When, for example, a Fund sells a stock at a profit, that
profit has to be recorded for tax purposes, combined with all the other profits
made that year, and distributed to shareholders based on the number of shares
held.
Distributions are subject to federal
(continued of next page)
WWW.FREMONTFUNDS.COM 33
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS (CON'T)
income tax, and may also be subject to state or local taxes.
Distributions are taxable when they are paid, whether you take them in cash or
reinvest them in additional shares. However, distributions declared in December
and paid in January are taxable as if they were paid on December 31.
Capital gains are federally taxable
For federal tax purposes, each Fund's:
o Income and short-term capital gain distributions are taxed as dividends,
meaning that you'll pay tax at your marginal tax rate on this amount;
o Long-term capital gain distributions are taxed as long-term capital gains
(currently at a maximum of 20%).
Tax reporting
Every year, Fremont will send you and the Internal Revenue Service (IRS) a
statement, called a Form 1099-DIV, showing the amount of each taxable
distribution you received in the previous year.
Taxes on transactions
A capital gain or loss is the difference between the cost of your shares and the
price you receive when you sell them.
Your redemptions--including exchanges between funds--are subject to capital
gains tax.
Foreign income taxes
Dividends and interest from foreign issuers earned by a fund may be subject to
withholding and other taxes imposed by foreign countries, generally at rates
from 10% to 40%. These taxes are paid by the fund, not by you personally.
Tax conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains with respect to investments by non-resident investors.
U.S. shareholders may be entitled to a credit or deduction for foreign income
taxes paid by Fremont's global and international funds.
Real Estate Investment Trust taxes
Real Estate Investment Trusts, or REITs, do not provide complete information
about the taxability of their distributions until after the calendar year end.
For this reason the Fremont Real Estate Securities Fund may request permission
each year from the IRS to extend the deadline for issuing Form 1099-DIV to
February 28.
34 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
INVESTMENT TERMS
Advisor - A firm that provides investment management and administrative
services, in this case, Fremont Investment Advisors, Inc.
Automated Clearing House (ACH) - An outside service provider for Fremont Mutual
Funds that transfers money between Fremont and other participating financial
institutions.
Benchmark Index - A recognized measure of performance, of stock or bond markets.
All mutual funds are required to have a relevant benchmark index, so that
investors have a standard by which to judge fund performance over time.
Bond - An IOU issued by a government agency, municipality or private firm. The
buyer of a bond is effectively loaning money to the bond issuer, who agrees to
pay back the loan on a certain date in the future, and make interest payments
during the life of the loan.
Bond Quality - Bonds are rated for their degree of investment risk, or
credit-worthiness. Generally, the less credit-worthy a bond, the higher the
interest rate it has to pay to attract buyers. Ratings range from AAA (highly
unlikely to default) to D (in default).
Broker-Dealer - A firm that is licensed to carry out a securities transaction.
Examples would be Charles Schwab or E*Trade.
Capital Gain - The sale price of an investment less the original purchase price.
If the number is positive there is a gain. For example, if a fund manager buys
10,000 shares of Stock A for $2,000,000 and later sells the same 10,000 shares
for $3,000,000, the result is a capital gain of $1,000,000 ($3,000,000 -
$2,000,000 = $1,000,000).
o Short-Term Gains - Capital gains on securities held for less than 12 months.
o Long-Term Gains - Capital gains on securities held for more than 12 months.
Capitalization (Cap) - The market value of a corporation's stock, determined by
multiplying the number of stock shares issued by the price of the stock. A
"small cap" stock, for example, has a relatively low market value in comparison
to the largest stocks.
Closing Time - When regular session trading closes on the New York Stock
Exchange, usually 4:00 p.m. Eastern time, but sometimes earlier.
Distribution - A payout of realized capital gains on the securities in a Fund's
portfolio. Generally, once a year each Fremont Mutual Fund calculates the
profits it has made that year on the sale of securities, adds all other profits,
and distributes the profits to the fund's investors based on the number of
shares they hold.
Dividend - The payout of income earned on an investment to a shareholder. Like
other mutual funds, Fremont Mutual Funds periodically pay dividends to
shareholders based on the income received from investments.
Duration - Measures how sensitive a bond's price is to interest rate changes.
Emerging Market - A less developed market in a country with a low per capita
income.
Forward Contract - An agreement to purchase or sell a certain quantity of an
investment (such as government bonds) at an agreed upon price on a specified
date in the future.
Global - Refers to a mutual fund or investment strategy that invests all over
the world, including the United States.
IBC Money Market Insight Index - Based on the 30-day average percentage yield on
all highly rated taxable money market funds reported in the IBC Financial Data's
Moneyfund Report.
Index Futures - An agreement to purchase or sell a certain quantity of all the
securities that make up an index (such as the stocks that comprise the S&P 500
Index) at an agreed upon price on a specified date in the future.
Interest Rate - The rate that a borrower pays a money lender for the use of
money. If the issuer of a bond (a government or corporation, for example) pays
$1,200 per year for a $10,000 bond, the interest rate is 12%.
Intermediate-Term - For bonds, a bond that matures most commonly in 3 to 10
years.
International - Refers to a mutual fund or investment strategy that invests
outside the United States.
Lehman Brothers Aggregate Bond Index - Covers the U.S. investment grade
fixed-rate bond market, including both government and corporate bonds.
Lehman Brothers Government/Corporate Intermediate Index - Includes all
investment grade government and corporate bonds with a maturity between 1 and 10
years.
Liquidity - The ability to buy or sell an investment quickly without affecting
its price.
Maturity - A bond's "maturity" is the date by which a bond issuer promises to
repay the principal amount of the bond.
Money Market - The market for short-term debt instruments (such as certificates
of deposit, U.S. Treasury bills and discount notes issued by federal government
agencies).
Morgan Stanley Capital International Emerging Markets Free (MSCI EMF) Index -
Composed of all publicly traded stocks issued by 22 countries, including
Argentina, Brazil, Chile, Greece, India, Israel, Malaysia, Mexico, the
Philippines, Poland, and Thailand.
Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE)
Index - Composed of all of the publicly traded stocks in 20 developed markets.
Among the countries included are Australia, France, Germany, Italy, Japan,
Singapore, Spain and the United Kingdom.
WWW.FREMONTFUNDS.COM 35
<PAGE>
INVESTMENT TERMS
Mutual Fund - An investment company that pools the money of many people to
invest in any of a variety of different types of securities. A mutual fund
offers investors the advantages of investment diversification and professional
management.
Non-Diversified Mutual Fund - A mutual fund that is allowed by its prospectus to
make large investments in a relatively small number of stocks or bonds.
NAREIT (National Association of Real Estate Investment Trusts) Index - Measures
all Real Estate Investment Trusts (REIT) listed on the New York Stock Exchange,
American Stock Exchange and NASDAQ National Market System. The index is weighted
to reflect the total market value of the REITs included.
Net Asset Value (or NAV) - The price of a single fund share. Calculated by
adding up the value of all the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
No-Load Mutual Fund - A type of mutual fund that does not impose a charge for
purchasing or redeeming shares, so that all of your money goes to work for you.
Portfolio - An investor's or a Fund's combined holdings.
Portfolio Turnover - The percentage of the dollar value of the portfolio which
is replaced each year. This is calculated by dividing the total purchases or
sales for the year, whichever is less, by the average assets for the year.
Real Estate Investment Trust (REIT) - A corporation or business trust that owns,
manages and/or develops pools of properties from apartments and office buildings
to self-storage facilities. Like a stock, REIT shares are traded freely and may
be listed on a major stock exchange.
Redemption - The act of selling shares of a mutual fund.
Redemption Fee - A fee charged by a fund when an investor sells fund shares soon
after buying them. Redemption fees help to control fund expenses. Usually a fund
charges a redemption fee when it is expensive or difficult to quickly sell the
shares purchased by the fund.
Russell 2000 Index - Composed of the 2000 smallest stocks in the Russell 3000
Index, and is widely regarded in the industry as the premier measure of small
cap stocks.
Russell 3000 Index - Composed of the 3000 largest U.S. companies as measured by
market capitalization, and represents about 98% of the U.S. stock market.
Russell Mid Cap - Composed of all medium and small companies included among the
largest 1,000 companies in the Russell 3000 Index.
Salomon Brothers Extended Market Index (EMI) - Defines the small capitalization
stock universe, or the smallest 20% of the available capital of each country.
Security - A type of investment whose authenticity is attested to by a legal
document. Stocks, bonds, options and warrants are examples of a security. A
stock certificate signifies partial ownership of a corporation. A bond
demonstrates that the possessor is owed money by a corporation or government
body.
Signature Guarantee - A security measure that confirms your identity, required
for certain transactions in order to reduce fraud. For these transactions,
signatures must be guaranteed by an "eligible guarantor" - a bank,
broker-dealer, credit union, national securities exchange, registered securities
association, clearing agency or savings association. A notary public is not an
acceptable guarantor.
S&P 500 Composite Stock Price Index - A widely-recognized unmanaged index of 500
common stock prices.
Stock - A share of ownership in a corporation.
Sub-Advisor - A firm hired by the advisor of a fund to manage or co-manage that
fund's investment portfolio.
Transfer Agent - The service provider retained by a mutual fund company to keep
shareholder records, manage the flow of shareholders' funds, and resolve
administrative issues.
Wire - A method of transferring money between your Fremont account and another
financial institution using the Federal Reserve Wiring System.
36 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights of the Funds presented here and the pages following
have been audited by PricewaterhouseCoopers, LLP, independent accountants. Their
report covering each of the five fiscal years in the period ended October 31,
1998, is included in the Funds' Annual Report.
<TABLE>
<CAPTION>
GLOBAL FUND Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data 1998 1997 1996 1995 1994
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.16 $ 15.11 $ 14.24 $ 13.13 $ 13.17
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income .34 .45 .39 .40 .26
Net realized and unrealized gain (loss) .17 1.31 1.49 1.24 (.03)
--------- --------- --------- --------- ---------
Total investment operations .51 1.76 1.88 1.64 .23
--------- --------- --------- --------- ---------
Less Distributions
From net investment income (.25) (.52) (.44) (.50) (.14)
From net realized gains (.29) (2.19) (.57) (.03) (.13)
--------- --------- --------- --------- ---------
Total distributions (.54) (2.71) (1.01) (.53) (.27)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 14.13 $ 14.16 $ 15.11 $ 14.24 $ 13.13
========= ========= ========= ========= =========
Total Return 3.62% 13.01% 13.72% 12.78% 1.74%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 631,165 $ 665,747 $ 572,150 $ 482,355 $ 453,623
Ratio of expenses to average net assets .85% .85% .87% .88% .95%
Ratio of net investment income to average net assets 2.80% 2.66% 2.66% 2.98% 2.47%
Portfolio turnover rate 75% 48% 71% 83% 52%
<CAPTION>
INTERNATIONAL GROWTH FUND Year Ended October 31 Period from
- ------------------------------------------------------------------------------------------------------------- 3/1/94 to
Selected Per Share Data 1998 1997 1996 1995 10/31/94
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.37 $ 10.40 $ 9.72 $ 9.79 $ 9.57
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income (loss) .05 .02 (.02) .10 .02
Net realized and unrealized gain (loss) .03 (.02) .71 (.09) .20
--------- --------- --------- --------- ---------
Total investment operations .08 -- .69 .01 .22
--------- --------- --------- --------- ---------
Less Distributions
From net investment income -- -- (.01) (.08) --
From net realized gains (.11) (.03) -- -- --
--------- --------- --------- --------- ---------
Total distributions (.11) (.03) (.01) (.08) --
--------- --------- --------- --------- ---------
Net asset value, end of period $ 10.34 $ 10.37 $ 10.40 $ 9.72 $ 9.79
========= ========= ========= ========= =========
Total Return .80%2 -0.01% 7.07% 0.13% 2.30%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 41,623 $ 38,643 $ 35,273 $ 32,156 $ 29,725
Ratio of net expenses to average net assets 2 1.50% 1.50% 1.50% 1.50% 1.50%*
Ratio of gross expenses to average net assets 2 1.65% -- -- -- --
Ratio of net investment income (loss)
to average net assets .53% .34% -.20% 1.19% .35%*
Portfolio turnover rate 106% 95% 74% 32% 30%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
WWW.FREMONTFUNDS.COM 37
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP FUND Year Ended October 31 Period from
- ------------------------------------------------------------------------------------------------------------- 6/30/94 to
Selected Per Share Data 1998 1997 1996 1995 10/31/94
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.23 $ 10.15 $ 9.00 $ 9.86 $ 10.00
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income (loss) .04 .14 .14 .10 (.01)
Net realized and unrealized gain (loss) (1.40) (1.58) 1.08 (.88) (.13)
--------- --------- --------- --------- ---------
Total investment operations (1.36) (1.44) 1.22 (.78) (.14)
--------- --------- --------- --------- ---------
Less Distributions
From net investment income (.21) (.21) (.07) (.08) --
From net realized gains (.08) (.27) -- -- --
--------- --------- --------- --------- ---------
Total distributions (.29) (.48) (.07) (.08) --
--------- --------- --------- --------- ---------
Net asset value, end of period $ 6.58 $ 8.23 $ 10.15 $ 9.00 $ 9.86
========= ========= ========= ========= =========
Total Return -16.76%1 -14.56% 13.69%1 -7.96%1 -1.40%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 5,694 $ 8,534 $ 9,214 $ 4,245 $ 1,768
Ratio of net expenses to average net assets 2 1.50% 1.50% 1.81% 2.06% 2.50%*
Ratio of gross expenses to average net assets 2 2.55% 1.50% 2.50% 2.50% 2.50%*
Ratio of net investment income (loss)
to average net assets .91%* 1.97% 1.61% 1.67% -0.28%*
Portfolio turnover rate 148% 56% 74% 96% --
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
<TABLE>
<CAPTION>
EMERGING MARKETS FUND Year Ended October 31 Period from
- --------------------------------------------------------------------------------- 6/30/96 to
Selected Per Share Data 1998 1997 10/31/96
for one share outstanding during the period --------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.58 $ 9.62 $ 10.00
--------- --------- ---------
Income from Investment Operations
Net investment income .09 .17 .10
Net realized and unrealized gain (loss) (3.64) 1.03 (.41)
--------- --------- ---------
Total investment operations (3.55) 1.20 (.31)
--------- --------- ---------
Less Distributions
From net investment income -- (.06) (.07)
From net realized gains (.14) (1.18) --
--------- --------- ---------
Total distributions (.14) (1.24) (.07)
--------- --------- ---------
Net asset value, end of period $ 5.89 $ 9.58 $ 9.62
========= ========= =========
Total Return 1 -37.59% 12.55% -3.12%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 8,742 $ 12,175 $ 3,772
Ratio of net expenses to average net assets 2 1.50% .26% --
Ratio of gross expenses to average net assets 2 2.34% 2.63% 4.95%*
Ratio of net investment income to average net assets .99% 2.04% 3.32%*
Portfolio turnover rate 135% 208% 7%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
38 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. MICRO-CAP FUND Year Ended October 31 Period from
- ------------------------------------------------------------------------------------------------------------- 6/30/94 to
Selected Per Share Data 1998 1997 1996 1995 10/31/94
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.69 $ 19.63 $ 14.34 $ 10.34 $ 10.00
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income (loss) (.25) (.10) (.04) (.05) .02
Net realized and unrealized gain (4.86) 5.60 5.83 4.05 .34
--------- --------- --------- --------- ---------
Total investment operations (5.11) 5.50 5.79 4.00 .36
--------- --------- --------- --------- ---------
Less Distributions
From net investment income -- -- -- -- (.02)
From net realized gains (1.24) (2.44) (.50) -- --
--------- --------- --------- --------- ---------
Total distributions (1.24) (2.44) (.50) -- (.02)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 16.34 $ 22.69 $ 19.63 $ 14.34 $ 10.34
========= ========= ========= ========= =========
Total Return -23.45% 28.80%1 41.46%1 38.68%1 3.60%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 120,016 $ 171,507 $ 102,481 $ 7,792 $ 2,052
Ratio of net expenses to average net assets 2 1.94% 1.88% 1.96% 2.04% 2.50%*
Ratio of gross expenses to average net assets 2 1.94% 1.90% 2.22% 2.50% 2.50%*
Ratio of net investment income (loss)
to average net assets -1.22% -.67% -.51% -.67% .68%*
Portfolio turnover rate 170% 125% 81% 144% 44%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
<TABLE>
<CAPTION>
Year Ended
U.S. SMALL CAP FUND October 31 Period from
- ------------------------------------------------------------------- 9/24/97 to
Selected Per Share Data 1998 10/31/97
for one share outstanding during the period --------- ---------
<S> <C> <C>
Net asset value, beginning of period $ 9.57 $ 10.00
--------- ---------
Income from Investment Operations
Net investment income (loss) (.04) .02
Net realized and unrealized gain (loss) (.66) (.42)
--------- ---------
Total investment operations (.70) (.40)
--------- ---------
Less Distributions
From net investment income 3 -- (.02)
From net realized gains 3 -- (.01)
--------- ---------
Total distributions 3 -- (.03)
--------- ---------
Net asset value, end of period $ 8.87 $ 9.57
========= =========
Total Return 1 -7.29% -4.06%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 7,367 $ 5,350
Ratio of net expenses to average net assets 2 1.50% 1.50%*
Ratio of gross expenses to average net assets 2 2.85% 3.32%*
Ratio of net investment income (loss)
to average net assets -.52% 1.81%*
Portfolio turnover rate 273% 8%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
WWW.FREMONTFUNDS.COM 39
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH FUND Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data 1998 1997 1996 1995 1994
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.96 $ 15.02 $ 13.06 $ 10.46 $ 11.25
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income .20 .20 .10 .13 .21
Net realized and unrealized gain (loss) .87 3.43 2.65 2.74 (.02)
--------- --------- --------- --------- ---------
Total investment operations 1.07 3.63 2.75 2.87 .19
--------- --------- --------- --------- ---------
Less Distributions
From net investment income (.17) (.22) (.08) (.17) (.18)
From net realized gains (.30) (3.47) (.71) (.10) (.80)
--------- --------- --------- --------- ---------
Total distributions (.47) (3.69) (.79) (.27) (.98)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 15.56 $ 14.96 $ 15.02 $ 13.06 $ 10.46
========= ========= ========= ========= =========
Total Return 7.30% 29.26% 22.06% 28.12%1 1.72%1
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 159,375 $ 147,641 $ 78,624 $ 59,632 $ 27,244
Ratio of net expenses to average net assets 2 .82% .85% .92% .97% .94%
Ratio of gross expenses to average net assets 2 .82% .85% .92% 1.01% 1.08%
Ratio of net investment income to average net assets 1.25% 1.44% .75% 1.02% 1.31%
Portfolio turnover rate 111% 48% 129% 108% 55%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
Period from
12/31/97 to
REAL ESTATE SECURITIES FUND October 31, 1998
- --------------------------------------------------------------------------------
Selected Per Share Data
for one share outstanding during the period
Net asset value, beginning of period $ 10.00
---------
Income from Investment Operations
Net investment income .19
Net realized and unrealized loss (2.07)
---------
Total investment operations (1.88)
---------
Less Distributions
From net investment income (.14)
From net realized gains --
---------
Total distributions (.14)
---------
Net asset value, end of period $ 7.98
=========
Total Return 1 -18.78%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 33,482
Ratio of net expenses to average net assets 2 1.09%*
Ratio of gross expenses to average net assets 2 1.80%*
Ratio of net investment income to average net assets 4.10%*
Portfolio turnover rate 196%
For footnote references, see "Notes to Financial Highlights" on page 43.
40 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
BOND FUND Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data 1998 1997 1996 1995 1994
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.23 $ 9.99 $ 10.13 $ 9.29 $ 10.27
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income .60 .67 .67 .65 .53
Net realized and unrealized gain (loss) .41 .25 .11 .83 (.98)
--------- --------- --------- --------- ---------
Total investment operations 1.01 .92 .78 1.48 (.45)
--------- --------- --------- --------- ---------
Less Distributions
From net investment income (.62) (.66) (.70) (.64) (.53)
From net realized gains (.18) (.02) (.22) -- --
--------- --------- --------- --------- ---------
Total distributions (.80) (.68) (.92) (.64) (.53)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 10.44 $ 10.23 $ 9.99 $ 10.13 $ 9.29
========= ========= ========= ========= =========
Total Return 1 10.31% 9.54% 8.18% 16.49% -4.42%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 228,001 $ 90,302 $ 70,577 $ 86,343 $ 64,244
Ratio of net expenses to average net assets 2 .60% .61% .68% .60% .66%
Ratio of gross expenses to average net assets 2 .72% .76% .83% .75% 1.04%
Ratio of net investment income to average net assets 5.92% 6.40% 6.82% 6.69% 5.76%
Portfolio turnover rate 256% 191% 154% 21% 205%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
<TABLE>
<CAPTION>
MONEY MARKET FUND Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data 1998 1997 1996 1995 1994
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income .05 .05 .05 .06 .03
--------- --------- --------- --------- ---------
Total investment operations .05 .05 .05 .06 .03
--------- --------- --------- --------- ---------
Less Distributions
From net investment income (.05) (.05) (.05) (.06) (.03)
--------- --------- --------- --------- ---------
Total distributions (.05) (.05) (.05) (.06) (.03)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return 1 5.45% 5.39% 5.34% 5.84% 3.49%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 717,291 $ 433,152 $ 329,652 $ 299,312 $ 224,439
Ratio of net expenses to average net assets 2 .29% .30% .31% .30% .46%
Ratio of gross expenses to average net assets 2 .44% .45% .46% .45% .61%
Ratio of net investment income to average net assets 5.33% 5.26% 5.22% 5.70% 4.02%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
WWW.FREMONTFUNDS.COM 41
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE TAX-FREE FUND Year Ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data 1998 1997 1996 1995 1994
for one share outstanding during the period --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.99 $ 10.80 $ 10.86 $ 10.13 $ 11.10
--------- --------- --------- --------- ---------
Income from Investment Operations
Net investment income .51 .51 .52 .53 .53
Net realized and unrealized gain (loss) .26 .20 (.03) .73 (.97)
--------- --------- --------- --------- ---------
Total investment operations .77 .71 .49 1.26 (.44)
--------- --------- --------- --------- ---------
Less Distributions
From net investment income (.51) (.51) (.52) (.53) (.53)
From net realized gains -- (.01) (.03) -- --
--------- --------- --------- --------- ---------
Total distributions (.51) (.52) (.55) (.53) (.53)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 11.25 $ 10.99 $ 10.80 $ 10.86 $ 10.13
========= ========= ========= ========= =========
Total Return 1 7.16% 6.75% 4.63% 12.77% -3.94%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 64,011 $ 64,309 $ 51,156 $ 50,313 $ 58,305
Ratio of net expenses to average net assets 2 .47% .49% .51% .50% .51%
Ratio of gross expenses to average net assets 2 .67% .69% .73% .72% .71%
Ratio of net investment income to average net assets 4.55% 4.72% 4.86% 5.08% 4.94%
Portfolio turnover rate 9% 6% 6% 18% 21%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 43.
42 CALL TOLL-FREE: 800-548-4539 (PRESS 1)
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
The following notes are being used as referenced items in the Financial
Highlights of the Funds presented on pages 37 through 42.
1 Total return would have been lower had the advisor not waived and/or
reimbursed expenses.
2 The Advisor voluntarily waived and/or reimbursed some of its fees for the
Funds. The waivers have been voluntary. Effective December 12, 1998, the Advisor
is contractually obligated to limit fund expenses until March 1, 2000. For the
Emerging Markets Fund, the Bond Fund, the Money Market Fund and the California
Intermediate Tax-Free Fund, all fees waived prior to October 31, 1998, cannot be
recouped in the future.
Ratios of expenses have been disclosed both before and after the impact of these
various waivers and/or reimbursements under each Fund's Financial Highlights
table.
For the International Growth Fund, the International Small Cap Fund, the U.S.
Small Cap Fund, and the Real Estate Securities Fund, to the extent management
fees are waived and/or other expenses are reimbursed by the Advisor, a Fund may
reimburse the Advisor for any reductions in the Fund's expenses during the three
years following that reduction if such reimbursement is requested by the
Advisor, if such reimbursement can be achieved within the foregoing expense
limit, and if the Board of Directors approves the reimbursement at the time of
the request as not inconsistent with the best interests of the Fund.
For the International Growth Fund and the International Small Cap Fund, the
Advisor voluntarily limited the total operating expenses to 1.50% of average net
assets from March 2, 1998 to October 31, 1998. Prior to March 2, 1998, the
Advisor received a single management fee (i.e., a unitary fee) from these Funds.
In addition, for the International Small Cap Fund, management fees were
voluntarily waived from February 1, 1995 to October 31, 1996.
For the Emerging Markets Fund and the U.S. Small Cap Fund, the Advisor
voluntarily limited the total operating expenses to 1.50% of average net assets.
For the Growth Fund, the administrative fees were voluntarily waived from August
14, 1992 to March 31, 1995.
For the Real Estate Securities Fund, the Advisor voluntarily limited the total
operating expenses to 1.50% of average net assets beginning July 1, 1998. Prior
to July 1, 1998, the Advisor limited the total operating expenses to 0.50%.
The Advisor voluntarily agreed to waive the management fee for the first six
months, until June 30, 1998, and would have continued to waive the management
fee until December 31, 1998 or until the assets in the Fund reach $25 million.
As of June 30, 1998, the Fund's assets reached over $33 million, and therefore,
the management fee waiver was discontinued.
For the Bond Fund, the Advisor voluntarily waived 0.10% out of the 0.15%
administrative fee from March 1, 1998 to October 31, 1998. Prior to March 1,
1998, the Advisor voluntarily waived the administrative fee in its entirety.
For the Money Market Fund, the Advisor voluntarily waived the administrative fee
in its entirety.
For the California Intermediate Tax-Free Fund, the Advisor voluntarily reduced
the advisory and administrative fees to 0.30% and 0.005% , respectively, of
average net assets.
For the U.S. Micro-Cap Fund, management fees were voluntarily waived from
February 1, 1995 to January 8, 1997. Under the terms of the Advisory agreement,
the Advisor receives a single management fee from the U.S. Micro-Cap Fund, and
is obligated to pay all expenses of the Funds except extraordinary expenses (as
determined by a majority of the disinterested directors) and interest, brokerage
commissions, and other transaction charges relating to the investing activities
of those Funds.
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
International Growth Fund, the International Small Cap Fund, the Emerging
Markets Fund, the U.S. Small Cap Fund, and the Real Estate Securities Fund have
adopted a plan of distribution under which the Funds may directly compensate the
Advisor for certain distribution-related expenses. The annual limitation for
compensation to the Advisor pursuant to the plan of distribution is 0.25% of a
Fund's average daily net assets. All payments are reviewed by the Board of
Directors. On August 1, 1998, the 12b-1 plan of the International Small Cap Fund
was discontinued.
3 For 1998, distributions are less than $.01 per share.
* Annualized
WWW.FREMONTFUNDS.COM 43
<PAGE>
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<PAGE>
- --------------------
FREMONT MUTUAL FUNDS
- --------------------
For More Information
In addition to the Fund information contained in this Prospectus, you may also
request the following free publications from Fremont Mutual Funds:
o Annual and Semi-Annual Reports
Additional information about the Funds' investments is available in the
Funds' Annual and Semi-Annual Reports to shareholders. In the Funds' Annual
and Semi-Annual Reports, you will find a discussion of the market conditions
and investment strategies that significantly affected each Fund's performance
during the last fiscal year.
o Statement of Additional Information
This publication gives you more information about each Fund's investment
strategy. Legally it is "incorporated by reference," or considered part of,
this Prospectus.
You may also obtain copies of these publications by visiting the Securities and
Exchange Commission's (SEC) Public Reference Room in Washington, D.C., or by
sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
Toll-free number: 1-800-SEC-0330
Web site address: http://www.sec.gov
Fremont
Funds [LOGO]
For general information:
800-548-4539 (press 1), or 816-435-1777 (outside U.S.)
Please visit our web site at: www.fremontfunds.com
SEC File No: 811-05632
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105 Copyright
1999 Fremont Mutual Funds, Inc. All rights reserved.
P010-9903
<PAGE>
MARCH 1, 1999
FREMONT MUTUAL FUNDS, INC.
PROSPECTUS
o Institutional
U.S. Micro-Cap Fund
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 prospectus. It is a criminal offense to represent otherwise.
Fremont
Funds [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- -----------------------------------------
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
- -----------------------------------------
Objective and Strategy .................................................... 2
Main Risks ................................................................ 2
Performance ............................................................... 2
Fees and Expenses ......................................................... 3
Portfolio Management ...................................................... 3
Understanding Investment Risk ............................................. 4
About the Advisor ......................................................... 5
- -----------------
SHAREHOLDER GUIDE
- -----------------
How to Invest ............................................................. 6
How to Sell Your Shares ................................................... 8
Dividends, Distributions, and Taxes ...................................... 11
- --------
Appendix
- --------
Investment Terms ......................................................... 12
Financial Highlights ..................................................... 13
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- -----------------------------------------
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
- -----------------------------------------
OBJECTIVE AND STRATEGY
The Fremont Institutional U.S. Micro-Cap Fund seeks long-term capital
appreciation by investing in stocks of U.S. micro-cap companies, those with
market capitalizations less than $550 million. Normally, the Fund will invest at
least 65% of its total assets in these U.S. micro-cap stocks.
Fund management seeks to identify companies early in their growth cycle.
Emphasis is placed on those companies possessing a variety of characteristics,
such as quality management, an enterpreneurial management team, or a narrow
product line focus. Fund management may also consider companies whose growth
potential has been enhanced by new products, new market opportunities, or new
management.
To select stocks, Fund management:
o Focuses on business sectors where they believe the level of innovation is
greatest, such as technology, health care, consumer products, and services.
o Uses fundamental analysis to identify small, relatively unknown companies
that exhibit the potential to become much larger and more successful
companies.
o Meets with corporate managers to discuss business plans and strategies.
MAIN RISKS
The Fund is designed for investors who are willing to accept the risks of
investing in micro-cap companies. These risks may include a relatively short
earnings history, competitive conditions, information less publicly available,
and a reliance on a limited number of products.
Since these companies may still be dominated by their founder, they may lack
depth of managerial talent.
Securities of these companies may have limited market liquidity (due, for
example, to low trading volume), and may be subject to more abrupt or erratic
market movements than larger companies.
The stocks of many small companies are traded on the over-the-counter (OTC)
market rather than on the New York or American Stock Exchanges. Sometimes,
buyers and sellers of these stocks are difficult to find. As a result, the value
of the Fund's investments and its shares may also be subject to rapid and
significant price changes.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 4.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees .............. 1.15%
Distribution (12b-1) Fees .... None
Other Expenses ............... 0.23%
Total Annual Fund
Operating Expenses ..... 1.38%
Less: Fees waived and
Reimbursed++ ........... 0.13%
Net Operating Expenses ....... 1.25%
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 1.25% until March 1,
2000.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Institutional
U.S. Micro-Cap Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ---------------------------------
$127 $437 $755 $1,657
This example assumes:
o That you invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o That your investment has a 5% return each year.
o That the Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
46.03% for the quarter ending 12/31/98. The lowest return for a quarter was
- -28.51% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE*
1989 23.60%
1990 -0.27%
1991 77.41%
1992 5.78%
1993 19.78%
1994 -17.07%
1995 54.23%
1996 52.29%
1997 13.55%
1998 5.53%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Institutional
U.S. Micro-Cap Fund*
1 Yr 5 Yrs 10 Yrs
- --------------------------
5.53% 18.47% 20.52%
Russell 2000 Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
- -2.55% 11.86% 12.92%
The table above compares the performance of the Fremont Institutional U.S.
Micro-Cap Fund to that of its benchmark index, the Russell 2000 Index. (See
"Investment Terms" on page 12 for a description of the index.)
*Fund returns reflect performance of a separate account, the post-venture fund
of Fund A of Bechtel Group Inc.'s retirement plan, net of fees and expenses of
the separate account. On 8/6/97, the assets of the separate account were
transferred to and became the Fremont Institutional U.S. Micro-Cap Fund. The
separate account was not registered under the Investment Company Act of 1940, as
amended (the "1940 Act") and, therefore, was not subject to certain investment
restrictions imposed by the 1940 Act. Had the separate account been registered
under the 1940 Act, its performance may have been negatively affected, since the
methodology used to calculate performance for the separate account is different
from that required for mutual funds. However, the Advisor believes that the
performance for the separate account would be substantially the same if it were
recalculated in accordance with standard mutual fund performance rules.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
The Fremont Institutional U.S. Micro-Cap Fund is managed by Sub-Advisor, Kern
Capital Management LLC, ("KCM"). Founded in 1997, KCM is an investment
management firm specializing in small cap and micro-cap companies. Robert E.
Kern, Jr., president and chief executive officer of KCM, has been the portfolio
manager of the Fund and its predecessor since 1982. He was one of the first
investment professionals to focus on post-venture, or micro-cap, investing, when
he began managing a separate account, consisting of U.S. micro-cap assets, for
the retirement plan for Bechtel Group, Inc. Employed by Morgan Grenfell Capital
Management, Inc., from 1986 to 1997, Bob Kern lead the team that managed the
separate account. In August 1997, the assets of the separate account were
transferred to and became the Fremont Institutional U.S. Micro-Cap Fund. The
Fund is co-managed by David G. Kern, CFA, and Judy R. Finger, CFA.
David G. Kern, executive vice president and co-founder of KCM, was employed as a
portfolio manager for Founders Asset Management from 1995 to 1997. David also
served as an assistant portfolio manager with Delaware Management Company, Inc.,
from 1990 through 1994.
Judy R. Finger, senior vice president, joined KCM in 1997. From 1995 to 1997,
she was vice president and assistant portfolio manager for Delaware Management
Company, Inc. She was employed as a senior analyst at Fred Alger Management from
1992 to 1995.
[PHOTO]
Robert E. Kern, Jr.
WWW.FREMONTFUNDS.COM 3
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
UNDERSTANDING INVESTMENT RISK
GENERAL RISKS
o Market Risk: The market value of individual securities may go up or down,
sometimes rapidly and unpredictably. These changes may occur over long or
short periods of time, and may cause the Fund's shares to be worth more or
less than they were at the time of purchase. Market risk could apply to
individual securities, a segment of the market, or the market overall.
o Liquidity Risk: From time-to-time, certain Fund investments may be illiquid,
or difficult to sell, and this could affect performance. If, for example, the
Fund is not able to sell certain stocks or bonds at the desired time and
price, this may limit its ability to buy other securities.
o Portfolio Turnover: The Fund generally intends to purchase securities for
long-term investment rather than short-term gains. However, a security may be
held for a shorter than expected period of time if, among other things, the
manager needs to raise cash or feels that the investment has met its
objective. Also, stocks or bonds may be sold sooner than anticipated due to
unexpected changes in the markets, or in the company that issued the
securities. Portfolio turnover rates are generally not a factor in making buy
and sell decisions. A high portfolio turnover rate may result in higher costs
relating to brokerage commissions, dealer mark-ups and other transaction
costs. The sale of securities may also create taxable capital gains.
o Temporary Defensive Measures: From time-to-time, the Fund may invest a
portion of its assets in money market securities as a temporary defensive
measure. Of course, the Fund cannot pursue its stated investment objective
while taking defensive measures.
o Year 2000 Risk: The operation of the Fund's service providers could be
disrupted due to computer problems related to the Year 2000. This situation
exists across all industries and may negatively impact the companies in which
the Fund invests and, by extension, the value of the Fund's shares. Fremont
is actively monitoring its service providers and is developing a contingency
plan in the event that such service providers fail to adequately adapt their
systems in time. Fremont does not expect the costs related to the Year 2000
problem to be substantial to the Fund since those costs are borne by the
service providers and not directly by the Fund.
- --------------------------------------------------------------------------------
4 CALL TOLL-FREE: 800-565-0254
<PAGE>
ABOUT THE ADVISOR
Fremont Investment Advisors, Inc. (referred to in this prospectus as the
"Advisor"), located at 333 Market Street, Suite 2600, San Francisco, California,
provides the Fremont Institutional U.S. Micro-Cap Fund (the "Fund") with
investment management and administrative services. The Advisor was formed in
1986 by a group of investment professionals that served as the in-house
investment management team for Bechtel Group, Inc., the global engineering firm.
These professionals have provided investment management services to the Bechtel
Retirement Plan and the Bechtel Foundation since 1978. The Advisor now manages
investments for institutions and individuals, in addition to continuing to
service the Bechtel Group. The Advisor's Investment Committee oversees the
portfolio management of the Fund. The management fee paid to the Advisor over
the past fiscal year was 1.15% of average daily net assets.
The Sub-Advisor
In addition to directly managing the Fund, the Advisor has hired an investment
management firm, Kern Capital Management LLC, (referred to as the "sub-advisor")
to manage the portfolio of the Fund. The sub-advisor is partially owned by the
Advisor.
Even though the Advisor may hire a sub-advisor, the Advisor may choose to manage
all or a portion of the Fund's portfolio directly. The sub-advisor is paid by
the Advisor and not by the Fund.
In 1996, Fremont Mutual Funds and the Advisor obtained from the Securities and
Exchange Commission an order that permits the Advisor to hire and terminate
sub-advisors, and modify sub-advisory agreements without the prior approval of
shareholders. Fremont Mutual Funds' Board of Directors reviews and approves the
hiring of new sub-advisors. If the Advisor hires a new sub-advisor or materially
changes a sub-advisory agreement, the Advisor will notify shareholders of all
changes including sub-advisory fees.
- --------------------------------------------------------------------------------
WWW.FREMONTFUNDS.COM 5
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
HOW TO INVEST
There are a number of ways to invest at Fremont. The minimum initial investment
is $250,000 for a regular account and $5,000 for an IRA.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
INVESTMENT METHOD TO OPEN AN ACCOUNT TO ADD TO YOUR INVESTMENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Mail in an Account Application with Mail your check or money order
your check or money order payable to payable to Fremont Mutual Funds for
Fremont Mutual Funds. Fremont will $5,000 or more.
not accept third party checks.
- -----------------------------------------------------------------------------------------------------
BY TELEPHONE Use the Telephone Exchange Privilege Use the Telephone Exchange Privilege
(TELEPHONE EXCHANGE to move $250,000 or more ($5,000 for to move your investment from one
PRIVILEGE) IRAs) from an existing Fremont Fund Fremont fund to another. Please
account into a new, identically note that exchanges between funds
registered account. To use the are subject to capital gains taxes.
Telephone Exchange Privilege, you
must first sign up for the privilege
by checking the appropriate box on
your Account Application. After you
sign up, please allow time for
Fremont to open your account.
- -----------------------------------------------------------------------------------------------------
BY TELEPHONE -- Transfer money from your bank to
(AUTOBUY PROGRAM) your Fremont account by telephone.
You must sign up for this privilege
on your Account Application, and
attach a voided check.
- -----------------------------------------------------------------------------------------------------
BY WIRE -- Call 800-548-4539 (press 2) to
request bank routing information for
wiring your money to Fremont. Not
available for IRA accounts.
- -----------------------------------------------------------------------------------------------------
BY AUTOMATIC -- Use the Automatic Investment Plan to
INVESTMENT PLAN move money ($50 minimum) from your
financial institution (via Automated
Clearing House) to your Fremont
account once or twice each month.
For more information about the
Automatic Investment Plan, see the
text immediately below. To
participate, call to request an
Automatic Investment Plan Request
form.
- -----------------------------------------------------------------------------------------------------
</TABLE>
FREMONT MAKES IT EASY TO INVEST
The Automatic Investment Plan
This convenient service allows you to automatically transfer money once or twice
a month from your predesignated bank account to your Fremont account.
o You must make your initial investment of $250,000 before starting your
automatic purchases.
o The amount of the monthly investment must be at least $50.
o If your transfer date falls on a weekend or holiday, we will process the
transaction on the previous business day.
To change the amount or frequency of your automatic investments, or to stop
future investments, you must notify us in writing or by calling 800-548-4539
(press 2). We must receive your request at least 5 days prior to your next
scheduled investment date.
6 CALL TOLL-FREE: 800-565-0254
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
WHAT YOU SHOULD KNOW WHEN MAKING AN INVESTMENT
How a mutual fund is priced
The Fund's net asset value, or NAV, is the price of a single share. The NAV is
computed by adding up the value of the Fund's investments, cash, and other
assets, subtracting its liabilities, and then dividing the total by the number
of shares outstanding.
The Fund's NAV is calculated after the close of trading on the New York Stock
Exchange (NYSE), usually 4:00 p.m. Eastern time, on each day that the exchange
is open for trading ("Closing Time").
The Fund values its portfolio securities and assets using price quotes from the
primary market in which they are traded. If prices are not readily available,
values will be determined using a method adopted by the Fund's Board of
Directors. This value may be higher or lower than the securities' closing price
in their relevant markets.
When an order to buy (or sell) is considered received
Your investment and your application must both be received by Closing Time in
order for you to receive that day's price.
All orders received after Closing Time will be processed with the next day's
NAV.
An order is considered received when the application (for a new account) or
information identifying the account and the investment are received in good
order by National Financial Data Services (NFDS), Fremont's transfer agent.
Other purchasing policies
All of your purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks. Fremont Mutual Funds does not accept third party checks, cash,
credit cards, or credit card checks.
If you purchase shares by check, and then you sell those shares, your payment
may be delayed until your purchase check has cleared.
If Fremont receives notice of insufficient funds for a purchase made by check or
autobuy, the purchase will be canceled and you will be liable for any related
losses or fees the Fund or its transfer agent incurs.
During times of drastic economic or market conditions, it may be difficult to
purchase shares by telephone. The transfer agent will do its best to accommodate
all Fremont shareholders, but you should consider using overnight mail if you
find that you are unable to get through on the telephone.
In order to keep Fund expenses low for all shareholders, Fremont will not allow
frequent purchases or sales of Fund shares. If a shareholder exhibits a pattern
of frequent trading, the Advisor reserves the right to refuse to accept further
purchase orders or exchange from that shareholder.
Investing through other investment firms
You may purchase or redeem shares of the Fund through authorized broker-dealers,
banks, or other financial institutions. These institutions may charge for their
services or place limitations on the extent to which you may use the services
offered by Fremont Mutual Funds.
- --------------------------------------------------------------------------------
WWW.FREMONTFUNDS.COM 7
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO SELL YOUR SHARES
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
calculated NAV, or share price, after your request is received in good order. We
will not process a redemption request until the documentation described below
has been received in good order by the transfer agent.
When you sell your shares, you may choose one of the selling methods described
in the table below, as well as how you would like to receive your money.
Fremont has put several safeguards in place which are intended to protect the
interests of our shareholders. By providing all the information requested when
you sell your shares, you help us to complete your order in as timely a manner
as possible.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SELLING METHOD FEATURES AND REQUIREMENTS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Mail your instructions to: If you are using overnight mail:
Fremont Mutual Funds, Inc. Fremont Mutual Funds, Inc.
c/o National Financial Data Services c/o National Financial Data Services
P.O. Box 419343 330 W. 9th Street
#Kansas City, MO 64141-6343 Kansas City, MO 64105
- -------------------------------------------------------------------------------------------------------------------------
BY TELEPHONE The Telephone Redemption Privilege allows you to redeem your shares by
(TELEPHONE REDEMPTION phone. You must make your telephone redemptions by Closing Time to
PRIVILEGE) receive that day's price. You must provide written authorization to add
this privilege to your account prior to making the request.
- -------------------------------------------------------------------------------------------------------------------------
BY AUTOMATIC The Automatic Withdrawal Plan (explained more fully below) lets you set
WITHDRAWAL PLAN up automatic monthly, quarterly, or annual redemptions from your account
in specified dollar amounts ($100 minimum). To establish this feature,
complete an Automatic Withdrawal Request form which is available by
calling 800-548-4539 (press 2).
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
How would you like to receive your money?
o By Check - Your check will be sent by regular mail to your address on file.
o By Wire - There is a $10 service fee.
o By Electronic Transfer - Please allow 3 business days. Before placing your
order, check to make sure that your financial institution can receive
electronic transfers made through the Automated Clearing House.
SPECIAL SERVICES AVAILABLE:
Automatic Withdrawal Plan
This convenient service allows you to arrange to receive as little as $100 from
a Fremont account on either a monthly, quarterly, or annual basis. There is
currently no charge for this service, but there are several policies you should
be aware of:
o Redemptions by check will be made on the 15th and/or the last business day of
the month.
o Redemptions made by electronic transfer will be made on the date you indicate
on your Automatic Withdrawal Form.
o If the withdrawal date falls on a weekend or holiday we will process the
transaction on the prior business day.
o You may also request automatic exchanges and transfers of a specified dollar
amount.
Wire Transfer
You may wish to wire the proceeds of a redemption from your Fremont account to
another financial institution. If you wire money from your Fremont account,
shares from your Fremont account are sold on the day we receive your
instructions (if you call before the Closing Time).
Generally, the wire transfer is processed the next business day. The
(continued next page)
8 CALL TOLL-FREE: 800-565-0254
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
SPECIAL SERVICES AVAILABLE (CON'T)
money should arrive at your financial institution the same day the wire is sent.
In order to use the wire redemption feature, bank account instructions must be
established prior to the requests. You may authorize the wire privilege on your
new account application, or by written instruction with a signature guarantee,
and provide Fremont with bank account instructions. A $10 fee applies each time
you wire money from your Fremont account.
- --------------------------------------------------------------------------------
WHAT YOU SHOULD KNOW BEFORE REDEEMING SHARES:
How we determine the redemption price
The price at which your shares will be redeemed is determined by the time of day
National Financial Data Services (NFDS), Fremont's transfer agent, or another
authorized agent, receives your redemption request.
If a request is received before Closing Time, the redemption price will be the
Fund's net asset value reported for that day. If a request is received after
Closing Time, the redemption price will be the Fund's net asset value reported
for the next day the market is open.
How to redeem at today's price
If you have signed up for the Telephone Redemption Privilege, you may call in
your redemption request before Closing Time to receive that day's share price.
Or, you may arrange to have your written redemption request, with a signature
guarantee, if required, and any supporting documents, delivered to NFDS before
Closing Time.
Fees for redeeming shares
All wire transactions are subject to a $10 fee.
Redemptions in Kind
In extreme conditions, there is a possibility that Fremont may honor all or some
of a redemption amount as a "redemption in kind." This means that you could
receive some or all of your redemption in readily marketable securities held by
the Fund.
About redemption checks
Normally, redemption proceeds will be mailed within three days after your
redemption request is received although it can take up to 10 days. The Fund may
hold payment on redemptions until it is reasonably satisfied that it has
received payment for a recent purchase.
Redemption checks are made payable to the shareholder(s) of record; if you wish
for the check to be made payable to someone other than the account owners, you
must submit your request in writing, and the signatures of all shareholders of
record must be guaranteed. For more information about a "signature guarantee"
please see page 10.
When you can't redeem
Redemptions may be suspended or payment dates postponed on days when the NYSE is
closed (other than
(continued next page)
REDEMPTION CHECKLIST:
Fremont would like to fulfill your request to sell shares as quickly as
possible. Here are reminders to help you avoid some of the common problems that
can delay the sale process:
[X] Include all your account information -- your name, the fund's name, and
your account number.
[X] Provide your preferred redemption method -- check, wire, or electronic
transfer.
[X] Specify the dollar amount or number of shares you are redeeming. For IRA
accounts, specify the percent of your holdings that you would like withheld
for taxes.
[X] Have all account owners sign the letter of instruction -- if you send us a
letter of instruction, make sure that all account owners have signed the
letter requesting the sale.
[X] Have signature(s) guaranteed when needed -- review the signature guarantee
requirements on page 10. Be sure to provide one if your sale meets those
requirements.
WWW.FREMONTFUNDS.COM 9
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
OTHER POLICIES YOU SHOULD KNOW ABOUT (CON'T.)
weekends or holidays), when trading on the NYSE is restricted, or as permitted
by the Securities and Exchange Commission.
During times of drastic economic or market conditions, it may be difficult to
sell shares by telephone. Fremont will do its best to accommodate all
shareholders, but you should consider using overnight mail if you find that you
are unable to get through by telephone.
When additional documentation is required
Certain accounts (such as trust accounts, corporate accounts and custodial
accounts) may require documentation in addition to the redemption request. For
more information, please call 800-548-4539 (press 2).
When you need a signature guarantee
Certain requests must include a signature guarantee, which is designed to
protect you and Fremont from fraudulent activities. Your request must be made in
writing and include a signature guarantee if any of the following situations
applies:
o You wish to redeem more than $50,000 worth of shares.
o The check is being mailed to an address different from the one on your
account (address of record).
o The check is being made payable to someone other than the account owner.
o You are instructing us to change your bank account information.
How to obtain a signature guarantee
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee. If you would like more information about the
signature guarantee, or would like to sign up for the Telephone Redemption
Privilege after you have already opened your account, please call 800-548-4539
(press 2).
- --------------------------------------------------------------------------------
MONITORING YOUR INVESTMENT
There are a variety of ways to track your mutual fund investment. Most major
newspapers carry daily mutual fund listings.
You can check fund prices, your account balances, and process transactions by
calling our 24-hour automated line at 800-548-4539 (press 3).
In addition, you will receive statements and reports regarding your account on a
regular basis:
o Confirmation statements will be sent when you make a transaction in your
account or change your account registration.
o Quarterly statements for Fremont stock funds, with account information as of
the end of March, June, September and December.
o Annual and Semi-Annual Reports for shareholders.
You can request duplicate statements or copies of your historical account
information by calling 800-548-4539 (press 2).
- --------------------------------------------------------------------------------
10 CALL TOLL-FREE: 800-565-0254
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions help your investment grow
When you open a taxable account, you should specify on your application how you
would like to receive your distributions and dividends.
The Fund pays dividends based on the income that it has received from its
investments. The dividends may be taxed as ordinary income. Distributions occur
when your Fund pays out the capital gains it has realized over the past year.
Your distributions could be taxable, depending on how long the Fund held the
investments that lead to the capital gain. Long-term capital gains are those
from securities held more than 12 months, and short-term gains are from
securities held less than 12 months. The Fund pays dividends and makes capital
gain distributions annually.
Four options are available:
As an investor, there are four different ways you can choose to receive
dividends and distributions:
o Automatically reinvest all dividends and capital gain distributions in
additional shares.
o Receive income dividends and short-term capital gain distributions in cash
and accept long-term capital gain distributions in additional shares.
o Receive all distributions of income dividends and capital gains in cash.
o Invest all dividends and capital gain distributions in another Fremont fund
owned through an identically registered account.
If circumstances change after you make your selection, you can always change
your options by calling 800-548-4539 (press 2).
Policies and Procedures
For IRA accounts, all distributions are automatically reinvested. Otherwise,
payment of distributions in cash would be a taxable distribution from your IRA,
and might be subject to income taxes and penalties if you are under 59 1/2 years
old. After you reach age 59 1/2, you may request payment of distributions in
cash.
When you reinvest dividends and distributions, the reinvestment price is the
Fund's NAV at the close of business on the payable date.
Your Tax ID Number is required
If you have not provided a correct taxpayer identification number, usually a
Social Security number, the Fund is required by the Internal Revenue Service
(IRS) to withhold 31% from any dividend and/or redemption that you receive.
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS
Tax planning is essential
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is tax-deferred or tax-exempt (for example, an IRA or
an employee benefit plan account), the information on these two pages does not
apply. If your account is not tax-deferred or tax-exempt, however, you should be
aware of these tax rules.
Distributions may be taxable.
A distribution is a payout of realized investment gains on securities in the
Fund's portfolio. When, for example, the Fund sells a stock at a profit, that
profit has to be recorded for tax purposes, combined with all the other profits
made that year, and distributed to shareholders based on the number of shares
held.
Distributions are subject to federal income tax, and may also be subject to
state or local taxes.
Distributions are taxable when they are paid, whether you take them in cash or
reinvest them in additional shares. However, distributions declared in December
and paid in January are taxable as if they were paid on December 31.
Capital gains are federally taxable
For federal tax purposes, the Fund's:
o Income and short-term capital gain distributions are taxed as dividends,
meaning that you'll pay tax at your marginal tax rate on this amount;
o Long-term capital gain distributions are taxed as long-term capital gains
(currently at a maximum of 20%).
Tax reporting
Every year, Fremont will send you and the IRS a statement, called a Form
1099-DIV, showing the amount of each taxable distribution you received in the
previous year.
Taxes on transactions
A capital gain or loss is the difference between the cost of your shares and the
price you receive when you sell them.
Your redemptions--including exchanges between Funds--are subject to capital
gains tax.
WWW.FREMONTFUNDS.COM 11
<PAGE>
INVESTMENT TERMS
Advisor - A firm that provides investment management and administrative
services, in this case, Fremont Investment Advisors, Inc.
Automated Clearing House (ACH) - An outside service provider for Fremont Mutual
Funds that transfers money between Fremont and other participating financial
institutions.
Benchmark Index - A recognized measure of performance, of stock or bond markets.
All mutual funds are required to have a relevant benchmark index, so that
investors have a standard by which to judge fund performance over time.
Broker-Dealer - A firm that is licensed to carry out a securities transaction.
Examples would be Charles Schwab or E*Trade.
Capital Gain - The sale price of an investment less the original purchase price.
If the number is positive there is a gain. For example, if the Fund manager buys
10,000 shares of Stock A for $2,000,000 and later sells the same 10,000 shares
for $3,000,000, the result is a capital gain of $1,000,000 ($3,000,000 -
$2,000,000 = $1,000,000).
o Short-Term Gains - Capital gains on securities held for less than 12 months.
o Long-Term Gains - Capital gains on securities held for more than 12 months.
Capitalization (Cap) - The market value of a corporation's stock, determined by
multiplying the number of stock shares issued by the price of the stock. A
"small cap" stock, for example, has a relatively low market value in comparison
to the largest stocks.
Closing Time - When regular session trading closes on the New York Stock
Exchange, usually 4:00 p.m. Eastern time, but sometimes earlier.
Distribution - A payout of realized capital gains on the securities in a Fund's
portfolio. Generally, once a year each Fremont Mutual Fund calculates the
profits it has made that year on the sale of securities, adds all other profits,
and distributes the profits to the Fund's investors based on the number of
shares they hold.
Dividend - The payout of income earned on an investment to a shareholder. Like
other mutual funds, Fremont Mutual Funds periodically pay dividends to
shareholders based on the income received from investments.
Liquidity - the ability to buy or sell an investment quickly without affecting
its price.
Mutual Fund - An investment company that pools the money of many people to
invest in any of a variety of different types of securities. A mutual fund
offers investors the advantages of investment diversification and professional
management.
Net Asset Value (or NAV) - The price of a single fund share. Calculated by
adding up the value of all the Fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
No-Load Mutual Fund - A type of mutual fund that does not impose a charge for
purchasing or redeeming shares, so that all of your money goes to work for you.
All Fremont Mutual Funds are no-load funds.
Portfolio - An investor's or a Fund's combined holdings.
Portfolio Turnover - The percentage of the dollar value of the portfolio which
is replaced each year. This is calculated by dividing the total purchases or
sales for the year, whichever is less, by the average assets for the year.
Redemption - The act of selling shares of a mutual fund.
Russell 2000 Index - Composed of the 2000 smallest stocks in the Russell 3000
Index, and is widely regarded in the industry as the premier measure of small
cap stocks.
Russell 3000 Index - Composed of the 3000 largest U.S. companies as measured by
market capitalization, and represents about 98% of the U.S. stock market.
Security - A type of investment whose authenticity is attested to by a legal
document. Stocks, bonds, options and warrants are examples of a security. A
stock certificate signifies partial ownership of a corporation. A bond
demonstrates that the possessor is owed money by a corporation or government
body.
Signature Guarantee - A security measure that confirms your identity, required
for certain transactions in order to reduce fraud. For these transactions,
signatures must be guaranteed by an "eligible guarantor" - a bank,
broker-dealer, credit union, national securities exchange, registered securities
association, clearing agency or savings association. A notary public is not an
acceptable guarantor.
Stock - A share of ownership in a corporation.
Sub-Advisor - A firm hired by the advisor of a fund to manage or co-manage that
fund's investment portfolio.
Transfer Agent - The service provider retained by a mutual fund company to keep
shareholder records, manage the flow of shareholders' funds, and resolve
administrative issues.
Wire - A method of transferring money between your Fremont account and another
financial institution using the Federal Reserve Wiring System.
12 CALL TOLL-FREE: 800-565-0254
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights of the Fund presented here have been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report covering the
fiscal year ended October 31, 1998, is included in the Fund's Annual Report.
<TABLE>
<CAPTION>
Period from
Year ended August 4, 1997 1 to
INSTITUTIONAL U.S. MICRO-CAP FUND October 31, 1998 October 31, 1997
- --------------------------------------------------------------------------------------------------
Selected Per Share Data
for one share outstanding during the period
<S> <C> <C>
Net asset value, beginning of period $ 9.78 $ 10.00
-------- --------
Income from Investment Operations
Net investment loss (.04) --
Net realized and unrealized gain (loss) (1.98) .09
-------- --------
Total investment operations (2.02) .09
-------- --------
Less Distributions
From net realized gains (.24) (.31)
-------- --------
Total distributions (.24) (.31)
-------- --------
Net asset value, end of period $ 7.52 $ 9.78
======== ========
Total Return 2 -21.03% 0.90%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 37,347 $ 40,545
Ratio of net expenses to average net assets 3 1.25% 1.25%*
Ratio of gross expenses to average net assets 3 1.38% 1.49%*
Ratio of net investment loss to average net assets 3 -.44% -.21%*
Portfolio turnover rate 187% 28%
</TABLE>
1 Fund's date of inception
2 Total return would have been lower had the advisor not waived and/or
reimbursed expenses.
3 For its advisory and administrative services, the Advisor receives a
management fee based on the average daily net assets of the Fund at an annual
rate of 1.15%. The Advisor has agreed to limit the Fund's total operating
expenses to 1.25% of average daily net assets. The Fund may reimburse the
Advisor for any reductions in the Fund's expenses during the three years
following that reduction if such reimbursement is requested by the Advisor,
if such reimbursement can be achieved within the foregoing expense limit, and
if the Board of Directors approves the reimbursement at the time of the
request as not inconsistent with the best interests of the Fund.
Ratios of expenses have been disclosed both before and after the impact of
these various waivers and/or reimbursements.
* Annualized
WWW.FREMONTFUNDS.COM 13
<PAGE>
- --------------------
FREMONT MUTUAL FUNDS
- --------------------
For More Information
In addition to the Fund information contained in this Prospectus, you may also
request the following free publications from Fremont Mutual Funds:
o Annual and Semi-Annual Reports
Additional information about the Fund's investments is available in the
Fund's Annual and Semi-Annual Reports to shareholders. In the Fund's Annual
and Semi-Annual Reports, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during the last fiscal year.
o Statement of Additional Information
This publication gives you more information about the Fund's investment
strategy. Legally it is "incorporated by reference," or considered part of,
this Prospectus.
You may also obtain copies of these publications by visiting the Securities and
Exchange Commission's (SEC) Public Reference Room in Washington, D.C., or by
sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
Toll-free number: 1-800-SEC-0330
Web site address: http://www.sec.gov
Fremont
Funds [LOGO]
For general information:
800-548-4539 (press 1), or 415-284-8562 (outside U.S.)
Please visit our web site at: www.fremontfunds.com
SEC File No: 811-05632
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
Copyright 1999 Fremont Mutual Funds, Inc. All rights reserved.
P030-9903
<PAGE>
As filed with the Securities and Exchange
Commission on March 1, 1999
Registration No. 33-23453
File No. 811-5632
================================================================================
Part B
of
Form N-1A
REGISTRATION STATEMENT
FREMONT MUTUAL FUNDS, INC.
================================================================================
<PAGE>
FREMONT MUTUAL FUNDS, INC.
FREMONT GLOBAL FUND
FREMONT INTERNATIONAL GROWTH FUND
FREMONT INTERNATIONAL SMALL CAP FUND
FREMONT EMERGING MARKETS FUND
FREMONT GROWTH FUND
FREMONT U.S. SMALL CAP FUND
FREMONT U.S. MICRO-CAP FUND
FREMONT REAL ESTATE SECURITIES FUND
FREMONT BOND FUND
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
FREMONT MONEY MARKET FUND
TOLL-FREE: 800-548-4539
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information concerning Fremont Mutual Funds, Inc.
(the "Investment Company") is not a prospectus. This Statement of Additional
Information supplements the Prospectuses for the above-named series of the
Investment Company, each dated March 1, 1999, and should be read in conjunction
with the Prospectus. Copies of the Prospectus are available without charge by
calling the Investment Company at the phone number printed above.
This Statement of Additional Information is dated March 1, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
THE CORPORATION................................................................3
INVESTMENT OBJECTIVES, POLICIES,AND RISK CONSIDERATIONS........................4
GENERAL INVESTMENT POLICIES...................................................14
INVESTMENT RESTRICTIONS.......................................................37
INVESTMENT COMPANY DIRECTORS AND OFFICERS.....................................39
INVESTMENT ADVISORY AND OTHER SERVICES........................................42
PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH FUND,
INTERNATIONAL SMALL CAP FUND, REAL ESTATE SECURTIES FUND,
AND EMERGING MARKETS FUND ONLY)...............................................47
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................48
HOW TO INVEST.................................................................50
OTHER INVESTMENT AND REDEMPTION SERVICES......................................54
TAXES - MUTUAL FUNDS..........................................................55
ADDITIONAL INFORMATION........................................................59
INVESTMENT RESULTS............................................................63
2
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THE CORPORATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed, open-end investment company. Currently, the Investment Company
has authorized several series of capital stock, as noted on the cover page, with
equal dividend and liquidation rights within each series (each a "Fund" and
collectively, the "Funds"). Investment Company shares are entitled to one vote
per share (with proportional voting for fractional shares) and are freely
transferable. Shareholders have no preemptive or conversion rights. Shares may
be voted in the election of directors and on other matters submitted to the vote
of shareholders. As permitted by Maryland law, there normally will be no annual
meeting of shareholders in any year, except as required under the Investment
Company Act of 1940, as amended (the "1940 Act"). The 1940 Act requires that a
meeting be held within 60 days in the event that less than a majority of the
directors holding office has been elected by shareholders. Directors shall
continue to hold office until their successors are elected and have qualified.
Investment Company shares do not have cumulative voting rights, which means that
the holders of a majority of the shares voting for the election of directors can
elect all of the directors. Shareholders holding 10% of the outstanding shares
may call a meeting of shareholders for any purpose, including that of removing
any director. A director may be removed upon a majority vote of the shareholders
qualified to vote in the election. The 1940 Act requires the Investment Company
to assist shareholders in calling such a meeting.
The management of the business and affairs of the Investment Company is the
responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the
"Advisor") provides the Fund with investment management and administrative
services under an Investment Advisory and Administrative Agreement (the
"Advisory Agreement") with the Investment Company. The Advisory Agreement
provides that the Advisor shall furnish advice to the Fund with respect to its
investments and shall, to the extent authorized by the Board of Directors,
determine what securities shall be purchased or sold by the Fund. The Advisor's
Investment Committee oversees the portfolio management of the Fund.
The professional staff of the Advisor has offered professional investment
management services regarding asset allocation in connection with securities
portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation
since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since
1987. The Advisor also provides investment advisory services regarding asset
allocation, investment manager selection and portfolio diversification to a
number of large Bechtel-related investors. The Investment Company is one of the
Advisor's clients.
The Advisor will provide direct portfolio management services to the extent that
a sub-advisor does not provide those services. In the future, the Advisor may
propose to the Investment Company that different or additional sub-advisor(s) be
engaged to provide investment advisory or portfolio management services to a
Fund. Prior to such engagement, any agreement with a sub-advisor must be
approved by the Board of Directors and, if required by law, by the shareholders
of the Fund. The Advisor may in its
3
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discretion manage all or a portion of a Fund's portfolio directly with or
without the use of a sub-advisor.
On any matter submitted to a vote of shareholders, such matter shall be voted by
a Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval of the Advisory Agreement with the Advisor) except
in matters where a vote of all of the Funds in the aggregate is required by the
1940 Act or otherwise.
Pursuant to the Articles of Incorporation, the Investment Company may issue ten
billion shares. This amount may be increased or decreased from time to time in
the discretion of the Board of Directors. Each share of a Fund represents an
interest in that Fund only, has a par value of $0.0001 per share, represents an
equal proportionate interest in that Fund with other shares of that Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as may be declared at the discretion of the Board
of Directors. Shares of a Fund when issued are fully paid and are
non-assessable. The Board of Directors may, at its discretion, establish and
issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Funds under applicable Securities and Exchange Commission regulations.
INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS
FREMONT BOND FUND (FORMERLY THE FREMONT INCOME FUND), FREMONT REAL ESTATE
SECURITIES FUND, FREMONT GLOBAL FUND (FORMERLY THE FREMONT MULTI-ASSET FUND),
FREMONT GROWTH FUND (FORMERLY THE FREMONT EQUITY FUND), FREMONT INTERNATIONAL
GROWTH FUND, FREMONT INTERNATIONAL SMALL CAP FUND, , FREMONT U.S. SMALL CAP
FUND, FREMONT EMERGING MARKETS FUND AND FREMONT U.S. MICRO-CAP FUND, AND FREMONT
CALIFORNIA INTERMEDIATE TAX-FREE FUND:
A broad range of objectives and policies is offered because the Funds are
intended to offer investment alternatives for a broad range of investors who are
expected to have a wide and varying range of investment objectives. All of the
Funds (except the Money Market Fund) are intended for long-term investors, not
for those who may wish to redeem their shares after a short period of TIME. The
descriptions below are intended to supplement the material in the Prospectus.
MONEY MARKET FUND
- -----------------
The Fund will invest in short-term securities which, at the time of purchase,
are considered to be "First Tier" securities, defined as: (i) rated in the top
rating category by at least two nationally recognized statistical rating
organizations ("NRSROs"), or (ii) in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or (iii) if unrated by an
NRSRO, have been determined to be of comparable quality by the Advisor,
4
<PAGE>
using guidelines approved by the Board of Directors. There are currently five
NRSROs: Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service
("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch IBCA, Inc.
("Fitch"), and Thomson Bankwatch, Inc. ("TBW"). Generally, high quality
short-term securities must be issued by an entity with an outstanding debt issue
rated single "A" or better by an NRSRO, or if unrated by an NRSRO, by an entity
deemed to be of comparable quality by the Advisor, using guidelines approved by
the Board of Directors. Obligations of foreign banks, foreign corporations and
foreign branches of domestic banks must be payable in U.S. dollars. See Appendix
A for a description of rating categories.
The Fund may invest no more than 5% of its total assets in the securities of any
one issuer, other than U.S. Government securities, except in times of unexpected
shareholder redemptions or purchases. In such circumstances, the Fund may invest
temporarily in the securities of any one issuer in excess of 5%, but not to
exceed 25%, of the Fund's total assets for up to three business days after the
purchase to allow the Fund to manage its portfolio liquidity. The Fund will not
invest more than 10% of its assets in time deposits with a maturity of greater
than seven days. The Fund may make loans of its portfolio securities and enter
into repurchase agreements as described below, except that such repurchase
agreements with a maturity of greater than seven days and other securities and
assets that are not readily marketable shall not exceed 10% of the value of the
Fund's net assets.
BOND FUND
- ---------
The Fund will invest primarily in securities rated Aa or better by Moody's, AA
or better by S&P or, if not rated by one of these NRSROs, have been determined
by the Fund's Sub-Advisor, to be of comparable quality. The Fund also may invest
up to 10% of its total assets in corporate debt securities that are not
investment grade but are rated B or higher by Moody's or S&P. Although long-term
securities generally produce higher income than short-term securities, long-term
securities are more susceptible to market fluctuations resulting from changes in
interest rates. Generally, when interest rates decline, the value of a portfolio
invested at higher yields can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio invested at lower yields can generally be
expected to decline. See "Corporate Debt Securities" below for more information
on quality ratings and risks involved with lower rated securities.
The Fund may invest in convertible debentures (which are convertible to equity
securities) and preferred stocks (which may or may not pay a dividend) using the
same quality and rating criteria noted above. The Fund may also invest in a
small percentage of assets in common stocks consistent with its investment
objectives. In addition, the Fund may invest directly in foreign
currency-denominated debt securities which meet the credit quality guidelines
set forth for U.S. holdings.
The Fund will not use futures and options contracts for the purpose of
leveraging its portfolio. The Fund will set aside cash, cash equivalents or high
quality debt securities or hold a covered position against any potential
delivery or payment obligations under any
5
<PAGE>
outstanding option or futures contracts. Although these investment practices
will be used primarily to enhance total return or to minimize the fluctuation of
principal, they do involve risks which are different in some respects from the
investment risks associated with similar funds which do not engage in such
activities. These risks may include the following: the imperfect correlation
between the prices of options and futures contracts and movement in the price of
securities being hedged; the possible absence of a liquid secondary market; in
the case of over-the-counter options, the risk of default by the counter party;
and the dependence upon the Sub-Advisor's ability to correctly predict movements
in the direction of interest rates and securities prices. The Fund currently
intends to commit no more than 5% of its net assets to premiums when purchasing
options and to limit its writing of options so that the aggregate value of the
securities underlying such options, as of the date of sale of the options, will
not exceed 5% of the Fund's net assets.
REAL ESTATE SECURITIES FUND
- ---------------------------
For purposes of the Fund's investment policies, a company is in the real estate
industry if it derives at least 50% of its revenues from the ownership,
construction, financing, management or sale of commercial, industrial, or
residential real estate or if it has at least 50% of its assets in such types of
real estate. Companies in the real estate industry may include: real estate
investment trusts ("REITs"), real estate operating companies, companies
operating businesses which own a substantial amount of real estate such as
hotels and assisted living facilities, and development companies.
REITs pool investors' funds for investment primarily in income producing real
estate or real estate related loans or interests. A REIT is not taxed on income
distributed to shareholders if it complies with several requirements relating to
its organization, ownership, assets, and income and a requirement that it
distribute to its shareholders at least 95% of its taxable income (other than
net capital gains) for each taxable year.
The Fund may be subject to risks similar to those associated with the direct
ownership of real estate (in addition to securities markets risks) because of
its policy of concentration in these securities of companies in the real estate
industry. These risks include declines in the value of real estate, risks
related to general and local economic conditions, dependency on management
skill, increases in interest rates, possible lack of availability of mortgage
funds, overbuilding, extended vacancies of properties, increased competition,
increases in property taxes and operating expenses, changes in zoning laws,
losses due to costs resulting from the clean-up of environmental problems,
casualty or condemnation losses, limitations on rents, changes in neighborhood
values and the appeal of properties to tenants.
Rising interest rates may cause investors in REITs to demand a higher annual
yield from future distributions, which may in turn decrease market prices for
equity securities issued by REITs. Rising interest rates also generally increase
the costs of obtaining financing, which could cause the value of the Fund's
investments to decline. During periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors elect to prepay, and such
prepayment may diminish the yield on securities issued by such
6
<PAGE>
mortgage REITs. In addition, mortgage REITs may be affected by the borrowers'
ability to repay when due the debt extended by the REIT, and equity REITs may be
affected by the tenants' ability to pay rent.
FREMONT GLOBAL FUND
- -------------------
The Fund may invest in U.S. stocks, U.S. bonds, foreign stocks, foreign bonds,
real estate securities, precious metals and cash equivalents. The Fund may
adjust the level of investment maintained in each asset category in response to
changing market conditions. The Advisor will allocate the assets of the Fund
among the following categories of assets:
U.S. Stocks --The Fund may invest in common and preferred stocks of
U.S.-based companies traded on a U.S. exchange or in the over-the-counter
("OTC") market. The Fund may also invest in stock index futures contracts,
options on index futures and options on stock indexes.
U.S. Dollar-Denominated Debt Securities--The Fund may invest in the
following: obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; U.S. dollar-denominated corporate debt
securities of domestic or foreign issuers; mortgage and other asset-backed
securities; variable and floating rate debt securities; convertible bonds;
U.S. dollar-denominated obligations of a foreign government, or any of its
political subdivisions, authorities, agencies or instrumentalities or by
supranational organizations (such as the World Bank); and securities that
are eligible as short-term cash equivalents. The Fund will not invest more
than 5% of its net assets in variable and floating rate debt securities,
nor will the Fund invest more than 5% of its net assets in guaranteed
investment contracts. The Fund may invest in interest rate futures and
options on such futures. The Fund also may invest up to 10% of its assets
in corporate debt securities rated Ba by Moody's or BB by S&P, (sometimes
referred to as "junk bonds") which will have speculative characteristics,
including the possibility of default or bankruptcy of the issuers of such
securities, market price volatility based upon interest rate sensitivity,
questionable creditworthiness and relative liquidity of the secondary
trading market.
Foreign Stocks--The Fund may purchase stock of foreign-based companies,
including securities denominated in foreign currencies and issues of
American Depository Receipts ("ADRs") and Global Depository Receipts
("GDRs") representing shares of foreign companies. The Fund may invest in
foreign stock index futures, options on index futures and options on
foreign stock indexes. The Advisor may engage in foreign currency in
specific countries based on the Advisor's outlook for the currencies being
considered. Hedging may be undertaken through the purchase of currency
futures or otherwise.
Foreign Bonds--The Fund may invest in non-U.S. dollar denominated bonds,
notes and bills of foreign governments, their agencies and corporations
that the Advisor believes are of a quality comparable to the U.S.
dollar-denominated debt securities described above. The Advisor will invest
the assets in this class based on its
7
<PAGE>
outlook for interest rates and currency trends in a particular country. The
Advisor may engage in foreign currency hedging from time to time based on
its outlook for currency values.
Real Estate Securities--The Fund may invest in the equity securities of
publicly traded and private REIT, which invest in real estate. A REIT is an
entity that concentrates its assets in investments related to equity real
estate and/or interests in mortgages on real estate. The shares of publicly
traded REITs are traded on a national securities exchange or in the OTC
market. Shares of private REITs are not publicly traded, and will be
treated as illiquid securities. The Fund will limit its investments in
illiquid securities, including private REITs, to 15% of its net assets.
Precious Metals and Commodities Futures--The Fund may hold gold, other
precious metals, or commodity futures positions and/or securities of
companies principally engaged in producing or distributing gold, precious
metals or commodities in the United States and/or in foreign countries.
Such companies are defined as those that generate a substantial portion of
their gross income or net profits from gold, precious metals, or
commodities activities and/or have a substantial portion of their assets
productively engaged in these activities. The Fund may purchase and sell
futures and options contracts on commodities.
The Fund will maintain the remainder of its assets in cash or cash equivalents.
The objective of the cash equivalent portfolio is to maximize current income to
the extent that is consistent with the preservation of capital and liquidity.
FREMONT GROWTH FUND
- -------------------
Although the Fund invests primarily in common stocks, for liquidity purposes it
will normally invest a portion of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. When a
temporary defensive posture in the market is appropriate in the Advisor's
opinion, the Fund may temporarily invest up to 100% of its assets in these
instruments. The Fund may also hold other types of securities from time to time,
including bonds.
The Fund may invest up to 35% of its total assets in stocks of foreign-based
companies denominated in foreign currencies and issues of ADRs and GDRs
representing shares of foreign companies. The Fund may invest in foreign stock
index futures, options on index futures and options on foreign stock indexes.
The Advisor may engage in foreign currency hedging for assets in specific
countries based on its outlook for the currencies involved. Hedging may be
undertaken through the use of currency futures or otherwise.
If the Fund holds bonds, such bonds will primarily be debt instruments with
short to intermediate maturities (which are defined as debt instruments with 1
to 10 years to maturity). These bonds, including convertibles, will, at the time
of purchase, have a rating of A or better either by Moody's or S&P, or if
unrated by one of these NRSROs, have been
8
<PAGE>
determined by the Advisor to be comparable in quality. However, there are no
restrictions on the maturity composition of the Fund's portfolio.
The Fund may invest in non-U.S. dollar denominated bonds, notes and bills of
foreign governments, their agencies and corporations of a quality comparable to
the U.S. dollar-denominated debt securities described above. The dollar-weighted
average maturity of the Fund's foreign bonds may range from 2 to 8 years. The
Advisor will invest the assets in this class based on its outlook for interest
rates and currency trends in a particular country. The Advisor may engage in
foreign currency hedging from time to time based on its outlook for currency
values.
The Fund will maintain the remainder of its assets in cash or cash equivalents
and other fixed income securities. Cash and cash equivalents will be denominated
in U.S. dollars. The objective of the cash equivalent portfolio is to maximize
current income to the extent that is consistent with the preservation of capital
and liquidity.
FREMONT INTERNATIONAL GROWTH FUND
- ---------------------------------
The Fund's portfolio of equity securities consists of common and preferred
stock, warrants and debt securities convertible into common stock. The Advisor
and/or Sub-Advisor generally will invest 90% of the Fund's total assets in
equity issuers domiciled outside of the U.S., of which up to 5% of the Fund's
assets may be invested in rights or warrants to purchase equity securities. For
defensive purposes, the Fund may temporarily have less than 90% of its assets
invested in equity securities domiciled outside the United States.
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies domiciled in the
countries of Japan, the United Kingdom and/or Germany. These are among the
leading industrial economies outside the United States and the values of their
stock markets account for a significant portion of the value of international
markets.
In addition to investing directly in equity securities, the Fund may invest in
various American, Global and International Depository Arrangements, including
but not limited to sponsored and unsponsored ADRs, GDRs, International
Depository Receipts, American Depository Shares, Global Depository Shares and
International Depository Shares. The Fund may also invest in securities of
issuers located in emerging market countries.
Whenever, in the judgment of the Advisor and/or Sub-Advisor, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in U.S. dollar-denominated or foreign currency denominated
cash-equivalent instruments or in high-quality debt securities with remaining
maturities of one year or less. Of course, during times that the Fund is
investing defensively, the Fund will not be able to pursue its stated investment
objective. For liquidity purposes, the Fund normally may also invest up to 10%
of its total assets in U.S. dollar-denominated or foreign currency-denominated
cash or in high quality debt securities with remaining maturities of one year or
less.
9
<PAGE>
FREMONT U.S. SMALL CAP FUND
- ---------------------------
Although the Fund will normally invest in common stocks of U.S. companies, up to
25% of the Fund's total assets, at the time of purchase, may be invested in
securities of companies domiciled outside the United States, including sponsored
and unsponsored ADRs and GDRs. The Fund may also invest in stock index futures
contracts, options on index futures, and options on portfolio securities and
stock indices.
For liquidity purposes, the Fund will normally invest a portion of its assets in
high quality debt securities and money market instruments with remaining
maturities of one year or less, including repurchase agreements. Whenever, in
the judgment of the Advisor and/or Sub-Advisor, market or economic conditions
warrant, the Fund may, for temporary defensive purposes, invest without
limitation in these instruments. Of course, during times that the Fund is
investing defensively, the Fund will not be able to pursue its stated investment
objective.
The Fund may also hold other types of securities from time to time, including
convertible and non-convertible bonds and preferred stocks, when the Advisor
and/or Sub-Advisor believes that these investments offer opportunities for
capital appreciation. Preferred stocks and bonds will, at the time of purchase,
be rated Baa or higher by Moody's, BBB or higher by S&P or, if unrated by one of
these NRSROs have been determined by the Advisor and/or Sub-Advisor to be of
comparable quality. Securities rated Baa by Moody's or BBB by S&P are considered
investment grade, but may have speculative characteristics. Changes in economic
conditions may lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than is the case with higher-rated
securities. See Appendix A for a description of rating categories.
FREMONT INTERNATIONAL SMALL CAP FUND
- ------------------------------------
The Fund's portfolio of equity securities will typically consist of common and
preferred stock, warrants and debt securities convertible into common stock. The
Advisor and/or Sub-Advisor generally will invest at least 65% of the Fund's
total assets in small cap equity securities of issuers domiciled outside the
U.S., of which up to 5% of the Fund's assets may be invested in rights or
warrants to purchase equity securities. For defensive purposes, the Fund may
temporarily have less than 65% of its total assets invested in small cap equity
issuers domiciled outside the United States.
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies domiciled in the
countries of Japan, the United Kingdom and/or Germany. These are among the
leading industrial economies outside the United States and the values of their
stock markets account for a significant portion of the value of international
markets.
In addition to investing directly in equity securities, the Fund may invest in
instruments such as sponsored and unsponsored ADRs and GDRs.
10
<PAGE>
There is no limitation on the percentage of the Fund's assets that may be
invested at any one time in one or more countries. However, except during times
that the Fund is in a temporary defensive posture, the Fund will invest at least
65% of its total assets in the securities of issuers domiciled in at least three
different non-U.S. countries. The Fund may also invest in equity securities of
companies domiciled in emerging markets.
Whenever, in the judgment of the Advisor and/or Sub-Advisor, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in U.S. dollar-denominated or foreign currency-denominated
cash-equivalent instruments or in high quality debt securities with remaining
maturities of one year or less. Of course, during times that the Fund is
investing defensively, the Fund will not be able to pursue its stated investment
objective. For liquidity purposes, the Fund may invest up to 10% of its total
assets in U.S. dollar-denominated or foreign currency-denominated cash or in
high quality debt securities with remaining maturities of one year or less.
FREMONT EMERGING MARKETS FUND
- -----------------------------
The Fund's portfolio of equity securities will typically consist of common and
preferred stock, warrants and debt securities convertible into common stock. The
Advisor and/or Sub-Advisor generally will invest at least 65% of the Fund's
total assets in equity securities of issuers domiciled in emerging or developing
countries, of which up to 5% of the Fund's assets may be invested in rights or
warrants to purchase equity securities. For defensive purposes, the Fund may
temporarily have less than 65% of its total assets invested in equity securities
of issuers in emerging markets. In addition to investing directly in equity
securities, the Fund may invest in instruments such as sponsored and unsponsored
ADRs and GDRs.
An issuer will be deemed to be in an emerging market if: (i) the principal
securities trading market for such issuer is in an emerging market country; (ii)
such issuer derives at least 50% of its revenues or earnings, either alone or on
a consolidated basis, from goods produced or sold, investments made or services
performed in an emerging market country, or has at least 50% of its total assets
situated in one or more emerging markets countries; or (iii) such issuer is
organized under the laws of, and with a principal office in, an emerging market
country. Determinations as to whether an issuer is an emerging markets issuer
will be made by the Advisor and/or Sub- Advisor based on publicly available
information and inquiries made to the issuers.
The Fund may invest in debt securities of both governmental and corporate
issuers in emerging markets which, at the time of purchase, are rated Baa or
higher by Moody's, BBB or higher by S&P or, if unrated by these NRSROs, have
been determined by the Advisor and/or Sub-Advisor to be of comparable quality.
Whenever, in the judgment of the Advisor and/or Sub-Advisor, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in U.S. dollar denominated or foreign currency-denominated
cash-equivalent
11
<PAGE>
investments or in high quality debt securities with maturities of one year or
less. Of course, during times that the Fund is investing defensively, the Fund
will not be able to pursue its stated investment objective. For liquidity
purposes, the Fund may invest up to 10% of its assets in U.S. dollar-denominated
or foreign currency-denominated cash-equivalent investments or in high quality
debt securities with maturities of one year or less.
In seeking to protect against the effect of adverse changes in the financial
markets in which the Fund invests, or against currency exchange rate changes
that are adverse to the present or prospective positions of the Fund, the Fund
may use forward currency contracts, options on securities, options on indices,
options on currencies, and futures contracts and options on futures contracts on
securities and currencies. These techniques are detailed below in "General
Investment Policies".
FREMONT U.S. MICRO-CAP FUND
- ---------------------------
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities of U.S. micro-cap companies. These securities will
typically trade on a U.S. exchange or on the OTC market. However, up to 25% of
the Fund's total assets, at the time of purchase, may be invested in securities
of micro-cap companies domiciled outside the United States, including sponsored
and unsponsored ADRs GDRs. See "General Investment Policies" for a discussion of
ADRs.
The Fund may also invest in stock index futures contracts, options on index
futures and options on portfolio securities and stock indices. See "General
Investment Policies" below for a discussion of these investment practices.
Although the Fund invests primarily in common stocks and securities convertible
into common stock, for liquidity purposes it will normally invest a portion of
its assets in high quality debt securities and money market instruments with
remaining maturities of one year or less, including repurchase agreements.
Whenever, in the judgment of the Advisor and/or Sub-Advisor, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in these instruments. Of course, during times that the Fund
is investing defensively, the Fund will not be able to pursue its stated
investment objective. The Fund may also hold other types of securities from time
to time, including non-convertible bonds and preferred stocks, in an amount not
exceeding 5% of its net assets. Preferred stocks and bonds will, at the time of
purchase, be rated Aaa or Aa by Moody's, AAA or AA by S&P or, if unrated by one
of these NRSROs, have been determined by the Advisor and/or Sub-Advisor to be of
comparable quality. See Appendix A for a description of rating categories.
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
- ---------------------------------------------
The Fund may invest in open-end and closed-end investment companies which invest
in securities whose income is exempt from federal income tax and California
personal income tax. It is the current intention of the Fund to limit its
investments in such investment
12
<PAGE>
companies to not more than 5% of its net assets. Income received from these
investments is exempt from federal, but not California tax.
The term "municipal securities" as used in this document means obligations
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities. The term "California municipal securities" as used herein
refers to obligations that are issued by or on behalf of the State of California
and its political subdivisions. An opinion as to the tax-exempt status of the
interest paid on a municipal security is rendered to the issuer by the issuer's
bond counsel at the time of the issuance of the security.
The Fund invests primarily in California municipal securities which generally
have 3 to 20 years remaining to maturity at the time of acquisition. The
dollar-weighted average portfolio maturity is expected to range from 3 to 10
years. The Fund restricts its municipal securities investments to those within
or of a quality comparable to the four highest rating classifications of Moody's
S&P. Municipal bonds and notes and tax-exempt commercial paper would have, at
the date of purchase by the Fund, Moody's ratings of Aaa, Aa, A or Baa; MIG
1/VMIG1or MIG2/VMIG2; P-1; or S&P's ratings of AAA, AA, A, or BBB; SP-1+, SP-1
or SP-2;A-1+ or A-1, respectively. (See Appendix A for a description of these
ratings)
Securities ratings are the opinions of the rating agencies issuing them and are
not absolute standards of quality. Because of the cost of ratings, certain
issuers do not obtain a rating for each issue. The Fund may purchase unrated
municipal securities which the Advisor and/or Sub-Advisor determines to have a
credit quality comparable to that required for investment by the Fund. As a
matter of operating policy, not more than 25% of the Fund's investments (other
than those guaranteed by the U.S. Government or any of its agencies or
instrumentalities) may be unrated securities. Such percentage shall apply only
at the time of acquisition of a security. To the extent that unrated municipal
securities may be less liquid, there may be somewhat greater market risk
incurred in purchasing them than in purchasing comparable rated securities. Any
unrated securities deemed to be not readily marketable by the Board of Directors
will be included in the calculation of the limitation of 15% of net assets which
may be invested in illiquid securities and other assets.
As a fundamental policy (i.e., the policy will not be changed without a majority
vote of its shareholders) the Fund will, under normal circumstances, invest up
to 100%, and not less than 80%, of its net assets in California municipal
securities, the interest on which is exempt from federal income tax and
California personal income tax and are not subject to the alternative minimum
tax. The Fund reserves the right to invest up to 20% of its net assets in
taxable U.S. Treasury securities which are secured by the "full faith and
credit" pledge of the U.S. Government, and in municipal securities of other
states which, although exempt from federal income taxes, are not exempt from
California income taxes. For temporary defensive purposes the Fund may invest in
excess of 20% of its net assets in these securities.
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GENERAL INVESTMENT POLICIES
THE FUNDS GENERALLY:
DIVERSIFICATION. Each Fund, except for the Fremont Real Estate Securities Fund,
the Fremont International Small Cap Fund, the Fremont Emerging Markets Fund, and
the Fremont California Intermediate Tax-Free Fund, intends to operate as a
"diversified" management investment company, as defined in the Investment
Company Act of 1940 (the "1940 Act"). A "diversified" investment company means a
company which meets the following requirements: At least 75% of the value of the
company's total assets is represented by cash and cash items (including
receivables), "Government Securities" (as defined below), securities of other
investment companies, and other securities for the purposes of this calculation
limited in respect of any one issuer to an amount not greater in value than 5%
of the value of the total assets of such management company and to not more than
10% of the outstanding voting securities of such issuer. "Government Securities"
means securities issued or guaranteed as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an
instrumentality of the Government of the United States pursuant to authority
granted by the Congress of the United States.
The Fremont Real Estate Securities Fund, the Fremont International Small Cap
Fund, the Fremont Emerging Markets Fund, and the Fremont California Intermediate
Tax-Free Fund are non-diversified funds and are not subject to the foregoing
requirements.
MONEY MARKET INSTRUMENTS. The Funds may invest in any of the following "money
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations and governments; U.S. government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Funds' quality guidelines. The Funds also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
At the time of purchase, short-term securities must be rated in the top rating
category by at least two NRSROs or, in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or, if not rated by an
NRSRO, must be determined to be of comparable quality by the Advisor and/or
Sub-Advisor. Generally, high-quality, short-term securities must be issued by an
entity with an outstanding debt issue rated A or better by an NRSRO, or an
entity of comparable quality as determined by the Advisor and/or Sub-Advisor,
using guidelines approved by the Board of Directors. Obligations of foreign
banks, foreign corporations and foreign branches of domestic banks must be
payable in U.S. dollars. See Appendix A for a description of rating categories.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. government securities,
which are obligations of, or guaranteed by, the U.S. government, its agencies or
instrumentalities. Some U.S. government securities, such as Treasury bills,
notes and bonds and Government National Mortgage Association ("GNMA")
certificates, are supported by the full faith and credit of the United States;
those of the Federal Home Loan Mortgage
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Corporation ("FHLMC") are supported by the right of the issuer to borrow from
the Treasury; those of the Federal National Mortgage Association ("FNMA"), are
supported by the discretionary authority of the U.S. government to purchase the
agency's obligations; and those of the Student Loan Marketing Association are
supported only by the credit of the instrumentality. The U.S. government is not
obligated by law to provide future financial support to the U.S. government
agencies or instrumentalities named above.
REPURCHASE AGREEMENTS. As part of its cash reserve position, each Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer, or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a period of less than one week. The seller must maintain with the Fund's
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. The Fund
will not enter into a repurchase agreement with a maturity of more than seven
business days if, as a result, more than 15% (or 10% in the case of the Money
Market Fund) of the value of its net assets would then be invested in such
repurchase agreements. A Fund will only enter into repurchase agreements where
(i) the underlying securities are issued or guaranteed by the U.S. government,
(ii) the market value of the underlying security, including accrued interest,
will be at all times equal to or in excess of the value of the repurchase
agreement; and (iii) payment for the underlying securities is made only upon
physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, a Fund could experience both
delays in liquidating the underlying securities and losses, including: (i) a
possible decline in the value of the underlying security during the period in
which the Fund seeks to enforce its rights thereto; (ii) possible subnormal
levels of income and lack of access to income during this period; and (iii)
expenses of enforcing the Fund's rights.
REVERSE REPURCHASE AGREEMENTS AND LEVERAGE. The Funds may enter into reverse
repurchase agreements which involve the sale of a security by a Fund and its
agreement to repurchase the security at a specified time and price. The Fund
involved will maintain in a segregated account with its custodian cash, cash
equivalents, or liquid securities in an amount sufficient to cover its
obligations under reverse repurchase agreements with broker-dealers (but not
with banks). Under the 1940 Act, reverse repurchase agreements are considered
borrowings by a Fund; accordingly, each Fund will limit its investments in these
transactions, together with any other borrowings, to no more than one-third of
its total assets. The use of reverse repurchase agreements by a Fund creates
leverage which increases the Fund's investment risk. If the income and gains on
securities purchased with the proceeds of these transactions exceed the cost, a
Fund's earnings or net asset value will increase faster than otherwise would be
the case; conversely, if the income and gains fail to exceed the costs, earnings
or net asset value would decline faster than otherwise would be the case. If the
300% asset coverage required by the 1940 Act should decline as a result of
market fluctuation or other reasons, a Fund may be required to sell some of its
portfolio securities within three days to reduce the borrowings (including
reverse repurchase agreements) and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. The Funds
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intend to enter into reverse repurchase agreements only if the income from the
investment of the proceeds is greater than the expense of the transaction,
because the proceeds are invested for a period no longer than the term of the
reverse repurchase agreement.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS AND PARTICIPATION INTERESTS. The
Funds may purchase floating rate and variable rate obligations, including
participation interests therein. Floating rate or variable rate obligations
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate at a major commercial bank) or is
reset on a regular basis by a bank or investment banking firm to a market rate.
At specified times, the owner can demand payment of the obligation at par plus
accrued interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external interest
rate. Frequently, banks provide letters of credit or other credit support or
liquidity arrangements to secure these obligations. The quality of the
underlying creditor or of the bank, as the case may be, must meet the minimum
credit quality standards, as determined by the Advisor or Sub-Advisor,
prescribed for the Funds by the Board of Directors with respect to
counterparties in repurchase agreements and similar transactions.
The Funds may invest in participation interests purchased from banks in floating
rate or variable rate obligations owned by banks. A participation interest gives
a Fund an undivided interest in the obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the obligation,
and provides a demand repayment feature. Each participation is backed by an
irrevocable letter of credit or guarantee of a bank (which may be the bank
issuing the participation interest or another bank). The bank letter of credit
or guarantee must meet the prescribed investment quality standards for the
Funds. A Fund has the right to sell the participation instrument back to the
issuing bank or draw on the letter of credit on demand for all or any part of
the Fund's participation interest in the underlying obligation, plus accrued
interest.
SWAP AGREEMENTS. The Funds may enter into interest rate, index, and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include interest
rate caps, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates exceed a specified rate,
or "cap"; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified level, or "floor"; and interest rate collars, under which, a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding minimum or maximum levels.
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The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). A Fund's obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or high-grade debt
obligations, to avoid any potential leveraging of the Fund's portfolio. A Fund
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 5%
of the Fund's net assets.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Advisor's or the Sub-Advisor's ability
to predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements will be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Advisor or Sub-Advisor will
cause a Fund to enter into swap agreements only with counterparties that would
be eligible for consideration as repurchase agreement counterparties under a
Fund's repurchase agreement guidelines. Certain restrictions imposed on the
Funds by the Internal Revenue Code may limit the Funds' ability to use swap
agreements. The swaps market is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect a Fund's ability to terminate existing swap agreements or
to realize amounts to be received under such agreements.
BOND ARBITRAGE STRATEGIES. The Global Fund may enter into short sales of
government and quasi-government bonds. This strategy will be used to take
advantage of perceived mispricings (i.e., unjustified price differences) between
various bond markets without taking on interest rate risk. For example, the
yield differential between conventional U.S. Treasury Bonds and similar duration
U.S. Treasury Inflation-Indexed Bonds typically indicates investors'
expectations of inflation rates in the future. An arbitrage opportunity exists
if the Advisor determines that investors' expectations of future inflation are
unrealistically high or low. For example, if the Advisor believes that the price
of U.S. Treasury Inflation-Indexed Bonds has been bid down too low because of
investors' unrealistically low expectations concerning future inflation, the
Advisor may enter into a short sale of conventional U.S. Treasury Bonds and take
a corresponding "long" position on U.S. Treasury Inflation-Indexed Bonds. If
investors' expectations later correct their differential, the price of U.S.
Treasury Bonds as compared to Inflation-Indexed Bonds will decrease and the Fund
will be able to close out its short position profitably. The Global Fund would
thus be able to exploit the mispricing due to unrealistic inflation expectations
without taking on any unwanted interest rate risk. Other similar arbitrage
opportunities exist with other types of bonds, such as mispricings due to credit
or liquidity spread misperceptions and European union interest rate convergence
trades. As in any short
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selling arrangement, the Global Fund is required to fully collateralize the
short side of any such arbitrage on a daily marked-to-market basis (i.e., the
Fund will be required to maintain collateral equal to cost of closing out the
short position, adjusted for market movements each day) and may have to maintain
additional assets with the securities broker or dealer through whom the short
position has been established. The cost of establishing these types of
arbitrages is relatively small; nevertheless, if the arbitrage opportunity does
not develop as expected, the Global Fund would be disadvantaged by the amount of
any cost involved to put the arbitrage in place and subsequently close it out.
Such arbitrages will be limited to government and quasi-government bonds with
highly liquid markets to control exposure on the short side, and will never in
the aggregate involve more than 5% of the Fund's net assets.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. A Fund may purchase
securities on a delayed delivery or "when-issued" basis and enter into firm
commitment agreements (transactions whereby the payment obligation and interest
rate are fixed at the time of the transaction but the settlement is delayed). A
Fund will not purchase securities the value of which is greater than 5% of its
net assets on a when-issued or firm commitment basis, except that this
limitation does not apply to the Fremont Bond Fund. A Fund, as purchaser,
assumes the risk of any decline in value of the security beginning on the date
of the agreement or purchase, and no interest accrues to the Fund until it
accepts delivery of the security. A Fund will not use such transactions for
leveraging purposes, and accordingly, will segregate cash, cash equivalents, or
liquid securities in an amount sufficient to meet its payment obligations
thereunder. There is always a risk that the securities may not be delivered and
that a Fund may incur a loss or will have lost the opportunity to invest the
amount set aside for such transaction in the segregated asset account.
Settlements in the ordinary course of business, which may take substantially
more than three business days for non-U.S. securities, are not treated by the
Funds as when-issued or forward commitment transactions and, accordingly, are
not subject to the foregoing limitations, even though some of the risks
described above may be present in such transactions. Although these transactions
will not be entered into for leveraging purposes, to the extent a Fund's
aggregate commitments under these transactions exceed its holdings of cash and
securities that do not fluctuate in value (such as short-term money market
instruments), the Fund temporarily will be in a leveraged position (i.e., it
will have an amount greater than its net assets subject to market risk). Should
market values of a Fund's portfolio securities decline while the Fund is in a
leveraged position, greater depreciation of its net assets would likely occur
than were it not in such a position. As the Fund's aggregate commitments under
these transactions increase, the opportunity for leverage similarly increases. A
Fund will not borrow money to settle these transactions and, therefore, will
liquidate other portfolio securities in advance of settlement if necessary to
generate additional cash to meet its obligations thereunder.
COMMERCIAL BANK OBLIGATIONS. For the purposes of each Fund's investment policies
with respect to bank obligations, obligations of foreign branches of U.S. banks
and of foreign banks may be general obligations of the parent bank in addition
to the issuing bank, or may be limited by the terms of a specific obligation and
by government regulation. As with investment in non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks, and of foreign
banks may subject the Funds to investment risks that are different in some
respects from those of investments in obligations of domestic
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issuers. Although a Fund will typically acquire obligations issued and supported
by the credit of U.S. or foreign banks having total assets at the time of
purchase in excess of $1 billion, this $1 billion figure is not a fundamental
investment policy or restriction of any Fund. For the purposes of calculating
the $1 billion figure, the assets of a bank will be deemed to include the assets
of its U.S. and non-U.S. branches.
TEMPORARY DEFENSIVE POSTURE. When a temporary defensive posture in the market is
appropriate in the Advisor's and/or Sub-Advisor's opinion, each Fund may
temporarily invest up to 100% of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. The
Funds may also hold other types of securities from time to time, including
bonds.
BORROWING. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and may enter into
reverse repurchase agreements. If the income and gains on securities purchased
with the proceeds of borrowings or reverse repurchase agreements exceed the cost
of such borrowings or agreements, the Fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the cost, earnings or net asset value would decline faster
than otherwise would be the case.
LENDING OF PORTFOLIO SECURITIES. The Fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors in an
amount not exceeding 33 1/3% of its net assets. The borrower must maintain with
the Fund's custodian collateral consisting of cash, cash equivalents or U.S.
Government securities equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. The Fund will receive any interest or
dividends paid on the loaned securities and a fee or a portion of the interest
earned on the collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities, or possible loss of
rights in the collateral should the borrower fail financially. The lender also
may bear the risk of capital loss on investment of the cash collateral, which
must be returned in full to the borrower when the loan is terminated. Loans will
be made only to firms deemed by the Advisor and/or Sub-Advisor to be of good
standing and will not be made unless, in the judgment of the Advisor and/or
Sub-Advisor, the consideration to be earned from such loans would justify the
associated risk.
PORTFOLIO TURNOVER. Each Fund (except for the Fremont Money Market Fund) may
trade in securities for short-term gain whenever deemed advisable by the Advisor
and/or Sub-Advisor in order to take advantage of anomalies occurring in general
market, economic or political conditions. Therefore, each Fund may have a higher
portfolio turnover rate than that of some other investment companies, but it is
anticipated that the annual portfolio turnover rate of each Fund will not exceed
200%. The portfolio turnover rate is calculated by dividing the lesser of sales
or purchases of long-term portfolio securities by the Fund's average month-end
long-term investments. High portfolio turnover involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions and
other costs that the Funds will bear directly, and may result in the realization
of net capital gains, which are generally taxable whether or not distributed to
shareholders.
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SHARES OF INVESTMENT COMPANIES. The Funds may invest some portion of its assets
in shares of other no-load, open-end investment companies and closed-end
investment companies to the extent that they may facilitate achieving the
investment objectives of the Funds or to the extent that they afford the
principal or most practical means of access to a particular market or markets or
they represent attractive investments in their own right. The percentage of Fund
assets which may be so invested is not limited, provided that a Fund and its
affiliates do not acquire more than 3% of the shares of any such investment
company. The provisions of the 1940 Act may also impose certain restrictions on
redemption of the Fund's shares in other investment companies. A Fund's purchase
of shares of investment companies may result in the payment by a shareholder of
duplicative management fees. The Advisor and/or Sub-Advisor will consider such
fees in determining whether to invest in other mutual funds. The Funds will
invest only in investment companies which do not charge a sales load; however,
the Funds may invest in such companies with distribution plans and fees, and may
pay customary brokerage commissions to buy and sell shares of closed-end
investment companies.
The return on a Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. A Fund's investment in a closed-end investment company may
require the payment of a premium above the net asset value of the investment
company's shares, and the market price of the investment company thereafter may
decline without any change in the value of the investment company's assets. A
Fund, however, will not invest in any investment company or trust unless it is
believed that the potential benefits of such investment are sufficient to
warrant the payment of any such premium.
As an exception to the above, a Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions, and
policies as that of the Fund. A Fund will notify its shareholders prior to
initiating such an arrangement.
ILLIQUID SECURITIES. Each Fund (other than the Fremont Money Market Fund) may
invest up to 15% of its net assets in all forms of "illiquid securities." The
Fremont Money Market Fund may invest up to 10% of its net assets in "illiquid
securities."
An investment is generally deemed to be "illiquid" if it cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which such securities are valued by the Fund. "Restricted" securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933 (the "1933 Act"). However, a
market exists for certain restricted securities (for example, securities
qualifying for resale to certain "qualified institutional buyers" pursuant to
Rule 144A under the 1933 Act). Additionally, the Advisor and the Funds believe
that a similar market exists for commercial paper issued pursuant to the private
placement exemption of Section 4(2) of the 1933 Act. The Funds may invest
without limitation in these forms of restricted securities if such securities
are determined by the Advisor or Sub-Advisor to be liquid in accordance with
standards established by the Investment Company's Board of Directors. Under
these standards, the Advisor or Sub-Advisor must consider (a) the frequency of
trades and quotes for the security, (b) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers, (c)
any dealer undertaking to make a market in the security, and (d) the nature
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of the security and the nature of the marketplace trades (for example, the time
needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer).
It is not possible to predict with accuracy how the markets for certain
restricted securities will develop. Investing in restricted securities could
have the effect of increasing the level of a Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
MUNICIPAL SECURITIES. Municipal securities are issued by or on behalf of states,
territories, and possessions of the United States and the District of Columbia
and by their political subdivisions, agencies, and instrumentalities. The
interest on these obligations is generally not includable in gross income of
most investors for federal income tax purposes. Issuers of municipal obligations
do not usually seek assurances from governmental taxing authorities with respect
to the tax-free nature of the interest payable on such obligations. Rather,
issuers seek opinions of bond counsel as to such tax status. See "Special Tax
Considerations" below.
Municipal issuers of securities are not usually subject to the securities
registration and public reporting requirements of the Securities and Exchange
Commission and state securities regulators. As a result, the amount of
information available about the financial condition of an issuer of municipal
obligations may not be as extensive as that which is made available by
corporations whose securities are publicly traded. The two principal
classifications of municipal securities are general obligation securities and
limited obligation (or revenue) securities. There are, in addition, a variety of
hybrid and special types of municipal obligations as well as numerous
differences in the financial backing for the payment of municipal obligations
(including general fund obligation leases described below), both within and
between the two principal classifications. Long-term municipal securities are
typically referred to as "bonds" and short-term municipal securities are
typically called "notes."
Payments due on general obligation bonds are secured by the issuer's pledge of
its full faith and credit including, if available, its taxing power. Issuers of
general obligation bonds include states, counties, cities, towns and various
regional or special districts. The proceeds of these obligations are used to
fund a wide range of public facilities such as the construction or improvement
of schools, roads and sewer systems.
The principal source of payment for a limited obligation bond or revenue bond is
generally the net revenue derived from particular facilities financed with such
bonds. In some cases, the proceeds of a special tax or other revenue source may
be committed by law for use to repay particular revenue bonds. For example,
revenue bonds have been issued to lend the proceeds to a private entity for the
acquisition or construction of facilities with a public purpose such as
hospitals and housing. The loan payments by the private entity provide the
special revenue source from which the obligations are to be repaid.
MUNICIPAL NOTES. Municipal notes generally are used to provide short-term
capital funding for municipal issuers and generally have maturities of one year
or less.
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Municipal notes of municipal issuers include tax anticipation notes, revenue
anticipation notes and bond anticipation notes:
TAX ANTICIPATION NOTES are issued to raise working capital on a short-term
basis. Generally, these notes are issued in anticipation of various
seasonal tax revenues being paid to the issuer, such as property, income,
sales, use and business taxes, and are payable from these specific future
taxes.
REVENUE ANTICIPATION NOTES are issued in anticipation of the receipt of
non-tax revenue, such as federal revenues or grants.
BOND ANTICIPATION NOTES are issued to provide interim financing until
long-term financing can be arranged. In most cases, long-term bonds are
issued to provide the money for the repayment of these notes.
COMMERCIAL PAPER. Issues of municipal commercial paper typically represent
short-term, unsecured, negotiable promissory notes. Agencies of state and local
governments issue these obligations in addition to or in lieu of notes to
finance seasonal working capital needs or to provide interim construction
financing and are paid from revenues of the issuer or are refinanced with
long-term debt. In most cases, municipal commercial paper is backed by letters
of credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect, "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). The total return on
mortgage-related securities typically varies with changes in the general level
of interest rates. The maturities of mortgage- related securities are variable
and unknown when issued because their maturities depend on pre-payment rates.
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a Fund to a
lower rate of return upon reinvestment of principal. In addition, if a security
subject to prepayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Mortgage prepayments
generally increase with falling interest rates and decrease with rising interest
rates. Like other fixed-income securities, when interest rates rise, the value
of a mortgage-related security generally will decline; however, when interest
rates are declining, the value of mortgage-related securities with prepayment
features may not increase as much as that of other fixed income securities.
A Fund may invest in GNMA certificates, which are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the
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term of the loan rather than returned in a lump sum at maturity. Because both
interest and principal payments (including prepayments) on the underlying
mortgage loans are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
Although most mortgage loans in the pool will have stated maturities of up to 30
years, the actual average life or effective maturity of the GNMA certificates
will be substantially less because the mortgages are subject to normal
amortization of principal and may be repaid prior to maturity. Prepayment rates
may vary widely over time among pools and typically are affected by the
relationship between the interest rates on the underlying loans and the current
rates on new home loans. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of the
GNMA certificates. Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
GNMA certificates. Accordingly, it is not possible to predict accurately the
average life of a particular pool. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of principal at current
market rates, GNMA certificates can be less effective than typical bonds of
similar maturities at "locking in" yields during periods of declining interest
rates. GNMA certificates may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
A Fund may invest also in mortgage-related securities issued by the FNMA or by
the FHLMC. FNMA, a federally chartered and privately owned corporation, issues
pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
Government. FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but the certificates, as noted above, are not backed by
the full faith and credit of the U.S. Government. As is the case with GNMA
securities, the actual maturity of and realized yield on particular FNMA and
FHLMC pass-through securities will vary based on the prepayment experience of
the underlying pool of mortgages.
A Fund may also invest in mortgage-related securities issued by financial
institutions, such as commercial banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or separate trusts or affiliates of such
institutions established to issue these securities).
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS are CMO vehicles that qualify for
special tax treatment under the Internal Revenue Code and invest in
mortgages principally secured by interests in real property and other
investments permitted by the Internal Revenue Code.
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STRIPPED MORTGAGE SECURITIES are derivative multiclass mortgage securities
issued by agencies or instrumentalities of the United States Government, or
by private originators of, or investors in, mortgage loans, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Stripped Mortgage
Securities are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of Stripped Mortgage Security will have one
class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive the entire
principal (the principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal payments and
prepayments on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, a Fund may fail to fully recoup
its initial investment in these securities even if the security is rated
AAA or Aaa, and could even lose its investment entirely. Although Stripped
Mortgage Securities are purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. Consequently, established
trading markets have not yet developed for certain Stripped Mortgage
Securities. Investments in Stripped Mortgage Securities for which there is
no established market are considered illiquid an together with other
illiquid securities will not exceed 15% (10% for the Money Market Fund) of
a Fund's net assets.
OTHER ASSET-BACKED SECURITIES (unrelated to mortgage loans) have been
offered to investors, such as Certificates for Automobile Receivables-SM-
("CARS-SM") and interests in pools of credit card receivables. CARS-SM
represent undivided fractional interests in a trust whose assets consist of
a pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. CARS-SM will be deemed to
be illiquid securities and subject to the limitation on investments in
illiquid securities. Certificates representing pools of credit card
receivables have similar characteristics to CARS-SM although the underlying
loans are unsecured.
As new types of mortgage-related securities and other asset-backed securities
are developed and offered to investors, the Advisor and/or Sub-Advisor may
consider investments in such securities, provided they conform with the Fund's
investment objectives, policies and quality-of-investment standards, and are
subject to the review and approval of the Investment Company's Board of
Directors.
The Funds may invest only in high quality mortgage-related (or other
asset-backed) securities either (i) issued by U.S. government sponsored
corporations or (ii) rated in one of the three highest categories by Moody's or
S&P or, if not rated, of equivalent investment quality as determined by the
Advisor and/or Sub-Advisor. The Advisor and/or Sub-Advisor will monitor the
ratings of securities held by a Fund and the creditworthiness of their issuers.
An investment-grade rating will not protect the Fund from loss due to changes in
market interest rate levels or other particular financial market changes that
affect the value of, or return due on, an investment.
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WRITING COVERED CALL OPTIONS. The Funds (except the Fremont California
Intermediate Tax-Free Fund) may write (sell) "covered" call options and purchase
options to close out options previously written by the Funds. The purpose of
writing covered call options is to generate additional premium income for the
Funds. This premium income will serve to enhance the Funds' total returns and
will reduce the effect of any price decline of the security or currency involved
in the option. Covered call options will generally be written on securities and
currencies which, in the opinion of the Advisor and/or Sub-Advisor, are not
expected to make any major price moves in the near future but which, over the
long term, are deemed to be attractive investments for the Funds.
A call option gives the holder (buyer) the "right to purchase" a security or
currency at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by purchasing an
option identical to that previously sold. To secure his or her obligation to
deliver the underlying security or currency in the case of a call option, a
writer is required to deposit in escrow the underlying security or currency or
other assets in accordance with the rules of the Options Clearing Corporation.
The Funds will write only covered call options. This means that each Fund will
only write a call option on a security, index, or currency which that Fund
already, effectively, owns or has the right to acquire without additional cost.
Portfolio securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with each
Fund's investment objectives. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which no Fund will do),
but capable of enhancing a Fund's total return. When writing a covered call
option, a Fund, in return for the premium, gives up the opportunity for profit
from a price increase in the underlying security or currency above the exercise
price, but conversely limits the risk of loss should the price of the security
or currency decline. Unlike one who owns securities or currencies not subject to
an option, a Fund has no control over when it may be required to sell the
underlying securities or currencies, since it may be assigned an exercise notice
at any time prior to the expiration of its obligation as a writer. If a call
option which the Fund involved has written expires, that Fund will realize a
gain in the amount of the premium; however, such gain may be offset by a decline
in the market value of the underlying security or currency during the option
period. If the call option is exercised, the Fund involved will realize a gain
or loss from the sale of the underlying security or currency. The security or
currency covering the call will be maintained in a separate account by that
Fund's custodian. No Fund will consider a security or currency covered by a call
to be "pledged" as that term is used in its policy which limits the pledging or
mortgaging of its assets.
The premium received is the market value of an option. The premium a Fund
receives from writing a call option reflects, among other things, the current
market price of the underlying security or currency, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security or currency, and the length of the
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option period. Once the decision to write a call option has been made, the
Advisor or Sub-Advisor, in determining whether a particular call option should
be written on a particular security or currency, will consider the
reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options. The premium received by a Fund
for writing covered call options will be recorded as a liability in that Fund's
statement of assets and liabilities. This liability will be adjusted daily to
the option's current market value, which will be the latest sales price at the
time at which the net asset value per share of that Fund is computed (close of
the regular trading session of the New York Stock Exchange), or, in the absence
of such sale, the latest asked price. The liability will be extinguished upon
expiration of the option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security or currency upon the
exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security or currency with either a different
exercise price or expiration date or both. If a Fund desires to sell a
particular security or currency from its portfolio on which it has written a
call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security or currency. There is, of course, no
assurance that the Fund involved will be able to effect such closing
transactions at a favorable price. If a Fund cannot enter into such a
transaction, it may be required to hold a security or currency that it might
otherwise have sold, in which case it would continue to be at market risk with
respect to the security or currency. The Fund involved will pay transaction
costs in connection with the purchasing of options to close out previously
written options. Such transaction costs are normally higher than those
applicable to purchases and sales of portfolio securities.
Call options written by the Funds will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, a Fund may
purchase an underlying security or currency for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering such
security or currency from its portfolio. In such cases, additional costs will be
incurred.
A Fund will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security
or currency, any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the underlying security or
currency owned by the Fund involved.
WRITING COVERED PUT OPTIONS. The Funds may write covered put options. With a put
option, the purchaser of the option has the right to sell, and the writer
(seller) may have the obligation to buy, the underlying security or currency at
the exercise price during the option period. So long as the writer is short the
put options, the writer may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the writer to make payment of the
exercise price against delivery of the underlying security or
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currency. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
The Funds may write put options only on a covered basis, which means that a Fund
would maintain in a segregated account cash and liquid securities in an amount
not less than the exercise price at all times while the put option is
outstanding. (The rules of the Clearing Corporation currently require that such
assets be deposited in escrow to secure payment of the exercise price.) A Fund
would generally write covered put options in circumstances where the Advisor or
Sub-Advisor wishes to purchase the underlying security or currency for that
Fund's portfolio at a price lower than the current market price of the security
or currency. In such event, the Fund would write a put option at an exercise
price which, reduced by the premium received on the option, reflects the lower
price it is willing to pay. Since a Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received.
PURCHASING PUT OPTIONS. The Funds may purchase put options. As the holder of a
put option, a Fund has the right to sell the underlying security or currency at
the exercise price at any time during the option period. Such Fund may enter
into closing sale transactions with respect to such options, exercise them, or
permit them to expire. A Fund may purchase put options for defensive purposes in
order to protect against an anticipated decline in the value of its securities
or currencies. An example of such use of put options is provided below.
The Funds may purchase a put option on an underlying security or currency (a
"protective put") owned as a defensive technique in order to protect against an
anticipated decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option when a Fund, as
the holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a put option
may be purchased in order to protect unrealized appreciation of a security or
currency where the Advisor or Sub-Advisor deems it desirable to continue to hold
the security or currency because of tax considerations. The premium paid for the
put option and any transaction costs would reduce any capital gain otherwise
available for distribution when the security or currency is eventually sold.
The Funds may also purchase put options at a time when a Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, a Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund involved will lose its entire investment in the put
option. In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
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A Fund will commit no more than 5% of its assets to premiums when purchasing put
options. The premium paid by such Fund when purchasing a put option will be
recorded as an asset in that Fund's statement of assets and liabilities. This
asset will be adjusted daily to the option's current market value, which will be
the latest sale price at the time at which that Fund's net asset value per share
is computed (close of trading on the New York Stock Exchange), or, in the
absence of such sale, the latest bid price. The asset will be extinguished upon
expiration of the option, the selling (writing) of an identical option in a
closing transaction, or the delivery of the underlying security or currency upon
the exercise of the option.
PURCHASING CALL OPTIONS. The Funds may purchase call options. As the holder of a
call option, a Fund has the right to purchase the underlying security or
currency at the exercise price at any time during the option period. Each Fund
may enter into closing sale transactions with respect to such options, exercise
them, or permit them to expire. A Fund may purchase call options for the purpose
of increasing its current return or avoiding tax consequences which could reduce
its current return. A Fund may also purchase call options in order to acquire
the underlying securities or currencies. Examples of such uses of call options
are provided below.
Call options may be purchased by a Fund for the purpose of acquiring the
underlying securities or currencies for its portfolio. Utilized in this fashion,
the purchase of call options enables the Fund involved to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to such Fund in purchasing a large block of
securities that would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying security or
currency itself, the Fund involved is partially protected from any unexpected
decline in the market price of the underlying security or currency and in such
event could allow the call option to expire, incurring a loss only to the extent
of the premium paid for the option.
Each Fund will commit no more than 5% of its assets to premiums when purchasing
call options. A Fund may also purchase call options on underlying securities or
currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses that would result in a reduction of such Fund's current
return. For example, where a Fund has written a call option on an underlying
security or currency having a current market value below the price at which such
security or currency was purchased by that Fund, an increase in the market price
could result in the exercise of the call option written by that Fund and the
realization of a loss on the underlying security or currency with the same
exercise price and expiration date as the option previously written.
DESCRIPTION OF FUTURES CONTRACTS. A Futures Contract provides for the future
sale by one party and purchase by another party of a specified amount of a
specific financial instrument (security or currency) for a specified price at a
designated date, time and place. Brokerage fees are incurred when a Futures
Contract is bought or sold and margin deposits must be maintained.
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Although Futures Contracts typically require future delivery of and payment for
financial instruments or currencies, the Futures Contracts are usually closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
financial instrument or currency and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Fund involved realizes
a gain; if it is more, that Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund involved realizes
a gain; if it is less, that Fund realizes a loss. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, that Fund will continue to be required to
maintain the margin deposits on the Contract.
As an example of an offsetting transaction in which the financial instrument or
currency is not delivered, the contractual obligations arising from the sale of
one Contract of September Treasury Bills on an exchange may be fulfilled at any
time before delivery of the Contract is required (e.g., on a specified date in
September, the "delivery month") by the purchase of one Contract of September
Treasury Bills on the same exchange. In such instance the difference between the
price at which the Futures Contract was sold and the price paid for the
offsetting purchase, after allowance for transaction costs, represents the
profit or loss to the Fund involved.
The Funds may enter into interest rate, S&P Index (or other major market index),
or currency Futures Contracts as a hedge against changes in prevailing levels of
stock values, interest rates, or currency exchange rates in order to establish
more definitely the effective return on securities or currencies held or
intended to be acquired by such Fund. A Fund's hedging may include sales of
Futures as an offset against the effect of expected increases in currency
exchange rates, purchases of such Futures as an offset against the effect of
expected declines in currency exchange rates, and purchases of Futures in
anticipation of purchasing underlying index stocks prior to the availability of
sufficient assets to purchase such stocks or to offset potential increases in
the prices of such stocks. When selling options or Futures Contracts, a Fund
will segregate cash and liquid securities to cover any related liability.
The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal Futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission. Futures are also traded in various overseas markets.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce a Fund's exposure to currency exchange rate fluctuations, a Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through using Futures Contracts.
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A Fund will not enter into a Futures Contract if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to "margin" (down payment) deposits on
such Futures Contracts.
A Stock Index contract such as the S&P 500 Stock Index Contract, for example, is
an agreement to take or make delivery at a specified future date of an amount of
cash equal to $500 multiplied by the difference between the value of the Stock
Index at purchase and at the close of the last trading day of the contract. In
order to close long positions in the Stock Index contracts prior to their
settlement date, the Fund will enter into offsetting sales of Stock Index
contracts.
Using Stock Index contracts in anticipation of market transactions involves
certain risks. Although a Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for the contracts at any particular
time. In addition, the price of Stock Index contracts may not correlate
perfectly with the movement in the Stock Index due to certain market
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the Stock Index
and movements in the price of Stock Index contracts, a correct forecast of
general market trends may not result in a successful anticipatory hedging
transaction.
FUTURES CONTRACTS GENERALLY. Persons who trade in futures contracts may be
broadly classified as "hedgers" and "speculators." Hedgers whose business
activity involves investment or other commitments in debt securities, equity
securities, or other obligations, such as the Funds, use the futures markets
primarily to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities and obligations held or expected to
be acquired by them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates, securities prices, or currency
exchange rates.
A public market exists in futures contracts covering foreign financial
instruments such as U.K. Pound and Japanese Yen, among others. Additional
futures contracts may be established from time to time as various exchanges and
existing futures contract markets may be terminated or altered as to their terms
or methods of operation.
A Fund's futures transactions will be entered into for traditional hedging
purposes; that is, futures contracts will be sold to protect against a decline
in the price of securities or currencies that such Fund owns, or futures
contracts will be purchased to protect that Fund against an increase in the
price of securities or currencies it has a fixed commitment to purchase.
"Margin" with respect to futures and futures contracts is the amount of funds
that must be deposited by the Fund with a broker in order to initiate futures
trading and to maintain a Fund's open positions in futures contracts. A margin
deposit ("initial margin") is intended to assure such Fund's performance of the
futures contract. The margin required for a particular futures contract is set
by the exchange on which the futures contract is traded, and may be
significantly modified from time to time by the exchange during the term of the
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futures contract. Ffutures contracts are customarily purchased and sold on
margins that may range upward from less than 5% of the value of the futures
contract being traded.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin deposit ("margin
variation"). However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to that Fund. In computing daily
net asset values, that Fund will mark to market the current value of its open
futures contracts. The Fund involved will earn interest income on its margin
deposits.
The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events.
At best, the correlation between changes in prices of futures contracts and of
the securities or currencies being hedged can be only an approximation. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for futures and for securities or
currencies, including technical influences in futures trading; and differences
between the financial instruments being hedged and the instruments underlying
the standard futures contracts available for trading, with respect to interest
rate levels, maturities, and creditworthiness of issuers. A decision of whether,
when, and how to hedge involves skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of unexpected market behavior
or interest rate trends.
Because of the low margin deposits required, trading of futures contracts
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss or gain to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract. However, a Fund would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that such Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund involved segregates and commits to back the futures contract
with money market instruments equal in value to the current value of the
underlying instrument less the margin deposit.
Most futures exchanges in the United States limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a
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price beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions. futures contract
prices have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses.
OPTIONS ON INTEREST RATE AND/OR CURRENCY FUTURES CONTRACTS, AND WITH RESPECT TO
THE FREMONT GLOBAL FUND, GOLD FUTURES CONTRACTS. Options on Futures Contracts
are similar to options on fixed income or equity securities or options on
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put), rather than to purchase or sell the Futures Contract, at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the Futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's Futures margin account which represents the
amount by which the market price of the Futures Contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the Futures Contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference on the expiration date between
the exercise price of the option and the closing level of the securities or
currencies upon which the Futures Contracts are based. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
As an alternative to purchasing call and put options on Futures, the Funds may
purchase call and put options on the underlying securities or currencies, or
with respect to the Global Fund, on gold or other commodities. Such options
would be used in a manner identical to the use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by a Fund or to reduce or
eliminate the hedge position then currently held by that Fund, the Fund involved
may seek to close out an option position by selling an option covering the same
securities or contract and having the same exercise price and expiration date.
FORWARD CURRENCY AND OPTIONS TRANSACTIONS. A forward currency contract is an
obligation to purchase or sell a currency against another currency at a future
date and price as agreed upon by the parties. The Funds may either accept or
make delivery of the currency at the maturity of the forward contract or, prior
to maturity, enter into a closing transaction involving the purchase or sale of
an offsetting contract. A Fund typically engages in forward currency
transactions in anticipation of, or to protect itself against, fluctuations in
exchange rates. A Fund might sell a particular currency forward, for example,
when it wanted to hold bonds denominated in that currency but anticipated, and
sought to be protected against, a decline in the currency against the U.S.
dollar. Similarly, a Fund might purchase a currency forward to "lock in" the
dollar price of securities denominated in that currency which it anticipated
purchasing.
A put option gives a Fund, as purchaser, the right (but not the obligation) to
sell a specified amount of currency at the exercise price until the expiration
of the option. A call option gives a Fund, as purchaser, the right (but not the
obligation) to purchase a specified
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amount of currency at the exercise price until its expiration. A Fund might
purchase a currency put option, for example, to protect itself during the
contract period against a decline in the dollar value of a currency in which it
holds or anticipates holding securities. If the currency's value should decline
against the dollar, the loss in currency value should be offset, in whole or in
part, by an increase in the value of the put.
If the value of the currency instead should rise against the dollar, any gain to
a Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which a
Fund anticipates purchasing securities.
Currency options may be either listed on an exchange or traded over-the-counter
(OTC). Listed options are third-party contracts (i.e., performance of the
obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The Funds will not purchase an OTC option unless they believe that daily
valuation for such option is readily obtainable.
PARTICULAR RISK FACTORS RELATING TO CALIFORNIA MUNICIPAL SECURITIES (FREMONT
CALIFORNIA INTERMEDIATE TAX-FREE FUND). Certain risks are associated with
California municipal securities in which the Fund predominantly will invest. The
information set forth below is based on information drawn from official
statements and prospectuses relating to securities offerings of the state of
California and various local agencies in California, available prior to the date
of this Statement of Additional Information. While the Advisor has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects. In addition to this current
information, future California constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives could have
an adverse effect on the debt obligations of California issuers.
Certain debt obligations held by the Fund may be obligations of issuers who rely
in whole or in substantial part on California state revenues for the continuance
of their operations and the payment of their obligations. In recent efforts to
assist California municipal issuers to raise revenues to pay their bond
obligations, the California legislature has passed measures which have provided
for the redistribution of California's General Fund surplus to local agencies,
the reallocation of revenues to local agencies, and the assumption of certain
local obligations by the state. It is not known whether additional revenue
redistribution legislation will be enacted in the future or, if enacted, whether
such legislation would provide sufficient revenue to allow such issuers to pay
their obligations. To the extent local entities do not receive money from the
state to pay for their operations and services, their ability to pay debt
service on obligations held by the Fund may be impaired.
Certain debt obligations held by the Fund may be obligations of issuers who rely
in whole or in part on ad valorem real property taxes, on property-related
assessments, charges or fees, and on taxes such as utility user's taxes as
sources of revenue. The California Constitution limits the taxing and spending
powers of the state of California
33
<PAGE>
and its public agencies and, therefore, the ability of California issuers to
raise revenues through taxation, and to spend such revenues over appropriations
limits. Such limits may impair the ability of such issuers to make timely
payment on their obligations.
Certain debt obligations held by the Fund may be obligations payable solely from
lease payments on real property or personal property leased to the state,
cities, counties, or their various public entities. California law requires that
the lessee is not required to make lease payments during any period that it is
denied use and occupancy of the property leased in proportion to such loss.
Moreover, the lessee only agrees to include lease payments in its annual budget
for the current fiscal year. In case of a default under the lease, the only
remedy available against the lessee is that of reletting the property; no
acceleration of lease payments is permitted. Each of these factors presents a
risk that the lease financing obligations held by the Fund would not be paid in
a timely manner.
Certain debt obligations held by the Fund may be obligations which are payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care, and selective contracting by health insurers for
care of their own beneficiaries now in effect under California and federal law
may adversely affect these revenues and, consequently, payment on those debt
obligations.
Debt obligations payable solely from revenues of health care institutions may
also be insured by the state of California pursuant to a mortgage insurance
program operated by the Office of Statewide Health Planning and Development (the
"Office"). If a default occurs on such insured debt obligations, the Office may
either continue to make debt service payments on the obligations, or foreclose
on the mortgage and request the State Treasurer to issue debentures payable from
a reserve fund established under the insurance program or from unappropriated
state funds. Reports and studies prepared most recently a decade ago indicated
that the reserve fund was under-funded. Moreover, moneys in the reserve fund may
be and have been reappropriated by the California Legislature for other purposes
in the past, and the California legislature reserves the right to do so in the
future. The Investment Company cannot predict what, if any, impact the
underfunding of the reserve fund may have on such debt obligations.
Certain debt obligations held by the Fund may be obligations which are secured
in whole or in part by a mortgage or deed of trust on real property. California
has five principal statutory provisions which limit the remedies of a creditor
secured by a mortgage or deed of trust. To limit the creditor's right to obtain
a deficiency judgment, one limitation is based on the method of foreclosure, and
the second on the type of debt secured. Under the former, a deficiency judgment
is barred when the foreclosure is accomplished by means of nonjudicial trustee's
sale. Under the latter, a deficiency judgment is barred when the foreclosed
mortgage or deed of trust secures certain purchase money obligations. A third
statutory provision, commonly known as the "one form of action" rule, requires
creditors secured by real property to exhaust their real property security by
foreclosure before bringing a personal action against the debtor. A
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<PAGE>
fourth statutory provision limits any deficiency judgment obtained by a creditor
secured by real property following a judicial sale of such property to the
excess of the outstanding debt over the fair value of the property at the time
of the sale, thus preventing the creditor from obtaining a large deficiency
judgment against the debtor as a result of low bids at a judicial sale. Finally,
a fifth statutory provision gives the debtor the right to redeem the real
property from any judicial foreclosure sale as to which a deficiency judgment
may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power of sale
contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. Therefore, the effective
minimum period of foreclosing on a mortgage could be in excess of seven months
after the initial default. Such time delays in collections could disrupt the
flow of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "state action," and could hold that the private right-of-sale
proceedings violate the due process requirements of the federal or state
constitutions, consequently preventing an issuer from using the nonjudicial
foreclosure remedy described above.
Certain debt obligations held by the Fund may be obligations which finance the
acquisition of single-family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family, owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage loans
may be imposed only with respect to voluntary prepayments made during the first
five years during the term of the mortgage loan, and cannot in any event exceed
six months' advance interest on the amount prepaid in excess of 20% of the
original principal amount of the mortgage loan. This limitation could affect the
flow of revenues
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<PAGE>
available to an issuer for debt service on the outstanding debt obligations
which finance such home mortgages.
GUARANTEED INVESTMENT CONTRACTS (FREMONT GLOBAL FUND). The Global Fund may enter
into agreements known as guaranteed investment contracts ("GICs") with banks and
insurance companies. GICs provide to the Fund a fixed rate of return for a fixed
period of time, similar to any fixed income security. While there is no ready
market for selling GICs and they typically are not assignable, the Fund will
only invest in GICs if the financial institution permits a withdrawal of the
principal (together with accrued interest) after the Fund gives seven days'
notice. Like any fixed income security, if market interest rates at the time of
such withdrawal have increased from the guaranteed rate, the Fund would be
required to pay a premium or penalty upon such withdrawal. If market rates
declined, the Fund would receive a premium on withdrawal. Since GICs are
considered illiquid, the Fund will not invest more than 15% of its net assets in
GICs and other illiquid assets.
CORPORATE DEBT SECURITIES (FREMONT GLOBAL FUND AND FREMONT BOND FUND). The
Fund's investments in dollar-denominated and non-dollar-denominated corporate
debt securities of domestic or foreign issuers are limited to corporate debt
securities (corporate bonds, debentures, notes and other similar corporate debt
instruments) which meet the minimum ratings criteria set forth for the Fund, or,
if unrated by an NRSRO, have been determined by the Advisor and/or Sub-Advisor
to be comparable in quality to corporate debt securities in which the Fund may
invest.
Securities which are rated BBB by S&P or Baa by Moody's are considered
investment grade but may have speculative characteristics. Changes in economic
conditions may lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than is the case with higher-rated
securities. The securities rated below Baa by Moody's or BBB by S&P (sometimes
referred to as "junk bonds"), which the Fund may invest to a limited extent,
will have speculative characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price volatility based upon
interest rate sensitivity, questionable credit worthiness and relative liquidity
of the secondary trading market. Because such lower-rated bonds have been found
to generally be more sensitive to adverse economic changes or individual
corporate developments and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could disrupt the market for such
bonds and adversely affect the value of outstanding bonds and the ability of
issuers to repay principal and interest. In addition, in a declining interest
rate market, issuers of lower-rated bonds may exercise redemption or call
provisions, which may force the Fund, to the extent it owns such securities, to
replace those securities with lower yielding securities. This could result in a
decreased return for investors
REDUCTION IN BOND RATING (FREMONT GLOBAL FUND AND FREMONT BOND FUND). The Global
Fund and the Bond Fund may each invest up to 10% of its net assets in debt
securities rated below BBB or Baa, but not lower than B. In the event that the
rating for any security held by the Funds drops below the minimum acceptable
rating applicable to that Fund, the Fund's Advisor and/or Sub-Advisor will
determine whether the Fund should
36
<PAGE>
continue to hold such an obligation in its portfolio. Bonds rated below BBB or
Baa are commonly known as "junk bonds." These bonds are subject to greater
fluctuations in value and risk of loss of income and principal due to default by
the issuer than are higher rated bonds. The market values of junk bonds tend to
reflect short-term corporate, economic, and market developments and investor
perceptions of the issuer's credit quality to a greater extent than higher rated
bonds. In addition, it may be more difficult to dispose of, or to determine the
value of, junk bonds. See Appendix A for a complete description of the bond
ratings.
CONCENTRATION (FREMONT REAL ESTATE SECURITIES FUND). The Real Estate Securities
Fund will concentrate its investments in real estate investment trusts
("REITs"). As a result, an economic, political or other change affecting one
REIT also may affect other REITs. This could increase market risk and the
potential for fluctuations in the net asset value of the Fund's shares.
THE EURO: SINGLE EUROPEAN CURRENCY. On January 1, 1999, the European Union
introduced a single European currency called the "euro." The first group of
countries to convert their currencies to the euro includes Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal
and Spain. The introduction of the euro has occurred but the following
uncertainties will continue to exist for some time:
o Whether the payment, valuation and operational systems of banks and financial
institutions can operate reliably.
o The applicable conversion rate for contracts stated in the national currency
of an EU member.
o The ability of clearing and settlement systems to process transactions
reliably.
o The effects of the euro on European financial and commercial markets.
o The effect of new legislation and regulations to address euro-related issues.
These and other factors (including political and economic risks) could cause
market disruptions and affect the value of those Funds that invest in companies
conducting business in Europe. We understand that our key service providers have
taken steps to address euro-related issues, but there can be no assurance that
these efforts are sufficient.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental investment policies and
restrictions in addition to the policies and restrictions discussed in its
prospectus. With respect to each Fund, the policies and restrictions listed
below cannot be changed without approval by the holders of a "majority of the
outstanding voting securities" of that Fund (which is defined in the 1940 Act to
mean the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). These restrictions provide that no Fund may:
1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same
industry, except that
37
<PAGE>
this limitation shall not apply to securities issued or guaranteed as
to principal and interest by the U.S. Government or any of its
agencies or instrumentalities, to tax exempt securities issued by
state governments or political subdivisions thereof, or to investments
by the Money Market Fund in securities of domestic banks, of foreign
branches of domestic banks where the domestic bank is unconditionally
liable for the security, and domestic branches of foreign banks
subject to the same regulation of domestic banks, or to investments by
the Real Estate Securities Fund in real estate investment trusts. See
"Investment Objective, Policies, And Risk Considerations."
2. Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Funds may invest
in securities secured by real estate, or issued by companies which
invest in real estate or interests therein, including real estate
investment trusts, and may purchase and sell currencies (including
forward currency exchange contracts), gold, bullion, futures
contracts, and related options generally as described in the
Prospectus and Statement of Additional Information.
3. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933.
4. Make loans, except that a Fund may purchase debt securities, enter
into repurchase agreements, and make loans of portfolio securities
amounting to not more than 33 1/3% of its net assets calculated at the
time of the securities lending.
5. Borrow money, except from banks for temporary or emergency purposes
not in excess of 30% of the value of the Fund's total assets. A Fund
will not purchase securities while such borrowings are outstanding.
6. Change its status as either a diversified or a non-diversified
investment company.
7. Issue senior securities, except as permitted under the 1940 Act, and
except that the Investment Company and the Funds may issue shares of
common stock in multiple series or classes.
8. Notwithstanding any other fundamental investment restriction or
policy, each Fund may invest all of its assets in the securities of a
single open-end investment company with substantially the same
fundamental investment objectives, restrictions, and policies as that
Fund.
Other current investment policies of the Funds, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. A Fund may not:
9. Invest in companies for the purpose of exercising control or
management.
38
<PAGE>
10. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in
connection with any permissible borrowing.
11. Invest in interests in oil, gas, or other mineral exploration or
development programs or leases.
12. Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three
years continuous operation.
13. Purchase securities on margin, provided that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities, except that the Fund may make margin deposits
in connection with futures contracts.
14. Enter into a futures contract if, as a result thereof, more than 5% of
the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to margin on such futures
contract.
15. Acquire securities or assets for which there is no readily available
market or which are illiquid, if, immediately after and as a result of
the acquisition, the value of such securities would exceed, in the
aggregate, 15% of that Fund's net assets, except that the value of
such securities may not exceed 10% of the Money Market Fund's net
assets.
16. (Except Fremont Global Fund) Make short sales of securities or
maintain a short position, except that a Fund may sell short "against
the box."
17. Invest in securities of an issuer if the investment would cause a Fund
to own more than 10% of any class of securities of any one issuer.
18. Acquire more than 3% of the outstanding voting securities of any one
investment company.
INVESTMENT COMPANY DIRECTORS AND OFFICERS
The Bylaws of Fremont Mutual Funds, Inc. (the "Investment Company"), the
Maryland investment company of which the Fund is a series, authorize a Board of
Directors of between three and 15 persons, as fixed by the Board of Directors. A
majority of directors may fill vacancies caused by the resignation or death of a
director, or the expansion of the Board of Directors. Any director may be
removed by vote of the holders of a majority of all outstanding shares of the
Investment Company qualified to vote at the meeting.
<TABLE>
<CAPTION>
DATE OF PRINCIPAL OCCUPATIONS AND BUSINESS
NAME AND ADDRESS BIRTH POSITIONS HELD EXPERIENCE FOR PAST FIVE YEARS
<S> <C> <C> <C>
David L. Redo(1)(2)(4) 9-1-37 Chairman, Chief Executive President and Director, Fremont
Fremont Investment, Advisors, Inc. Officer and Director Investment Advisors, Inc.;
333 Market Street, 26th Floor Managing Director, Fremont
San Francisco, CA 94105 Group, L.L.C. and Fremont
Investors, Inc.; Director, Sequoia
Ventures, Sit/Kim International
39
<PAGE>
Investment Associates, and J.P.
Morgan Securities Asia.
Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present
Fremont Investment Advisors, Inc. Senior Vice President and
333 Market Street, 26th Floor Director, Fremont Investment
San Francisco, CA 94105 Advisors, Inc. 10/77 - 7/96 Senior Vice
President Business Development
Benham Management.
Richard E. Holmes(3) 5-14-43 Director Vice President and Director,
P.O. Box 479 BelMar Advisors, Inc.
Sanibel, FL 33957 (marketing firm).
Donald C. Luchessa(3) 2-18-30 Director Principal, DCL Advisory
DCL Advisory (marketer for investment
4105 Shelter Bay Avenue advisors).
Mill Valley, CA 94941
David L. Egan(3) 5-1-34 Director President, Fairfield Capital
Fairfield Capital Associates, Inc. Associates, Inc. Founding
1640 Sylvaner Partner of China Epicure, LLC
St. Helena, CA 94574 and Palisades Trading Company, LLC
Kimun Lee 6-17-46 Director Principal of Resources
Resources Consolidated Consolidated (a consulting and
235 Montgomery Street, Ste 968 investment banking service
San Francisco, CA 94104 group).
Albert W. Kirschbaum(4) 8-17-38 Senior Vice President Managing Director, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Peter F. Landini(4) 5-10-51 Executive Vice President, Managing Director, Treasurer,
Fremont Investment Advisors, Inc. Treasurer and Director and COO, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 1/94 - 7/98,
San Francisco, CA 94105 Director, J.P. Morgan Securities, Asia
Norman Gee 3-29-50 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Alexandra W. Kinchen(4) 4-25-45 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Andrew L. Pang(4) 4-15-49 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Robert J. Haddick(4) 2-26-60 Senior Vice President Senior Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
W. Kent (Ken) Copa 10-19-46 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Tina Thomas 8-7-49 Vice President, Secretary, and 6/96 -Present Vice President,
Fremont Investment Advisors, Inc. Chief Compliance Officer and Chief Compliance Officer,
40
<PAGE>
333 Market Street, 26th Floor Fremont Investment Advisors,
San Francisco, CA 94105 Inc., 9/88 - 5/96 Chief Compliance
Officer and Vice President, Bailard,
Biehl & Kaiser, Inc.; Treasurer, Bailard,
Biehl & Kaiser International Fund
Group, Inc. and Bailard, Biehl & Kaiser
Fund Group; Principal, BB&K Fund
Services, Inc.
Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26h Floor
San Francisco, CA 94105
Sean M. Callinan 12-29-67 Vice President 3/97 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor 9/94 - 3/97, Vice President and
San Francisco, CA 94105 Personal Finance Advisor, Royal
Alliance
Allyn Hughes 6-12-60 Vice President 4/93 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Yvonne Garcia 11-13-68 Vice President 2/96 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor 7/90 - 2/96, Product Manager,
San Francisco, CA 94105 GT Global, Inc.
Gregory J. Hand 10-9-61 Vice President, Assistant 8/92 - Present, Fremont
Fremont Investment Advisors, Inc. Controller and Assistant Investment Advisors, Inc.
333 Market Street, 26th Floor Treasurer
San Francisco, CA 94105
Jack Gee 9-12-59 Vice President and 10/97 - Present, Vice President
Fremont Investment Advisors, Inc. Controller and Controller, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 11/95-10/97, Chief
San Francisco, CA 94105 Financial Officer and Treasurer
Sife, Inc.;6/91-6/95, Controller,
Concord General Corp
</TABLE>
(1) Director who is an "interested person" of the Company due to his affiliation
with the Company's investment manager.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee and the Contracts Committee.
(4) Member of the Fremont Investment Committee.
During the fiscal year ended October 31, 1998, Richard E. Holmes, Donald C.
Luchessa, and David L. Egan each received $18,000, and William W. Jahnke
received $4,000 for serving as directors of the Investment Company.
As of January 31, 1999, the officers and directors as a group owned in the
aggregate beneficially or of record less than 1% of the outstanding shares of
the Investment Company.
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<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT AGREEMENT. The Advisor, in addition to providing investment
management services, furnishes the services and pays the compensation and travel
expenses of persons who perform the executive, administrative, clerical, and
bookkeeping functions of the Investment Company, provides suitable office space,
necessary small office equipment and utilities, and general purpose accounting
forms, supplies, and postage used at the offices of the Investment Company.
The Advisor is responsible to pay transfer agency fees when such entities are
engaged in connection with share holdings in the Funds acquired by certain
retirement plans.
Each Fund (except the Fremont U.S. Micro-Cap Fund) will pay all of its own
expenses not assumed by the Advisor, including, but not limited to, the
following: custodian, stock transfer, and dividend disbursing fees and expenses;
taxes and insurance; expenses of the issuance and redemption of shares of the
Fund (including stock certificates, registration or qualification fees and
expenses); legal and auditing expenses; and the costs of stationery and forms
prepared exclusively for the Fund.
With respect to the Fremont U.S. Micro-Cap Fund, the Advisor has agreed to bear
all of the Fund's ordinary operating expenses in return for receiving a monthly
fee of 2.5% per annum of the Fund's average daily net assets with respect to the
first $30 million, 2.0% with respect to the next $70 million, and 1.5%
thereafter.
Each Fund will bear all expenses relating to interest, brokerage commissions,
other transaction charges relative to investing activities of the Fund, and
extraordinary expenses (including for example, litigation expenses, if any).
The allocation of general Investment Company expenses among the Funds is made on
a basis that the directors deem fair and equitable, which may be based on the
relative net assets of each Fund or the nature of the services performed and
relative applicability to each Fund.
For the International Growth Fund, the International Small Cap Fund, the U.S.
Micro-Cap Fund, and the Real Estate Securities Fund, to the extent management
fees are waived and/or other expenses are reimbursed by the Advisor, a Fund may
reimburse the Advisor for any reductions in the Fund's expenses during the three
years following that reduction if such reimbursement is requested by the
Advisor, if such reimbursement can be achieved within the foregoing expense
limit, and if the Board of Directors approves the reimbursement at the time of
the request as not inconsistent with the best interest of the Fund.
The Investment Advisory and Administration Agreement (the "Advisory Agreement")
with respect to each Fund may be renewed annually, provided that any such
renewal has been specifically approved by (i) the Board of Directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of a Fund, and (ii) the vote of a majority of directors who are not
parties to the Advisory Agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person, at a meeting called for the purpose
of voting on such approval. The Advisory Agreement also provides that either
party thereto has the right with respect to any Fund to terminate it without
penalty upon
42
<PAGE>
sixty (60) days' written notice to the other party, and that the Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act).
The following table depicts the advisory fees (net of voluntary waivers) paid by
the Funds to the Advisor for the fiscal years ended October 31, 1998, 1997 and
1996:
FISCAL YEAR ENDED OCTOBER 31,
(IN `000'S)
------------------------------------
1998 1997 1996
---- ---- ----
Money Market Fund $ 1,129 $ 837 $ 650
Bond Fund 542 303 317
Real Estate Securities Fund 114 -- --
Global Fund 4,050 3,850 3,198
Growth Fund 819 604 341
International Growth Fund 469 618 549
International Small Cap Fund 84 149 158
U.S. Small Cap Fund 64 5 --
Emerging Markets Fund 135 17 Waived
U.S. Micro-Cap Fund 2,861 3,050 890
CA Tax-Free Fund 197 183 153
The Advisory Agreements with respect to the International Growth Fund, the
International Small Cap Fund, the U.S. Small Cap Fund, the Money Market Fund,
the Bond Fund, the Global Fund, the Growth Fund, the Emerging Markets Fund, and
the California Intermediate Tax-Free Fund, also provide for the payment of an
administrative fee to the Advisor at an annual rate of 0.15% of average net
assets. The following table depicts the administrative fee (net of voluntary
waivers) paid by the Funds to the Advisor for the fiscal years ended October 31,
1998, 1997 and 1996:
FISCAL YEAR ENDED OCTOBER 31,
(IN `000'S)
----------------------------------------
1998 1997 1996
---- ---- ----
Money Market Fund Waived Waived Waived
Bond Fund 50 Waived Waived
Real Estate Securities Fund N/A N/A N/A
Global Fund 1,012 962 800
Growth Fund 246 181 102
International Growth Fund 43 N/A N/A
International Small Cap Fund 2 N/A N/A
U.S. Small Cap Fund 10 1 N/A
Emerging Markets Fund 20 3 Waived
U.S. Micro-Cap Fund N/A N/A N/A
Ca Tax Free Fund 3 3 3
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<PAGE>
The Advisor's employees may engage in personal securities transactions. However,
the Investment Company and the Advisor have adopted a Code of Ethics for the
purpose of establishing standards of conduct for the Advisor's employees with
respect to such transactions. The Code of Ethics includes some broad
prohibitions against fraudulent conduct, and also includes specific rules,
restrictions, and reporting obligations with respect to personal securities
transactions of the Advisor's employees. Generally, each employee is required to
obtain prior approval from the Advisor's compliance officer in order to purchase
or sell a security for the employee's own account. Purchases or sales of
securities which are not eligible for purchase or sale by the Funds or any other
client of the Advisor are exempted from the prior approval requirement, as are
certain other transactions which the Advisor believes present no potential
conflict of interest. The Advisor's employees are also required to file with the
Advisor quarterly reports of their personal securities transactions.
THE SUB-ADVISORS
The Advisory Agreements authorize the Advisor, at its option and at its sole
expense, to appoint a Sub-Advisor, which may assume all or a portion of the
responsibilities and obligations of the Advisor pursuant to the Advisory
Agreement as shall be delegated to the Sub-Advisor. Any appointment of a
Sub-Advisor and assumption of responsibilities and obligations of the Advisor by
such Sub-Advisor is subject to approval by the Board of Directors and, as
required by law, the shareholders of the affected Fund. Pursuant to this
authority, the following table summarizes the Sub-Advisor:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
FUND SUB-ADVISOR
- ------------------------------------------------------------------------------------------
<S> <C>
Bond Fund Pacific Investment Management Company
- ------------------------------------------------------------------------------------------
Real Estate Securities Fund Kensington Investment Group
- ------------------------------------------------------------------------------------------
International Growth Fund Capital Guardian Trust Company
- ------------------------------------------------------------------------------------------
International Small Cap Fund Bee & Associates Incorporated
- ------------------------------------------------------------------------------------------
U.S. Small Cap Fund Kern Capital Management LLC+
- ------------------------------------------------------------------------------------------
Emerging Markets Fund Nicholas-Applegate Capital Management (HK) LLC
- ------------------------------------------------------------------------------------------
U.S. Micro-Cap Fund Kern Capital Management LLC+
- ------------------------------------------------------------------------------------------
California Intermediate Tax-Free Fund Rayner Associates, Inc.
- ------------------------------------------------------------------------------------------
</TABLE>
The current portfolio management agreements between the Advisor and the
above-named Sub-Advisors (the "Portfolio Management Agreements") provide that
the Sub-Advisors agree to manage the investment of the Fund's assets, subject to
the applicable provisions
- -----------------------------
+ Kern Capital Management LLC is partially owned by the Advisor.
44
<PAGE>
of the Investment Company's Articles of Incorporation, Bylaws and current
registration statement (including, but not limited to, the investment objective,
policies, and restrictions delineated in the Funds' current Prospectus and
Statement of Additional Information), as interpreted from time to time by the
Board of Directors.
For their services under the Portfolio Management Agreements, the Advisor (not
the Funds) has agreed to pay the Sub-Advisors an annual fee equal to the
percentages set forth below of the value of the applicable Fund's average net
assets, payable monthly:
Bond Fund: .25% to Pacific Investment Management
Company
Real Estate Securities Fund .50% to Kensington Investment Group
International Growth Fund Capital Guardian Trust Company
.750% on the first $25 million
.600% on the next $25 million
.425% on the next $200 million
.375% on assets in excess of $250 million
International Small Cap Fund: .80% to Bee & Associates, Incorporated
U.S. Small Cap Fund: .65% to Kern Capital Management LLC
Emerging Markets Fund: .50% to Nicholas Applegate Capital Management
(Hong Kong) LLC
U.S. Micro-Cap Fund: to Kern Capital Management LLC:
1.50% on the first $30 million
1.00% on the next $70 million
.75% on assets
in excess of $100 million
California Intermediate .20% to Rayner Associates, Inc.
Tax-Free Fund
For the fiscal year ended October 31, 1998, Pacific Investment Management
Company, Kern Capital Management LLC, Nicholas-Applegate Capital Management (HK)
LLC, Capital Guardian Trust Company, Bee & Associates, Incorporated, Kensington
Investment Group, and Rayner Associates, Inc. received from the Advisor (not the
Funds) subadvisory fees (net of voluntary fee waivers) of $340,135, $1,504,604,
$67,334, $194,551, $28,861, $57,002 and $32,815, respectively. For the fiscal
year ended October 31, 1997, Pacific Investment Management Company, Kern Capital
Management LLC and Nicholas-Applegate Capital Management received from the
Advisor (not the Funds) subadvisory fees (net of voluntary fee waivers) of
$189,286, $359,873, and $15,038, respectively. For the fiscal year ended October
31, 1996, Pacific Investment Management Company, received, from the Advisor,
subadvisory fees (net of voluntary waivers) of $198,574, respectively.
45
<PAGE>
The Portfolio Management Agreement for each Fund continues in effect from year
to year only as long as such continuance is specifically approved at least
annually by (i) the Board of Directors of the Investment Company or by the vote
of a majority of the outstanding voting shares of the Fund, and (ii) by the vote
of a majority of the directors of the Investment Company who are not parties to
the Agreement or interested persons of the Advisor or the Sub-Advisor or the
Investment Company. Each Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of the Investment Company or
by the vote of a majority of the outstanding voting shares of the Fund, or by
the Sub-Advisor or the Advisor, upon 30 days' written notice to the other party.
Additionally, each Agreement automatically terminates in the event of its
assignment.
PRINCIPAL UNDERWRITER. The Fund's principal underwriter is First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018
(the "Distributor"). The Distributor is engaged on a non-exclusive basis to
assist in the distribution of shares in various jurisdictions. The Distributor
receives compensation from the Advisor and is not paid either directly or
indirectly by the Investment Company. The Distributor will receive compensation
of $50,000 from the Advisor with respect to the fiscal year ended October 31,
1998 for services as Distributor.
TRANSFER AGENT. The Advisor has engaged State Street Bank and Trust Company, c/o
NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as the Transfer
and Dividend Disbursing Agent and shareholder service agent. The Transfer Agent
is not involved in determining investment policies of the Fund or its portfolio
securities transactions. Its services do not protect shareholders against
possible depreciation of their assets. The fees of State Street Bank and Trust
Company are paid by the Fund and thus borne by the Fund's shareholders. State
Street Bank and Trust Company has contracted with National Financial Data
Services to serve as shareholder servicing agent. A depository account has been
established at United Missouri Bank of Kansas City through which all payments
for the funds will be processed.
ADMINISTRATOR. The Advisor has retained Investment Company Administration,
L.L.C. (the "Sub-Administrator"), with offices at 2020 East Financial Way, Suite
100, Glendora, California 91741. The Administration Agreement provides that the
Sub-Administrator will prepare and coordinate reports and other materials
supplied to the Directors; prepare and/or supervise the preparation and filing
of securities filings, periodic financial reports, prospectuses, statements of
additional information, marketing materials, shareholder reports and other
regulatory reports or filings required for the Funds; prepare all required
filings necessary to maintain the Funds' notice filings to sell shares in all
states where the Funds currently do, or intends to do, business; coordinate the
preparation, printing and mailing of materials required to be sent to
shareholders; and perform such additional services as may be agreed upon by the
Advisor and the Sub-Administrator. For its services, the Advisor (not the Fund)
pays the Sub-Administrator an annual fee equal to .02% of the first $1 billion
of each Fund's average daily net assets, 0.015% thereafter, subject to a minimum
annual fee of $20,000.
46
<PAGE>
PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH FUND,
INTERNATIONAL SMALL CAP FUND, REAL ESTATE SECURTIES FUND AND EMERGING MARKETS
FUND ONLY)
As stated in the Prospectus, the above referenced Funds have adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act which
permits the Funds to compensate the Advisor for expenses incurred in the
distribution and promotion of each Fund's shares, including, but not limited to,
the printing of prospectuses, statements of additional information, and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing, and sales expenses, and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms that have executed a distribution or service
agreement with the Underwriter. The Plan expressly permits payments in any
fiscal year up to a maximum of 0.25% of the average daily net assets of the
Funds. It is possible that the Advisor could receive compensation under the Plan
that exceeds the Advisor's costs and related distribution expenses, thus
resulting in a profit to the Advisor.
Agreements implementing the Plan (the "Implementation Agreements") are in
writing and have been approved by the Board of Directors. All payments made
pursuant to the Plan are made in accordance with written agreements and are
reviewed by the Board of Directors at least quarterly.
The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Investment Company's
Board of Directors and by a vote of the Directors who are not interested persons
of the Investment Company and have no direct or indirect financial interest in
the Plan or any Implementation Agreement (the "Independent Directors") at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time by a vote of a majority of the Independent Directors or
by a vote of the holders of a majority of the outstanding shares of each Fund.
In the event the Plan is terminated in accordance with its terms, the Funds will
not be required to make any payments for expenses incurred by the Advisor after
the termination date. Each Implementation Agreement terminates automatically in
the event of its assignment and may be terminated at any time by a vote of a
majority of the Independent Directors or by a vote of the holders of a majority
of the outstanding shares of each Fund on not more than 60 days' written notice
to any other party to the Implementation Agreement. The Plan may not be amended
to increase materially the amount to be spent for distribution without
shareholder approval. All material amendments to the Plan must be approved by a
vote of the Investment Company's Board of Directors and by a vote of the
Independent Directors.
In approving the Plan, the Directors determined, in the exercise of their
business judgment and in light of their fiduciary duties as Directors, that
there is a reasonable likelihood that the Plan will benefit the Funds and its
shareholders. The Board of Directors believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Funds, which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification, and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Directors make a similar determination for
each subsequent year of the Plan.
47
<PAGE>
There can be no assurance that the benefits anticipated from the expenditure of
the Fund's assets for distribution will be realized. While the Plan is in
effect, the costs to and expenses incurred by the Advisor pursuant to the Plan
and the purposes underlying such cash and expenditures must be reported
quarterly to the Board of Directors for its review. In addition, the selection
and nomination of those Directors who are not interested persons of the
Investment Company are committed to the discretion of the Independent Directors
during such period.
Pursuant to the Plan, the Funds may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling, or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Investment Company believes that the Glass-Steagall Act should not preclude a
bank from providing such services. However, state securities laws on this issue
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law. If a bank were prohibited from continuing to perform all or a part of
such services, management of the Investment Company believes that there would be
no material impact on the Funds or their shareholders. Banks may charge their
customers fees for offering these services to the extent permitted by regulatory
authorities, and the overall return to those shareholders availing themselves of
the bank services will be lower than to those shareholders who do not. The Funds
may from time to time purchase securities issued by banks which provide such
services; however, in selecting investments for the Funds, no preference will be
shown for such securities.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions in which portfolio transactions for a Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Advisor or Sub-Advisor, including other series of
the Investment Company. Although such concurrent authorizations potentially
could be either advantageous or disadvantageous to a Fund, they will be effected
only when the Advisor or Sub-Advisor believes that to do so will be in the best
interest of such Fund. When such concurrent authorizations occur, the objective
will be to allocate the executions in a manner which is deemed equitable to the
accounts involved, including the other series of the Investment Company.
The Bond Fund, the Global Fund, the Growth Fund, the International Growth Fund,
the International Small Cap Fund, the Emerging Markets Fund, and the U.S.
Micro-Cap Fund contemplate purchasing foreign equity and/or fixed-income
securities in over-the-counter markets or stock exchanges located in the
countries in which the respective principal offices of the issuers of the
various securities are located, if that is the best available market. Fixed
commissions on foreign stock transactions and transaction costs with respect to
foreign fixed-income securities are generally higher than negotiated commissions
on United States transactions, although these Funds will endeavor to achieve the
best net results on their portfolio transactions. There is generally less
government
48
<PAGE>
supervision and regulation of foreign stock exchanges and brokers than in the
United States. Foreign security settlements may in some instances be subject to
delays and related administrative uncertainties.
Foreign equity securities may be held by the Global Fund, the Growth Fund, the
International Growth Fund, the International Small Cap Fund, the Emerging
Markets Fund, and the U.S. Micro-Cap Fund in the form of American Depository
Receipts ("ADRs") or similar instruments. ADRs may be listed on stock exchanges
or traded in the over-the-counter markets in the United States. ADRs, like other
securities traded in the United States, will be subject to negotiated commission
rates. The government securities issued by the United States and other countries
and money market securities in which a Fund may invest are generally traded in
the over-the-counter markets.
No brokerage commissions have been paid by the Money Market Fund and the
California Intermediate Tax-Free Fund during the last three fiscal years. The
aggregate dollar amount of brokerage commissions paid by the other Funds during
the last three years are as follows:
FISCAL YEAR ENDED OCTOBER 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
Bond Fund $ 17,551 $ 6,238 $ 11,855
Global Fund 1,197,193 998,130 1,069,049
Real Estate Securities Fund 317,331 --- ---
Growth Fund 296,782 143,250 141,414
International Growth Fund 169,064 327,835 344,243
International Small Cap Fund 30,564 6,495 8,854
U.S. Small Cap Fund 27,821 3,034 ---
Emerging Markets Fund 117,643 136,653 20,196
U.S. Micro-Cap Fund 453,287 298,178 68,850
Subject to the requirement of seeking the best available prices and executions,
the Advisor or Sub-Advisor may, in circumstances in which two or more
broker-dealers are in a position to offer comparable prices and executions, give
preference to broker-dealers who have provided investment research, statistical,
and other related services to the Advisor or Sub-Advisor for the benefit of a
Fund and/or other accounts served by the Advisor or Sub-Advisor. Such
preferences would only be afforded to a broker-dealer if the Advisor determines
that the amount of the commission is reasonable in relation to the value of the
brokerage and research services provided by that broker-dealer and only to a
broker-dealer acting as agent and not as principal. The Advisor is of the
opinion that, while such information is useful in varying degrees, it is of
indeterminable value and does not reduce the expenses of the Advisor in managing
each Fund's portfolio.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Funds may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor, or a Sub-Advisor, or an affiliated
person of such person. It is presently anticipated that certain affiliates of
the Sub-Advisor(s) will effect brokerage transactions of the Funds in certain
markets and receive compensation for such services.
49
<PAGE>
As of October 31, 1998, the Money Market Fund owned securities of the Investment
Company's regular brokers or dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: Merrill Lynch & Co., Inc.
$15,784,000, Rabobank Nederland $7,353,000, CIT Group Holdings $7,347,000,
Goldman Sachs & Co. $4,998,000 and J.P. Morgan $4,962,000 . As of October 31,
1998, the Bond Fund owned securities of the Investment Company's regular brokers
or dealers or their parents (as defined in Rule 10b-1 promulgated under the 1940
Act) as follows: BA Mortgage Securities $5,045,000, Goldman Sachs & Co.
$4,970,000, Citicorp $2,938,000, Morgan Stanley, Dean Witter & Co. $1,022,000,
Lehman Brothers Holdings, Inc. $814,000 and Chase Securities $495,000. As of
October 31, 1998, the Global Fund owned securities of the Investment Company's
regular brokers or dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: Lehman Brothers Holdings, Inc.
$7,050,000, Goldman Sachs & Co. $3,999,000, Salomon, Inc. $3,045,000, Donaldson,
Lufkin & Jenrette, Inc. $2,958,000, ABN Amro Holding $1,885,000, Morgan Stanley
Dean Witter & Co. 1,612,000, Nomura Securities Co. $1,226,000 and HSBC Holdings
$882,000. As of October 31, 1998, the Growth Fund owned securities of the
Investment Company's regular brokers or dealers or their parents (as defined in
Rule 10b-1 promulgated under the 1940 Act) as follows: Goldman Sachs & Co.
$7,499,000, Merrill Lynch & Co., Inc. $6,146,000, Morgan Stanley, Dean Witter &
Co. $758,000. As of October 31, 1998, the U.S. Micro-Cap Fund owned securities
of the Investment Company's regular brokers or dealers or their parents (as
defined in Rule 10b-1 promulgated under the 1940 Act) as follows: Goldman Sachs
& Co. $4,499,000 and Merrill Lynch & Co., Inc. $5,398,000. As of October 31,
1998, the International Growth Fund owned securities of the Investment Company's
regular brokers or dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: Deutsche Bank $356,000, HSBC
Holdings $248,000 and Nomura Securities Co. $227,000.
HOW TO INVEST
PRICE OF SHARES. The price to be paid by an investor for shares of a Fund, the
public offering price, is based on the net asset value per share which is
calculated once daily as of the close of trading (currently 4:00 p.m., Eastern
time) each day the New York Stock Exchange is open as set forth below. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: (i) New Year's Day, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas Day; and
(ii) the preceding Friday when any one of those holidays falls on a Saturday or
the subsequent Monday when any one of those holidays falls on a Sunday. The
Money Market Fund will also observe additional federal holidays that are not
observed by the New York Stock Exchange: Columbus Day, and Veterans Day.
Each Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). The Bond Fund's, the
Global Fund's, the Growth Fund's, the International Growth Fund's, the
International Small Cap Fund's, the U.S. Small Cap Fund's, the Emerging Market
Fund's, and the U.S. Micro-Cap Fund's portfolio securities may from time to time
be listed on foreign stock exchanges or otherwise traded on foreign markets
which may trade on other days (such as Saturday). As a result, the net
50
<PAGE>
asset value of these Funds may be significantly affected by such trading on days
when a shareholder has no access to the Funds. See also in the Prospectus at
"General Investment Policies - Special Considerations in International
Investing," "Calculation of Net Asset Value and Public Offering Price," "How to
Invest," "How to Redeem Shares," and "Shareholder Account Services and
Privileges - Exchanges Between Funds."
FREMONT BOND FUND, FREMONT REAL ESTATE SECURITIES FUND, FREMONT GLOBAL FUND,
FREMONT GROWTH FUND, FREMONT INTERNATIONAL GROWTH FUND, FREMONT INTERNATIONAL
SMALL CAP FUND, FREMONT U.S. SMALL CAP FUND, FREMONT EMERGING MARKETS FUND, AND
FREMONT U.S. MICRO-CAP FUND:
1. Fixed-income obligations with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not
available, at prices for securities of comparable maturity, quality,
and type. However, in circumstances where the Advisor deems it
appropriate to do so, prices obtained for the day of valuation from a
bond pricing service will be used. The Funds amortize to maturity all
securities with 60 days or less remaining to maturity based on their
cost to the Funds if acquired within 60 days of maturity or, if
already held by a Fund on the 60th day, based on the value determined
on the 61st day. Options on currencies purchased by the Funds are
valued at their last bid price in the case of listed options or at the
average of the last bid prices obtained from dealers in the case of
OTC options. Where market quotations are not readily available,
securities are valued at fair value pursuant to methods approved by
the Board of Directors.
2. Equity securities, including ADRs, which are traded on stock
exchanges, are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last
available mean price. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the
primary market. Securities traded in the over-the-counter market are
valued at the last available bid price in the over-the-counter market
prior to the time of valuation. Securities and assets for which market
quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors.
3. Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the
close of the business day in New York. In addition, European or Far
Eastern securities trading may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Funds' net asset value is
not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of securities
held by these Funds used in such calculation. Events affecting the
values of portfolio securities that occur between the time their
prices are determined and the close of the New York Stock Exchange
will not be reflected
51
<PAGE>
in these Funds' calculation of net asset value unless the Board of
Directors deems that the particular event would materially affect net
asset value, in which case an adjustment will be made.
4. With respect to the Global Fund, gold bullion and bullion-type coins
are valued at the closing price of gold on the New York Commodity
Exchange.
5. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market
rate as determined by the Advisor and/or Sub-Advisor.
6. Each Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure
is obtained.
7. The net assets so obtained are then divided by the total number of
shares outstanding (excluding treasury shares), and the result,
rounded to the nearest cent, is the net asset value per share.
FREMONT MONEY MARKET FUND:
The Money Market Fund uses its best efforts to maintain a constant per share
price of $1.00.
The portfolio instruments of the Money Market Fund are valued on the basis of
amortized cost. This involves valuing an instrument at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value, as determined by amortized cost,
is higher or lower than the price the Money Market Fund would receive if it sold
the instrument.
The valuation of the Money Market Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of a per share net asset value at
$1.00 are permitted by Rule 2a-7 adopted by the Securities and Exchange
Commission. Under this rule, the Money Market Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less as allowed by
regulations under the 1940 Act, and invest only in securities determined by the
Board of Directors to be of high quality with minimal credit risks. In
accordance with this rule, the Board of Directors has established procedures
designed to stabilize, to the extent reasonably practicable, the Money Market
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the portfolio holdings by the Board of
Directors at such intervals as it may deem appropriate, to determine whether the
net asset value of the Money Market Fund calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost. The rule also provides that a deviation between the Money Market
Fund's net asset value based upon available market quotations or market
equivalents and $1.00 per share net asset value based on amortized cost
exceeding $0.005 per share must be examined by the Board of Directors. In the
event the Board of Directors determines that the deviation may result in
material dilution or is otherwise unfair to investors or existing shareholders,
the Board of Directors must cause the Money Market Fund to take such corrective
action as it regards as necessary and appropriate, including: selling portfolio
52
<PAGE>
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations.
In the event that a security meeting the Money Market Fund's quality
requirements is acquired and subsequently is assigned a rating below "First
Tier" by one or more of the rating organizations, the Board of Directors must
assess promptly whether the security presents minimal credit risks and direct
the Money Market Fund to take such action as the Board of Directors determines
is in the best interest of the Money Market Fund and its shareholders. This
responsibility cannot be delegated to the Advisor. However, this assessment by
the Board of Directors is not required if the security is disposed of (by sale
or otherwise) or matures within five Business Days of the time the Advisor
learns of the lower rating. However, in such a case the Board of Directors must
be notified thereafter.
In the event that a security acquired by the Money Market Fund either defaults
(other than an immaterial default unrelated to the issuer's financial
condition), or is determined no longer to present minimal credit risks, the
Money Market Fund must dispose of the security (by sale or otherwise) as soon as
practicable unless the Board of Directors finds that this would not be in the
Money Market Fund's best interest.
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND:
Portfolio securities with original or remaining maturities in excess of 60 days
are valued at the mean of representative quoted bid and asked prices for such
securities or, if such prices are not available, at the equivalent value of
securities of comparable maturity, quality and type. However, in circumstances
where the Advisor and/or Sub-Advisor deems it appropriate to do so, prices
obtained for the day of valuation from a bond pricing service will be used. The
Fund amortizes to maturity all securities with 60 days or less remaining to
maturity based on their cost to the Fund if acquired within 60 days of maturity
or, if already held by the Fund on the 60th day, based on the value determined
on the 61st day.
The Fund deems the maturities of variable or floating rate instruments, or
instruments which the Fund has the right to sell at par to the issuer or dealer,
to be the time remaining until the next interest rate adjustment date or until
they can be resold or redeemed at par.
Where market quotations are not readily available, the Fund values securities
(including restricted securities which are subject to limitations as to their
sale) at fair value as determined in good faith by or under the direction of the
Board of Directors.
The fair value of any other assets is added to the value of securities, as
described above to arrive at total assets. The Fund's liabilities, including
proper accruals of taxes and other expense items, are deducted from total assets
and a net asset figure is obtained. The net assets so obtained are then divided
by the total number of shares outstanding (excluding treasury shares), and the
result, rounded to the nearest cent, is the net asset value per share.
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OTHER INVESTMENT AND REDEMPTION SERVICES
THE OPEN ACCOUNT. When an investor makes an initial investment in a Fund, a
shareholder account is opened in accordance with the investor's registration
instructions. Each time there is a transaction in a shareholder account, such as
an additional investment, redemption, or distribution (dividend or capital
gain), the shareholder will receive from the Transfer Agent a confirmation
statement showing the current transaction in the shareholder account, along with
a summary of the status of the account as of the transaction date.
PAYMENT AND TERMS OF OFFERING. Payment of shares purchased should accompany the
purchase order, or funds should be wired to the Transfer Agent as described in
the Prospectus. Payment, other than by wire transfer, must be made by check or
money order drawn on a U.S. bank. Checks or money orders must be payable in U.S.
dollars and be made payable to Fremont Mutual Funds. Third party checks, credit
cards and cash will not be accepted.
As a condition of this offering, if an order to purchase shares is cancelled due
to nonpayment (for example, because of a check returned for "not sufficient
funds"), the person who made the order will be responsible for reimbursing the
Advisor for any loss incurred by reason of such cancellation. If such purchaser
is a shareholder, that Fund shall have the authority as agent of the shareholder
to redeem shares in the shareholder's account for the then-current net asset
value per share to reimburse that Fund for the loss incurred. Such loss shall be
the difference between the net asset value of that Fund on the date of purchase
and the net asset value on the date of cancellation of the purchase. Investors
whose purchase orders have been cancelled due to nonpayment may be prohibited
from placing future orders.
The Investment Company reserves the right at any time to waive or increase the
minimum requirements applicable to initial or subsequent investments with
respect to any person or class of persons. An order to purchase shares is not
binding on the Investment Company until it has been confirmed in writing by the
Transfer Agent (or other arrangements made with the Investment Company, in the
case of orders utilizing wire transfer of funds) and payment has been received.
To protect existing shareholders, the Investment Company reserves the right to
reject any offer for a purchase of shares by any individual.
REDEMPTION IN KIND. The Investment Company may elect to redeem shares in assets
other than cash but must pay in cash all redemptions with respect to any
shareholder during any 90-day period in an amount equal to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of a Fund at the beginning of such
period.
SUSPENSION OF REDEMPTION PRIVILEGES. The Investment Company may suspend
redemption privileges with respect to any Fund or postpone the date of payment
for more than seven calendar days after the redemption order is received during
any period (1) when the New York Stock Exchange is closed other than customary
weekend and holiday closings, or trading on the Exchange is restricted as
determined by the SEC, (2) when an emergency exists, as defined by the SEC,
which makes it not reasonably practicable for the Investment Company to dispose
of securities owned by it or to fairly determine the value of its assets, or (3)
as the SEC may otherwise permit.
54
<PAGE>
TAXES - MUTUAL FUNDS
STATUS AS A "REGULATED INVESTMENT COMPANY." Each Fund will be treated under the
Internal Revenue Code of 1986, as amended (the "Code") as a separate entity, and
each Fund has elected and intends to continue to qualify to be treated as a
separate "regulated investment company" under Subchapter M. To qualify for the
tax treatment afforded a regulated investment company under the Code, a Fund
must annually distribute at least 90% of the sum of its investment company
taxable income (generally net investment income and certain short-term capital
gains), its tax-exempt interest income (if any) and net capital gains, and meet
certain diversification of assets and other requirements of the Code. If a Fund
qualifies for such tax treatment, it will not be subject to federal income tax
on the part of its investment company taxable income and its net capital gain
which it distributes to shareholders. To meet the requirements of the Code, a
Fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of securities or currencies; and (b) diversify its holdings so that,
at the end of each fiscal quarter, (i) at least 50% of the market value of the
Fund's total assets is represented by cash, U.S. Government securities,
securities of other regulated investment companies, and other securities,
limited, in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies), or in two or more issuers
which a Fund controls and which are engaged in the same or similar trades or
businesses. Income and gain from investing in gold or other commodities will not
qualify in meeting the 90% gross income test.
Even though a Fund qualifies as a "regulated investment company," it may be
subject to certain federal excise taxes unless that Fund meets certain
additional distribution requirements. Under the Code, a nondeductible excise tax
of 4% is imposed on the excess of a regulated investment company's "required
distribution" for the calendar year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-year
period ending on October 31 of such year, and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by a Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
a Fund pays income tax for the year. Each Fund intends to meet these
distribution requirements to avoid the excise tax liability.
If for any taxable year a Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.
55
<PAGE>
SPECIAL TAX CONSIDERATIONS FOR THE FREMONT REAL ESTATE SECURITIES FUND. The Fund
may invest in REITs that hold residual interests in real estate mortgage
investment conduits ("REMICs"). Under Treasury regulations that have not yet
been issued, but which may apply retroactively, a portion of the Fund's income
from a REIT that is attributable to the REITs residual interest in a REMIC
(referred to in the Code as an "excess inclusion") will be subject to federal
income tax in all events. These regulations are also expected to provide that
excess inclusion income of a regulated investment company, such as the Fund,
will be allocated to shareholders of the regulated investment company in
proportion to the dividends received by such shareholders, with the same
consequences as if the shareholders held the related REMIC residual interest
directly. In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited exception for
certain thrift institutions), (ii) will constitute unrelated business taxable
income to entities (including a qualified pension plan, an individual retirement
account, a 401(k) plan or other tax-exempt entity) subject to tax on unrelated
business income, thereby potentially requiring such an entity that is allocated
excess inclusion income, and otherwise might not be required to file a tax
return, to file a tax return and pay tax on such income, and (iii) in the case
of a foreign shareholder, will not qualify for any reduction in U.S. federal
withholding tax. In addition, if at any time during any taxable year a
"disqualified organization" (as defined in the Code) is a record holder of a
share in a regulated investment company, then the regulated investment company
will be subject to a tax equal to that portion of its excess inclusion income
for the taxable year that is allocable to the disqualified organization,
multiplied by the highest federal income tax rate imposed on corporations.
Even though the Fund intends to qualify as a "regulated investment company," it
may be subject to certain federal excise taxes unless the Fund meets certain
additional distribution requirements. Under the Code, a nondeductible excise tax
of 4% is imposed on the excess of a regulated investment company's "required
distribution" for the calendar year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-year
period ending on October 31 of such year, and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the Fund pays income tax for the year. The Fund intends to meet these
distribution requirements to avoid the excise tax liability. It is possible that
the Fund will not receive cash distributions from the real estate investment
trusts ("REITs") in which it invests in sufficient time to allow the Fund to
satisfy its won distribution requirements using these REIT distributions.
Accordingly, the Fund might be required to generate cash to make its own
distributions, which may cause the Fund to sell securities at a time not
otherwise advantageous to do so, or to borrow money to fund a distribution.
If for any taxable year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event,
56
<PAGE>
dividend distributions would be taxable to shareholders to the extent of
earnings and profits.
DISTRIBUTIONS OF NET INVESTMENT INCOME. Dividends from net investment income
(including net short-term capital gains) are taxable as ordinary income.
Shareholders will be taxed for federal income tax purposes on dividends from a
Fund in the same manner whether such dividends are received as shares or in
cash. If a Fund does not receive any dividend income from U.S. corporations,
dividends from that Fund will not be eligible for the dividends received
deduction allowed to corporations. To the extent that dividends received by a
Fund would qualify for the dividends received deduction available to
corporations, the Fund must designate in a written notice to shareholders the
amount of the Fund's dividends that would be eligible for this treatment
NET CAPITAL GAINS. Any distributions designated as being made from a Fund's net
capital gains will be taxable as long-term capital regardless of the holding
period of the shareholders of that Fund's shares. . The maximum federal capital
gains rate for individuals is 20% with respect to capital assets held more than
12 months. The maximum capital gains for corporate shareholders is the same as
the maximum tax rate for ordinary income.
Capital loss carryforwards result when a Fund has net capital losses during a
tax year. These are carried over to subsequent years and may reduce
distributions of realized gains in those years. Unused capital loss
carryforwards expire in eight years. Until such capital loss carryforwards are
offset or expire, it is unlikely that the Board of Directors will authorize a
distribution of any net realized gains.
NON-U.S. SHAREHOLDERS. Under the Code, distributions of net investment income by
a Fund to a shareholder who, as to the U.S., is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign shareholder") will be subject to U.S. tax
withholding (at a 30% or lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected" with
a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
OTHER INFORMATION. The amount of any realized gain or loss on closing out a
futures contract such as a forward commitment for the purchase or sale of
foreign currency will generally result in a realized capital gain or loss for
tax purposes. Under Section 1256of the Code, futures contracts held by a Fund at
the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Sixty percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain, or loss from any actual sales will
be treated as long-term capital gain or loss, and the remainder will be treated
as short-term capital gain or loss. Section 988 of the Code may also apply to
currency transactions. Under Section 988 of the Code, each foreign currency gain
or loss is generally computed separately and treated as ordinary income or loss.
In the case of overlap between
57
<PAGE>
Sections 1256 and 988 of the Code, special provisions determine the character
and timing of any income, gain, or loss. The Funds will attempt to monitor
transactions under Section 988 of the Code to avoid an adverse tax impact. See
also "Investment Objectives, Policies, and Risk Considerations" in this
Statement of Additional Information.
Any loss realized on redemption or exchange of a Fund's shares will be
disallowed to the extent shares are reacquired within the 61 day period
beginning 30 days before and ending 30 days after the shares are redeemed or
exchanged.
Under the Code, a Fund's taxable income for each year will be computed without
regard to any net foreign currency loss attributable to transactions after
October 31, and any such net foreign currency loss will be treated as arising on
the first day of the following taxable year. A Fund may be required to pay
withholding and other taxes imposed by foreign countries generally at rates from
10% to 40% which would reduce such Fund's investment income. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is not anticipated that shareholders (except with respect to the
Global Fund, the International Growth Fund, the International Small Cap Fund,
and the Emerging Markets Fund) will be entitled to a foreign tax credit or
deduction for such foreign taxes.
With respect to the Global Fund, the International Growth Fund, the
International Small Cap Fund, or the Emerging Markets Fund, so long as it (i)
qualifies for treatment as a regulated investment company, (ii) is liable for
foreign income taxes, and (iii) more than 50% of its total assets at the close
of its taxable year consist of stock or securities of foreign corporations, it
may elect to "pass through" to its shareholders the amount of such foreign taxes
paid. If this election is made, information with respect to the amount of the
foreign income taxes that are allocated to the applicable Fund's shareholders
will be provided to them and any shareholder subject to tax on dividends will be
required (i) to include in ordinary gross income (in addition to the amount of
the taxable dividends actually received) its proportionate share of the foreign
taxes paid that are attributable to such dividends, and (ii) either deduct its
proportionate share of foreign taxes in computing its taxable income or to claim
that amount as a foreign tax credit (subject to applicable limitations) against
U.S. income taxes.
In order to qualify for the dividends received deduction, a corporate
shareholder must hold the Fund's shares paying the dividends, upon which a
dividend received deduction would be based, for at least 46 days during the
90-day period that begins 45 days before the stock becomes ex-divided with
respect to the dividend without protection from risk of loss. Similar
requirements apply to the Fund with respect to each qualifying dividend the Fund
receives. Shareholders are advised to consult their tax advisor regarding
application of these rules to their particular circumstances.
The foregoing is a general abbreviated summary of present United States federal
income taxes on dividends and distributions by each Fund. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state, and local taxes applicable to dividends and
distributions received.
58
<PAGE>
ADDITIONAL INFORMATION
CUSTODIAN. Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, acts as Custodian for the Investment Company's assets, and as
such safekeeps the Funds' portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Investment Company's
request, and maintains records in connection with its duties.
INDEPENDENT AUDITORS; FINANCIAL STATEMENTS. The Investment Company's independent
auditor is PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105. PricewaterhouseCoopers LLP will conduct an annual audit of
each Fund, assist in the preparation of each Fund's federal and state income tax
returns, and consult with the Investment Company as to matters of accounting,
regulatory filings, and federal and state income taxation. The financial
statements of the Funds as of October 31, 1998 incorporated herein by reference
are audited. Such financial statements are included herein in reliance on the
opinion of PricewaterhouseCoopers LLP given on the authority of said firm as
experts in auditing and accounting.
LEGAL OPINIONS. The validity of the shares of common stock offered hereby will
be passed upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street,
San Francisco, California 94104. In addition to acting as counsel to the
Investment Company, Paul, Hastings, Janofsky & Walker LLP has acted and may
continue to act as counsel to the Advisor and its affiliates in various matters.
USE OF NAME. The Advisor has granted the Investment Company the right to use the
"Fremont" name and has reserved the rights to withdraw its consent to the use of
such name by the Investment Company at any time, or to grant the use of such
name to any other company, and the Investment Company has granted the Advisor,
under certain conditions, the use of any other name it might assume in the
future, with respect to any other investment company sponsored by the Advisor.
SHAREHOLDER VOTING RIGHTS. The Investment Company currently issues shares in 12
series and may establish additional classes or series of shares in the future.
When more than one class or series of shares is outstanding, shares of all
classes and series will vote together for a single set of directors, and on
other matters affecting the entire Investment Company, with each share entitled
to a single vote. On matters affecting only one class or series, only the
shareholders of that class or series shall be entitled to vote. On matters
relating to more than one class or series but affecting the classes and series
differently, separate votes by class and series are required. Shareholders
holding 10% of the shares of the Investment Company may call a special meeting
of shareholders.
LIABILITY OF DIRECTORS AND OFFICERS. The Articles of Incorporation of the
Investment Company provide that, subject to the provisions of the 1940 Act, to
the fullest extent permitted under Maryland law, no officer or director of the
Investment Company may be held personally liable to the Investment Company or
its shareholders.
CERTAIN SHAREHOLDERS. To the best knowledge of the Funds, shareholders owning 5%
or more of the outstanding shares of the Funds as of record are set forth below:
59
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER % HELD AS OF
FUND NAME & ADDRESS JANUARY 31, 1999
- ---- -------------- ----------------
<S> <C> <C>
Money Market Fund Bechtel Mast Trust for Qualifed Employees 51%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Sequoia Ventures, Inc. 9%
50 Fremont Streeet, Ste 3600
San Francisco, Ca 94105-2239
BF Fund Limited 7%
50 Fremont Street, #3600
San Francisco, CA 94105-2239
Bond Fund Bechtel Mast Trust for Qualifed Employees 68%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Real Estate Securities Charles Schwab & Co., Inc. 55%
Fund 101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp 14%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003
Donald Lufkin & Jenrette 5%
Mutual Funds, 7th Floor
1 Pershing Plaza
Jersey City, NJ 07399-0001
National Investor Services Corp 5%
55 Water Street
New York, NY 10041-0001
Global Fund Bechtel Mast Trust for Qualifed Employees 49%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Growth Fund BF Fund Limited 41%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
International Growth Fund BF Fund Limited 72%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
International Small Cap Louisa S. Sarofim 35%
60
<PAGE>
Fund Bevis Longstreth
1001 Fannin Street
Houston, TX 77002
Charles Schwab & Co., Inc. 17%
101 Montgomery Street
San Francisco, CA 94104-4122
Fremont Investors, Inc. 9%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Bruce B. Bee 7%
1520 E. 12th Avenue
Denver, CO 80218-3120
Fox & Co. 5%
P.O. Box 976
New York, NY 10268-0976
U.S. Small Cap Fund Fremont Investors, Inc. 59%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Emerging Markets Fund Charles Schwab & Co., Inc. 18%
101 Montgomery Street
San Francisco, CA 94104-4122
Fremont Investors, Inc. 17%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Fremont Investment Advisors, Inc. 14%
333 Market Street, Ste. 2600
San Francisco, Ca 94105-2127
Fremont Group 13%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
U.S. Micro-Cap Fund Charles Schwab & Co., Inc. 20%
101 Montgomery Street
San Francisco, CA 94104-4122
Goodness Limited 12%
P.O. Box N-7776
Nassau, Bahamas
National Financial Services Corp 9%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003
Donald Lufkin & Jenrette 17%
Mutual Funds, 7th Floor
1 Pershing Plaza
61
<PAGE>
Jersey City, NJ 07399-0001
California Intermediate BF Fund Limited 70%
Tax-Free Fund 50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Charles Schwab & Co., Inc. 12%
101 Montgomery Street
San Francisco, CA 94104-4122
Willis S. Slusser and Marion B. Slusser 7%
200 Deer Valley Road, #1D
San Rafael, CA 94903-5513
</TABLE>
OTHER INVESTMENT INFORMATION. The Advisor directs the management of over $4.7
billion of assets and internally manages over $1.9 billion of assets for
retirement plans, foundations, private portfolios, and mutual funds. The
Advisor's philosophy is to apply a long-term approach to investing that balances
risk and return potential.
The Global Fund's investment objectives are similar to the objectives of Bechtel
Trust & Thrift Plan, Fund A. The Bond Fund's investment objectives are the same
as the objectives of Bechtel Trust & Thrift Plan, Fund B. The Money Market
Fund's investment objectives are the same as the objectives of Bechtel Trust &
Thrift Plan, Fund C.
Historical annual returns of various market indices may be used to represent the
returns of various asset classes as follows:
(1) U.S. Stocks: Standard & Poor's 500 Index;
(2) Foreign Stocks: Morgan Stanley Europe, Australia and Far East (EAFE)
Index;
(3) Intermediate U.S. Bonds: Lehman Brothers Intermediate
Government/Corporate Bond Index;
(4) Foreign Bonds: Salomon Brothers Non-U.S. Dollar Bond Index;
(5) Money Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate:
1987-1997 Donoghue First Tier Money Market Fund Average; and
(6) The National Association of Real Estate Investment Trusts' (NAREIT)
Equity REIT Index.
The total returns for the above indices for the years 1980 through 1998 are as
follows (source: Fremont Investment Advisors, Inc.):
<TABLE>
<CAPTION>
Foreign Intermediate Foreign Money Market
U.S. Stocks Stocks U.S. Bonds Bonds Securities NAREIT
----------- ------ ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
1980 32.4% 24.4% 6.4% 14.2% 11.8% 28.02%
1981 -5.0% -1.0% 10.5% -4.6% 16.1% 8.58%
1982 21.3% -0.9% 26.1% 11.9% 10.7% 31.64%
62
<PAGE>
1983 22.3% 24.6% 8.6% 4.4% 8.6% 25.47%
1984 6.3% 7.9% 14.4% -1.9% 10.0% 14.82%
1985 31.8% 56.7% 18.1% 35.0% 7.5% 5.92%
1986 18.7% 70.0% 13.1% 31.4% 5.9% 19.18%
1987 5.1% 24.9% 3.7% 35.2% 6.0% -10.67%
1988 16.8% 28.8% 6.7% 2.4% 6.9% 11.36%
1989 31.4% 11.1% 12.8% -3.4% 8.5% -1.81%
1990 -3.2% -23.0% 9.2% 15.3% 7.5% -17.35%
1991 30.6% 12.9% 14.6% 16.2% 5.5% 35.68%
1992 7.7% -11.5% 7.2% 4.8% 3.3% 12.18%
1993 10.0% 33.3% 8.8% 15.1% 2.6% 18.55%
1994 1.3% 8.1% -1.9% 6.0% 3.6% 0.81%
1995 37.5% 11.2% 15.3% 19.6% 5.3% 18.31%
1996 23.0% 6.1% 4.1% 4.5% 4.8% 35.75%
1997 33.4% 1.8% 7.9% -4.3% 5.0% 29.14%
1998 28.6% 20.0% 9.5% 11.5% 4.9% -18.8%
</TABLE>
The Bond Fund, the Real Estate Securities Fund, the Global Fund, the Growth
Fund, the International Growth Fund, the International Small Cap Fund, the U.S.
Small Cap Fund, the Emerging Markets Fund, and the U.S. Micro-Cap Fund are best
suited as long-term investments. While they offer higher potential total returns
than certificates of deposit or money market funds (including the Money Market
Fund), they involve added return volatility or risk. The prospective investor
must weigh this potential for higher return against the associated higher risk.
INVESTMENT RESULTS
The Investment Company may from time to time include information on the
investment results (yield or total return) of a Fund in advertisements or in
reports furnished to current or prospective shareholders.
Current yield for the Money Market Fund will be calculated based on the net
change, exclusive of capital changes, over a seven-day period, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with
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<PAGE>
the resulting yield figure carried to at least the nearest hundredth of one
percent. As of October 31, 1998, the seven-day current yield for the Money
Market Fund was 5.15%.
Effective Yield (or 7-day compound yield) for the Money Market Fund will be
calculated based on the net change, exclusive of capital changes, over a
seven-day period, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and then dividing the
difference by the value of the account, at the beginning of the base period to
obtain this base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7 -1].
The resulting yield figure is carried to at least the nearest hundredth of one
percent. As of October 31, 1998, the effective yield for the Money Market Fund
was 5.28%.
With respect to the Bond Fund, the Global Fund, the Growth Fund, the
International Growth Fund, the International Small Cap Fund, the Emerging
Markets Fund, and the U.S. Micro-Cap Fund, the average annual rate of return
("T") for a given period is computed by using the redeemable value at the end of
the period ("ERV") of a hypothetical initial investment of $10,000 ("P") over
the period in years ("n") according to the following formula as required by the
SEC:
n
P(1+T) = ERV
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the Board of
Directors; and (2) a complete redemption at the end of any period illustrated.
Each Fund will calculate total return for one, five, and ten-year periods after
such a period has elapsed, and may calculate total returns for other periods as
well. In addition, each Fund will provide lifetime average annual total return
figures.
The average annual total returns of the Funds for the periods ended October 31,
1998 are as follows:
- --------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
Money Market Fund 5.45% 5.10% 5.50%
- --------------------------------------------------------------------------------
Bond Fund 10.31% 7.80% 8.04%
- --------------------------------------------------------------------------------
Real Estate Securities Fund -- -- -18.78%
- --------------------------------------------------------------------------------
Global Fund 3.62% 8.85% 9.73%
- --------------------------------------------------------------------------------
Growth Fund 7.30% 17.15% 16.18%
- --------------------------------------------------------------------------------
International Growth Fund 0.80% -- 2.17%
- --------------------------------------------------------------------------------
International Small Cap Fund -16.76% -- -6.89%
- --------------------------------------------------------------------------------
U.S. Small Cap Fund -7.29% -- -10.09%
- --------------------------------------------------------------------------------
Emerging Markets Fund -37.59% -- -15.10%
- --------------------------------------------------------------------------------
U.S. Micro-Cap Fund -23.45% -- 17.39%
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Fund 7.16% 5.33% 6.86%
- --------------------------------------------------------------------------------
The Bond Fund and California Intermediate Tax-Free Fund may each quote its
yield, which is computed by dividing the net investment income per share earned
during a 30-day period by the maximum offering price per share on the last day
of the period, according to the following formula:
YIELD = 2[((a - b)/cd + 1)6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
The Bond Fund's 30-day yield as of October 31, 1998 was 6.03%. The California
Intermediate Tax-Free Fund's 30-day yield as of October 31, 1998 was 3.55%.
Each Fund's investment results will vary from time to time depending upon market
conditions, the composition of a Fund's portfolio and operating expenses of a
Fund, so that current or past yield or total return should not be considered
representations of what an investment in a Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing a Fund's investment
results with those published for other investment companies and other investment
vehicles. A Fund's results also should be considered relative to the risks
associated with such Fund's investment objective and policies.
The Investment Company may from time to time compare the investment results of a
Fund with, or refer to, the following:
(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During certain periods, the maximum rates paid on some
savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other
goods and services that people buy for day-to-day living).
(3) Statistics reported by Lipper Analytical Services, Inc., which ranks
mutual funds by overall performance, investment objectives, and
assets.
(4) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
large publicly traded U.S. common stocks.
(5) Dow Jones Industrial Average.
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(6) CNBC/Financial News Composite Index.
(7) Russell 1000 Index, which reflects the common stock price changes of
the 1,000 largest publicly traded U.S. companies by market
capitalization.
(8) Russell 3000 Index, which reflects the common stock price changes of
the 3,000 largest publicly traded U.S. companies by market
capitalization.
(9) Wilshire 5000 Index, which reflects the investment return of the
approximately 5,000 publicly traded securities for which daily pricing
is available, weighted by market capitalization, excluding income.
(10) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and
mortgage-backed fixed income securities.
(11) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.
(12) Morgan Stanley Europe, Australia and Far East (EAFE) Index, which is
composed of foreign stocks.
(13) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.
(14) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.
(15) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed-income securities.
(16) Lehman Brothers Government/Corporate Intermediate Bond Index, which is
a widely used index composed of investment quality U.S. government and
corporate fixed income securities with maturities between one and ten
years.
(17) Salomon Brothers World Government Bond Index, which is a widely used
index composed of U.S. and non-U.S. government fixed income securities
of the major countries of the World.
(18) 90-day U.S. Treasury Bills Index, which is a measure of the
performance of constant maturity 90-day U.S. Treasury Bills.
(19) Donoghue First Tier Money Fund Average, which is an average of the
30-day yield of approximately 250 major domestic money market funds.
(20) Salomon Brothers Non-U.S. World Government Bond Index, which is the
World Government Bond index excluding its U.S. market component.
(21) Salomon Brothers Non-Dollar Bond Index, which is composed of foreign
corporate and government fixed income securities.
(22) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
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(23) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(24) The World Bank Publication of Trends in Developing Countries ("TIDE"),
which provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks
at global and regional economic trends and their implications for the
developing economies.
(25) Datastream and Worldscope, which is an on-line database retrieval
service for information including but not limited to international
financial and economic data.
(26) International Financial Statistics, which is produced by the
International Monetary Fund.
(27) Various publications and annual reports such as the World Development
Report, produced by the World Bank and its affiliates.
(28) Various publications from the International Bank for Reconstruction
and Development/The World Bank.
(29) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch IBCA, Inc. and Standard
Poor's Ratings Group.
(30) Various publications from the Organization for Economic Cooperation
and Development.
(31) Bechtel Trust & Thrift Plan, Fund A (Global Multi-Asset Fund), Fund B
(Bond Fund), Fund C (Money Market Fund), and Fund D (U.S. Stock
Fund).*
* Bechtel Trust & Thrift Plan performance results include reinvestment
of dividends, interest, and other income, and are net of investment
management fees. Results for Fund A, Fund B, and Fund D were in part
achieved through the efforts of investment managers selected by
Fremont Investment Advisors or its predecessor organizations.
Indices prepared by the research departments of such financial organizations as
the Sub-Advisor of the Funds; J.P. Morgan; Lehman Brothers; S.G. Warburg;
Jardine Fleming; the Asian Development Bank; Bloomberg, L.P.; Morningstar, Inc;
Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith, Inc.; Morgan
Stanley; Bear Stearns & Co., Inc.; and Ibbottson Associates of Chicago, Illinois
("Ibbotson") may be used, as well as information provided by the Federal Reserve
and the respective central banks of various countries.
The Investment Company may use performance rankings and ratings reported
periodically in national financial publications such as, but not limited to,
Money Magazine, Forbes, The Wall Street Journal, Investor's Business Daily,
Fortune, Smart Money, Business Week, and Barron's.
The Advisor believes the Funds are an appropriate investment for long-term
investment goals including, but not limited to, funding retirement, paying for
education, or purchasing a house. The Funds do not represent a complete
investment program, and investors should consider the Funds as appropriate for a
portion of their overall investment portfolio with regard to their long-term
investment goals.
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The Advisor believes that a growing number of consumer products, including, but
not limited to, home appliances, automobiles, and clothing, purchased by
Americans are manufactured abroad. The Advisor believes that investing globally
in the companies that produce products for U.S. consumers can help U.S.
investors seek protection of the value of their assets against the potentially
increasing costs of foreign manufactured goods. Of course, there can be no
assurance that there will be any correlation between global investing and the
costs of such foreign goods unless there is a corresponding change in value of
the U.S. dollar to foreign currencies. From time to time, the Investment Company
may refer to or advertise the names of such companies although there can be no
assurance that the Funds may own the securities of these companies.
From time to time, the Investment Company may refer to the number of
shareholders in a Fund or the aggregate number of shareholders in all Fremont
Mutual Funds or the dollar amount of Fund assets under management or rankings by
DALBAR Savings, Inc.
in advertising materials.
A Fund may compare its performance to that of other compilations or indices of
comparable quality to those listed above which may be developed and made
available in the future. The Funds may be compared in advertising to
Certificates of Deposit (CDs), the Bank Rate Monitor National Index, an average
of the quoted rates for 100 leading banks and thrifts in ten U.S. cities chosen
to represent the ten largest Consumer Metropolitan statistical areas, or other
investments issued by banks. The Funds differ from bank investments in several
respects. The Funds may offer greater liquidity or higher potential returns than
CDs; but unlike CDs, the Funds will have a fluctuating share price and return
and are not FDIC insured.
A Fund's performance may be compared to the performance of other mutual funds in
general, or to the performance of particular types of mutual funds. These
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. (Lipper), an independent service which monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of total
return, assuming reinvestment of distributions, but does not take sales charges
or redemption fees into consideration, and is prepared without regard to tax
consequences. In addition to the mutual fund rankings, a Fund's performance may
be compared to mutual fund performance indices prepared by Lipper.
The Investment Company may provide information designed to help individuals
understand their investment goals and explore various financial strategies. For
example, the Investment Company may describe general principles of investing,
such as asset allocation, diversification, and risk tolerance.
Ibbottson provides historical returns of capital markets in the United States,
including common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the CPI), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices.
The Investment Company may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not
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correspond directly to those of the Funds. The Funds may also compare
performance to that of other compilations or indices that may be developed and
made available in the future.
In advertising materials, the Advisor may reference or discuss its products and
services, which may include retirement investing, the effects of dollar-cost
averaging, and saving for college or a home. In addition, the Advisor may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques.
A Fund may discuss its NASDAQ symbol, CUSIP number, and its current portfolio
management team.
From time to time, a Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, the Funds may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. In addition, the Funds may quote financial
or business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques. Rankings that compare the
performance of Fremont Mutual Funds to one another in appropriate categories
over specific periods of time may also be quoted in advertising.
The Funds may quote various measures of volatility and benchmark correlation
such as beta, standard deviation, and R2 in advertising. In addition, the Funds
may compare these measures to those of other funds. Measures of volatility seek
to compare a Fund's historical share price fluctuations or total returns
compared to those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data.
The Funds may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if a
fixed number of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
through periods of low price levels.
The Funds may be available for purchase through retirement plans of other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $10,000 investment earning
a taxable return of 10% annually would have an after-tax value of $17,976 after
ten years, assuming tax was deducted from the return each year at a 39.6% rate.
An equivalent tax-deferred investment would have an after-tax value of $19,626
after ten years, assuming tax was deducted at a 39.6% rate from the deferred
earnings at the end of the ten-year period.
A Fund may describe in its sales material and advertisements how an investor may
invest in the Fund through various retirement accounts and plans that offer
deferral of income taxes on investment earnings and may also enable an investor
to make pre-tax contributions. Because of their advantages, these retirement
accounts and plans may
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produce returns superior to comparable non-retirement investments. The Funds may
also discuss these accounts and plans which include the following:
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): Any individual who receives earned income
from employment (including self-employment) can contribute up to $2,000 each
year to an IRA (or 100% of compensation, whichever is less). Married couples
with a non-working spouse or a spouse not covered by an employers plan can make
a completely deductible IRA contribution for that spouse as long as their
combined adjusted gross income does not exceed $150,000. Some individuals may be
able to take an income tax deduction for the contribution. Regular contributions
may not be made for the year after you become 70 1/2, or thereafter.
ROLLOVER IRAS: Individuals who receive distributions from qualified retirement
plans (other than required distributions) and who wish to keep their savings
growing tax-deferred can rollover (or make a direct transfer of) their
distribution to a Rollover IRA. These accounts can also receive rollovers or
transfers from an existing IRA.
SEP-IRAS AND SIMPLE IRAS: Simplified employee pension (SEP) plans and SIMPLE
plans provide employers and self-employed individuals (and any eligible
employees) with benefits similar to Keogh-type plans or 401(k) plans, but with
fewer administrative requirements and therefore lower annual administration
expenses.
ROTH IRA: The Roth IRA allows investment of after-tax dollars in a retirement
account that provides tax-free growth. Funds can be withdrawn without federal
income tax or penalty after the account has been open for five years and the age
of 59 1/2 has been attained.
PROFIT SHARING (INCLUDING 401(K) AND MONEY PURCHASE PENSION PLANS): Corporations
can sponsor these qualified defined contribution plans for their employees. A
401(k) plan, a type of profit sharing plan, additionally permits the eligible,
participating employees to make pre-tax salary reduction contributions to the
plan (up to certain limitations).
The Advisor may from time to time in its sales methods and advertising discuss
the risks inherent in investing. The major types of investment risk are market
risk, industry risk, credit risk, interest rate risk, and inflation risk. Risk
represents the possibility that you may lose some or all of your investment over
a period of time. A basic tenet of investing is the greater the potential
reward, the greater the risk.
From time to time, the Funds and the Advisor will quote certain information
including, but not limited to, data regarding: individual countries, regions,
world stock exchanges, and economic and demographic statistics from sources the
Advisor deems reliable, including, but not limited to, the economic and
financial data of such financial organizations as:
1) Stock market capitalization: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.
2) Stock market trading volume: Morgan Stanley Capital International World
Indices, and International Finance Corporation.
3) The number of listed companies: International Finance Corporation, Salomon
Brothers, Inc., and S.G. Warburg.
4) Wage rates: U.S. Department of Labor Statistics and Morgan Stanley Capital
International World Indices.
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5) International industry performance: Morgan Stanley Capital International
World Indices, Wilshire Associates, and Salomon Brothers, Inc.
6) Stock market performance: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.
7) The Consumer Price Index and inflation rate: The World Bank, Datastream,
and International Finance Corporation.
8) Gross Domestic Product (GDP): Datastream and The World Bank.
9) GDP growth rate: International Finance Corporation, The World Bank, and
Datastream.
10) Population: The World Bank, Datastream, and United Nations.
11) Average annual growth rate (%) of population: The World Bank, Datastream,
and United Nations.
12) Age distribution within populations: Organization for Economic Cooperation
and Development and United Nations.
13) Total exports and imports by year: International Finance Corporation, The
World Bank, and Datastream.
14) Top three companies by country, industry, or market: International Finance
Corporation, Salomon Brothers, Inc., and S.G. Warburg.
15) Foreign direct investments to developing countries: The World Bank and
Datastream.
16) Supply, consumption, demand, and growth in demand of certain products,
services, and industries, including, but not limited to, electricity,
water, transportation, construction materials, natural resources,
technology, other basic infrastructure, financial services, health care
services and supplies, consumer products and services, and
telecommunications equipment and services (sources of such information may
include, but would not be limited to, The World Bank, OECD, IMF, Bloomberg,
and Datastream).
17) Standard deviation and performance returns for U.S. and non-U.S. equity and
bond markets: Morgan Stanley Capital International.
18) Political and economic structure of countries: Economist Intelligence Unit.
19) Government and corporate bonds - credit ratings, yield to maturity and
performance returns: Salomon Brothers, Inc.
20) Dividend for U.S. and non-U.S. companies: Bloomberg.
In advertising and sales materials, the Advisor or a Sub-Advisor may make
reference to or discuss its products, services, and accomplishments. Such
accomplishments do not provide any assurance that the Fremont Mutual Funds'
investment objectives will be achieved.
- --------
+ Kern Capital Management LLC is partially owned by the Advisor.
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FREMONT MUTUAL FUNDS, INC.
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
TOLL-FREE: 800-548-4539
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information concerning Fremont Mutual Funds, Inc.
(the "Investment Company") is not a prospectus. This Statement of Additional
Information supplements the Prospectus for the Fremont Institutional U.S.
Micro-Cap Fund (the "Fund") dated March 1, 1999 and should be read in
conjunction with the Prospectus. Copies of the Prospectus are available without
charge by calling the Investment Company at the phone number printed above.
The date of this Statement of Additional Information is March 1, 1999.
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TABLE OF CONTENTS
PAGE
The Corporation ........................................................ 3
Investment Objective, Policies, And Risk
Considerations ....................................................... 4
Investment Restrictions ................................................ 18
Investment Company Directors And Officers .............................. 21
Investment Advisory And Other Services ................................. 23
Execution Of Portfolio Transactions .................................... 25
How To Invest .......................................................... 26
Other Investment And Redemption Services ............................... 28
Taxes - Mutual Funds ................................................... 29
Additional Information ................................................. 32
Investment Results ..................................................... 34
Appendix A: Description Of Ratings ..................................... 43
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THE CORPORATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed, open-end investment company. Currently, the Investment Company
has authorized several series of capital stock with equal dividend and
liquidation rights within each series. This Statement of Addditional Information
pertains to the Fremont Institutional U.S. Micro-Cap Fund (the "Fund").
Investment Company shares are entitled to one vote per share (with proportional
voting for fractional shares) and are freely transferable. Shareholders have no
preemptive or conversion rights. Shares may be voted in the election of
directors and on other matters submitted to the vote of shareholders. As
permitted by Maryland law, there normally will be no annual meeting of
shareholders in any year, except as required under the Investment Company Act of
1940, as amended (the "1940 Act"). The 1940 Act requires that a meeting be held
within 60 days in the event that less than a majority of the directors holding
office has been elected by shareholders. Directors shall continue to hold office
until their successors are elected and have qualified. Investment Company shares
do not have cumulative voting rights, which means that the holders of a majority
of the shares voting for the election of directors can elect all of the
directors. Shareholders holding 10% of the outstanding shares may call a meeting
of shareholders for any purpose, including that of removing any director. A
director may be removed upon a majority vote of the shareholders qualified to
vote in the election. The 1940 Act requires the Investment Company to assist
shareholders in calling such a meeting.
The management of the business and affairs of the Investment Company is the
responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the
"Advisor") provides the Fund with investment management and administrative
services under an Investment Advisory and Administrative Agreement (the
"Advisory Agreement") with the Investment Company. The Advisory Agreement
provides that the Advisor shall furnish advice to the Fund with respect to its
investments and shall, to the extent authorized by the Board of Directors,
determine what securities shall be purchased or sold by the Fund. The Advisor's
Investment Committee oversees the portfolio management of the Fund.
The professional staff of the Advisor has offered professional investment
management services regarding asset allocation in connection with securities
portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation
since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since
1987. The Advisor also provides investment advisory services regarding asset
allocation, investment manager selection and portfolio diversification to a
number of large Bechtel-related investors. The Investment Company is one of the
Advisor's clients.
The Advisor will provide direct portfolio management services to the extent that
a sub-advisor does not provide those services. In the future, the Advisor may
propose to the Investment Company that different or additional sub-advisor(s) be
engaged to provide investment advisory or portfolio management services to the
Fund. Prior to such engagement, any agreement with a sub-advisor must be
approved by the Board of Directors and, if required by law, by the shareholders
of the Fund. The Advisor may in its discretion manage all or a portion of the
Fund's portfolio directly with or without the use of a sub-advisor.
On any matter submitted to a vote of shareholders, such matter shall be voted by
the Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval of the Advisory Agreement with the Advisor) except
in matters where a vote of all series in the aggregate is required by the 1940
Act or otherwise.
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Pursuant to the Articles of Incorporation, the Investment Company may issue ten
billion shares. This amount may be increased or decreased from time-to-time at
the discretion of the Board of Directors. Each share of a series represents an
interest in that series only, has a par value of $0.0001 per share, represents
an equal proportionate interest in that series with other shares of that series,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to that series as may be declared at the discretion of the
Board of Directors. Shares of a series when issued are fully paid and are
non-assessable. The Board of Directors may, at its discretion, establish and
issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Fund under applicable Securities and Exchange Commission regulations.
INVESTMENT OBJECTIVE, POLICIES, AND RISK CONSIDERATIONS
The descriptions below are intended to supplement the material in the
Prospectus.
Under normal market conditions, at least 65% of the total assets of the Fund
will be invested in equity securities of U.S. micro-cap companies (described
below). These securities will trade on a U.S. exchange or in the
over-the-counter (OTC) market. However, up to 25% of the Fund's total assets, at
the time of purchase, may be invested in securities of micro-cap companies
domiciled outside the United States, including sponsored and unsponsored
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs").
The Fund may also invest in stock index futures contracts, options on index
futures and options on portfolio securities and stock indices.
Although the Fund invests primarily in common stocks and securities convertible
into common stock, for liquidity purposes it will normally invest a portion of
its assets in high quality debt securities and money market instruments with
remaining maturities of one year or less, including repurchase agreements.
Whenever, in the judgment of the Advisor or the Sub-Advisor, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in these instruments. Of course, during times that the Fund
is investing defensively, the Fund will not be able to pursue its stated
investment objective. The Fund may also hold other types of securities from time
to time, including non-convertible bonds and preferred stocks, in an amount not
exceeding 5% of its net assets. Preferred stocks and bonds will be rated at the
time of purchase in the top two categories of Moody's Investor Service, Inc.
(Aaa or Aa) or Standard & Poor's Ratings Group, (AAA or AA) or be of comparable
quality as determined by the Advisor.
GENERAL INVESTMENT POLICIES
DIVERSIFICATION. The Fund intends to operate as a "diversified" management
investment company, as defined in the 1940 Act. A "diversified" investment
company means a company which meets the following requirements: At least 75% of
the value of the Fund's total assets is represented by cash and cash items
(including receivables), "Government Securities" (as defined below), securities
of other investment companies, and other securities for the purposes of this
calculation limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of such issuer. "Government Securities"
means securities issued
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or guaranteed as to principal or interest by the United States, or by a person
controlled or supervised by and acting as an instrumentality of the Government
of the United States pursuant to authority granted by the Congress of the United
States.
MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following "money
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations and governments; U.S. government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Fund's quality guidelines. The Fund also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
At the time of purchase, short-term securities must be rated in the top rating
category by at least two Nationally Recognized Statistical Ratings Organizations
("NRSROs") or, in the case of a security rated by only one NRSRO, rated in the
top rating category of that NRSRO, or if not rated by an NRSRO, must be
determined to be of comparable quality by the Advisor and/or Sub-Advisor.
Generally, high quality short-term securities must be issued by an entity with
an outstanding debt issue rated A or better by an NRSRO, or an entity of
comparable quality as determined by the Advisor and/or Sub-Advisor, using
guidelines approved by the Board of Directors. Obligations of foreign banks,
foreign corporations and foreign branches of domestic banks must be payable in
U.S. dollars. See Appendix A to the Statement of Additional information for a
description of rating categories.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. government securities,
which are obligations of, or guaranteed by, the U.S. government, its agencies or
instrumentalities. Some U.S. government securities, such as Treasury bills,
notes and bonds and Government National Mortgage Association ("GNMA")
certificates, are supported by the full faith and credit of the United States;
those of the Federal Home Loan Mortgage Corporation ("FHLMC") are supported by
the right of the issuer to borrow from the Treasury; those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and those
of the Student Loan Marketing Association are supported only by the credit of
the instrumentality. The U.S. government is not obligated by law to provide
future financial support to the U.S. government agencies or instrumentalities
named above.
REPURCHASE AGREEMENTS. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer, or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a period of less than one week. The seller must maintain with the Fund's
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. The Fund
will not enter into a repurchase agreement with a maturity of more than seven
business days if, as a result, more than 15% of the value of its net assets
would then be invested in such repurchase agreements. The Fund will only enter
into repurchase agreements where (i) the underlying securities are issued or
guaranteed by the U.S. government, (ii) the market value of the underlying
security, including accrued interest, will be at all times equal to or in excess
of the value of the repurchase agreement, and (iii) payment for the underlying
securities is made
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only upon physical delivery or evidence of book-entry transfer to the account of
the custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses, including: (i) a
possible decline in the value of the underlying security during the period in
which the Fund seeks to enforce its rights thereto; (ii) possible subnormal
levels of income and lack of access to income during this period; and (iii)
expenses of enforcing the Fund's rights.
REVERSE REPURCHASE AGREEMENTS AND LEVERAGE. The Fund may enter into reverse
repurchase agreements which involve the sale of a security by the Fund and its
agreement to repurchase the security at a specified time and price. The Fund
will maintain in a segregated account with its custodian cash, cash equivalents,
or liquid securities in an amount sufficient to cover its obligations under
reverse repurchase agreements with broker-dealers (but not with banks). Under
the 1940 Act, reverse repurchase agreements are considered borrowings by the
Fund; accordingly, the Fund will limit its investments in these transactions,
together with any other borrowings, to no more than one-third of its total
assets. The use of reverse repurchase agreements by the Fund creates leverage
which increases the Fund's investment risk. If the income and gains on
securities purchased with the proceeds of these transactions exceed the cost,
the Fund's earnings or net asset value will increase faster than otherwise would
be the case; conversely, if the income and gains fail to exceed the costs,
earnings or net asset value would decline faster than otherwise would be the
case. If the 300% asset coverage required by the 1940 Act should decline as a
result of market fluctuation or other reasons, the Fund may be required to sell
some of its portfolio securities within three days to reduce the borrowings
(including reverse repurchase agreements) and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint to sell
securities at that time. The Fund intends to enter into reverse repurchase
agreements only if the income from the investment of the proceeds is greater
than the expense of the transaction, because the proceeds are invested for a
period no longer than the term of the reverse repurchase agreement.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS AND PARTICIPATION INTERESTS. The
Fund may purchase floating rate and variable rate obligations, including
participation interests therein. Floating rate or variable rate obligations
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate at a major commercial bank) or is
reset on a regular basis by a bank or investment banking firm to a market rate.
At specified times, the owner can demand payment of the obligation at par plus
accrued interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external interest
rate. Frequently, banks provide letters of credit or other credit support or
liquidity arrangements to secure these obligations. The quality of the
underlying creditor or of the bank, as the case may be, must meet the minimum
credit quality standards, as determined by the Advisor and/or Sub-Advisor,
prescribed for the Fund by the Board of Directors with respect to counterparties
in repurchase agreements and similar transactions.
The Fund may invest in participation interests purchased from banks in floating
rate or variable rate obligations owned by banks. A participation interest gives
the Fund an undivided interest in the obligation in the proportion that the
Fund's participation interest bears to the total principal amount of the
obligation, and provides a demand repayment feature. Each participation is
backed by an irrevocable letter of credit or guarantee of a bank (which may be
the bank issuing the participation interest or another bank). The bank letter of
credit or
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guarantee must meet the prescribed investment quality standards for the Fund.
The Fund has the right to sell the participation instrument back to the issuing
bank or draw on the letter of credit on demand for all or any part of the Fund's
participation interest in the underlying obligation, plus accrued interest.
SWAP AGREEMENTS. The Fund may enter into interest rate, index, and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include interest
rate caps, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates exceed a specified rate,
or "cap"; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified level, or "floor"; and interest rate collars, under which a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). The Fund's obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or high-grade debt
obligations, to avoid any potential leveraging of the Fund's portfolio. The Fund
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 5%
of the Fund's net assets.
Whether the Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Advisor's and/or Aub-Advisor's ability
to predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements will be
considered as illiquid. Moreover, the Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Advisor and/or Sub-Advisor will
cause the Fund to enter into swap agreements only with counterparties that would
be eligible for consideration as repurchase agreement counterparties under the
Fund's repurchase agreement guidelines. Certain restrictions imposed on the Fund
by the Internal Revenue Code may limit the Fund's ability to use swap
agreements. The swaps market is largely unregulated. It is possible that
developments in the swaps market, including potential
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government regulation, could adversely affect the Fund's ability to terminate
existing swap agreements or to realize amounts to be received under such
agreements.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase
securities on a delayed delivery or "when-issued" basis and enter into firm
commitment agreements (transactions whereby the payment obligation and interest
rate are fixed at the time of the transaction but the settlement is delayed).
The Fund will not purchase securities the value of which is greater than 5% of
its net assets on a when-issued or firm commitment basis. The Fund, as
purchaser, assumes the risk of any decline in value of the security beginning on
the date of the agreement or purchase, and no interest accrues to the Fund until
it accepts delivery of the security. The Fund will not use such transactions for
leveraging purposes and, accordingly, will segregate cash, cash equivalents, or
liquid securities in an amount sufficient to meet its payment obligations
thereunder. There is always a risk that the securities may not be delivered and
that a Fund may incur a loss or will have lost the opportunity to invest the
amount set aside for such transaction in the segregated asset account.
Settlements in the ordinary course of business, which may take substantially
more than three business days for non-U.S. securities, are not treated by the
Funds as when-issued or forward commitment transactions and, accordingly, are
not subject to the foregoing limitations, even though some of the risks
described above may be present in such transactions. Although these transactions
will not be entered into for leveraging purposes, to the extent the Fund's
aggregate commitments under these transactions exceed its holdings of cash and
securities that do not fluctuate in value (such as short-term money market
instruments), the Fund temporarily will be in a leveraged position (i.e., it
will have an amount greater than its net assets subject to market risk). Should
market values of the Fund's portfolio securities decline while the Fund is in a
leveraged position, greater depreciation of its net assets would likely occur
than were it not in such a position. As the Fund's aggregate commitments under
these transactions increase, the opportunity for leverage similarly increases.
The Fund will not borrow money to settle these transactions and, therefore, will
liquidate other portfolio securities in advance of settlement if necessary to
generate additional cash to meet its obligations thereunder.
COMMERCIAL BANK OBLIGATIONS. For the purposes of the Fund's investment policies
with respect to bank obligations, obligations of foreign branches of U.S. banks
and of foreign banks may be general obligations of the parent bank in addition
to the issuing bank, or may be limited by the terms of a specific obligation and
by government regulation. As with investment in non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks, and of foreign
banks may subject the Fund to investment risks that are different in some
respects from those of investments in obligations of domestic issuers. Although
the Fund will typically acquire obligations issued and supported by the credit
of U.S. or foreign banks having total assets at the time of purchase in excess
of $1 billion, this $1 billion figure is not a fundamental investment policy or
restriction of the Fund. For the purposes of calculating the $1 billion figure,
the assets of a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.
TEMPORARY DEFENSIVE POSTURE. When a temporary defensive posture in the market is
appropriate in the Advisor's and/or Sub-Advisor's opinion, the Fund may
temporarily invest up to 100% of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. The
Fund may also hold other types of securities from time to time, including bonds.
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BORROWING. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and may enter into
reverse repurchase agreements. If the income and gains on securities purchased
with the proceeds of borrowings or reverse repurchase agreements exceed the cost
of such borrowings or agreements, the Fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the cost, earnings or net asset value would decline faster
than otherwise would be the case.
LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing additional income,
the Fund may make secured loans of portfolio securities amounting to not more
than 33-1/3% of its net assets. Securities loans are made to broker-dealers or
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent marked to market on a daily basis. The collateral received
will consist of cash, short-term U.S. Government securities, bank letters of
credit, or such other collateral as may be permitted under the Fund's investment
program and by regulatory agencies and approved by the Board of Directors. While
the securities are being lent, the Fund will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Fund has a right to call each loan and obtain the securities on five business
days' notice. The Fund will not have the right to vote equity securities while
they are being lent, but it will call a loan in anticipation of any vote in
which it seeks to participate.
PORTFOLIO TURNOVER. The Fund may trade in securities for short-term gain
whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take
advantage of anomalies occurring in general market, economic or political
conditions. Therefore, the Fund may have a higher portfolio turnover rate than
that of some other investment companies, but it is anticipated that the annual
portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover
rate is calculated by dividing the lesser of sales or purchases of long-term
portfolio securities by the Fund's average month-end long-term investments. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads or brokerage commissions and other costs that the Fund
will bear directly, and may result in the realization of net capital gains,
which are generally taxable whether or not distributed to shareholders.
SHARES OF INVESTMENT COMPANIES. The Fund may invest some portion of its assets
in shares of other no-load, open-end investment companies and closed-end
investment companies to the extent that they may facilitate achieving the
objective of the Fund or to the extent that they afford the principal or most
practical means of access to a particular market or markets or they represent
attractive investments in their own right. The percentage of Fund assets which
may be so invested is not limited, provided that the Fund and its affiliates do
not acquire more than 3% of the shares of any such investment company. The
provisions of the 1940 Act may also impose certain restrictions on redemption of
the Fund's shares in other investment companies. The Fund's purchase of shares
of investment companies may result in the payment by a shareholder of
duplicative management fees. The Advisor and/or Sub-Advisor will consider such
fees in determining whether to invest in other mutual funds. The Fund will
invest only in investment companies which do not charge a sales load; however,
the Fund may invest in such companies with distribution plans and fees, and may
pay customary brokerage commissions to buy and sell shares of closed-end
investment companies.
The return on the Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Fund's
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investment in a closed-end investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Fund, however, will not
invest in any investment company or trust unless the potential benefits of such
investment are sufficient to warrant the payment of any such premium.
As an exception to the above, the Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions, and
policies as that of the Fund. The Fund will notify its shareholders prior to
initiating such an arrangement.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in all
forms of "illiquid securities."
An investment is generally deemed to be "illiquid" if it cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which such securities are valued by the Fund. "Restricted" securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933 (the "1933 Act"). However, a
market exists for certain restricted securities (for example, securities
qualifying for resale to certain "qualified institutional buyers" pursuant to
Rule 144A under the 1933 Act). Additionally, the Advisor, the Sub-Advisor and
the Fund believe that a similar market exists for commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act. The
Fund may invest without limitation in these forms of restricted securities if
such securities are determined by the Advisor to be liquid in accordance with
standards established by the Investment Company's Board of Directors. Under
these standards, the Advisor must consider (a) the frequency of trades and
quotes for the security, (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (c) any dealer
undertaking to make a market in the security, and (d) the nature of the security
and the nature of the marketplace trades (for example, the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer).
It is not possible to predict with accuracy how the markets for certain
restricted securities will develop. Investing in restricted securities could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
REDUCTION IN BOND RATING. In the event that the rating for any security held by
the Fund drops below the minimum acceptable rating applicable to the Fund, the
Advisor will determine whether the Fund should continue to hold such an
obligation in its portfolio. Bonds rated below BBB or Baa are commonly known as
"junk bonds." These bonds are subject to greater fluctuations in value and risk
of loss of income and principal due to default by the issuer than are higher
rated bonds. The market values of junk bonds tend to reflect short-term
corporate, economic, and market developments and investor perceptions of the
issuer's credit quality to a greater extent than higher rated bonds. In
addition, it may be more difficult to dispose of, or to determine the value of,
junk bonds. See Appendix A for a complete description of the bond ratings.
WRITING COVERED CALL OPTIONS. The Fund may write (sell) "covered" call options
and purchase options to close out options previously written by the Fund. The
purpose of writing covered call options is to generate additional premium income
for the Fund. This premium income will serve to enhance the Fund's total return
and will reduce the effect of any price
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decline of the security or currency involved in the option. Covered call options
will generally be written on securities and currencies which, in the opinion of
the Advisor, are not expected to make any major price moves in the near future
but which, over the long term, are deemed to be attractive investments for the
Fund.
A call option gives the holder (buyer) the "right to purchase" a security or
currency at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him or her to deliver
the underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by purchasing an
option identical to that previously sold. To secure his or her obligation to
deliver the underlying security or currency in the case of a call option, a
writer is required to deposit in escrow the underlying security or currency or
other assets in accordance with the rules of the Options Clearing Corporation.
The Fund will write only covered call options. This means that the Fund will
only write a call option on a security, index, or currency which the Fund
already effectively owns or has the right to acquire without additional cost.
Portfolio securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with the
Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely limits the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Fund has no control over when it may be required to
sell the underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency. The security or
currency covering the call will be maintained in a separate account by the
Fund's custodian. The Fund will consider a security or currency covered by a
call to be "pledged" as that term is used in its policy which limits the
pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the Fund
receives from writing a call option reflects, among other things, the current
market price of the underlying security or currency, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security or currency, and the length of the option period. Once the
decision to write a call option has been made, the Advisor and/or Sub-Advisor,
in determining whether a particular call option should be written on a
particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by the Fund for writing covered call
options will be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sales price at the time at which the net
asset value per share of the Fund is computed (close of the regular trading
session of the New York Stock Exchange), or, in the
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absence of such sale, the latest asked price. The liability will be extinguished
upon expiration of the option, the purchase of an identical option in a closing
transaction, or delivery of the underlying security or currency upon the
exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to sell
a particular security or currency from its portfolio on which it has written a
call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security or currency. There is, of course, no
assurance that the Fund will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security or currency that it might otherwise have sold, in
which case it would continue to be at market risk with respect to the security
or currency. The Fund will pay transaction costs in connection with the
purchasing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, the Fund
may purchase an underlying security or currency for delivery in accordance with
an exercise notice of a call option assigned to it, rather than delivering such
security or currency from its portfolio. In such cases, additional costs will be
incurred.
The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security
or currency, any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the underlying security or
currency owned by the Fund.
WRITING COVERED PUT OPTIONS. The Fund may write covered put options. With a put
option, the purchaser of the option has the right to sell, and the writer
(seller) may have the obligation to buy, the underlying security or currency at
the exercise price during the option period. So long as the writer is short the
put options, the writer may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the writer to make payment of the
exercise price against delivery of the underlying security or currency. The
operation of put options in other respects, including their related risks and
rewards, is substantially identical to that of call options.
The Fund may write put options only on a covered basis, which means that the
Fund would maintain in a segregated account cash and liquid securities in an
amount not less than the exercise price at all times while the put option is
outstanding. (The rules of the Options Clearing Corporation currently require
that such assets be deposited in escrow to secure payment of the exercise
price.) The Fund would generally write covered put options in circumstances
where the Advisor and/or Sub-Adviors wishes to purchase the underlying security
or currency for the Fund's portfolio at a price lower than the current market
price of the security or currency. In such event the Fund would write a put
option at an exercise price
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which, reduced by the premium received on the option, reflects the lower price
it is willing to pay. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received.
PURCHASING PUT OPTIONS. The Fund may purchase put options. As the holder of a
put option, the Fund has the right to sell the underlying security or currency
at the exercise price at any time during the option period. The Fund may enter
into closing sale transactions with respect to such options, exercise them, or
permit them to expire. The Fund may purchase put options for defensive purposes
in order to protect against an anticipated decline in the value of its
securities or currencies. An example of such use of put options is provided
below.
The Fund may purchase a put option on an underlying security or currency (a
"protective put") owned as a defensive technique in order to protect against an
anticipated decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a put option
may be purchased in order to protect unrealized appreciation of a security or
currency where the Advisor and/or Sub-Advisor deems it desirable to continue to
hold the security or currency because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security or currency is eventually
sold.
The Fund may also purchase put options at a time when the Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
The Fund will commit no more than 5% of its assets to premiums when purchasing
put options. The premium paid by the Fund when purchasing a put option will be
recorded as an asset in the Fund's statement of assets and liabilities. This
asset will be adjusted daily to the option's current market value, which will be
the latest sale price at the time at which the Fund's net asset value per share
is computed (close of trading on the New York Stock Exchange), or, in the
absence of such sale, the latest bid price. The asset will be extinguished upon
expiration of the option, the selling (writing) of an identical option in a
closing transaction, or the delivery of the underlying security or currency upon
the exercise of the option.
PURCHASING CALL OPTIONS. The Fund may purchase call options. As the holder of a
call option, the Fund has the right to purchase the underlying security or
currency at the exercise price at any time during the option period. The Fund
may enter into closing sale transactions with respect to such options, exercise
them, or permit them to expire. The Fund may purchase call options for the
purpose of increasing its current return or avoiding tax consequences which
could reduce its current return. The Fund may also purchase call options
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in order to acquire the underlying securities or currencies. Examples of such
uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of acquiring the
underlying securities or currencies for its portfolio. Utilized in this fashion,
the purchase of call options enables the Fund involved to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to the Fund in purchasing a large block of
securities that would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying security or
currency itself, the Fund is partially protected from any unexpected decline in
the market price of the underlying security or currency and in such event could
allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
The Fund will commit no more than 5% of its assets to premiums when purchasing
call options. The Fund may also purchase call options on underlying securities
or currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses that would result in a reduction of the Fund's current
return. For example, where the Fund has written a call option on an underlying
security or currency having a current market value below the price at which such
security or currency was purchased by the Fund, an increase in the market price
could result in the exercise of the call option written by the Fund and the
realization of a loss on the underlying security or currency with the same
exercise price and expiration date as the option previously written.
DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for the future
sale by one party and purchase by another party of a specified amount of a
specific financial instrument (security or currency) for a specified price at a
designated date, time, and place. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be maintained.
Although futures contracts typically require future delivery of and payment for
financial instruments or currencies, the futures contracts are usually closed
out before the delivery date. Closing out an open futures contract sale or
purchase is effected by entering into an offsetting futures contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
financial instrument or currency and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Fund realizes a gain;
if it is more, the Fund realizes a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the Fund realizes a gain; if it
is less, the Fund realizes a loss. The transaction costs must also be included
in these calculations. There can be no assurance, however, that the Fund will be
able to enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the future Contract.
As an example of an offsetting transaction in which the financial instrument or
currency is not delivered, the contractual obligations arising from the sale of
one Contract of September Treasury Bills on an exchange may be fulfilled at any
time before delivery of the Contract is required (e.g., on a specified date in
September, the "delivery month") by the purchase of one
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Contract of September Treasury Bills on the same exchange. In such instance the
difference between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the Fund.
The Fund may enter into interest rate, S&P Index (or other major market index),
or currency futures contracts as a hedge against changes in prevailing levels of
stock values, interest rates, or currency exchange rates in order to establish
more definitely the effective return on securities or currencies held or
intended to be acquired by the Fund. The Fund's hedging may include sales of
Futures as an offset against the effect of expected increases in currency
exchange rates, purchases of such Futures as an offset against the effect of
expected declines in currency exchange rates, and purchases of Futures in
anticipation of purchasing underlying index stocks prior to the availability of
sufficient assets to purchase such stocks or to offset potential increases in
the prices of such stocks. When selling options or futures contracts, the Fund
will segregate cash and liquid securities to cover any related liability.
The Fund will not enter into futures contracts for speculation and will only
enter into futures contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal Futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission. Futures are also traded in various overseas markets.
Although techniques other than sales and purchases of futures contracts could be
used to reduce the Fund's exposure to currency exchange rate fluctuations, the
Fund may be able to hedge its exposure more effectively and perhaps at a lower
cost through using futures contracts.
The Fund will not enter into a futures contract if, as a result thereof, more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to "margin" (down payment)
deposits on such futures contracts.
A Stock Index contract such as the S&P 500 Stock Index Contract, for example, is
an agreement to take or make delivery at a specified future date of an amount of
cash equal to $500 multiplied by the difference between the value of the Stock
Index at purchase and at the close of the last trading day of the contract. In
order to close long positions in the Stock Index contracts prior to their
settlement date, the Fund will enter into offsetting sales of Stock Index
contracts.
Using Stock Index contracts in anticipation of market transactions involves
certain risks. Although the Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for the contracts at any particular
time. In addition, the price of Stock Index contracts may not correlate
perfectly with the movement in the Stock Index due to certain market
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the Stock Index
and movements in the price of Stock Index contracts, a correct forecast of
general market trends may not result in a successful anticipatory hedging
transaction.
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FUTURES CONTRACTS GENERALLY. Persons who trade in futures contracts may be
broadly classified as "hedgers" and "speculators." Hedgers, such as the Fund,
whose business activity involves investment or other commitments in debt
securities, equity securities, or other obligations, use the Futures markets
primarily to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities and obligations held or expected to
be acquired by them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates, securities prices, or currency
exchange rates.
A public market exists in futures contracts covering foreign financial
instruments such as U.K. Pound and Japanese Yen, among others. Additional
futures contracts may be established from time to time as various exchanges and
existing futures contract markets may be terminated or altered as to their terms
or methods of operation.
The Fund's Futures transactions will be entered into for traditional hedging
purposes; that is, futures contracts will be sold to protect against a decline
in the price of securities or currencies that the Fund owns, or futures
contracts will be purchased to protect the Fund against an increase in the price
of securities or currencies it has a fixed commitment to purchase.
"Margin" with respect to Futures and futures contracts is the amount of funds
that must be deposited by the Fund with a broker in order to initiate Futures
trading and to maintain the Fund's open positions in futures contracts. A margin
deposit ("initial margin") is intended to assure the Fund's performance of the
futures contract. The margin required for a particular futures contract is set
by the exchange on which the Contract is traded, and may be significantly
modified from time to time by the exchange during the term of the Contract.
futures contracts are customarily purchased and sold on margins that may range
upward from less than 5% of the value of the futures contract being traded.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin deposit ("margin
variation"). However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund. In computing daily
net asset values, the Fund will mark to market the current value of its open
futures contracts. The Fund expects to earn interest income on its margin
deposits.
The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events.
At best, the correlation between changes in prices of futures contracts and of
the securities or currencies being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances such as: variations in
speculative market demand for Futures and for securities or currencies,
including technical influences in Futures trading; and differences between the
financial instruments being hedged and the instruments underlying the standard
futures contracts available for trading, with respect to interest rate levels,
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<PAGE>
maturities, and creditworthiness of issuers. A decision of whether, when, and
how to hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or interest
rate trends.
Because of the low margin deposits required, trading of futures contracts
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss or gain to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund segregates and commits to back the futures contract with
money market instruments equal in value to the current value of the underlying
instrument less the margin deposit.
Most futures exchanges in the United States limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some Futures traders to substantial losses.
OPTIONS ON INTEREST RATE AND/OR CURRENCY FUTURES CONTRACTS. Options on futures
contracts are similar to options on fixed income or equity securities or options
on currencies, except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), rather than to purchase or sell the futures contract, at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the Futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's Futures margin account which represents the
amount by which the market price of the futures contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference on the expiration date between
the exercise price of the option and the closing level of the securities or
currencies upon which the futures contracts are based. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
As an alternative to purchasing call and put options on Futures, the Fund may
purchase call and put options on the underlying securities or currencies. Such
options would be used in a
17
<PAGE>
manner identical to the use of options on futures contracts. To reduce or
eliminate the leverage then employed by the Fund or to reduce or eliminate the
hedge position then currently held by the Fund, the Fund may seek to close out
an option position by selling an option covering the same securities or contract
and having the same exercise price and expiration date.
FORWARD CURRENCY AND OPTIONS TRANSACTIONS. A forward currency contract is an
obligation to purchase or sell a currency against another currency at a future
date and price as agreed upon by the parties. The Fund may either accept or make
delivery of the currency at the maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. The Fund typically engages in forward currency transactions
in anticipation of, or to protect itself against, fluctuations in exchange
rates. The Fund might sell a particular currency forward, for example, when it
wanted to hold bonds denominated in that currency but anticipated, and sought to
be protected against, a decline in the currency against the U.S. dollar.
Similarly, the Fund might purchase a currency forward to "lock in" the dollar
price of securities denominated in that currency which it anticipated
purchasing.
A put option gives the Fund, as purchaser, the right (but not the obligation) to
sell a specified amount of currency at the exercise price until the expiration
of the option. A call option gives the Fund, as purchaser, the right (but not
the obligation) to purchase a specified amount of currency at the exercise price
until its expiration. The Fund might purchase a currency put option, for
example, to protect itself during the contract period against a decline in the
dollar value of a currency in which it holds or anticipates holding securities.
If the currency's value should decline against the dollar, the loss in currency
value should be offset, in whole or in part, by an increase in the value of the
put.
If the value of the currency instead should rise against the dollar, any gain to
the Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which
the Fund anticipates purchasing securities.
Currency options may be either listed on an exchange or traded over-the-counter
(OTC). Listed options are third-party contracts (i.e., performance of the
obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The Fund will not purchase an OTC option unless the Advisor and/or
Sub-Advisor believes that daily valuation for such option is readily obtainable.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment policies and
restrictions in addition to the policies and restrictions discussed in its
prospectus. The policies and restrictions listed below cannot be changed without
approval by the holders of a "majority of the outstanding voting securities" of
the Fund (which is defined in the 1940 Act to mean the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares). These
restrictions provide that the Fund may not:
18
<PAGE>
1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same
industry, except that this limitation shall not apply to securities
issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies or instrumentalities.
2. Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Fund may invest in
securities secured by real estate, or issued by companies which invest
in real estate or interests therein, including real estate investment
trusts, and may purchase and sell currencies (including forward
currency exchange contracts), gold, bullion, futures contracts, and
related options generally as described in the Prospectus and Statement
of Additional Information.
3. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933.
4. Make loans, except that the Fund may purchase debt securities, enter
into repurchase agreements, and make loans of portfolio securities
amounting to not more than 33 1/3% of its net assets calculated at the
time of the securities lending.
5. Borrow money, except from banks for temporary or emergency purposes
not in excess of 30% of the value of the Fund's total assets. The Fund
will not purchase securities while such borrowings are outstanding.
6. Change its status as a diversified investment company.
7. Issue senior securities, except as permitted under the 1940 Act, and
except that the Investment Company and the Fund may issue shares of
common stock in multiple series or classes.
8. Notwithstanding any other fundamental investment restriction or
policy, the Fund may invest all of its assets in the securities of a
single open-end investment company with substantially the same
fundamental investment objectives, restrictions, and policies as the
Fund.
Other current investment policies of the Fund, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. The Fund may not:
9. Invest in companies for the purpose of exercising control or
management.
10. Mortgage, pledge or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in
connection with any permissible borrowing.
11. Invest in interests in oil, gas, or other mineral exploration or
development programs or leases.
19
<PAGE>
12. Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three
years continuous operation.
13. Purchase securities on margin, provided that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities, except that the Fund may make margin deposits
in connection with futures contracts.
14. Enter into a futures contract if, as a result thereof, more than 5% of
the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to margin on such futures
contract.
15. Acquire securities or assets for which there is no readily available
market or which are illiquid, if, immediately after and as a result of
the acquisition, the value of such securities would exceed, in the
aggregate, 15% of the Fund's net assets.
16. Make short sales of securities or maintain a short position, except
that the Fund may sell short "against the box."
17. Invest in securities of an issuer if the investment would cause the
Fund to own more than 10% of any class of securities of any one
issuer.
18. Acquire more than 3% of the outstanding voting securities of any one
investment company.
20
<PAGE>
INVESTMENT COMPANY DIRECTORS AND OFFICERS
The Bylaws of Fremont Mutual Funds, Inc. (the "Investment Company"), the
Maryland investment company of which the Fund is a series, authorize a Board of
Directors of between three and 15 persons, as fixed by the Board of Directors. A
majority of directors may fill vacancies caused by the resignation or death of a
director or the expansion of the Board of Directors. Any director may be removed
by vote of the holders of a majority of all outstanding shares of the Investment
Company qualified to vote at the meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DATE OF AND BUSINESS EXPERIENCE
NAME AND ADDRESS BIRTH POSITIONS HELD FOR PAST FIVE YEARS
<S> <C> <C> <C>
David L. Redo(1)(2)(4) 9-1-37 Chairman, Chief Executive President and Director, Fremont
Fremont Investment, Advisors, Inc. Officer and Director Investment Advisors, Inc.;
333 Market Street, 26th Floor Managing Director, Fremont
San Francisco, CA 94105 Group, L.L.C. and Fremont
Investors, Inc.; Director, Sequoia
Ventures, Sit/Kim International
Investment Associates, and J.P. Morgan
Securities Asia.
Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present, Managing Director,
Fremont Investment Advisors, Inc. Fremont Investment Advisors, Inc.
333 Market Street, 26th Floor 10/77 - 7/96 Senior Vice President
San Francisco, CA 94105 President Business Development
Benham Management
Richard E. Holmes(3) 5-14-43 Director Vice President and Director,
P.O. Box 479 BelMar Advisors, Inc.
Sanibel, FL 33957 (marketing firm).
Donald C. Luchessa(3) 2-18-30 Director Principal, DCL Advisory
DCL Advisory (marketer for investment
4105 Shelter Bay Avenue advisors).
Mill Valley, CA 94941
David L. Egan(3) 5-1-34 Director President, Fairfield Capital
Fairfield Capital Associates, Inc. Associates, Inc.
1640 Sylvaner Founding Partner of China Epicure, LLC
St. Helena, CA 94574 and Palisades Trading Company, LLC
Kimun Lee 6-17-46 Director Principal of Resources Consolidated (a
Resources Consolidated consulting and investment banking service
235 Montgomery Street, Ste 968 group).
San Francisco, CA 94104
Albert W. Kirschbaum(4) 8-17-38 Senior Vice President Managing Director, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Peter F. Landini(4) 5-10-51 Executive Vice President, Managing Director, Treasurer & COO,
Fremont Investment Advisors, Inc. Treasurer and Director Fremont Investment Advisors, Inc.
333 Market Street, 26th Floor 1/94 - 7/98, Director, J.P. Morgan
San Francisco, CA 94105 Securities, Asia
Norman Gee 3-29-50 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Alexandra W. Kinchen(4) 4-25-45 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Andrew L. Pang(4) 4-15-49 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
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<PAGE>
Robert J. Haddick(4) 2-26-60 Vice President Senior Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
W. Kent (Ken) Copa 10-19-46 Vice President Vice President, Fremont Investment
Fremont Investment Advisors, Inc. Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Tina Thomas 8-7-49 Vice President, Secretary, and 6/96 - Present Vice President, Secretary
Fremont Investment Advisors, Inc. Chief Compliance Officer and Chief Compliance Officer,
333 Market Street, 26th Floor Fremont Investment Advisors, Inc.
San Francisco, CA 94105 9/88 - 5/96 Chief Compliance
Officer and Vice President,
Bailard, Biehl & Kaiser, Inc.;
Treasurer, Bailard, Biehl & Kaiser
International Fund Group, Inc. and
Bailard, Biehl & Kaiser Fund Group;
Principal, BB&K Fund Services, Inc.
Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26h Floor
San Francisco, CA 94105
Sean M. Callinan 12-29-67 Vice President 3/97 - Present, Fremont Investment
Fremont Investment Advisors, Inc. Advisors, Inc; 9/94 - 3/97, Vice
333 Market Street, 26th Floor President and Personal Finance Advisor,
San Francisco, CA 94105 Royal Alliance
Allyn Hughes 6-12-60 Vice President 4/93 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Yvonne Garcia 11-13-68 Vice President 2/96 - Present, Fremont Investment
Fremont Investment Advisors, Inc. Advisors, Inc. 7/90 - 2/96, Product
333 Market Street, 26th Floor Manager, GT Global, Inc.
San Francisco, CA 94105
Gregory J. Hand 10-9-61 Vice President, Assistant 8/92 - Present, Fremont Investment
Fremont Investment Advisors, Inc. Controller and Assistant Advisors, Inc.
333 Market Street, 26th Floor Treasurer
San Francisco, CA 94105 .
Jack Gee 9-12-59 Vice President and 10/97 - Present, Vice President and
Fremont Investmetnt Avisors, Inc. Controller Controller, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 11/95-10/97, Chief
San Francisco, CA 94105 Financial Officer and Treasurer ,
Sife, Inc.;6/91-6/95, Controller,
Concord General Corp.
</TABLE>
(1) Director who is an "interested person" of the Company due to his affiliation
with the Company's investment manager.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee and the Contracts Committee.
(4) Member of the Fremont Investment Committee.
During the fiscal year ended October 31, 1998, Richard E. Holmes, Donald C.
Luchessa, and David L. Egan each received $18,000, and William W. Jahnke
received $4,000 for serving as directors of the Investment Company.
As of January 31, 1999, the officers and directors as a group owned in the
aggregate beneficially or of record less than 1% of the outstanding shares of
the Investment Company.
22
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT AGREEMENT. The Advisor, in addition to providing investment
management services, furnishes the services and pays the compensation and travel
expenses of persons who perform the executive, administrative, clerical, and
bookkeeping functions of the Investment Company, provides suitable office space,
necessary small office equipment and utilities, and general purpose accounting
forms, supplies, and postage used at the offices of the Investment Company.
The Advisor is responsible to pay sub-transfer agency fees when such entities
are engaged in connection with share holdings in the Fund acquired by certain
retirement plans.
For its services under the Investment Advisory and Administration Agreement (the
"Advisory Agreement"), the Advisor is paid a monthly fee at the annual rate of
1.15% of the Fund's average net assets. The Fund will pay all of its own
expenses not assumed by the Advisor, including, but not limited to, the
following: custodian, stock transfer, and dividend disbursing fees and expenses;
taxes and insurance; expenses of the issuance and redemption of shares of the
Fund (including stock certificates, registration or qualification fees and
expenses); legal and auditing expenses; and the costs of stationery and forms
prepared exclusively for the Fund.
The allocation of general Investment Company expenses among its series is made
on a basis that the Directors deem fair and equitable, which may be based on the
relative net assets of each series or the nature of the services performed and
relative applicability to each series.
As noted in the Prospectus, the Advisor has agreed to reduce some or all of its
fees under the Advisory Agreement if necessary to keep total operating expenses,
expressed on an annualized basis, at or below the rate of 1.25% of the Fund's
average net assets. Any reductions made by the Advisor in its fees are subject
to reimbursement by the Fund within the following three years provided the Fund
is able to effect such reimbursement and remain in compliance with the foregoing
expense limitation. In considering approval of the Fund's Advisory Agreement,
the Board of Directors specifically considered and approved the provision which
permits the Advisor to seek reimbursement of any reduction made to its fees
within the three-year period. The Advisor's ability to request reimbursement is
subject to various conditions. First, any reimbursement is subject to the Fund's
ability to effect such reimbursement and remain in compliance with the 1.25%
limitation on annual operating expenses. Second, the Advisor must specifically
request the reimbursement from the Board of Directors. Third, the Board of
Directors must approve such reimbursement as appropriate and not inconsistent
with the best interests of the Fund and the shareholders at the time such
reimbursement is requested. Because of these substantial contingencies, the
potential reimbursements will be accounted for as contingent liabilities that
are not recordable on the balance sheet of the Fund until collection is
probable; but the full amount of the potential liability will appear in a
footnote to the Fund's financial statements. At such time as it appears probable
that the Fund is able to effect such reimbursement, that the Advisor intends to
seek such reimbursement and that the Board of Directors has or is likely to
approve the payment of such reimbursement, the amount of the reimbursement will
be accrued as an expense of the Fund for that current period.
The Advisory Agreement with respect to the Fund may be renewed annually,
provided that any such renewal has been specifically approved by (i) the Board
of Directors, or by the vote
23
<PAGE>
of a majority (as defined in the 1940 Act) of the outstanding voting securities
of the Fund, and (ii) the vote of a majority of directors who are not parties to
the Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person, at a meeting called for the purpose of voting on
such approval. The Advisory Agreement also provides that either party thereto
has the right with respect to the Fund to terminate it without penalty upon
sixty (60) days' written notice to the other party, and that the Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act). As of October 31, 1998, the Fund paid $570,933 to the Advisor.
The Advisor's employees may engage in personal securities transactions. However,
the Investment Company and the Advisor have adopted a Code of Ethics for the
purpose of establishing standards of conduct for the Advisor's employees with
respect to such transactions. The Code of Ethics includes some broad
prohibitions against fraudulent conduct, and also includes specific rules,
restrictions, and reporting obligations with respect to personal securities
transactions of the Advisor's employees. Generally, each employee is required to
obtain prior approval of the Advisor's compliance officer in order to purchase
or sell a security for the employee's own account. Purchases or sales of
securities which are not eligible for purchase or sale by the Fund or any other
client of the Advisor are exempted from the prior approval requirement, as are
certain other transactions which the Advisor believes present no potential
conflict of interest. The Advisor's employees are also required to file with the
Advisor quarterly reports of their personal securities transactions.
THE SUB-ADVISOR. The Advisory Agreement authorizes the Advisor, at its option
and at its sole expense, to appoint a Sub-Advisor, which may assume all or a
portion of the responsibilities and obligations of the Advisor pursuant to the
Advisory Agreement as shall be delegated to the Sub-Advisor. Any appointment of
a Sub-Advisor and assumption of responsibilities and obligations of the Advisor
by such Sub-Advisor is subject to approval by the Board of Directors and, if
required by the law, the shareholders of the Fund. Pursuant to this authority,
Kern Capital Management LLC ("the Sub-Advisor") serves as the Fund's
Sub-Advisor. The Sub-Advisor is partially owned by the Advisor. The Sub-Advisor
will be overseen by the members of the Fremont Investment Committee. See
"Investment Company Directors and Officers."
The Portfolio Management Agreement between the Advisor and the Sub-Advisor (the
"Portfolio Management Agreement") provides that the Sub-Advisor agrees to manage
the investment of the Fund's assets, subject to the applicable provisions of the
Investment Company's Articles of Incorporation, Bylaws and current registration
statements (including, but not limited to, the investment objective, policies,
and restrictions delineated in the Fund's current Prospectus and Statement of
Additional Information), as interpreted from time to time by the Board of
Directors.
For its services under the Portfolio Management Agreement, the Advisor has
agreed to pay the Sub-Advisor a monthly fee equal to the annual rate of 0.75% of
the Fund's average net assets. For the fiscal year ended October 31, 1998, Kern
Capital Management LLC received from the Advisor (not the Fund) subadvisory fees
of $372,340.
The Portfolio Management Agreement for the Fund continues in effect from year to
year only as long as such continuance is specifically approved at least annually
by (i) the Board of Directors of the Investment Company or by a vote of a
majority of the outstanding voting shares of the Fund, and (ii) by the vote of a
majority of the directors of the Investment
24
<PAGE>
Company who are not parties to the Agreement or interested persons of the
Advisor or the Sub-Advisor or the Investment Company. The Agreement may be
terminated at any time without the payment of any penalty, by the Board of
Directors of the Investment Company or by the vote of a majority of the
outstanding voting shares of the Fund, or by the Sub-Advisor or the Advisor,
upon 30 days' written notice to the other party. Additionally, the Agreement
automatically terminates in the event of its assignment.
PRINCIPAL UNDERWRITER. The Fund's principal underwriter is First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018
(the "Distributor"). The Distributor is engaged on a non-exclusive basis to
assist in the distribution of shares in various jurisdictions. The Distributor
receives compensation from the Advisor and is not paid either directly or
indirectly by the Investment Company. The Distributor will receive compensation
of $50,000 from the Advisor with respect to the fiscal year ended October 31,
1998 for services as Distributor.
TRANSFER AGENT. The Advisor has engaged State Street Bank and Trust Company, c/o
NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Transfer and
Dividend Disbursing Agent and shareholder service agent. The Transfer Agent is
not involved in determining investment policies of the Fund or its portfolio
securities transactions. Its services do not protect shareholders against
possible depreciation of their assets. The fees of State Street Bank and Trust
Company are paid by the Fund and thus borne by the Fund's shareholders. State
Street Bank and Trust Company has contracted with National Financial Data
Services to serve as shareholder servicing agent. A depository account has been
established at United Missouri Bank of Kansas City through which all payments
for the funds will be processed.
ADMINISTRATOR. The Advisor has retained Investment Company Administration,
L.L.C. (the "Sub-Administrator"), with offices at 2020 East Financial Way, Suite
100, Glendora, California 91741. The Administration Agreement provides that the
Sub-Administrator will prepare and coordinate reports and other materials
supplied to the Directors; prepare and/or supervise the preparation and filing
of securities filings, periodic financial reports, prospectuses, statements of
additional information, marketing materials, shareholder reports and other
regulatory reports or filings required of the Fund; prepare all required filings
necessary to maintain the Fund's notice filings to sell shares in all states
where the Fund currently does, or intends to do, business; coordinate the
preparation, printing and mailing of materials required to be sent to
shareholders; and perform such additional services as may be agreed upon by the
Advisor and the Sub-Administrator. For its services, the Advisor (not the Fund)
pays the Sub-Administrator an annual fee equal to .02% of the first $1 billion
of the Fund's average daily net assets, 0.015% thereafter, subject to a minimum
annual fee of $20,000.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions in which portfolio transactions for the Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Advisor and/or Sub-Advisor including other series
of the Investment Company. Although such concurrent authorizations potentially
could be either advantageous or disadvantageous to the Fund, they will be
effected only when the Advisor and/or Sub-Advisor believes that to do so will be
in the best interest of the Fund. When such concurrent authorizations occur, the
objective will be to allocate the executions in a manner which is deemed
equitable to the accounts involved, including the Fund and the other series of
the Investment Company.
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<PAGE>
The Fund contemplates purchasing foreign equity and/or fixed-income securities
in over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Fixed commissions on foreign
stock transactions and transaction costs with respect to foreign fixed-income
securities are generally higher than negotiated commissions on United States
transactions, although the Fund will endeavor to achieve the best net results on
its portfolio transactions. There is generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign security settlements may in some instances be subject to delays and
related administrative uncertainties.
Foreign equity securities may be held by the Fund in the form of American
Depository Receipts ("ADRs") or similar instruments. ADRs may be listed on stock
exchanges or traded in the over-the-counter markets in the United States. ADRs,
like other securities traded in the United States, will be subject to negotiated
commission rates. The government securities issued by the United States and
other countries and money market securities in which the Fund may invest are
generally traded in the over-the-counter markets.
The aggregate dollar amount of brokerage commissions paid by the Fund for the
fiscal years ended October 31, 1997 and October 31, 1998 is $22,796 and
$156,765, respectively. The Fund began operations on August 6, 1997.
Subject to the requirement of seeking the best available prices and executions,
the Advisor and/or Sub-Advisor may, in circumstances in which two or more
broker-dealers are in a position to offer comparable prices and executions, give
preference to broker-dealers who have provided investment research, statistical,
and other related services to the Advisor and/or Sub-Advisor for the benefit of
the Fund and/or other accounts served by the Advisor and/or Sub-Advisor. Such
preferences would only be afforded to a broker-dealer if the Advisor and/or
Sub-Advisor determines that the amount of the commission is reasonable in
relation to the value of the brokerage and research services provided by that
broker-dealer and only to a broker-dealer acting as agent and not as principal.
The Advisor and/or Sub-Advisor is of the opinion that, while such information is
useful in varying degrees, it is of indeterminable value and does not reduce the
expenses of the Advisor and/or Sub-Advisor in managing the Fund's portfolio.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor, or an affiliated person of such person.
HOW TO INVEST
PRICE OF SHARES. The price to be paid by an investor for shares of the Fund, the
public offering price, is based on the net asset value per share which is
calculated once daily as of the close of trading (currently 4:00 p.m., Eastern
time) each day the New York Stock Exchange is open as set forth below. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: (i) New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas Day; and
(ii) the preceding Friday when any one of those holidays falls on a Saturday or
the subsequent Monday when any one of those holidays falls on a Sunday.
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<PAGE>
The Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). The Fund's portfolio
securities may from time to time be listed on foreign stock exchanges or
otherwise traded on foreign markets which may trade on other days (such as
Saturday). As a result, the net asset value of the Fund may be significantly
affected by such trading on days when a shareholder has no access to the Fund.
See also in the Prospectus at "General Investment Policies - Special
Considerations in International Investing," "Calculation of Net Asset Value and
Public Offering Price," "How to Invest," "How to Redeem Shares," and
"Shareholder Account Services and Privileges - Exchanges Between Funds."
1. Fixed-income obligations with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not
available, at prices for securities of comparable maturity, quality,
and type. However, in circumstances where the Advisor deems it
appropriate to do so, prices obtained for the day of valuation from a
bond pricing service will be used. The Fund amortizes to maturity all
securities with 60 days or less remaining to maturity based on their
cost to the Fund if acquired within 60 days of maturity or, if already
held by the Fund on the 60th day, based on the value determined on the
61st day. Options on currencies purchased by the Fund are valued at
their last bid price in the case of listed options or at the average
of the last bid prices obtained from dealers in the case of OTC
options. Where market quotations are not readily available, securities
are valued at fair value pursuant to methods approved by the Board of
Directors.
2. Equity securities, including ADRs, which are traded on stock
exchanges, are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last
available mean price. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the
primary market. Securities traded in the over-the-counter market are
valued at the last available bid price in the over-the-counter market
prior to the time of valuation. Securities and assets for which market
quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors.
3. Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the
close of the business day in New York. In addition, European or Far
Eastern securities trading may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Fund's net asset value is
not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of securities
held by the Fund used in such calculation. Events affecting the values
of portfolio securities that occur between the time their prices are
determined and the close of the New York Stock Exchange will not be
reflected in the Fund's calculation of net asset value unless the
Board of Directors deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.
27
<PAGE>
4. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market
rate as determined by the Advisor and/or Sub-Advisor.
5. The Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure
is obtained.
6. The net assets so obtained are then divided by the total number of
shares outstanding (excluding treasury shares), and the result,
rounded to the nearest cent, is the net asset value per share.
OTHER INVESTMENT AND REDEMPTION SERVICES
THE OPEN ACCOUNT. When an investor makes an initial investment in the Fund, a
shareholder account is opened in accordance with the investor's registration
instructions. Each time there is a transaction in a shareholder account, such as
an additional investment, redemption, or distribution (dividend or capital
gain), the shareholder will receive from the Sub-Transfer Agent a confirmation
statement showing the current transaction in the shareholder account, along with
a summary of the status of the account as of the transaction date.
PAYMENT AND TERMS OF OFFERING. Payment of shares purchased should accompany the
purchase order, or funds should be wired to the Sub-Transfer Agent as described
in the Prospectus. Payment, other than by wire transfer, must be made by check
or money order drawn on a U.S. bank. Checks or money orders must be payable in
U.S. dollars and made payable to Fremont Mutual Funds. Third party checks,
credit cards, and cash will not be accepted.
As a condition of this offering, if an order to purchase shares is cancelled due
to nonpayment (for example, because of a check returned for "not sufficient
funds"), the person who made the order will be responsible for reimbursing the
Advisor for any loss incurred by reason of such cancellation. If such purchaser
is a shareholder, the Fund shall have the authority as agent of the shareholder
to redeem shares in the shareholder's account for the then-current net asset
value per share to reimburse the Fund for the loss incurred. Such loss shall be
the difference between the net asset value of the Fund on the date of purchase
and the net asset value on the date of cancellation of the purchase. Investors
whose purchase orders have been cancelled due to nonpayment may be prohibited
from placing future orders.
The Investment Company reserves the right at any time to waive or increase the
minimum requirements applicable to initial or subsequent investments with
respect to any person or class of persons. An order to purchase shares is not
binding on the Investment Company until it has been confirmed in writing by the
Sub-Transfer Agent (or other arrangements made with the Investment Company, in
the case of orders utilizing wire transfer of funds) and payment has been
received. To protect existing shareholders, the Investment Company reserves the
right to reject any offer for a purchase of shares by any individual.
REDEMPTION IN KIND. The Investment Company may elect to redeem shares in assets
other than cash but must pay in cash all redemptions with respect to any
shareholder during any 90-day period in an amount equal to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period.
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<PAGE>
SUSPENSION OF REDEMPTION PRIVILEGES. The Investment Company may suspend
redemption privileges with respect to the Fund or postpone the date of payment
for more than seven calendar days after the redemption order is received during
any period (1) when the New York Stock Exchange is closed other than customary
weekend and holiday closings, or trading on the Exchange is restricted as
determined by the SEC, (2) when an emergency exists, as defined by the SEC,
which makes it not reasonably practicable for the Investment Company to dispose
of securities owned by it or to fairly determine the value of its assets, or (3)
as the SEC may otherwise permit.
TAXES - MUTUAL FUNDS
STATUS AS A "REGULATED INVESTMENT COMPANY." The Fund will be treated under the
Internal Revenue Code of 1986, as amended (the "Code") as a separate entity, and
the Fund intends to qualify and elect, and to continue to qualify, to be treated
as a separate "regulated investment company" under Subchapter M of the Code. To
qualify for the tax treatment afforded a regulated investment company under the
Code, the Fund must annually distribute at least 90% of the sum of its
investment company taxable income (generally net investment income and certain
short-term capital gains), its tax-exempt interest income (if any) and net
capital gains, and meet certain diversification of assets and other requirements
of the Code. If the Fund qualifies for such tax treatment, it will not be
subject to federal income tax on the part of its investment company taxable
income and its net capital gain which it distributes to shareholders. To meet
the requirements of the Code, the Fund must (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or currencies; (b)
diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies, and
other securities, limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Income and gain from
investing in gold or other commodities will not qualify in meeting the 90% gross
income test.
Even though the Fund intends to qualify as a "regulated investment company," it
may be subject to certain federal excise taxes unless the Fund meets certain
additional distribution requirements. Under the Code, a nondeductible excise tax
of 4% is imposed on the excess of a regulated investment company's "required
distribution" for the calendar year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-year
period ending on October 31 of such year, and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the Fund pays income tax for the year. The Fund intends to meet these
distribution requirements to avoid the excise tax liability.
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<PAGE>
If for any taxable year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.
DISTRIBUTIONS OF NET INVESTMENT INCOME. Dividends from net investment income
(including net short-term capital gains) are taxable as ordinary income.
Shareholders will be taxed for federal income tax purposes on dividends from the
Fund in the same manner whether such dividends are received as shares or in
cash. If the Fund does not receive any dividend income from U.S. corporations,
dividends from the Fund will not be eligible for the dividends received
deduction allowed to corporations. To the extent that dividends received by the
Fund would qualify for the dividends received deduction available to
corporations, the Fund must designate in a written notice to shareholders the
amount of the Fund's dividends that would be eligible for this treatment
NET CAPITAL GAINS. Any distributions designated as being made from the Fund's
net capital gains will be taxable as long-term capital gains regardless of the
holding period of the shareholders of the Fund's shares. The maximum federal
capital gains rate for individuals is 20% with respect to capital assets held
more than 12 months. The maximum capital gains rate for corporate shareholders
is the same as the maximum tax rate for ordinary income.
Capital loss carryforwards result when the Fund has net capital losses during a
tax year. These are carried over to subsequent years and may reduce
distributions of realized gains in those years. Unused capital loss
carryforwards expire in eight years. Until such capital loss carryforwards are
offset or expire, it is unlikely that the Board of Directors will authorize a
distribution of any net realized gains.
NON-U.S. SHAREHOLDERS. Under the Code, distributions of net investment income by
the Fund to a shareholder who, as to the U.S., is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. tax withholding (at a 30% or lower treaty rate). Withholding will not apply
if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business, in which case the reporting and
withholding requirements applicable to U.S. citizens, U.S. residents, or
domestic corporations will apply. Distributions of net long-term capital gains
are not subject to tax withholding, but in the case of a foreign shareholder who
is a nonresident alien individual, such distributions ordinarily will be subject
to U.S. income tax at a rate of 30% if the individual is physically present in
the U.S. for more than 182 days during the taxable year.
OTHER INFORMATION. The amount of any realized gain or loss on closing out a
futures contract such as a forward commitment for the purchase or sale of
foreign currency will generally result in a realized capital gain or loss for
tax purposes. Under Section 1256 of the Code, futures contracts held by the Fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Sixty percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain or loss from any actual sales will
be treated as long-term capital gain or loss, and the remainder will be treated
as short-term capital gain or loss. Code Section 988 may also apply to currency
transactions. Under Section 988 of the Code, each foreign currency gain or loss
is generally computed separately and treated as ordinary income or loss. In the
case of overlap between Sections 1256 and 988 of the Code, special
30
<PAGE>
provisions determine the character and timing of any income, gain, or loss. The
Fund will attempt to monitor transactions under Section 988 of the Code to avoid
an adverse tax impact. See also "Investment Objective, Policies, and Risk
Considerations" in this Statement of Additional Information.
Any loss realized on redemption or exchange of the Fund's shares will be
disallowed to the extent shares are reacquired within the 61 day period
beginning 30 days before and ending 30 days after the shares are redeemed or
exchanged.
Under the Code, the Fund's taxable income for each year will be computed without
regard to any net foreign currency loss attributable to transactions after
October 31, and any such net foreign currency loss will be treated as arising on
the first day of the following taxable year. The Fund may be required to pay
withholding and other taxes imposed by foreign countries generally at rates from
10% to 40% which would reduce the Fund's investment income. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is not anticipated that shareholders will be entitled to a foreign tax
credit or deduction for such foreign taxes.
The Fund may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies ("PFICs"). Currently, PFICs
are the only or primary means by which the Fund may invest in some countries. If
the Fund invests in PFICs, it may be subject to U.S. federal income tax on a
portion of any "excess distribution" or gain from the disposition of such shares
even if such income is distributed as a taxable dividend to shareholders. In
addition to bearing their proportionate share of the Fund's expenses,
shareholders will also bear indirectly similar expenses of PFICs in which the
Fund has invested. Additional charges in the nature of interest may be imposed
on either the Fund or its shareholders in respect of deferred taxes arising from
such distributions or gains. Capital gains on the sale of such holdings will be
deemed to be ordinary income regardless of how long such PFICs are held. If the
Fund were to invest in a PFIC and elect to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, the Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to the Fund, and such amounts would be subject to the 90% and
calendar year distribution requirements described above.
In order to qualify for the dividends received deduction, a corporate
shareholder must hold the Fund's shares paying the dividends, upon which a
dividend received deduction would be based, for at least 46 days during the
90-day period that begins 45 days before the stock becomes ex-dividend with
respect to the dividend without protection from risk of loss. Similar
requirements apply to the Fund with respect to each qualifying dividend the Fund
receives. Shareholders are advised to consult their tax advisor regarding
application of these rules to their particular circumstances.
The foregoing is a general abbreviated summary of present United States federal
income taxes on dividends and distributions by the Fund. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state, and local taxes applicable to dividends and
distributions received.
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<PAGE>
ADDITIONAL INFORMATION
CUSTODIAN. Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, acts as Custodian for the Investment Company's assets, and as
such safekeeps the Fund's portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Investment Company's
request, and maintains records in connection with its duties.
INDEPENDENT AUDITORS; FINANCIAL STATEMENTS. The Investment Company's independent
auditor isPricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105. PricewaterhouseCoopers LLP will conduct an annual audit of the
Fund, assist in the preparation of the Fund's federal and state income tax
returns, and consult with the Investment Company as to matters of accounting,
regulatory filings, and federal and state income taxation. The financial
statements of the Fund as of October 31, 1998 incorporated herein by reference
are audited. Such financial statements are included herein in reliance on the
opinion of PricewaterhouseCoopers LLP given on the authority of said firm as
experts in auditing and accounting.
LEGAL OPINIONS. The validity of the shares of common stock offered hereby will
be passed upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street,
San Francisco, California 94104. In addition to acting as counsel to the
Investment Company, Paul, Hastings, Janofsky & Walker LLP has acted and may
continue to act as counsel to the Advisor and its affiliates in various matters.
USE OF NAME. The Advisor has granted the Investment Company the right to use the
"Fremont" name and has reserved the rights to withdraw its consent to the use of
such name by the Investment Company at any time, or to grant the use of such
name to any other company, and the Investment Company has granted the Advisor,
under certain conditions, the use of any other name it might assume in the
future, with respect to any other investment company sponsored by the Advisor.
SHAREHOLDER VOTING RIGHTS. The Investment Company currently issues shares in 12
series and may establish additional classes or series of shares in the future.
When more than one class or series of shares is outstanding, shares of all
classes and series will vote together for a single set of directors, and on
other matters affecting the entire Investment Company, with each share entitled
to a single vote. On matters affecting only one class or series, only the
shareholders of that class or series shall be entitled to vote. On matters
relating to more than one class or series but affecting the classes and series
differently, separate votes by class and series are required. Shareholders
holding 10% of the shares of the Investment Company may call a special meeting
of shareholders.
LIABILITY OF DIRECTORS AND OFFICERS. The Articles of Incorporation of the
Investment Company provide that, subject to the provisions of the 1940 Act, to
the fullest extent permitted under Maryland law, no officer or director of the
Investment Company may be held personally liable to the Investment Company or
its shareholders.
CERTAIN SHAREHOLDERS. To the best knowledge of the Fund, shareholders owning 5%
or more of the outstanding shares of the Fund as of record are set forth below:
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SHAREHOLDER % HELD AS OF
NAME & ADDRESS JANUARY 31, 1999
- -------------- ----------------
Bechtel Mast Trust for Qualifed Employees 78%
P.O. Box 1742
Church St. Station
New York, NY 10008-1742
Charles Schwab & Co. 9%
101 Montgomery Street
San Francisco, Ca 94104-4122
BF Fund Limited 5%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
OTHER INVESTMENT INFORMATION. The Advisor directs the management of over $5.55
billion of assets and internally manages over $1.85 billion of assets for
retirement plans, foundations, private portfolios, and mutual funds. The
Advisor's philosophy is to apply a long-term approach to investing that balances
risk and return potential.
Historical annual returns of various market indices may be used to represent the
returns of various asset classes as follows:
(1) U.S. Stocks: Standard & Poor's 500 Index;
(2) Foreign Stocks: Morgan Stanley Europe, Australia and Far East (EAFE)
Index;
(3) Intermediate U.S. Bonds: Lehman Brothers Intermediate Government/
Corporate Bond Index;
(4) Foreign Bonds: Salomon Brothers Non-U.S. Dollar Bond Index; and
(5) Money Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate:
1987-1992 Donoghue First Tier Money Market Fund Average.
The total returns for the above indices for the years 1980 through 1998 are as
follows (source: Fremont Investment Advisors, Inc.):
<TABLE>
<CAPTION>
U.S. Foreign Intermediate Foreign Money Market
Stocks Stocks U.S. Bonds Bonds Securities
<S> <C> <C> <C> <C> <C>
1980 32.4% 24.4% 6.4% 14.2% 11.8%
1981 -5.0% -1.0% 10.5% -4.6% 16.1%
1982 21.3% -0.9% 26.1% 11.9% 10.7%
1983 22.3% 24.6% 8.6% 4.4% 8.6%
1984 6.3% 7.9% 14.4% -1.9% 10.0%
1985 31.8% 56.7% 18.1% 35.0% 7.5%
1986 18.7% 70.0% 13.1% 31.4% 5.9%
1987 5.1% 24.9% 3.7% 35.2% 6.0%
1988 16.8% 28.8% 6.7% 2.4% 6.9%
1989 31.4% 11.1% 12.8% -3.4% 8.5%
1990 -3.2% -23.0% 9.2% 15.3% 7.5%
1991 30.6% 12.9% 14.6% 16.2% 5.5%
1992 7.7% -11.5% 7.2% 4.8% 3.3%
1993 10.0% 33.3% 8.8% 15.1% 2.6%
1994 1.3% 8.1% -1.9% 6.0% 3.6%
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<PAGE>
1995 37.5% 11.2% 15.3% 19.6% 5.3%
1996 23.0% 6.1% 4.1% 4.5% 4.8%
1997 33.4% 1.8% 7.9% -4.3% 5.0%
1998 28.6% 20.0% 9.5% 11.5% 4.9%
</TABLE>
The Fund is best suited as a long-term investment. While it offers higher
potential total returns than certificates of deposit or money market funds, it
involves added return volatility or risk. The prospective investor must weigh
this potential for higher return against the associated higher risk.
The Investment Company offers shares in twelve additional series under separate
Prospectuses and Statements of Additional Information.
INVESTMENT RESULTS
The Investment Company may from time to time include information on the
investment results of the Fund in advertisements or in reports furnished to
current or prospective shareholders.
The average annual rate of return ("T") for a given period is computed by using
the redeemable value at the end of the period ("ERV") of a hypothetical initial
investment of $10,000 ("P") over the period in years ("n") according to the
following formula as required by the SEC:
n
P(1+T) = ERV
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the Board of
Directors; and (2) a complete redemption at the end of any period illustrated.
The Fund will calculate total return for one, five, and ten-year periods after
such a period has elapsed, and may calculate total returns for other periods as
well. In addition, the Fund will provide lifetime average annual total return
figures.
The Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and operating expenses of
the Fund, so that current or past total return should not be considered
representations of what an investment in the Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing the Fund's investment
results with those published for other investment companies and other investment
vehicles. The Fund's results also should be considered relative to the risks
associated with the Fund's investment objective and policies.
The Investment Company may from time to time compare the investment results of
the Fund with, or refer to, the following:
(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During certain periods, the maximum rates paid on some
savings deposits were fixed by law.
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<PAGE>
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other
goods and services that people buy for day-to-day living).
(3) Statistics reported by Lipper Analytical Services, Inc., which ranks
mutual funds by overall performance, investment objectives, and
assets.
(4) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
large publicly traded U.S. common stocks.
(5) Dow Jones Industrial Average.
(6) CNBC/Financial News Composite Index.
(7) Russell 1000 Index, which reflects the common stock price changes of
the 1,000 largest publicly traded U.S. companies by market
capitalization.
(8) Russell 2000 Index, which reflects the common stock price changes of
the 2,000 largest publicly traded U.S. companies by market
capitalization.
(9) Russell 3000 Index, which reflects the common stock price changes of
the 3,000 largest publicly traded U.S. companies by market
capitalization.
(10) Wilshire 5000 Index, which reflects the investment return of the
approximately 5,000 publicly traded securities for which daily pricing
is available, weighted by market capitalization, excluding income.
(11) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and
mortgage-backed fixed income securities.
(12) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.
(13) Morgan Stanley Europe, Australia and Far East (EAFE) Index, which is
composed of foreign stocks.
(14) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.
(15) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.
(16) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed income securities.
35
<PAGE>
(17) Lehman Brothers Government/Corporate Intermediate Bond Index, which is
a widely used index composed of investment quality U.S. government and
corporate fixed income securities with maturities between one and ten
years.
(18) Salomon Brothers World Government Bond Index, which is a widely used
index composed of U.S. and non-U.S. government fixed income securities
of the major countries of the World.
(19) 90-day U.S. Treasury Bills Index, which is a measure of the
performance of constant maturity 90-day U.S. Treasury Bills.
(20) Donoghue First Tier Money Fund Average, which is an average of the
30-day yield of approximately 250 major domestic money market funds.
(21) Salomon Brothers Non-U.S. World Government Bond Index, which is the
World Government Bond index excluding its U.S. market component.
(22) Salomon Brothers Non-Dollar Bond Index, which is composed of foreign
corporate and government fixed income securities.
(23) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(24) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(25) The World Bank Publication of Trends in Developing Countries ("TIDE"),
which provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks
at global and regional economic trends and their implications for the
developing economies.
(26) Datastream and Worldscope, which is an on-line database retrieval
service for information including but not limited to international
financial and economic data.
(27) International Financial Statistics, which is produced by the
International Monetary Fund.
(28) Various publications and annual reports such as the World Development
Report, produced by the World Bank and its affiliates.
(29) Various publications from the International Bank for Reconstruction
and Development/The World Bank.
(30) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch Investors Service, and
Standard Poor's Ratings Group.
(31) Various publications from the Organization for Economic Cooperation
and Development.
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<PAGE>
Indices prepared by the research departments of such financial organizations as
J.P. Morgan; Lehman Brothers; S.G. Warburg; Jardine Fleming; the Asian
Development Bank; Bloomberg, L.P.; Morningstar, Inc; Salomon Brothers, Inc.;
Merrill Lynch, Pierce, Fenner & Smith, Inc.; Morgan Stanley; Bear Stearns & Co.,
Inc.; Prudential Securities, Inc.; Smith Barney Inc.; and Ibbottson Associates
of Chicago, Illinois ("Ibbottson") may be used, as well as information provided
by the Federal Reserve and the respective central banks of various countries.
The Investment Company may use performance rankings and ratings reported
periodically in national financial publications such as, but not limited to,
Money Magazine, Forbes, The Wall Street Journal, Investor's Business Daily,
Fortune, Smart Money, Business Week, and Barron's.
The Advisor believes the Fund is an appropriate investment for long-term
investment goals including, but not limited to, funding retirement, paying for
education, or purchasing a house. The Fund does not represent a complete
investment program, and investors should consider the Fund as appropriate for a
portion of their overall investment portfolio with regard to their long-term
investment goals.
The Advisor believes that a growing number of consumer products, including, but
not limited to, home appliances, automobiles, and clothing, purchased by
Americans are manufactured abroad. The Advisor believes that investing globally
in the companies that produce products for U.S. consumers can help U.S.
investors seek protection of the value of their assets against the potentially
increasing costs of foreign manufactured goods. Of course, there can be no
assurance that there will be any correlation between global investing and the
costs of such foreign goods unless there is a corresponding change in value of
the U.S. dollar to foreign currencies. From time to time, the Investment Company
may refer to or advertise the names of such companies although there can be no
assurance that the Fund may own the securities of these companies.
From time to time, the Investment Company may refer to the number of
shareholders in the Fund or the aggregate number of shareholders in all Fremont
Mutual Funds or the dollar amount of Fund assets under management or rankings by
DALBAR Savings, Inc. in advertising materials.
The Fund may compare its performance to that of other compilations or indices of
comparable quality to those listed above which may be developed and made
available in the future. The Fund may be compared in advertising to Certificates
of Deposit (CDs), the Bank Rate Monitor National Index, an average of the quoted
rates for 100 leading banks and thrifts in ten U.S. cities chosen to represent
the ten largest Consumer Metropolitan statistical areas, or other investments
issued by banks. The Fund differs from bank investments in several respects. The
Fund may offer greater liquidity or higher potential returns than CDs; but
unlike CDs, the Fund will have a fluctuating share price and return and is not
FDIC insured. The Fund's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings prepared by
Lipper Analytical Services, Inc. (Lipper), an independent service which monitors
the performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take sales
charges or redemption fees into consideration, and is prepared without regard to
tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.
37
<PAGE>
The Investment Company may provide information designed to help individuals
understand their investment goals and explore various financial strategies. For
example, the Investment Company may describe general principles of investing,
such as asset allocation, diversification, and risk tolerance.
Ibbottson provides historical returns of capital markets in the United States,
including common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the CPI), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices.
The Investment Company may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not correspond directly to those of the Fund. The Fund
may also compare performance to that of other compilations or indices that may
be developed and made available in the future.
In advertising materials, the Advisor may reference or discuss its products and
services, which may include retirement investing, the effects of dollar-cost
averaging, and saving for college or a home. In addition, the Advisor may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques.
The Fund may discuss its NASDAQ symbol, CUSIP number, and its current portfolio
management team.
From time to time, the Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, the Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. In addition, the Fund may quote financial or
business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques. Rankings that compare the
performance of Fremont Mutual Funds to one another in appropriate categories
over specific periods of time may also be quoted in advertising.
The Fund may quote various measures of volatility and benchmark correlation such
as beta, standard deviation, and R2 in advertising. In addition, the Fund may
compare these measures to those of other funds. Measures of volatility seek to
compare the Fund's historical share price fluctuations or total returns compared
to those of a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation are
calculated using averages of historical data.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in the Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if a
fixed number of shares are purchased at the same intervals. In evaluating such a
plan,
38
<PAGE>
investors should consider their ability to continue purchasing shares through
periods of low price levels.
The Fund may be available for purchase through retirement plans of other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $10,000 investment earning
a taxable return of 10% annually would have an after-tax value of $17,976 after
ten years, assuming tax was deducted from the return each year at a 39.6% rate.
An equivalent tax-deferred investment would have an after-tax value of $19,626
after ten years, assuming tax was deducted at a 39.6% rate from the deferred
earnings at the end of the ten-year period.
The Fund may describe in its sales material and advertisements how an investor
may invest in the Fund through various retirement accounts and plans that offer
deferral of income taxes on investment earnings and may also enable an investor
to make pre-tax contributions. Because of their advantages, these retirement
accounts and plans may produce returns superior to comparable non-retirement
investments. The Fund may also discuss these accounts and plans which include
the following:
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): Any individual who receives earned income
from employment (including self-employment) can contribute up to $2,000 each
year to an IRA (or 100% of compensation, whichever is less). If your spouse is
not employed, a total of $2,250 may be contributed each year to IRAs set up for
each individual (subject to the maximum of $2,000 per IRA). Some individuals may
be able to take an income tax deduction for the contribution. Regular
contributions may not be made for the year after you become 70 1/2, or
thereafter.
ROLLOVER IRAS: Individuals who receive distributions from qualified retirement
plans (other than required distributions) and who wish to keep their savings
growing tax-deferred can rollover (or make a direct transfer of) their
distribution to a Rollover IRA. These accounts can also receive rollovers or
transfers from an existing IRA.
SEP-IRAS AND SIMPLE IRAS: Simplified employee pension (SEP) plans and SIMPLE
plans provide employers and self-employed individuals (and any eligible
employees) with benefits similar to Keogh-type plans or 401(k) plans, but with
fewer administrative requirements and therefore lower annual administration
expenses.
ROTH IRA: The Roth IRA allows investment of after-tax dollars in a retirement
account that provides tax-free growth. Funds can be withdrawn without federal
income tax or penalty after the account has been open for five years and the age
of 59 1/2 has been attained.
PROFIT SHARING (INCLUDING 401(K) AND MONEY PURCHASE PENSION PLANS): Corporations
can sponsor these qualified defined contribution plans for their employees. A
401(k) plan, a type of profit sharing plan, additionally permits the eligible,
participating employees to make pre-tax salary reduction contributions to the
plan (up to certain limitations).
The Advisor may from time to time in its sales methods and advertising discuss
the risks inherent in investing. The major types of investment risk are market
risk, industry risk, credit risk, interest rate risk, and inflation risk. Risk
represents the possibility that you may lose some or all of your investment over
a period of time. A basic tenet of investing is the greater the potential
reward, the greater the risk.
39
<PAGE>
From time to time, the Fund and the Advisor will quote certain information
including, but not limited to, data regarding: individual countries, regions,
world stock exchanges, and economic and demographic statistics from sources the
Advisor deems reliable, including, but not limited to, the economic and
financial data of such financial organizations as:
1) Stock market capitalization: Morgan Stanley Capital International
World Indices, International Finance Corporation, and Datastream.
2) Stock market trading volume: Morgan Stanley Capital International
World Indices, and International Finance Corporation.
3) The number of listed companies: International Finance Corporation,
Salomon Brothers, Inc., and S.G. Warburg.
4) Wage rates: U.S. Department of Labor Statistics and Morgan Stanley
Capital International World Indices.
5) International industry performance: Morgan Stanley Capital
International World Indices, Wilshire Associates, and Salomon
Brothers, Inc.
6) Stock market performance: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.
7) The Consumer Price Index and inflation rate: The World Bank,
Datastream, and International Finance Corporation.
8) Gross Domestic Product (GDP): Datastream and The World Bank.
9) GDP growth rate: International Finance Corporation, The World Bank,
and Datastream.
10) Population: The World Bank, Datastream, and United Nations.
11) Average annual growth rate (%) of population: The World Bank,
Datastream, and United Nations.
12) Age distribution within populations: Organization for Economic
Cooperation and Development and United Nations.
13) Total exports and imports by year: International Finance Corporation,
The World Bank, and Datastream.
14) Top three companies by country, industry, or market: International
Finance Corporation, Salomon Brothers, Inc., and S.G. Warburg.
15) Foreign direct investments to developing countries: The World Bank and
Datastream.
16) Supply, consumption, demand, and growth in demand of certain products,
services, and industries, including, but not limited to, electricity,
water, transportation, construction materials, natural resources,
technology, other basic infrastructure, financial services, health
care services and supplies, consumer products and services, and
telecommunications equipment and services (sources of such information
may include, but would not be limited to, The World Bank, OECD, IMF,
Bloomberg, and Datastream).
17) Standard deviation and performance returns for U.S. and non-U.S.
equity and bond markets: Morgan Stanley Capital International.
18) Political and economic structure of countries: Economist Intelligence
Unit.
40
<PAGE>
19) Government and corporate bonds - credit ratings, yield to maturity and
performance returns: Salomon Brothers, Inc.
20) Dividend for U.S. and non-U.S. companies: Bloomberg.
In advertising and sales materials, the Advisor may make reference to or discuss
its products, services, and accomplishments. Such accomplishments do not provide
any assurance that the Fund's investment objective will be achieved.
41
<PAGE>
APPENDIX A: DESCRIPTION OF RATINGS
DESCRIPTION OF COMMERCIAL PAPER RATINGS:
MOODY'S INVESTORS SERVICE, INC. employs the designation "Prime-1" to indicate
commercial paper having the highest capacity for timely repayment.
Issuers rated Prime-1 "have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protections; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity."
STANDARD & POOR'S RATINGS GROUP'S ratings of commercial paper are graded into
four categories ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 - "This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation."
FITCH INVESTORS SERVICES, INC.'s short-term ratings apply to debt obligations
that are payable on demand or have original maturities of generally up to three
years, including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes. The short-term rating places greater
emphasis than a long-term rating on the existence of liquidity necessary to meet
the issuer's obligations in a timely manner.
F-1+ - "Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment."
F-1 - "Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+."
DUFF & PHELPS CREDIT RATING CO. employs the designation "D-1" to indicate
high-grade short-term debt.
D-1+ - "Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources or funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations."
Appendix-1
42
<PAGE>
D-1 - "Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor."
D-1 -- "High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small."
IBCA LIMITED's short-term ratings range from "A1" for the highest quality
obligation to "C" for the lowest.
A1 - "Obligations supported by the highest capacity for timely repayment. Where
issues possess a particularly strong credit feature, a rating of 'A1+' is
assigned."
THOMSON BANKWATCH assigns short-term debt ratings ranging from "TBW-1" to
"TBW-4." Important factors that may influence its assessment are the overall
financial health of the particular company, and the probability that the
government will come to the aid of a troubled institution in order to avoid a
default or failure.
TBW-1 - "The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis."
DESCRIPTION OF BOND RATINGS:
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C." The ratings from "Aa" through "B" may be
modified by the addition of 1, 2 or 3 to show relative standing within the major
rating categories. Investment ratings are as follows:
Aaa - Best quality. These securities "carry the smallest degree of investment
risk and are generally referred to as `gilt edge.' Interest payments are
protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues."
Aa - High quality by all standards. "They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
A - Upper medium grade obligations. These bonds possess many favorable
investment attributes. "Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
Appendix-2
43
<PAGE>
Baa - Medium grade obligations. "Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well."
STANDARD & POOR'S RATINGS GROUP rates the long-term debt securities of various
entities in categories ranging from "AAA" to "D" according to quality. The
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories. Investment
ratings are as follows:
AAA - Highest rating. "Capacity to pay interest and repay principal is extremely
strong."
AA - High grade. "Very strong capacity to pay interest and repay principal."
A - "Strong capacity to pay interest and repay principal," although "somewhat
more susceptible to the adverse effects of change in circumstances and economic
conditions than debt in higher rated categories."
BBB - "Adequate capacity to pay interest and repay principal." These bonds
normally exhibit adequate protection parameters, but "adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal than for debt in higher rated
categories."
FITCH INVESTORS SERVICES, INC. rates the long-term debt securities of various
entities in categories ranging from "AAA" to "D." The ratings from "AA" through
"C" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Investment ratings are as follows:
AAA - "Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events."
AA - "Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.' Because bonds are rated `AAA'
and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'."
A - "Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings."
Appendix-3
44
<PAGE>
BBB - "Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds and, therefore,
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings."
DUFF & PHELPS CREDIT RATING CO. rates the long-term debt securities of various
entities in categories ranging from "AAA" to "DD." The ratings from "AA" through
"B" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Investment ratings are as follows:
AAA - "Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt."
AA - "High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions."
A - "Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress."
BBB - "Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles."
IBCA LIMITED rates the long-term debt securities of various entities in
categories ranging from "AAA" to "C." The ratings below "AAA" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories. Investment ratings are as follows:
AAA - "Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk substantially."
AA - "Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions may increase investment
risk, albeit not very significantly."
A - "Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk."
Appendix-4
45
<PAGE>
BBB - "Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in other
categories."
THOMSON BANKWATCH rates the long-term debt securities of various entities in
categories ranging from "AAA" to "D." The ratings may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories. Investment ratings are as follows:
AAA - "Indicates that the ability to repay principal and interest on a timely
basis is extremely high."
AA - "Indicates a very strong ability to repay principal and interest on a
timely basis, with limited incremental risk compared to issues rated in the
highest category."
A - " Indicates the ability to repay principal and interest is strong. Issues
rated A could be more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings."
BBB - "The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. BBB issues are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings."
Appendix-5
46
<PAGE>
As filed with the Securities and Exchange
Commission on March 1, 1999
Registration No. 33-23453
File No. 811-5632
================================================================================
Part C
of
Form N-1A
REGISTRATION STATEMENT
FREMONT MUTUAL FUNDS, INC.
================================================================================
<PAGE>
FREMONT MUTUAL FUNDS, INC.
PART C
Item 23. Exhibits
(a) (1) Articles of Incorporation -- on file (File No. 811-5632)
(2) Articles of Amendment -- on file (File No. 811-5632)
(3) Articles of Amendment changing name -- on file (File No.
811-5632)
(4) Articles Supplementary relating to shares of International Growth
Fund -- on file (File No 811-5632 under Post-Effective Amendment
No. 16 filed December 29, 1993)
(5) Articles Supplementary for Income Fund, changing name to Bond
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 17 filed March 1, 1994)
(6) Articles Supplementary relating to shares of the International
Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(7) Articles Supplementary relating to shares of the U.S. Micro-Cap
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 18 filed April 22, 1994)
(8) Articles Supplementary relating to shares of the Emerging Markets
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 22 filed April 10, 1996)
(9) Articles Supplementary relating to shares of the Institutional
U.S. Micro Cap Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(10) Articles Supplementary relating to shares of the U.S. Small Cap
Fund -- on file (File No. 811-5632 Under Post-Effective Amendment
No. 31 file March 2, 1998)
(11) Articles Supplementary relating to shares of the Real Estate
Securities Funds -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(l2) Articles Supplementary relating to shares of the Select Fund --
on file (File No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998)
(b) Bylaws -- on file (File No. 811-5632 under Post- Effective Amendment
No. 21 filed January 20, 1996)
(c) Instruments Defining Rights of Security Holder -Not Applicable
(d) (1) Amended and Restated Investment Advisory and Administrative
Services Agreement relating to Money Market Fund, Global Fund,
California Intermediate Tax-Free Fund, Bond Fund, Growth Fund and
Emerging Markets Fund on file (File No. 811-5632)
(2) Investment Advisory and Administrative Services Agreement
relating to International Growth Fund - on file (File No.
811-5632 under Post-Effective Amendment No. 17 filed March 1,
1994)
(3) Investment Advisory and Administrative Services Agreement
relating to International Small-Cap Fund and U.S. Micro-Cap Fund
-- on file (File No. 811-5632 under Post-Effective Amendment No.
19 filed August 1, 1994)
(4) Portfolio Management Agreement with Pacific Investment Management
Co. and Fremont Investment Advisors, Inc. for Bond (formerly
Income) Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 17 filed March 1, 1994)
(5) Portfolio Management Agreement with Acadian Asset Management,
Inc. and Fremont Investment Advisors, Inc. for International
Small Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(6) Form of Portfolio Management Agreement with Credit Lyonnais
International Asset Management (HK) Limited for Emerging Markets
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 22 filed April 10, 1996)
(7) Investment Advisory and Administrative Services Agreement
relating to Institutional U.S. Micro Cap Fund -- on file (File
No. 811-5632 Under Post-Effective Amendment No. 31 file March 2,
1998)
(8) Investment Advisory and Administrative Services Agreement
relating to U.S. Small Cap Fund -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2, 1998)
(9) Investment Advisory and Administrative Services Agreement
relating to Real Estate Securities Fund -- on file (File No.
811-5632 Under Post-Effective Amendment No. 31 file March 2,
1998)
(10) Investment Advisory and Administrative Services Agreement
relating to Select Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(11) Portfolio Management Agreement with Kern Capital Management LLC
and Fremont Investment Advisors, Inc. for U.S. Micro-Cap Fund --
on file (File No. 811-5632 under Post-Effective Amendment No. 31
file March 2, 1998)
(12) Portfolio Management Agreement with Kern Capital Management LLC
and Fremont Investment Advisors, Inc. for Institutional U.S.
Micro-Cap Fund -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 31 file March 2, 1998)
(13) Portfolio Management Agreement with Kern Capital Management LLC
and Fremont Investment Advisors, Inc. for U.S. Small-Cap Fund --
on file (File No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998
(14) Portfolio Management Agreement with Kensington Investment Group
and Fremont Investment Advisors, Inc. for Real Estate Securities
Fund -- on file (File No. 811-5632 Under Post-Effective Amendment
No. 31 file March 2, 1998)
(15) Portfolio Management Agreement with Bee & Associates, Inc. and
Fremont Investment Advisors, Inc. for International Small Cap
Fund B -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 32 file April 15, 1998)
(16) Portfolio Management Agreement with Capital Guardian Trust
Company and Fremont Investment Advisors, Inc. for International
Growth Fund B -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 32 file April 15, 1998)
(17) Portfolio Management Agreement with Rayner Associates, Inc. and
Fremont Investment Advisors, Inc. for California Intermediate
Tax-Free Fund - on file (File No. 811-5632 Under Post-Effective
Amendment No. 33 file December 15, 1998)
(18) Contractual Expense Limitation Agreement between Fremont
Investment Advisors and each of the Fremont Mutual Funds - file
herewith
(e) Distribution Agreement with First Fund Distributors, Inc.-- on file
(File No. 811-5632 under Post-Effective Amendment No. 28 filed October
17, 1997)
(f) Bonus Profit Sharing Contracts - Not applicable
(g) (1) Custodian Agreement with The Northern Trust Company -- on file
(File No. 811-5632 under Post-Effective Amendment No. 21 filed
January 20, 1996)
(2) Custody Agreement with Investors Fiduciary Trust Company - file
herewith.
(h) (1) 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)
(2) 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)
(3) Administration Agreement with Investment Company Administration
Corporation (File No. 811-5632 under Post-Effective Amendment No.
28 filed October 17, 1997)
(4) License Agreement relating to the Mark "Fremont" with Fremont
Investment Advisors, Inc. -- on file (File No. 811-5632)
(5) 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)
(6) 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)
(7) Transfer Agency Agreement with National Financial Data Services,
Inc. - to be filed
(i) Opinion of Counsel
(1) Opinion and Consent of Counsel -- on file (File No. 811-5632)
(2) Institutional U.S. Micro-Cap Fund B -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2, 1998)
(3) U.S. Small Cap Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(4) Real Estate Securities Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(5) Select Fund -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 31 file March 2, 1998)
(j) Independent Auditors' Consent - file herewith
(k) Omitted Financial Statements - Not Applicable.
(l) Initial Capital Agreements
(1) Subscription Agreement with initial shareholders -- on file (File
No. 811-5632 under Post-Effective Amendment filed May 11, 1992)
(2) Subscription Agreement with initial shareholders of International
Growth Fund - on file (File No. 811-5632 under Post-Effective
Amendment No. 16 filed December 29, 1993)
(3) Subscription Agreement with initial shareholders of International
Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(4) Subscription Agreement with initial shareholders of U.S.
Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(m) Form of Plan of Distribution Pursuant to Rule 12b-1 -- on file (File
No. 811-5632 under Post-Effective Amendment No. 31 file March 2, 1998)
(n) Financial Data Schedule. Financial Data Schedules are incorporated by
reference to Form NSAR-B filed on December 30, 1998.
(o) 18f-3 Plan - Not Applicable.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
Stephen D. Bechtel, Jr. and members of his family, including trusts
for family members, would be considered controlling persons under
applicable Securities and Exchange Commission regulations, on account
of their shareholdings in the Funds.
Item 25. INDEMNIFICATION
Article VII(g) of the Articles of Incorporation, filed as Exhibit (1),
Item 24(b), provides for indemnification of certain persons acting on
behalf of the Funds.
The Funds and the Advisor are jointly insured under an errors and
omissions policy issued by American International Specialty Lines
Insurance Company.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons by the Registrant's charter and bylaws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in said Act, and is, therefore,
unenforceable. In particular, the Articles of the Company provide
certain limitations on liability of officers and directors. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Series of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issues.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The information required by this item is contained in the Form Adv of
the following entities and is incorporated herein by reference:
NAME OF INVESTMENT ADVISOR FILE NO.
-------------------------- ----------------
Kern Capital Management LLC 801-54766
Pacific Investment Management Company 801-48187
Nicholas-Applegate Capital Mgmt. (HK) LLC 801-54681
Kensington Investment Group 801-44964
Capital Guardian Trust
Bee & Associates 801-34538
Rayner Associates, Inc. 801-13556
Item 27. Principal Underwriter.
(a) First Fund Distributors, Inc. is the principal underwriter for
the following investment companies or series thereof:
Advisors Series Trust
Guinness Flight Investment Funds, Inc.
Fleming Capital Mutual Fund Group
Fremont Mutual Funds
Jurika & Voyles Mutual Funds
Kayne Anderson Mutual Funds
Masters' Select Funds Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
Brandes Investment Funds
Trent Equity Fund
RNC Mutual Fund Group, Inc.
(b) The following information is furnished with respect to the
officers of First Fund Distributors, Inc.:
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Positions and Offices
Business Address* First Fund Distributors, Inc. with Registrant
- ----------------- ----------------------------- ---------------
<S> <C> <C>
Robert H. Wadsworth President and Treasurer None
Steven J. Paggioli Vice President and Secretary Assistant Secretary
Eric M. Banhazl Vice President Assistant Treasurer
</TABLE>
*The principal business address of persons and entities listed is
4455 E. Camelback Road, Suite 261E, Phoenix, AZ 85018.
(c) The distributor receives and annual fee of $50,000 per year.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books, and other records required by Rules 31a-1 and 31a-2
under the Investment Company Act of 1940, as amended, are maintained
and held in the offices of the Registrant and its investment manager,
Fremont Investment Advisors, Inc., 333 Market Street, 26th Floor, San
Francisco, California 94105. Other books and records will be
maintained by the sub-advisers to the Funds.
Records covering stockholder accounts and portfolio transactions are
also maintained and kept by the Funds' Transfer Agent, National
Financial Data Services, Inc., and by the Custodian and Fund
Accountants, Investors Fiduciary Trust Company.
Item 29. MANAGEMENT SERVICES
There are no management -related services contracts not discussed in
Parts A and B.
Item 30. UNDERTAKINGS
(a) Inapplicable
(b) The information required by part 5A of the Form N-1A is or will
be contained in the latest annual report to shareholders, and
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report
to shareholders, upon request and without charge.
(c) The Registrant undertakes that within five business days after
receipt of a written application by shareholders holding in the
aggregate at least 1% of the shares then outstanding or shares
then having a net asset value of $25,000, which is less, each of
whom shall have been a shareholder for at least six months prior
to the date of application (hereinafter the "Petitioning
Shareholders"), requesting to communicate with other shareholders
with a view to obtaining signatures to a request for a meeting
for the purpose of voting upon removal of any Director of the
Registrant, which application shall be accompanied by a form of
communication and request which such Petitioning Shareholders
wish to transmit, Registrant will: (i) provide such Petitioning
Shareholders with access to a list of the names and addresses of
all shareholders of the Registrant; or (ii) inform such
Petitioning Shareholders of the approximate number of
shareholders and the estimated costs of mailing such
communication, and to undertake such mailing promptly after
tender by such Petitioning Shareholders to the Registrant of the
material to be mailed and the reasonable expenses of such
mailing.
<PAGE>
SIGNATURE OF THE REGISTRANT
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of San Francisco, and the State of
California, on the 1st day of March 1999.
FREMONT MUTUAL FUNDS, INC.
By: /s/ David L. Redo
--------------------------
DAVID L. REDO
Chairman
Pursuant to the requirements of the Securities Act of 1933 this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities listed, and each on March 1, 1999.
PRINCIPAL EXECUTIVE OFFICER:
/S/ DAVID L. REDO Chairman and Chief
- ------------------------------ Executive Officer
David L. Redo
PRINCIPAL ACCOUNTING OFFICER:
/S/ JACK GEE Vice President and Controller
- ------------------------------
Jack Gee
DIRECTORS:
/S/ RICHARD E. HOLMES* Director
- ------------------------------
Richard E. Holmes
/S/ DONALD C. LUCHESSA* Director
- ------------------------------
Donald C. Luchessa
/S/ DAVID L. EGAN* Director
- ------------------------------
David L. Egan
/S/ PETER F. LANDINI Director
- ------------------------------
Peter F. Landini
/S/ DAVID L. REDO Director
- ------------------------------
David L. Redo
/S/ MICHAEL H. KOSICH Director
- ------------------------------
Michael H. Kosich
*By: /s/ Robert M. Slotky
--------------------
Robert M. Slotky
Pursuant to Power of Attorney -- on file
(File No. 811-5632 under Post-Effective
Amendment No. 31 file March 2, 1998)
<PAGE>
As filed with the Securities and Exchange
Commission on March 1, 1999
Registration No. 33-23453
File No. 811-5632
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 34 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 37 [X]
FREMONT MUTUAL FUNDS, INC.
(Exact name of registrant as specified in charter)
333 Market Street, Suite 2600
SAN FRANCISCO, CALIFORNIA 94105
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(415) 284-8733
Exhibits d(18) and j
FREMONT FUNDS, INC.
FORM OF
OPERATING EXPENSES AGREEMENT
THIS OPERATING EXPENSES AGREEMENT (the "Agreement") is effective as of
March 1, 1999, by and between FREMONT FUNDS, INC., (the "Fund Group"), a
Maryland corporation, on behalf of each series of the Fund Group listed in
Appendix A, as may be amended from time to time (each a "Fund" and collectively
the "Funds"), and the Manager of each of the Funds, Fremont Investment Advisors,
Inc. (the "Manager").
WITNESSETH:
WHEREAS, the Manager renders advice and services to the Funds pursuant
to the terms and provisions of an Investment Advisory and Administrative
Services Agreement between the Fund Group and the Manager dated November 15,
1998, (the "Investment Management Agreement"); and
WHEREAS, the Funds are responsible for, and have assumed the
obligation for, payment of certain expenses pursuant the Investment Management
Agreement that have not been assumed by the Manager; and
WHEREAS, the Manager desires to limit the Funds' respective Operating
Expenses (as that term is defined in Paragraph 2 of this Agreement) pursuant to
the terms and provisions of this Agreement, and the Fund Group (on behalf of the
Funds) desires to allow the Manager to implement those limits;
NOW THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties, intending to be legally bound
hereby, mutually agree as follows:
1. LIMIT ON OPERATING EXPENSES. The Manager hereby agrees to limit
each Fund's Operating Expenses to the respective annual rate of total Operating
Expenses specified for that Fund in APPENDIX A of this Agreement.
Page 1 of 4
<PAGE>
2. DEFINITION. For purposes of this Agreement, the term "Operating
Expenses" with respect to a Fund is defined to include all expenses necessary or
appropriate for the operation of the Fund including the Manager's investment
advisory and administrative fees under Paragraph 5 of the Investment Management
Agreement, and other expenses described in Paragraph 4 of the Investment
Management Agreement, but does not include any taxes, interest, brokerage
commissions, expenses incurred in connection with any merger or reorganization
or extraordinary expenses such as litigation.
3. REIMBURSEMENT OF FEES AND EXPENSES. The Manager retains its right
to receive reimbursement of reductions of its investment management fee and
Operating Expenses paid by it that are not its responsibility under the
Investment Management Agreement.
4. TERM. This Agreement shall become effective on the date specified
herein and shall remain in effect for a period of one (1) year, unless sooner
terminated as provided in Paragraph 5 of this Agreement. This Agreement shall
continue in effect thereafter for additional periods not exceeding one (1) year
so long as such continuation is approved for each Fund at least annually by the
Board of Directors of the Fund Group (and separately by the disinterested
Directors of the Fund Group).
5. TERMINATION. This Agreement may be terminated by the Fund Group on
behalf of any one or more of the Funds at any time without payment of any
penalty or by the Board of Directors of the Fund Group, upon sixty (60) days'
written notice to the Manager. The Manager may decline to renew this Agreement
by written notice to the Fund Group at least thirty (30) days before its annual
expiration date.
6. ASSIGNMENT. This Agreement and all rights and obligations hereunder
may not be assigned without the written consent of the other party.
7. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute or rule, or shall be otherwise
rendered invalid, the remainder of this Agreement shall not be affected thereby.
Page 2 of 4
<PAGE>
8. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without giving effect to
the conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation or
rule, including the Investment Company Act of 1940, as amended and the
Investment Advisers Act of 1940, as amended and any rules and regulations
promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers, all on the day
and year first above written.
FREMONT FUNDS, INC.
______________________________________
By: __________________________________
Title: _______________________________
FREMONT INVESTMENT ADVISORS, INC.
______________________________________
By: __________________________________
Title: _______________________________
Page 3 of 4
<PAGE>
FREMONT MUTUAL FUNDS, INC.
OPERATING EXPENSES AGREEMENT
APPENDIX A
----------
<TABLE>
<CAPTION>
FUND TOTAL OPERATING EXPENSES PERIOD
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Global Fund N/A 3/1/99 through 3/1/00
International Growth Fund 1.50% 3/1/99 through 3/1/00
International Small Cap Fund 1.50% 3/1/99 through 3/1/00
Emerging Markets Fund 1.50% 3/1/99 through 3/1/00
U.S. Micro-Cap Fund 1.98% 3/1/99 through 3/1/00
U.S. Small Cap Fund 1.50% 3/1/99 through 3/1/00
Select Fund 1.40% 3/1/99 through 3/1/00
Growth Fund N/A 3/1/99 through 3/1/00
Real Estate Securities Fund 1.50% 3/1/99 through 3/1/00
Bond Fund Waiver .05bp of 15 bp admin fee 3/1/99 through 3/1/00
Money Market Fund N/A 3/1/99 through 3/1/00
California Intermediate
Tax-Free Fund 0.49% 3/1/99 through 3/1/00
Institutional
U.S. Micro-Cap Fund 1.25% 3/1/99 through 3/1/00
</TABLE>
Consent of Independent Accountants
We consent to the incorporation by reference in this post effective amendment to
the registration statement of Fremont Mutual Funds, Inc. on Form N-1A 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. We also consent to the to the references to our firm under the captions
"Financial Highlights" and "Experts."
PricewaterhouseCoopers LLP
San Francisco, California
February 26, 1999