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March 1, 1999 as amended October 4, 1999
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FREMONT MUTUAL FUNDS, INC.
o Global Fund
o International Growth 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]
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TABLE OF CONTENTS
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FREMONT MUTUAL FUNDS
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Detailed descriptions of objectives and strategies, main risks, performance,
fees, and portfolio management
Global Fund .............................................................. 2
International Growth Fund ................................................ 4
Emerging Markets Fund .................................................... 6
Growth Fund .............................................................. 8
U.S. Small Cap Fund ...................................................... 10
U.S. Micro-Cap Fund ...................................................... 12
Real Estate Securities Fund .............................................. 14
Bond Fund ................................................................ 16
California Intermediate Tax-Free Fund .................................... 18
Money Market Fund ........................................................ 20
Understanding Investment Risk ............................................ 22
About the Advisor ........................................................ 23
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SHAREHOLDER GUIDE
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Managing your Fremont account
Types of Accounts ........................................................ 25
How to Invest ............................................................ 26
How to Sell Your Shares .................................................. 28
Dividends, Distributions, and Taxes ...................................... 31
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APPENDIX
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Investment Terms ......................................................... 33
Financial Highlights ..................................................... 35
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FREMONT MUTUAL FUNDS
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FREMONT GLOBAL FUND
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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 22.
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
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$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.
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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.
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1998
Fremont Global Fund
1 Yr 5 Yrs 10 Yrs
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10.01% 9.52% 10.35%
MSCI EAFE Index
1 Yr 5 Yrs 10 Yrs
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20.00% 9.20% 5.54%
S&P 500(R) Index
1 Yr 5 Yrs 10 Yrs
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28.58% 24.05% 19.17%
Salomon Non-U.S. Gov't. Bond Index
1 Yr 5 Yrs 10 Yrs
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11.53% 9.41% 8.66%
Lehman Bros. Gov't./Corp. Bond Index
1 Yr 5 Yrs 10 Yrs
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9.47% 7.30% 9.33%
ANNUAL PERFORMANCE
[CHART OMITTED]
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%
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 33 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
In addition, four sub-advisors manage portions of the Fund, each with a
different investment focus: Kern Capital Management, small and micro-cap stocks;
Sit Investment Associates, Inc., U.S. mid-cap stocks; Pacific Investment
Management Company, global bonds; and Mellon Capital Management, U.S. and
international stocks, bonds and money market securities, using it's Global
Tactical Asset Allocation strategy.
For a discussion of the business experience of each of these sub-advisors,
please turn to page 24.
[PHOTOS OMITTED]
David L. Redo, Robert J. Haddick, Alexandra Kinchen
[PHOTOS OMITTED]
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.
2 and 3
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FREMONT MUTUAL FUNDS
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FREMONT INTERNATIONAL GROWTH FUND
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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 22.
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
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$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.
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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
[CHART OMITTED]
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)
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9.81% 3.50%
MSCI EAFE Index
Since
1 Yr (3/1/94)
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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 33 for a description of the index.) Capital Guardian Trust Company began
managing the Fund on March 1, 1998.
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.
[PHOTOS OMITTED]
David I. Fisher, Nilly Sikorsky, Hartmut Giesecke
[PHOTOS OMITTED]
Nancy J. Kyle, Robert Ronus, John McIlwraith
[PHOTO OMITTED]
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.
4 and 5
<PAGE>
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FREMONT MUTUAL FUNDS
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FREMONT EMERGING MARKETS FUND
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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 22.
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.
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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
[CHART OMITTED]
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)
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- -38.27% -14.46%
MSCI EMF Index
Since
1 Yr. (6/24/96)
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- -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 33 for a
description of the index.)
PORTFOLIO MANAGEMENT
The Fremont Emerging Markets Fund is managed by Sub-Advisor CMG First State
(Hong Kong) LLC. Portfolio manager, Henry Thornton, has managed the Fund since
its inception in June 1996. Working out of the firm's London office, Mr.
Thornton is supported by investment teams based in London, Hong Kong and
Singapore.
Mr. Thornton has over a decade of investment experience. He has been employed by
CMG First State since it assumed management of the Fund from Nicholas-Applegate
Capital Management (Hong Kong) LLC in May 1999. Mr. Thornton was employed as a
portfolio manager for Nicholas-Applegate since 1997. Prior to that, he spent
seven years at Credit Lyonnais as an emerging markets portfolio manager.
[PHOTO OMITTED]
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.
6 and 7
<PAGE>
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FREMONT MUTUAL FUNDS
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FREMONT GROWTH FUND
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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 22.
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
[CHART OMITTED]
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 33 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 OMITTED]
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?
8 and 9
<PAGE>
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FREMONT MUTUAL FUNDS
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FREMONT U.S. SMALL CAP FUND
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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 22.
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
[CHART OMITTED]
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 33 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 OMITTED]
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.
10 and 11
<PAGE>
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FREMONT MUTUAL FUNDS
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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 22.
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
[CHART OMITTED]
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 33 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.
12 and 13
<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 22.
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
[CHART OMITTED]
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 33 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 OMITTED]
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.
14 and 15
<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 22.
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
[CHART OMITTED]
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 33 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 OMITTED]
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.
16 and 17
<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 22.
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
[CHART OMITTED]
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 33 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 $127 million in fixed
income assets for private and public 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 OMITTED]
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).
18 and 19
<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; and
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 22.
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
[CHART OMITTED]
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 33 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 OMITTED]
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.
20 and 21
<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. All
year 2000 disclosures are made subject to the Year 2000 Information and
Readiness Disclosure Act.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN FOREIGN SECURITIES
(Global Fund, International Growth 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
22
<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.
ABOUT THE ADVISOR
Fremont Investment Advisors, Inc. (referred to 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.
(continued on next page)
23
<PAGE>
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FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
ABOUT THE ADVISOR (CON'T)
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 and
Small Cap Funds, and a portion of the Fremont Global Fund, is partially owned by
the Advisor.
Additional Information on the Fremont Global Fund
The following details the business experience of the investment managers
representing the Fremont Global Fund's four sub-advisors:
Kern Capital Management LLC (KCM) was founded in 1997 by Robert E. Kern,
president and chief executive officer. Prior to forming KCM, he was employed as
a portfolio manager by Morgan Grenfell Asset Management for ten years. David G.
Kern, executive vice president and co-founder of KCM, was a vice president and
portfolio manager at Founders Asset Management, from 1995 to 1997. He also
served as vice president and assistant portfolio manager for the Delaware
Management Company, Inc. of Philadelphia, 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.
She was also employed as a senior analyst at Fred Alger Management located in
New York from 1992 to 1995.
Eugene C. Sit, CFA, CPA founded Sit Investment Associates, Inc. in 1981. Since
the company's founding, he has served as chief investment officer, overseeing
all investment decisions made by the mid-cap equity investment team. Mr. Sit has
over 36 years of investment experience.
Lee R. Thomas, III, managing director, manages Pacific Investment Management
Company's (PIMCO) portion of the Global Fund's assets. Mr. Thomas, who joined
PIMCO in 1995, was previously associated with Investcorp, an international
investment bank, as a member of its management committee and was responsible for
global securities and foreign exchange trading.
Lex C. Huberts, director of Asset Allocation and Strategies, manages Mellon
Capital Management's portion of the Global Fund using its Global Tactical Asset
Allocation strategy. Mr. Huberts joined Mellon in 1992 as director of research
and chairman of the Investment Research Committee and is now responsible for
implementing U.S. and global asset allocation strategies.
- --------------------------------------------------------------------------------
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%
Emerging Markets 1.00% Bond 0.40%
Growth 0.50% California Intermediate 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.
24
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SHAREHOLDER GUIDE
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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 Individual accounts are owned
needs. by one person.
- -----------------------------------------------------------------------------------------------------
Joint Tenants For the general investment Joint tenant accounts are
needs of two or more people. owned by more than
one person.
- -----------------------------------------------------------------------------------------------------
Gift To Minor To invest for a minor's Gift or Transfer to Minor
education or other future needs. (UGMA/UTMA)
custodial accounts provide a
way to invest on behalf of a
minor.
- -----------------------------------------------------------------------------------------------------
Trust For money being invested by a The trust or plan must be
trust, employee benefit plan, or established before an account
profit-sharing plan. can be opened.
- -----------------------------------------------------------------------------------------------------
Corporation, Partnership or For investment needs of You will need to provide a
Other Entity corporations, associations, certified corporate resolution
partnerships, institutions, or with your application.
other groups.
- -----------------------------------------------------------------------------------------------------
RETIREMENT ACCOUNTS These accounts require a specific application. To order, call
800-548-4539 (press 1).
- -----------------------------------------------------------------------------------------------------
Traditional IRA Allows you to make deductible This type of retirement account
or non-deductible contributions allows anyone under age 70 1/2
to your retirement account, and with earned income to save up
defer paying taxes on your to $2,000 per tax year. If your
earnings until after you spouse has less than $2,000 in
withdraw the money from your earned income, he or she may
account-- usually after still contribute up to $2,000 to
retirement. an IRA, as long as you and
your spouse's combined
earned income is at least
$4,000.
- -----------------------------------------------------------------------------------------------------
Roth IRA Allows you to make Single taxpayers with Adjusted
non-deductible contributions to Gross Income (AGI) up to
your retirement account today, $95,000 per year, and married
and withdraw your earnings couples with
tax-free after you are 59 1/2 AGI up to $150,000 per year,
and have had the account for at may contribute up
least 5 years. to $2,000 each, or $4,000 per
couple, respectively,
per year.
- -----------------------------------------------------------------------------------------------------
Simplified Employee Allows owners and employees SEP-IRAs allow small business
Pension Plan of small businesses with fewer owners or those with
(SEP-IRA) than 5 employees to invest self-employment income to
tax-deferred for retirement. make tax-deductible
contributions 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 This type of IRA must be
of small businesses with 5 to 99 established by an employer
participants to invest (including a self-employed
tax-deferred for retirement. person). 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
Retirement be used as an investment in
Plans many other kinds of
employer-sponsored retirement
plans. All of these accounts
need to be established by the
trustee of the plan.
- -----------------------------------------------------------------------------------------------------
</TABLE>
25
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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 Mail your check or money
with your check or money order payable to Fremont
order payable to Fremont Mutual Funds for $100 or
Mutual Funds. Fremont will more.
not accept third party checks.
- -----------------------------------------------------------------------------------------------------
BY TELEPHONE Use the Telephone Exchange Use the Telephone Exchange
(TELEPHONE EXCHANGE Privilege to move $2,000 or Privilege to move your
PRIVILEGE) more ($1,000 for IRAs) from investment from one Fremont
an existing Fremont Fund fund to another. Please note
account into a new, identically that exchanges between funds
registered account. To use the in non-retirement accounts are
Telephone Exchange Privilege, subject to capital gains taxes.
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
(AUTOBUY PROGRAM) to 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
INVESTMENT PLAN Plan to 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 pre-designated 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.
26
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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 policy
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.
27
<PAGE>
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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 219343 330 W. 9th Street
Kansas City, MO 64121-9343 Kansas City, MO 64105
- ------------------------------------------------------------------------------------------------------
BY TELEPHONE The Telephone Redemption Privilege allows you to redeem your shares by
(TELEPHONE phone. You must make your telephone redemptions by Closing Time to
REDEMPTION receive that day's price. You must provide written authorization to add this
PRIVILEGE) privilege to your account prior to making the request.
- ------------------------------------------------------------------------------------------------------
BY AUTOMATIC The Automatic Withdrawal Plan (explained more fully below) lets you set
WITHDRAWAL up automatic monthly, quarterly, or annual redemptions from your account
PLAN 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 on next page)
28
<PAGE>
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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.
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. 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
(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:
o Include all your account information -- your name, the fund's name, and
your account number.
o Provide your preferred redemption method -- check, wire, or electronic
transfer.
o 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.
o 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.
o Have signature(s) guaranteed when needed -- review the signature guarantee
requirements on page 30. Be sure to provide one if your sale meets those
requirements.
- --------------------------------------------------------------------------------
29
<PAGE>
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SHAREHOLDER GUIDE
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OTHER POLICIES YOU SHOULD KNOW ABOUT (CON'T.)
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 at 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).
Statements & Reports
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).
Account Access on the Internet
Shareholders can use our secure Web site at www.fremontfunds.com to:
o Check current account balances;
o View a portfolio;
o Buy, exchange, or sell shares (some restrictions may apply);
o View previous transactions; and
o Order duplicate statements or reorder checkbooks.
Our Web site also provides fund performance, distribution schedules, forms and
other in-depth information to help shareholders.
30
<PAGE>
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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 all distributions of income dividends and capital gains in cash.
o Receive income dividends and short-term capital gain distributions in cash
and accept long-term capital gain distributions in additional shares.
o Automatically reinvest income distributions and short-term capital gain
distributions and receive long-term gain distributions 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
If you are under age 59 1/2, cash distributions from an IRA are subject to
income taxes and penalties. Therefore, all distributions for IRA accounts are
automatically reinvested. After 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 don't provide a correct Social Security or taxpayer identification
number, the Fund is required by the IRS to withhold 31% from any dividend or
redemption that you receive.
- --------------------------------------------------------------------------------
FREMONT FUND DIVIDENDS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Global Quarterly Annually
International Growth 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 Monthly Annually
Free Monthly Annually
Money Market
- --------------------------------------------------------------------------------
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 on next page)
31
<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.
32
<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.
33
<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.
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.
Salomon Brothers Non-U.S. Government Bond Index - Tracks the performance of the
government bond markets of Australia, Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, and the United Kingdom.
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.
34
<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 Fund's Annual Report.
<TABLE>
<CAPTION>
GLOBAL FUND Year Ended October 31
- --------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Selected Per Share Data
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
1998 1997 1996 1995 10/31/94
--------- --------- --------- --------- ---------
Selected Per Share Data
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%1 -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 assets2 1.50% 1.50% 1.50% 1.50% 1.50%*
Ratio of gross expenses to
average net assets2 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 40.
35
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EMERGING MARKETS FUND Year Ended October 31 Period from
- ------------------------------------------------------------------------- 6/24/96 to
1998 1997 10/31/96
--------- --------- ---------
Selected Per Share Data
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 Return1 -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 assets2 1.50% .26% --
Ratio of gross expenses to average net assets2 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 40.
<TABLE>
<CAPTION>
U.S. MICRO-CAP FUND Year Ended October 31 Period from
- --------------------------------------------------------------------------------------------------- 6/30/94 to
1998 1997 1996 1995 10/31/94
--------- --------- --------- --------- ---------
Selected Per Share Data
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 (loss) (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 assets2 1.94% 1.88% 1.96% 2.04% 2.50%*
Ratio of gross expenses to average net assets2 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 40.
36
<PAGE>
FINANCIAL HIGHLIGHTS
Year Ended Period from
October 31, 9/24/97 to
U.S. SMALL CAP FUND 1998 10/31/97
- ------------------------------------------------------------ ---------
Selected Per Share Data
for one share outstanding during the period
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 income3 -- (.02)
From net realized gains3 -- (.01)
--------- ---------
Total distributions3 -- (.03)
--------- ---------
Net asset value, end of period $ 8.87 $ 9.57
========= =========
Total Return1 -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 assets2 1.50% 1.50%*
Ratio of gross expenses to average net assets2 2.85% 3.32%*
Ratio of net investment income (loss)
to average net assets -.52% 1.81%*
Portfolio turnover rate 273% 8%
For footnote references, see "Notes to Financial Highlights" on page 40.
<TABLE>
<CAPTION>
GROWTH FUND Year Ended October 31
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Selected Per Share Data
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 assets2 .82% .85% .92% .97% .94%
Ratio of gross expenses to average net assets2 .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 40.
37
<PAGE>
FINANCIAL HIGHLIGHTS
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 (loss) .19
Net realized and unrealized gain (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 Return1 -18.78%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 33,482
Ratio of net expenses to average net assets2 1.09%*
Ratio of gross expenses to average net assets2 1.80%*
Ratio of net investment income (loss)
to average net assets 4.10%*
Portfolio turnover rate 196%
For footnote references, see "Notes to Financial Highlights" on page 40.
<TABLE>
<CAPTION>
BOND FUND Year Ended October 31
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Selected Per Share Data
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 Return1 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 assets2 .60% .61% .68% .60% .66%
Ratio of gross expenses to average net assets2 .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 40.
38
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET FUND Year Ended October 31
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Selected Per Share Data
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 Return1 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 assets2 .29% .30% .31% .30% .46%
Ratio of gross expenses to average net assets2 .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 40.
<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE TAX-FREE FUND Year Ended October 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Selected Per Share Data
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 Return1 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 assets2 .47% .49% .51% .50% .51%
Ratio of gross expenses to average net assets2 .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 40.
39
<PAGE>
NOTES TO FINANCIAL HIGHLIGHTS
The following notes are being used as referenced items in the Financial
Highlights of the Funds presented on pages 35 through 39.
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 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, 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 this Fund.
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 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.
3 For 1998, distributions are less than $.01 per share.
* Annualized
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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.
P010-9910
www.fremontfunds.com
[LOGO]
<PAGE>
FREMONT MUTUAL FUNDS, INC.
FREMONT GLOBAL FUND
FREMONT INTERNATIONAL GROWTH 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, as amended
October 4, 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,
as amended October 4, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
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THE CORPORATION................................................................4
INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS.......................5
Fremont Global Fund.........................................................5
Fremont International Growth Fund...........................................7
Fremont Emerging Markets Fund...............................................8
Fremont Growth Fund.........................................................8
Fremont U.S. Small Cap Fund.................................................9
Fremont U.S. Micro-Cap Fund................................................10
Real Estate Securities Fund................................................10
Bond Fund..................................................................11
Fremont California Intermediate Tax-Free Fund..............................12
Money Market Fund..........................................................13
GENERAL INVESTMENT POLICIES...................................................22
Diversification............................................................22
Money Market Instruments...................................................22
U.S. Government Securities.................................................22
Repurchase Agreements......................................................23
Reverse Repurchase Agreements and Leverage.................................23
Floating Rate and Variable Rate Obligations
and Participation Interests.............................................24
Swap Agreements............................................................24
Bond Arbitrage Strategies..................................................25
When-Issued Securities and Firm Commitment Agreements......................26
Commercial Bank Obligations................................................27
Temporary Defensive Posture................................................27
Borrowing..................................................................27
Lending of Portfolio Securities............................................27
Portfolio Turnover.........................................................28
Shares of Investment Companies.............................................28
Illiquid and Restricted Securities.........................................29
Warrants or Rights.........................................................29
Municipal Securities.......................................................29
Municipal Notes............................................................30
Commercial Paper...........................................................31
Mortgage-Related And Other Asset-Backed Securities.........................31
Writing Covered Call Options...............................................33
Writing Covered Put Options................................................35
Purchasing Put Options.....................................................36
Purchasing Call Options....................................................37
Description of Futures Contracts...........................................37
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Futures Contracts Generally................................................39
Options on Interest Rate and/or Currency Futures Contracts, and
with Respect to the Fremont Global Fund, Gold Futures Contracts..........41
Forward Currency and Options Transactions..................................41
Risk Factors and Special Considerations for International Investing........42
American Depository Receipts...............................................44
Particular Risk Factors Relating to California Municipal Securities
(Fremont California Intermediate Tax-Free Fund).........................44
Guaranteed Investment Contracts (Fremont Global Fund)......................47
Corporate Debt Securities (Fremont Global Fund and Fremont Bond Fund)......47
Reduction in Bond Rating (Fremont Global Fund and Fremont Bond Fund).......48
Concentration (Fremont Real Estate Securities Fund)........................48
The Euro: Single European Currency.........................................48
INVESTMENT RESTRICTIONS.......................................................49
INVESTMENT COMPANY DIRECTORS AND OFFICERS.....................................51
INVESTMENT ADVISORY AND OTHER SERVICES........................................53
PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH FUND,
REAL ESTATE SECURTIES FUND AND EMERGING MARKETS FUND ONLY).................58
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................60
HOW TO INVEST.................................................................62
OTHER INVESTMENT AND REDEMPTION SERVICES......................................65
TAXES - MUTUAL FUNDS..........................................................66
ADDITIONAL INFORMATION........................................................70
INVESTMENT RESULTS............................................................74
3
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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 each Fund with investment management and administrative
services under an Investment Advisory and Administrative Agreement (the
"Advisory Agreement") with the Investment Company. The Advisory Agreement
provides that the Advisor shall furnish advice to 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 each 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. 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.
In addition to directly managing some of the Funds, the Advisor has hired
investment management firms (referred to as "sub-advisors") to manage the
portfolios of certain funds. The Advisor will provide direct portfolio
rmanagement 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
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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 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
A broad range of objectives and policies is offered because the Fremont Mutual
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.
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.
5
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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 net
assets in corporate debt securities rated Ba by Moody's Investors Service
("Moody's") or BB by Standard & Poor's Ratings Group ("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. See Appendix A for a description of rating categories.
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 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 Real Estate Investment Trusts ("REITs"). 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
6
<PAGE>
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 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
net 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 total
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 total 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.
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.
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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 net 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 one of these
nationally recognized statistical rating organizations ("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.
For liquidity purposes, the Fund may invest up to 10% of its total 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 furrency 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 in "General Investment
Policies."
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. 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.
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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 determined by the Advisor to be
comparable in quality. However, there are no restrictions on the maturity
composition of the Fund's portfolio. See Appendix A for a description of rating
categories.
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 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. 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
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payments than is the case with higher-rated securities. See Appendix A for a
description of rating categories.
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" 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. 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.
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 will not invest in real estate directly, but only in securities issued
by real estate companies. However, the Fund may be subject to risks similar to
those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy
10
<PAGE>
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 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.
The Fund may also hold other types of securities from time to time, including
convertible and non-convertible bonds and preferred stocks, when the Advisor and
Sub-Advisor believe that these investments offer opportunities for capital
appreciation. The Fund will invest in preferred stocks and bonds which, at the
time of purchase, are rated Baa or better by Moody's, BBB or better by S&P or,
if not rated by one of these NRSROs, have been determined by the Advisor and/or
Sub-Advisor to be of comparable quality. Bonds and preferred stocks rated Baa by
Moody's or BBB by S&P are considered investment grade but may have speculative
characteristics. Changes in the economy or other circumstances may lead to a
weakened capacity of the issuers of such securities to make principal and
interest payments or to pay the preferred stock obligations than would occur
with bonds and preferred stocks in higher categories. See Appendix A for a
description of rating categories.
BOND FUND
- ---------
The Fund will invest primarily in securities which, at the time of purchase, are
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 net assets in
corporate debt securities that are not investment grade but are rated B or
higher by Moody's or S&P. See Appendix A for a description of rating categories.
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
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<PAGE>
decline. See "Corporate Debt Securities" for more information on quality ratings
and risks involved with lower rated securities.
The Fund may invest in convertible debentures (which are convertible to equity
securities) and preferred stocks (which may or may not pay a dividend) using the
same quality and rating criteria noted above. The Fund may also invest in a
small percentage of assets in common stocks consistent with its investment
objectives. In addition, the Fund may invest directly in foreign
currency-denominated debt securities which meet the credit quality guidelines
set forth for U.S. holdings. Under normal market conditions, at least 60% of the
Fund's total assets will be invested in securities of U.S. issuers and at least
80% of the Fund's total assets, adjusted to reflect the Fund's net exposure
after giving effect to currency transactions and positions, will be denominated
in U.S. dollars. The Fund may not invest more than 25% of its total assets in
the securities of issuers domiciled in a single country other than the United
States.
When the Sub-Advisor deems it advisable because of unusual economic or market
conditions, the Fund may invest all or a portion of its assets in cash or cash
equivalents, such as obligations of banks, commercial paper and short-term
obligations of U.S. or foreign issuers. The Fund may also employ certain active
currency and interest rate management techniques. These techniques may be used
both to hedge the foreign currency and interest rate risks associated with the
Fund's portfolio securities, and, in the case of certain techniques, to seek to
increase the total return of the Fund. Such active management techniques include
foreign currencies, options on securities, futures contracts, options on futures
contracts and currency, and swap agreements.
The Fund will not use futures and options contracts for the purpose of
leveraging its portfolio. The Fund will set aside cash, cash equivalents or high
quality debt securities or hold a covered position against any potential
delivery or payment obligations under any outstanding option or futures
contracts. Although these investment practices will be used primarily to enhance
total return or to minimize the fluctuation of principal, they do involve risks
which are different in some respects from the investment risks associated with
similar funds which do not engage in such activities. These risks may include
the following: the imperfect correlation between the prices of options and
futures contracts and movement in the price of securities being hedged; the
possible absence of a liquid secondary market; in the case of OTC options, the
risk of default by the counter party; and the dependence upon the Sub-Advisor's
ability to correctly predict movements in the direction of interest rates and
securities prices. The Fund currently intends to commit no more than 5% of its
net assets to premiums when purchasing options and to limit its writing of
options so that the aggregate value of the securities underlying such options,
as of the date of sale of the options, will not exceed 5% of the Fund's net
assets.
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
12
<PAGE>
tax. It is the current intention of the Fund to limit its investments in such
investment 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 total 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.
13
<PAGE>
MONEY MARKET FUND
- -----------------
The Fund seeks to maintain a constant net asset value of $1.00 per share by
valuing its securities using the amortized cost method. To do so, it must invest
only in readily marketable short-term securities with remaining maturities of
not more than 397 days (in accordance with federal securities regulations) which
are of high quality and present minimal credit risks as determined by the
Advisor, using guidelines approved by the Board of Directors. The portfolio must
maintain a dollar-weighted average maturity of not more than 90 days, and at
least 25% of the Fund's assets will have a maturity of not more than 90 days.
The Fund will invest in short-term securities which, at the time of purchase,
are considered to be "First Tier" securities, defined as: (i) rated in the top
rating category by at least two NRSROs, or (ii) in the case of a security rated
by only one NRSRO, rated in the top rating category of that NRSRO, or (iii) if
unrated by an NRSRO, have been determined to be of comparable quality by the
Advisor, using guidelines approved by the Board of Directors.
The Fund may invest no more than 5% of its total assets in the securities of any
one issuer, other than U.S. Government securities, except in times of unexpected
shareholder redemptions or purchases. In such circumstances, the Fund may invest
temporarily in the securities of any one issuer in excess of 5%, but not to
exceed 25%, of the Fund's total assets for up to three business days after the
purchase to allow the Fund to manage its portfolio liquidity. The Fund will not
invest more than 10% of its net assets in time deposits with a maturity of
greater than seven days. The Fund may make loans of its portfolio securities and
enter into repurchase agreements as described 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.
GENERAL INVESTMENT POLICIES
DIVERSIFICATION
- ---------------
Each Fund, except for the Fremont Real Estate Securities 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.
14
<PAGE>
The Fremont Real Estate Securities 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, using guidelines approved by the Board of Directors. 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 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. 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, 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 at a later date, generally for
15
<PAGE>
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 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
16
<PAGE>
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 (except the Money Market 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 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
17
<PAGE>
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 and a Fund's obligations under such agreements,
together with other illiquid assets and securities, will not exceed 15% of the
Fund's net assets. 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. A Fund's obligations under a swap
agreement will be accrued daily (offset against amounts owed to the Fund) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by the maintenance of a segregated account consisting of cash, U.S. government
securities or other liquid securities to avoid any potential leveraging of the
Fund's portfolio. 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.
18
<PAGE>
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 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
19
<PAGE>
obligations of the parent bank in addition to the issuing bank, or may be
limited by the terms of a specific obligation and by government regulation. As
with investment in non-U.S. securities in general, investments in the
obligations of foreign branches of U.S. banks, and of foreign banks may subject
the Funds to investment risks that are different in some respects from those of
investments in obligations of domestic issuers. Although a Fund will typically
acquire obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase in excess of $1 billion, this $1
billion figure is not a fundamental investment policy or restriction of any
Fund. For the purposes of calculating the $1 billion figure, the assets of a
bank will be deemed to include the assets of its U.S. and non-U.S. branches.
TEMPORARY DEFENSIVE POSTURE
- ---------------------------
Whenever, in the judgment of the Advisor and/or Sub-Advisor, market or economic
conditions warrant, each 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 Funds are
investing defensively, the Funds will not be able to pursue their stated
investment objective.
BORROWING
- ---------
Each Fund may borrow from banks an amount not exceeding 30% of the value of its
total assets for temporary or emergency purposes and may enter into reverse
repurchase agreements. If the income and gains on securities purchased with the
proceeds of borrowings or reverse repurchase agreements exceed the cost of such
borrowings or agreements, 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
- -------------------------------
Each 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.
20
<PAGE>
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.
SHARES OF INVESTMENT COMPANIES
- ------------------------------
Each Fund may invest some portion of its assets in shares of other no-load,
open-end investment companies and closed-end investment companies to the extent
that 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 AND RESTRICTED 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
21
<PAGE>
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"), but can be offered and sold to "qualified institutional
buyers" pursuant to Rule 144A under the 1933 ActAdditionally, the Advisor and
the Funds believe that a similar market exists for commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act. The
Funds may invest without limitation in these forms of restricted securities if
such securities are determined by the Advisor or Sub-Advisor to be liquid in
accordance with standards established by the Investment Company's Board of
Directors. Under these standards, the Advisor or Sub-Advisor must consider (a)
the frequency of trades and quotes for the security, (b) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, (c) any dealer undertaking to make a market in the security, and (d)
the nature of the security and the nature of the marketplace trades (for
example, the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The Board, however, will retain
sufficient oversight and will be ultimately responsible for the determinations.
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.
WARRANTS OR RIGHTS
- ------------------
Warrants or rights may be acquired by a Fund in connection with other securities
or separately and provide the Fund with the right to purchase other securities
of the issuer at a later date. It is the present intention of each Fund to limit
its investments in warrants or rights, valued at the lower of cost or market, to
no more than 5% of the value of its net assets. Warrants or rights acquired by
the Funds in units or attached to securities will be deemed to be without value
for purposes of this restriction.
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".
Municipal issuers of securities are not usually subject to the securities
registration and public reporting requirements of the Securities and Exchange
Commission and state
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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
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Municipal notes generally are used to provide short-term capital funding for
municipal issuers and generally have maturities of one year or less. Municipal
notes of municipal issuers include tax anticipation notes, revenue anticipation
notes and bond anticipation notes:
TAX ANTICIPATION NOTES are issued to raise working capital on a short-term
basis. Generally, these notes are issued in anticipation of various
seasonal tax revenues being paid to the issuer, such as property, income,
sales, use and business taxes, and are payable from these specific future
taxes.
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.
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COMMERCIAL PAPER
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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
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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 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
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decrease, thereby lengthening the actual average life of the GNMA certificates.
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current market rates, GNMA
certificates can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates. GNMA
certificates may appreciate or decline in market value during periods of
declining or rising interest rates, respectively.
A Fund may invest also in mortgage-related securities issued by the FNMA or by
the FHLMC. FNMA, a federally chartered and privately owned corporation, issues
pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
Government. FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but the certificates, as noted above, are not backed by
the full faith and credit of the U.S. Government. As is the case with GNMA
securities, the actual maturity of and realized yield on particular FNMA and
FHLMC pass-through securities will vary based on the prepayment experience of
the underlying pool of mortgages.
A Fund may also invest in mortgage-related securities issued by financial
institutions, such as commercial banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or separate trusts or affiliates of such
institutions established to issue these securities).
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS are CMO vehicles that qualify for
special tax treatment under the Internal Revenue Code and invest in
mortgages principally secured by interests in real property and other
investments permitted by the Internal Revenue Code.
STRIPPED MORTGAGE SECURITIES are derivative multiclass mortgage securities
issued by agencies or instrumentalities of the United States Government, or
by private originators of, or investors in, mortgage loans, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Stripped Mortgage
Securities are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of Stripped Mortgage Security will have one
class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive the entire
principal (the principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal payments and
prepayments on the
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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.
WRITING COVERED CALL OPTIONS
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The Funds (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market 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,
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are deemed to be attractive investments for the Funds. The aggregate value of
the securities underlying put options, as of the date of the sale of options,
will not exceed 5% of the Fund's net assets.
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 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
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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
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The Funds (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market 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
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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 (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market Fund) 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
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exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
A Fund will commit no more than 5% of its net 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 (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market Fund) 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 net 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
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underlying security or currency with the same exercise price and expiration date
as the option previously written.
DESCRIPTION OF FUTURES CONTRACTS
- --------------------------------
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place.
Brokerage fees are incurred when a Futures Contract is bought or sold and margin
deposits must be maintained.
Although Futures Contracts typically require future delivery of and payment for
financial instruments or currencies, the Futures Contracts are usually closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
financial instrument or currency and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Fund involved realizes
a gain; if it is more, that Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund involved realizes
a gain; if it is less, that Fund realizes a loss. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, that Fund will continue to be required to
maintain the margin deposits on the Contract.
As an example of an offsetting transaction in which the financial instrument or
currency is not delivered, the contractual obligations arising from the sale of
one Contract of September Treasury Bills on an exchange may be fulfilled at any
time before delivery of the Contract is required (e.g., on a 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
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the United States are the Board of Trade of the City of Chicago and the Chicago
Mercantile Exchange. Futures exchanges and trading are regulated under the
Commodity Exchange Act by the Commodity Futures Trading Commission. Futures are
also traded in various overseas markets.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce a Fund's exposure to currency exchange rate fluctuations, a Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through using Futures Contracts.
A Fund will not enter into a Futures Contract if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to "margin" (down payment) deposits on
such Futures Contracts.
A Stock Index contract such as the S&P 500 Stock Index Contract, for example, is
an agreement to take or make delivery at a specified future date of an amount of
cash equal to $500 multiplied by the difference between the value of the Stock
Index at purchase and at the close of the last trading day of the contract. In
order to close long positions in the Stock Index contracts prior to their
settlement date, the Fund will enter into offsetting sales of Stock Index
contracts.
Using Stock Index contracts in anticipation of market transactions involves
certain risks. Although a Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for the contracts at any 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.
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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
futures 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 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
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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 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
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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. To avoid leverage
in connection with forward currency transactions, a Fund will set aside with its
custodian, cash, cash equivalents or liquid securities, or hold a covered
position against any potential delivery or payment obligations under any
outstanding contracts.
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 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. In addition, premiums paid for
currency options held by a Fund may not exceed 5% of the Fund's net assets.
RISK FACTORS AND SPECIAL CONSIDERATIONS FOR INTERNATIONAL INVESTING
- -------------------------------------------------------------------
(Except for the Fremont California Intermediate Tax-Free Fund and the Fremont
Money Market Fund.) Investment in securities of foreign entities and securities
denominated in foreign currencies involves risks typically not present to the
same degree in domestic investments.
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There may be less publicly available information about foreign issuers or
securities than about U.S. issuers or securities, and foreign issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. entities. With respect to unsponsored
ADRs, these programs cover securities of companies that are not required to meet
either the reporting or accounting standards of the United States. Many foreign
financial markets, while generally growing in volume, continue to experience
substantially less volume than domestic markets, and securities of many foreign
companies are less liquid and their prices are more volatile than the securities
of comparable U.S. companies. In addition, brokerage commissions, custodial
services and other costs related to investment in foreign markets (particularly
emerging markets) generally are more expensive than in the United States. Such
foreign markets also may have longer settlement periods than markets in the
United States as well as different settlement and clearance procedures. In
certain markets, there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. The inability of a Fund to make intended securities purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to a Fund due to subsequent declines in
value of a portfolio security or, if a Fund had entered into a contract to sell
the security, could result in possible liability to the purchaser. Settlement
procedures in certain emerging markets also carry with them a heightened risk of
loss due to the failure of the broker or other service provider to deliver cash
or securities.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility and risk of
principal, have less liquidity and have settlement arrangements which are less
efficient than in developed markets. Furthermore, the economies of emerging
market countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the countries with which they
trade. These emerging market economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
The value of a Fund's portfolio securities computed in U.S. dollars will vary
with increases and decreases in the exchange rate between the currencies in
which the Fund has invested and the U.S. dollar. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of a Fund's holdings of securities denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value and
net investment income and capital gains, if any, to be distributed in U.S.
dollars to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is influenced
by many factors, including the supply and demand for particular currencies,
central bank
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efforts to support particular currencies, the movement of interest rates, the
price of oil, the pace of activity in the industrial countries, including the
United States, and other economic and financial conditions affecting the world
economy.
The Funds will not invest in a foreign currency or in securities denominated in
a foreign currency if such currency is not at the time of investment considered
by the Advisor and/or Sub-Advisor to be fully exchangeable into U.S. dollars
without legal restriction. The Funds may purchase securities that are issued by
the government, a corporation, or a financial institution of one nation but
denominated in the currency of another nation. To the extent that a Fund invests
in ADRs, the depository bank generally pays cash dividends in U.S. dollars
regardless of the currency in which such dividends originally are paid by the
issuer of the underlying security.
Several of the countries in which the Funds may invest restrict, to varying
degrees, foreign investments in their securities markets. Governmental and
private restrictions take a variety of forms, including (i) limitation on the
amount of funds that may be invested into or repatriated from the country
(including limitations on repatriation of investment income and capital gains),
(ii) prohibitions or substantial restrictions on foreign investment in certain
industries or market sectors, such as defense, energy and transportation, (iii)
restrictions (whether contained in the charter of an individual company or
mandated by the government) on the percentage of securities of a single issuer
which may be owned by a foreign investor, (iv) limitations on the types of
securities which a foreign investor may purchase and (v) restrictions on a
foreign investor's right to invest in companies whose securities are not
publicly traded. In some circumstances, these restrictions may limit or preclude
investment in certain countries. Therefore, the Funds may invest in such
countries through the purchase of shares of investment companies organized under
the laws of such countries.
A Fund's interest and dividend income from foreign issuers may be subject to
non-U.S. withholding taxes. A Fund also may be subject to taxes on trading
profits in some countries. In addition, many of the countries in the Pacific
Basin have a transfer or stamp duties tax on certain securities transactions.
The imposition of these taxes will increase the cost to the Funds of investing
in any country imposing such taxes. For United States federal income tax
purposes, United States shareholders may be entitled to a credit or deduction to
the extent of any foreign income taxes paid by the Funds. See "Dividends,
Distributions and Federal Income Taxation."
AMERICAN DEPOSITORY RECEIPTS
- ----------------------------
(Except for the Money Market Fund.) ADRs are negotiable receipts issued by a
United States bank or trust to evidence ownership of securities in a foreign
company which have been deposited with such bank or trust's office or agent in a
foreign country. Investing in ADRs presents risks not present to the same degree
as investing in domestic securities even though the Funds will purchase, sell
and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations
in currency exchange rates, which are affected by international balances of
payments and other economic and
37
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financial conditions; government intervention; speculation; and other factors.
With respect to certain foreign countries, there is the possibility of
expropriation or nationalization of assets, confiscatory taxation and political,
social and economic instability. The Funds may be required to pay foreign
withholding or other taxes on certain of its ADRs, but investors may or may not
be able to deduct their pro rata shares of such taxes in computing their taxable
income, or take such shares as a credit against their U.S. federal income tax.
See "Taxes - Mutual Funds." Unsponsored ADRs are offered by companies which are
not prepared to meet either the reporting or accounting standards of the United
States. While readily exchangeable with stock in local markets, unsponsored ADRs
may be less liquid than sponsored ADRs. Additionally, there generally is less
publicly available information with respect to unsponsored ADRs.
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 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.
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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 non-judicial
trustee's sale. Under the latter, a deficiency judgment is barred when the
foreclosed mortgage or deed of trust secures certain purchase money obligations.
A third statutory provision, commonly known as the "one form of action" rule,
requires creditors secured by real property to exhaust their real property
security by foreclosure before bringing a personal action against the debtor. A
fourth statutory provision limits any deficiency judgment obtained by a creditor
secured by real property following a judicial sale of such property to the
excess of the
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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 non-judicial 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 non-judicial 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 non-judicial
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 non-judicial
foreclosure.
Under California law, mortgage loans secured by single-family, owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage loans
may be imposed only with respect to voluntary prepayments made during the first
five years during the term of the mortgage loan, and cannot in any event exceed
six months' advance interest on the amount prepaid in excess of 20% of the
original principal amount of the mortgage loan. This limitation could affect the
flow of revenues available to an issuer for debt service on the outstanding debt
obligations which finance such home mortgages.
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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)
- ---------------------------------------------------------------------
A 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, at the time of purchase, 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
41
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that Fund, the Fund's Advisor and/or Sub-Advisor will determine whether the Fund
should continue to hold such an obligation in its portfolio. Bonds rated below
BBB or Baa are commonly known as "junk bonds." These bonds are subject to
greater fluctuations in value and risk of loss of income and principal due to
default by the issuer than are higher rated bonds. The market values of junk
bonds tend to reflect short-term corporate, economic, and market developments
and investor perceptions of the issuer's credit quality to a greater extent than
higher rated bonds. In addition, it may be more difficult to dispose of, or to
determine the value of, junk bonds. See Appendix A for a complete description of
the bond ratings.
CONCENTRATION (FREMONT REAL ESTATE SECURITIES FUND)
- ---------------------------------------------------
The Real Estate Securities Fund will concentrate its investments in real estate
investment trusts ("REITs"). As a result, an economic, political or other change
affecting one REIT also may affect other REITs. This could increase market risk
and the potential for fluctuations in the net asset value of the Fund's shares.
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
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more than 50% of the outstanding shares are represented or (ii) more than 50% of
the outstanding shares). These restrictions provide that no Fund may:
1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same
industry, except that this limitation shall not apply to securities
issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies or instrumentalities, to tax exempt
securities issued by state governments or political subdivisions
thereof, or to investments by the Money Market Fund in securities of
domestic banks, of foreign branches of domestic banks where the
domestic bank is unconditionally liable for the security, and domestic
branches of foreign banks subject to the same regulation of domestic
banks, or to investments by the Real Estate Securities Fund in real
estate investment trusts. See "Investment Objective, Policies, And
Risk Considerations."
2. Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Funds may invest
in securities secured by real estate, or issued by companies which
invest in real estate or interests therein, including real estate
investment trusts, and may purchase and sell currencies (including
forward currency exchange contracts), gold, bullion, futures
contracts, and related options generally as described in the
Prospectus and Statement of Additional Information.
3. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933.
4. Make loans, except that a Fund may purchase debt securities, enter
into repurchase agreements, and make loans of portfolio securities
amounting to not more than 33 1/3% of its net assets calculated at the
time of the securities lending.
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.
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Other current investment policies of the Funds, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. A Fund may not:
9. Invest in companies for the purpose of exercising control or
management.
10. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in
connection with any permissible borrowing.
11. Invest in interests in oil, gas, or other mineral exploration or
development programs or leases.
12. Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three
years continuous operation.
13. Purchase securities on margin, provided that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities, except that the Fund may make margin deposits
in connection with futures contracts.
14. Enter into a futures contract if, as a result thereof, more than 5% of
the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to margin on such futures
contract.
15. Acquire securities or assets for which there is no readily available
market or which are illiquid, if, immediately after and as a result of
the acquisition, the value of such securities would exceed, in the
aggregate, 15% of that Fund's net assets, except that the value of
such securities may not exceed 10% of the Money Market Fund's net
assets.
16. (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.
44
<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>
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 Fremo
Investors, Inc.; Director, Sequoia
Ventures, Sit/Kim International
Investment Associates, and J.P.
Morgan Securities Asia.
Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present
Fremont Investment Advisors, Inc. Senior Vice President and
333 Market Street, 26th Floor Director, Fremont Investment
San Francisco, CA 94105 Advisors, Inc. 10/77 - 7/96 Senior
Vice President Business
DevelopmentBenham 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
45
<PAGE>
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,
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.
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.
46
<PAGE>
(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.
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 U.S. SmallCap Fund, the Emerging Markets
Fund, the California Intermediate Tax-Free 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
47
<PAGE>
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 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
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
48
<PAGE>
The Advisory Agreements with respect to the International Growth 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
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
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.
49
<PAGE>
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:
- --------------------------------------------------------------------------------
FUND SUB-ADVISOR(S)
- --------------------------------------------------------------------------------
Global Fund Pacific Investment Management Company
Mellon Capital Management
Kern Capital Management LLC+
Sit Investment Associates, Inc.
- --------------------------------------------------------------------------------
Bond Fund Pacific Investment Management Company
- --------------------------------------------------------------------------------
Real Estate Securities Fund Kensington Investment Group
- --------------------------------------------------------------------------------
International Growth Fund Capital Guardian Trust Company
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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- Rayner Associates, Inc.
Free Fund
- --------------------------------------------------------------------------------
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 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
- --------------------
+ Kern Capital Management LLC is partially owned by the Advisor.
50
<PAGE>
forth below of the value of the applicable Fund's average net assets allocated
to the Sub-Advisor, payable monthly:
Global Fund 0.30% to Pacific Investment Company
To Mellon Capital Management:
0.50% on the first $100 million
0.40% on the next $100 million
0.30% on the next $100 million
0.20% on the remaining balance
0.50% to Kern Capital Management LLC
0.XX% to Sit Investment Associates, Inc.
Bond Fund: 0.25% to Pacific Investment Management Company
Real Estate Securities Fund 0.50% to Kensington Investment Group
International Growth Fund Capital Guardian Trust Company
0.750% on the first $25 million
0.600% on the next $25 million
0.425% on the next $200 million
0.375% on assets in excess of $250 million
U.S. Small Cap Fund: 0.65% to Kern Capital Management LLC
Emerging Markets Fund: 0.50% 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
0.75% 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
51
<PAGE>
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.
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
52
<PAGE>
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.
PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH 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
53
<PAGE>
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. 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.
54
<PAGE>
The Bond Fund, the Global Fund, the Growth Fund, the International Growth Fund,
the Emerging Markets Fund, and the U.S. Micro-Cap Fund contemplate purchasing
foreign equity and/or fixed-income securities in over-the-counter markets or
stock exchanges located in the countries in which the respective principal
offices of the issuers of the various securities are located, if that is the
best available market. Fixed commissions on foreign stock transactions and
transaction costs with respect to foreign fixed-income securities are generally
higher than negotiated commissions on United States transactions, although these
Funds will endeavor to achieve the best net results on their portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the United States. Foreign security
settlements may in some instances be subject to delays and related
administrative uncertainties.
Foreign equity securities may be held by the Global Fund, the Growth Fund, the
International Growth Fund, the 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
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
55
<PAGE>
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.
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
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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 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 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 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
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(including restricted securities which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by
or under the direction of the Board of Directors.
3. Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the
close of the business day in New York. In addition, European or Far
Eastern securities trading may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Funds' net asset value is
not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of securities
held by these Funds used in such calculation. Events affecting the
values of portfolio securities that occur between the time their
prices are determined and the close of the New York Stock Exchange
will not be reflected in these Funds' calculation of net asset value
unless the Board of Directors deems that the particular event would
materially affect net asset value, in which case an adjustment will be
made.
4. With respect to the Global Fund, gold bullion and bullion-type coins
are valued at the closing price of gold on the New York Commodity
Exchange.
5. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market
rate as determined by the Advisor 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
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90 days or less, purchase only instruments having remaining maturities of 397
days or less as allowed by regulations under the 1940 Act, and invest only in
securities determined by the Board of Directors to be of high quality with
minimal credit risks. In accordance with this rule, the Board of Directors has
established procedures designed to stabilize, to the extent reasonably
practicable, the Money Market Fund's price per share as computed for the purpose
of sales and redemptions at $1.00. Such procedures include review of the
portfolio holdings by the Board of Directors at such intervals as it may deem
appropriate, to determine whether the net asset value of the Money Market Fund
calculated by using available market quotations or market equivalents deviates
from $1.00 per share based on amortized cost. The rule also provides that a
deviation between the Money Market Fund's net asset value based upon available
market quotations or market equivalents and $1.00 per share net asset value
based on amortized cost exceeding $0.005 per share must be examined by the Board
of Directors. In the event the Board of Directors determines that the deviation
may result in material dilution or is otherwise unfair to investors or existing
shareholders, the Board of Directors must cause the Money Market Fund to take
such corrective action as it regards as necessary and appropriate, including:
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
establishing a net asset value per share by using available market quotations.
In the event that a security meeting the Money Market Fund's quality
requirements is acquired and subsequently is assigned a rating below "First
Tier" by one or more of the rating organizations, the Board of Directors must
assess promptly whether the security presents minimal credit risks and direct
the Money Market Fund to take such action as the Board of Directors determines
is in the best interest of the Money Market Fund and its shareholders. This
responsibility cannot be delegated to the Advisor. However, this assessment by
the Board of Directors is not required if the security is disposed of (by sale
or otherwise) or matures within five Business Days of the time the Advisor
learns of the lower rating. However, in such a case the Board of Directors must
be notified thereafter.
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
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of maturity or, if already held by the Fund on the 60th day, based on the value
determined on the 61st day.
The Fund deems the maturities of variable or floating rate instruments, or
instruments which the Fund has the right to sell at par to the issuer or dealer,
to be the time remaining until the next interest rate adjustment date or until
they can be resold or redeemed at par.
Where market quotations are not readily available, the Fund values securities
(including restricted securities which are subject to limitations as to their
sale) at fair value as determined in good faith by or under the direction of the
Board of Directors.
The fair value of any other assets is added to the value of securities, as
described above to arrive at total assets. The Fund's liabilities, including
proper accruals of taxes and other expense items, are deducted from total assets
and a net asset figure is obtained. The net assets so obtained are then divided
by the total number of shares outstanding (excluding treasury shares), and the
result, rounded to the nearest cent, is the net asset value per share.
OTHER INVESTMENT AND REDEMPTION SERVICES
THE OPEN ACCOUNT. When an investor makes an initial investment in a Fund, a
shareholder account is opened in accordance with the investor's registration
instructions. Each time there is a transaction in a shareholder account, such as
an additional investment, redemption, or distribution (dividend or capital
gain), the shareholder will receive from the 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.
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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.
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
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the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or in two or more issuers which a Fund controls and which
are engaged in the same or similar trades or businesses. Income and gain from
investing in gold or other commodities will not qualify in meeting the 90% gross
income test.
Even though a Fund qualifies as a "regulated investment company," it may be
subject to certain federal excise taxes unless that Fund meets certain
additional distribution requirements. Under the Code, a nondeductible excise tax
of 4% is imposed on the excess of a regulated investment company's "required
distribution" for the calendar year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-year
period ending on October 31 of such year, and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by a Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
a Fund pays income tax for the year. Each Fund intends to meet these
distribution requirements to avoid the excise tax liability.
If for any taxable year a Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.
SPECIAL TAX CONSIDERATIONS FOR THE 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
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tax equal to that portion of its excess inclusion income for the taxable year
that is allocable to the disqualified organization, multiplied by the highest
federal income tax rate imposed on corporations.
Even though the Fund intends to qualify as a "regulated investment company," it
may be subject to certain federal excise taxes unless the Fund meets certain
additional distribution requirements. Under the Code, a nondeductible excise tax
of 4% is imposed on the excess of a regulated investment company's "required
distribution" for the calendar year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-year
period ending on October 31 of such year, and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the Fund pays income tax for the year. The Fund intends to meet these
distribution requirements to avoid the excise tax liability. It is possible that
the Fund will not receive cash distributions from the real estate investment
trusts ("REITs") in which it invests in sufficient time to allow the Fund to
satisfy its won distribution requirements using these REIT distributions.
Accordingly, the Fund might be required to generate cash to make its own
distributions, which may cause the Fund to sell securities at a time not
otherwise advantageous to do so, or to borrow money to fund a distribution.
If for any taxable year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.
DISTRIBUTIONS OF NET INVESTMENT INCOME. Dividends from net investment income
(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.
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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 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, and the Emerging Markets Fund) will
be entitled to a foreign tax credit or deduction for such foreign taxes.
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With respect to the Global Fund, the International Growth 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.
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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.
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CERTAIN SHAREHOLDERS. To the best knowledge of the Funds, shareholders owning 5%
or more of the outstanding shares of the Funds as of record are set forth below:
<TABLE>
<CAPTION>
SHAREHOLDER % HELD AS OF
FUND NAME & ADDRESS 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
U.S. Small Cap Fund Fremont Investors, Inc. 59%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
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<PAGE>
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
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,
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<PAGE>
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:
1987-1998 IBC 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%
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>
69
<PAGE>
The Bond Fund, the Real Estate Securities Fund, the Global Fund, the Growth
Fund, the International Growth Fund, the U.S. Small Cap Fund, the Emerging
Markets Fund, and the U.S. Micro-Cap Fund are best suited as long-term
investments. While they offer higher potential total returns than certificates
of deposit or money market funds (including the Money Market Fund), they involve
added return volatility or risk. The prospective investor must weigh this
potential for higher return against the associated higher risk.
INVESTMENT RESULTS
The Investment Company may from time to time include information on the
investment results (yield or total return) of a Fund in advertisements or in
reports furnished to current or prospective shareholders.
Current yield for the Money Market Fund will be calculated based on the net
change, exclusive of capital changes, over a seven-day period, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent. As of October 31,
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:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) -1].
The resulting yield figure is carried to at least the nearest hundredth of one
percent. As of October 31, 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 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
70
<PAGE>
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.
71
<PAGE>
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%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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:
6
YIELD = 2[((a - b)/cd + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
The Bond Fund's 30-day yield as of October 31, 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:
72
<PAGE>
(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During certain periods, the maximum rates paid on some
savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other
goods and services that people buy for day-to-day living).
(3) Statistics reported by Lipper Analytical Services, Inc., which ranks
mutual funds by overall performance, investment objectives, and
assets.
(4) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
large publicly traded U.S. common stocks.
(5) Dow Jones Industrial Average.
(6) CNBC/Financial News Composite Index.
(7) Russell 1000 Index, which reflects the common stock price changes of
the 1,000 largest publicly traded U.S. companies by market
capitalization.
(8) Russell 3000 Index, which reflects the common stock price changes of
the 3,000 largest publicly traded U.S. companies by market
capitalization.
(9) Wilshire 5000 Index, which reflects the investment return of the
approximately 5,000 publicly traded securities for which daily pricing
is available, weighted by market capitalization, excluding income.
(10) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and
mortgage-backed fixed income securities.
(11) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.
(12) Morgan Stanley Europe, Australia and Far East (EAFE) Index, which is
composed of foreign stocks.
(13) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.
(14) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.
(15) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed-income securities.
73
<PAGE>
(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) IBC First Tier Money Fund Average, which is an average of the 30-day
yield of approximately 250 major domestic money market funds.
(20) Salomon Brothers Non-U.S. World Government Bond Index, which is the
World Government Bond index excluding its U.S. market component.
(21) Salomon Brothers Non-Dollar Bond Index, which is composed of foreign
corporate and government fixed income securities.
(22) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(23) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(24) The World Bank Publication of Trends in Developing Countries ("TIDE"),
which provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks
at global and regional economic trends and their implications for the
developing economies.
(25) Datastream and Worldscope, which is an on-line database retrieval
service for information including but not limited to international
financial and economic data.
(26) International Financial Statistics, which is produced by the
International Monetary Fund.
(27) Various publications and annual reports such as the World Development
Report, produced by the World Bank and its affiliates.
(28) Various publications from the International Bank for Reconstruction
and Development/The World Bank.
(29) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch 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).*
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<PAGE>
* 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.
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
75
<PAGE>
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 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.
76
<PAGE>
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 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
77
<PAGE>
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.
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.
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<PAGE>
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.
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<PAGE>
APPENDIX A: DESCRIPTION OF RATINGS
NATIONALLY RECOGNIZED STATISTICAL RATINGS ORGANIZATION (NRSRO):
- ---------------------------------------------------------------
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.
DESCRIPTION OF COMMERCIAL PAPER RATINGS:
- ----------------------------------------
MOODY'S INVESTORS SERVICE. Ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. Moody's employs the designation
"Prime-1" to indicate commercial paper having the highest ability for timely
repayment.
Issuers rated Prime-1 "have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity."
STANDARD & POOR'S RATINGS 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 strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation."
FITCH IBCA, INC.'s short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. The short-term rating places greater emphasis than a long-term
rating on the existence of liquidity necessary to meet the issuer's obligations
in a timely manner. "+" or "-" may be appended to a rating to denote relative
status within major rating categories.
F1 - "Highest Credit Quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptional strong credit feature."
DUFF & PHELPS CREDIT RATING CO. employs the designation "D-1" to indicate
high-grade short-term debt.
Appendix 1
<PAGE>
D-1+ - "Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources or funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations."
D-1 - "Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are very
small."
D-1- - "High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small."
THOMSON BANKWATCH assigns short-term debt ratings ranging from "TBW-1" to
"TBW-4." Important factors that may influence its assessment are the overall
financial health of the particular company, and the probability that the
government will come to the aid of a troubled institution in order to avoid a
default or failure.
TBW-1 - "The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis."
DESCRIPTION OF OTHER SHORT-TERM RATINGS
- ---------------------------------------
MOODY'S INVESTORS SERVICE has four rating categories for short-term obligations
that define an investment grade situation. These designations range from MIG 1
for best quality through MIG 4 for adequate quality.
MIG 1/VMIG 1 - "denotes best quality. There is present strong protection by
established cash flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing."
MIG 2/VMIG 2 - "denotes high quality. Margins of protection are ample although
not so large as in preceding group."
STANDARD & POOR'S RATINGS GROUP short-term issue credit ratings range from SP-1
to Sp-3.
SP-1 - "Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation."
SP-2 - "Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes."
DESCRIPTION OF BOND RATINGS:
- ----------------------------
MOODY'S INVESTORS SERVICE rates the long-term debt securities issued by various
entities from "Aaa" to "C." The ratings from "Aa" through "B" may be modified by
the addition of 1, 2 or 3 to show relative standing within the major rating
categories. Investment ratings are as follows:
Appendix 2
<PAGE>
Aaa - Best quality. These securities "carry the smallest degree of investment
risk and are generally referred to as `gilt edge.' Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues."
Aa - High quality by all standards. "They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat larger
than the Aaa securities."
A - Upper medium grade obligations. These bonds possess many favorable
investment attributes. "Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
Baa - Medium grade obligations. "Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well."
Ba - "Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class."
B - "Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
STANDARD & POOR'S RATINGS 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. "The obligors' capacity to meet its financial commitment
on the obligation is extremely strong."
AA - "An obligation rated AA differs from the highest-rated obligation only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong."
A - "An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong."
Appendix 3
<PAGE>
BBB - "exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation."
BB, B, CCC, CC, and C - "Obligations rated BB, B, CCC, CC, and C are regarded as
having speculative characteristics. BB indicates the least degree of speculation
and C the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions."
FITCH IBCA, INC. rates the long-term debt securities of various entities in
categories ranging from "AAA" to "D." The ratings from "AA" through "C" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories. Investment ratings are as follows:
AAA - "Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
diversely affected by foreseeable events."
AA - "Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events."
A - "High credit quality. `A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings."
BBB - "Good credit quality. `BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category."
BB - "Speculative. `BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade."
B - "Highly speculative. `B' rating indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.."
DUFF & PHELPS CREDIT RATING CO. rates the long-term debt securities of various
entities in categories ranging from "AAA" to "DD." The ratings from "AA" through
"B" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Investment ratings are as follows:
Appendix 4
<PAGE>
AAA - "Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt."
AA - "High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions."
A - "Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress."
BBB - "Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles."
BB - "Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category."
B - "Below investment grade and possessing risk that obligations will not be met
when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade."
THOMSON BANKWATCH rates the long-term debt securities of various entities in
categories ranging from "AAA" to "D." The ratings may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories. Investment ratings are as follows:
AAA - "Indicates that the ability to repay principal and interest on a timely
basis is extremely high."
AA - "Indicates a very strong ability to repay principal and interest on a
timely basis, with limited incremental risk compared to issues rated in the
highest category."
A - " Indicates the ability to repay principal and interest is strong. Issues
rated A could be more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings."
BBB - "The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. BBB issues are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings."
BB - "While not investment grade, the BB rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations."
B - "Issues rated B show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse developments could
negatively affect the payment of interest and principal on a timely basis."
Appendix 5
