File Nos. 33-23453
811-5632
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 35
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 38
FREMONT MUTUAL FUNDS, INC.
(Exact Name of Registration as Specified in Charter)
333 Market Street, Suite 2600
SAN FRANCISCO, CALIFORNIA 94105
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(415) 284-8733
Tina Thomas, Secretary
Fremont Mutual Funds, Inc.
333 Market Street, Suite 2600
SAN FRANCISCO, CALIFORNIA 94105
(Name and Address of Agent for Service)
copy to:
Julie Allecta
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th floor
SAN FRANCISCO, CA 94104-2635
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on __________ pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(ii)
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FREMONT MUTUAL FUNDS
CONTENTS OF REGISTRATION STATEMENT
THIS REGISTRATION STATEMENT CONTAINS THE FOLLOWING DOCUMENTS:
FACING SHEET
CONTENTS OF REGISTRATION STATEMENT
PART A - PROSPECTUS FOR THE FOLLOWING FREMONT MUTUAL FUNDS:
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
PART A - PROSPECTUS FOR THE FOLLOWING FREMONT MUTUAL FUND:
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
PART B - STATEMENT OF ADDITIONAL INFORMATION FOR THE FOLLOWING
FREMONT MUTUAL FUNDS:
FREMONT GLOBAL FUND
FREMONT INTERNATIONAL GROWTH FUND
FREMONT EMERGING MARKETS FUND
FREMONT GROWTH FUND
FREMONT U.S. SMALL CAP FUND
FREMONT U.S. MICRO-CAP FUND
FREMONT REAL ESTATE SECURITIES FUND
FREMONT BOND FUND
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
FREMONT MONEY MARKET FUND
PART B - STATEMENT OF ADDITIONAL INFORMATION FOR THE FOLLOWING FREMONT
MUTUAL FUND: FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
PART C - OTHER INFORMATION
SIGNATURE PAGE
EXHIBITS
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FEBRUARY 10, 2000
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FREMONT MUTUAL FUNDS, INC.
PROSPECTUS
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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[BLANK PAGE]
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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
(cash).
The Fund seeks to minimize risk through prudent asset allocation among stocks,
bonds, and cash (including stock and bond index futures), and through 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 additional 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 or bond index
futures; 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 ...................... 0.26%
Total Annual Fund
Operating Expenses .............. 0.86%
+ 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
- ------------------------------------
$88 $274 $477 $1,061
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 for the past 10 years. The Fund
commenced operations on November 18, 1988.
During the period shown in the bar chart, the highest return for a quarter was
15.99% for the quarter ending 12/31/99. The lowest return for a quarter was
- -8.93% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -1.77% 18.64% 5.21% 19.60% -4.17% 19.28% 13.97% 9.93% 10.01% 22.35%
</TABLE>
The "Comparative Returns" table compares the performance of the Fremont Global
Fund to that of its benchmark indices:
Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI
EAFE) Index; the Standard & Poor's 500(TM) Composite Stock (S&P 500) Index; the
Salomon Smith Barney Non-U.S. Government Bond Index; and the Lehman Brothers
Gov't./Corp. Bond Index. (See "Investment Terms" on page 33 for a description of
these indices.)
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont Global Fund
1 Yr 5 Yrs 10 Yrs
- --------------------------
22.35% 15.00% 10.95%
MSCI EAFE Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
26.96% 12.83% 7.02%
S&P 500(TM) Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
21.04% 28.54% 18.20%
Salomon Non-U.S. Gov't. Bond Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
- -5.08% 5.90% 8.60%
Lehman Bros. Gov't./Corp. Bond Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
- -2.15% 7.60% 7.65%
PORTFOLIO MANAGEMENT
The Fund is managed by a team of six portfolio managers (pictured) from Fremont
Investment Advisors, Inc. On average, each of the managers has more than 20
years of investment experience.
In addition, five sub-advisors manage portions of the Fund, each with a
different investment focus: Kern Capital Management LLC, small and micro-cap
stocks; Sit Investment Associates, Inc., U.S. mid-cap stocks; Pacific Investment
Management Company, global bonds; Capital Guardian Trust Company, international
stocks; and Mellon Capital Management Corporation, U.S. and international
stocks, bonds and short-term securities. For a discussion of the business
experience of each of these sub-advisors, please turn to page 24.
[PHOTOS]
David L. Redo, Robert J. Haddick, Alexandra Kinchen
[PHOTOS]
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 (TM) 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 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 ...................... 0.49%
Total Annual Fund
Operating Expenses .............. 1.74%
Less: Fees waived and
Reimbursed ++ ................... 0.24%
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, 2001.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont International Growth Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------------
$153 $525 $921 $2,032
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
26.09% for the quarter ending 12/31/99. The lowest return for a quarter was
- -14.72% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1995 1996 1997 1998 1999
- ----------------------------------------------
7.21% 13.01% -8.38% 9.81% 57.30%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont International Growth Fund
Since
Inception
1 Yr 5 Yrs (3/1/94)
- -----------------------------
57.30% 13.91% 11.20%
MSCI EAFE Index
Since
1 Yr 5 Yrs 3/1/94
- -----------------------------
26.96% 12.83% 10.84%
The table above compares the performance of the Fremont International Growth
Fund to that of its benchmark index, the Morgan Stanley Capital International
Europe, Australasia 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,
1999, Capital Guardian managed over $122 billion in assets primarily for
institutional investors.
The members of the portfolio management team (pictured) have an average of 24
years of international investment experience.
[PHOTOS]
David I. Fisher, Nilly Sikorsky, Hartmut Giesecke
[PHOTOS]
Nancy J. Kyle, Robert Ronus, Lionel M. Sauvage
[PHOTOS]
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
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FREMONT MUTUAL FUNDS
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FREMONT EMERGING MARKETS FUND
- -----------------------------
OBJECTIVE AND STRATEGY
The Fremont Emerging Markets Fund seeks long-term capital appreciation by
investing in stocks of companies in emerging or developing countries.
Around the globe, many countries that once relied on agriculture, natural
resources, or low-level manufacturing are developing growing industrial
economies. The Fund seeks to identify the stocks of companies with good
prospects for growth, trading at reasonable prices.
Fund management establishes a country allocation policy, and members of the
regional investment team conduct rigorous fundamental research, including
company visits, to select individual stocks within each market.
The Fund will normally invest:
o At least 65% of its total assets in stocks of companies in emerging or
developing countries.
o In at least three emerging markets countries.
o In companies that earn at least 50% of their revenues from their activities
in an emerging market country or that have at least 50% of their assets in
these countries.
MAIN RISKS
The Fund is designed for investors who are willing to accept the risks of
investing in foreign stocks. These risks include changing market conditions,
economic and political instability, and changes in currency exchange rates.
Underdeveloped and developing countries have a greater risk of political and
economic instability, which may cause the Fund's investments to exhibit greater
price movement and may be harder to sell than investments in more developed
markets.
The Fund is also subject to the risks associated with investments in newly
emerging companies, such as fast-changing earnings, competitive conditions,
limited earnings history and a reliance on a limited number of products.
Information on these companies is often limited.
As a non-diversified fund, the Fund may make larger investments in individual
companies. Therefore, the Fund's share price may be more volatile than the share
price of a 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 ...................... 1.52%
Total Annual Fund
Operating Expenses .............. 2.77%
Less: Fees waived and
Reimbursed ++ ................... 1.27%
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, 2001.
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 $739 $1,352 $3,007
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
42.09% for the quarter ending 12/31/99. The lowest return for a quarter was
- -26.09% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1997 1998 1999
- --------------------------
10.40% -38.27% 90.51%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont Emerging Markets Fund
Since Inception
1 Yr. (6/24/96)
- ----------------------
90.51% 7.40%
MSCI EMF Index
Since
1 Yr. 6/24/96
- ----------------------
66.41% 1.47%
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, a member of the Colonial First State Investment Group
(Colonial). As of December 31, 1999, Colonial managed over $28 billion in
assets.
Portfolio manager, Henry Thornton, has managed the Fund since its inception in
June 1996. Working out of Colonial'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
Colonial since they 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]
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, Turkey, India, Poland,
South Africa, 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
1993 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------
6.41% 0.41% 33.60% 25.10% 28.96% 15.88% 17.19%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont Growth Fund
Since Inception
1 Yr 5 Yrs (8/14/92)
- --------------------------------
17.19% 23.96% 17.97%
S&P 500(TM) Index
Since
1 Yr 5 Yrs 8/14/92
- --------------------------------
21.04% 28.54% 21.10%
The table above compares the performance of the Fremont Growth Fund to that of
its benchmark index, the Standard & Poor's 500(TM) Composite Stock (S&P 500)
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 is a portfolio manager/ senior analyst who has been with the Advisor
since 1996. She was previously employed as a portfolio manager with C.D. Bidwell
& Associates for over five years.
Mr. Landini has managed the Fund since its inception in 1992.
[PHOTO]
W. Kent Copa
What do you mean by "growth at a reasonable price?"
Looking for "growth at a reasonable price" is one of several different
approaches fund managers can use to help them pick which stocks to include in
their portfolio. The Growth Fund's managers use this approach to look for stocks
for which they can answer "yes" to the following two questions:
o Does the stock show signs of superior growth?
o Is the stock available at an attractive price relative to its long-term
growth rate?
Page 8 and 9
<PAGE>
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FREMONT MUTUAL FUNDS
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FREMONT U.S. SMALL CAP FUND
- ---------------------------
OBJECTIVE AND STRATEGY
The Fremont U.S. Small Cap Fund seeks long-term capital appreciation by
investing in stocks of U.S. small cap companies. These companies have market
capitalizations that, at the time of initial purchase, place them among the
smallest 15% of companies listed on U.S. exchanges.
Normally, the Fund will invest at least 65% of its total assets in these U.S.
small cap stocks. Fund management is committed to keeping a small cap focus for
the overall portfolio, but is not obligated to sell a security that has
appreciated beyond the small cap capitalization range.
Fund management utilizes a fundamental research process to identify small
companies with superior growth potential. This process includes analyzing
financial statements, meeting with key corporate decision-makers and
investigating competitors.
Fund management will normally:
o Focus on business sectors where they believe the level of innovation is
greatest, such as technology, health care, consumer, 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.
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 and initial public offerings. 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 ...................... 0.90%
Total Annual Fund
Operating Expenses .............. 2.15%
Less: Fees waived and
Reimbursed ++ ................... 0.65%
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, 2001.
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 $610 $1,095 $2,432
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
62.16% for the quarter ending 12/31/99. The lowest return for a quarter was
- -25.02% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1998 1999
- -----------------
17.63% 125.23%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont U.S. Small Cap Fund
Since Inception
1 Yr (9/24/97)
- ----------------------
125.23% 50.65%
Russell 2000 Index
Since
1 Yr 9/24/97
- ----------------------
21.26% 15.37%
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). KCM was founded in 1997 by Robert E. Kern Jr., president
and CEO, and David G. Kern, executive vice president. As of December 31, 1999,
KCM managed over $1.6 billion in assets.
David Kern, CFA, has been lead portfolio manager of the Fund since its inception
in 1997. The Fund is co-managed by Bob Kern, and Judy R. Finger, CFA.
Prior to forming KCM, David Kern was employed as a portfolio manager for
Founders Asset Management from 1995 to 1997. Bob Kern was employed as a
portfolio manager by Morgan Grenfell Asset Management for 10 years.
Ms. Finger, senior vice president, joined KCM in 1997. From 1995 to 1997, she
was assistant portfolio manager for Delaware Management Company, Inc.
[PHOTO]
David G. Kern
What does "small cap" mean?
"Small cap" stocks that the Fund invests in are generally the smallest 15% of
all publicly traded U.S. stocks. As of December 31, 1999, the market
capitalizations of these stocks ranged from $10 million to $3.3 billion.
Generally, small cap companies are in the early stages of their development and
have potential for rapid growth.
10 and 11
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- ---------------------------
FREMONT U.S. MICRO-CAP FUND
- ---------------------------
OBJECTIVE AND STRATEGY
The Fremont U.S. Micro-Cap Fund seeks long-term capital appreciation by
investing in stocks of U.S. micro-cap companies. These companies have market
capitalizations that, at the time of initial purchase, place them among the
smallest 5% of companies listed on U.S. exchanges.
Normally, the Fund will invest at least 65% of its total assets in these U.S.
micro-cap stocks. Fund management is committed to keeping a micro-cap focus for
the overall portfolio, but is not obligated to sell a security that has
appreciated beyond the micro-cap capitalization range.
Fund management seeks to identify companies early in their growth cycle.
Emphasis is placed on those companies possessing a variety of characteristics,
such as a leading market position, an entrepreneurial management team, and a
focused business plan. They 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, and services.
o Uses fundamental analysis to identify small, relatively unknown companies
that exhibit the potential to become much larger and more successful.
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 publicly available corporate
information, 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 micro-cap 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 ..................... 1.82%
Distribution (12b-1) Fees ........... None
Other Expenses....................... None
Total Annual Fund
Operating Expenses ++ ........... 1.82%
+ 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, 2001.
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
- ------------------------------------
$185 $573 $985 $2,137
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
49.70% for the quarter ending 12/31/99. The lowest return for a quarter was
- -29.02% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1995 1996 1997 1998 1999
- -----------------------------------------------
54.04% 48.70% 6.99% 2.86% 129.50%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont U.S. Micro-Cap Fund
Since
Inception
1 Yr 5 Yrs (6/30/94)
- -----------------------------
129.50% 42.06% 37.94%
Russell 2000 Index
Since
1 Yr 5 Yrs 6/30/94
- -----------------------------
21.26% 16.69% 16.07%
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). KCM was founded in 1997, by Robert E. Kern, Jr.,
president and CEO, and David G. Kern, executive vice president. As of December
31, 1999, KCM managed over $1.6 billion in assets.
Bob Kern has been lead portfolio manager of the Fund since its inception in
1994. The Fund is co-managed by David Kern, CFA, and Judy R. Finger, CFA.
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.
Ms. Finger, senior vice president, joined KCM in 1997. From 1995 to 1997, she
was assistant portfolio manager for Delaware Management Company, Inc.
[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 5% of publicly traded stocks in the United States. As of December
31, 1999, the market capitalizations of these stocks ranged from $10 million to
$710 million.
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 than
larger public companies. 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, 1999 the REIT
market capitalization was approximately $120 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 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 ...................... 0.63%
Total Annual Fund
Operating Expenses .............. 1.88%
Less: Fees waived and
Reimbursed ++ ................... 0.38%
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, 2001.
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 $554 $981 $2,170
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
15.33% for the quarter ending 6/30/99. The lowest return for a quarter was
- -11.72% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
ANNUAL PERFORMANCE
1998 1999
- ---------------
- -17.75% 2.28%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont Real Estate Securities Fund
Since Inception
1 Yr (12/31/97)
- -----------------------
2.28% -8.97%
NAREIT Equity Index
Since
1 Yr 12/31/97
- -----------------------
- -18.82% -12.87%
The table above compares the performance of the Fremont Real Estate Securities
Fund to that of its bench-mark index, the National Association of Real Estate
Investment Trusts (NAREIT) Equity Index. (See "Investment 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, managing over $130 million in assets as of December 31, 1999.
Mr. Kramer is president of Kensington and Mr. Gray is executive vice president,
and both serve as portfolio managers at the firm. The two have been investing in
public and private real estate companies since 1987.
[PHOTO]
John P. Kramer
What is a "REIT"?
A Real Estate Investment Trust or "REIT" (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-for the benefit of
investors. Like a stock, publicly traded 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 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 Manages duration to help control risk.
o Invests primarily in securities rated Aa or AA, or better, by Moody's or
Standard & Poor's, 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 also 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 those bonds.
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 ...................... 0.27%
Total Annual Fund
Operating Expenses .............. 0.67%
Less: Fees waived and
Reimbursed ++ ................... 0.05%
Net Operating Expenses .............. 0.62%
*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, 2001.
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
- ------------------------------------
$63 $209 $368 $830
This example assumes:
o You invest $10,000 in the Fund for the time periods indicated, and then
redeem all of your shares at the end of those periods.
o Your investment has a 5% return each year.
o The Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
6.38% for the quarter ending 6/30/95. The lowest return for a quarter was -2.78%
for the quarter ending 3/31/94. Past performance is no indication of future
performance.
ANNUAL PERFORMANCE
1994 1995 1996 1997 1998 1999
- --------------------------------------------------------
- -4.01% 21.24% 5.22% 9.71% 9.99% -1.24%
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont Bond Fund
Since Inception
1 Yr 5 Yrs (4/30/93)
- ---------------------------------
- -1.24% 8.74% 6.51%
Lehman Bros. Aggregate Bond Index
Since
1 Yr 5 Yrs 4/30/93
- ---------------------------------
- -0.84% 7.73% 5.99%
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 28 years of
professional fixed-income investment experience.
In addition to serving as the sub-advisor to the Fremont Bond Fund, PIMCO
manages over $185 billion in fixed-income investments for institutional clients
as of December 31, 1999.
[PHOTO]
William H. Gross
What do "maturity" and "duration" mean?
A bond's "maturity" is the date by which a bond issuer promises to repay the
principal amount of the bond.
"Duration" measures how bond prices change in response to interest rate changes.
Keeping duration at a relatively moderate level can help control risk inherent
in a bond fund.
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 Standard & Poor's. 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 shortening duration when interest
rates are rising, and lengthening it 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 or the credit-worthiness of individual bond issuers
may also 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.
As a non-diversified fund, the Fund may make larger investments in individual
bond issuers or in issues of a single governmental unit. Therefore, the Fund's
share price may change more frequently than the share price of a 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 ...................... 0.28%
Total Annual Fund
Operating Expenses .............. 0.64%
Less: Fees waived and
Reimbursed ++ ................... 0.15%
Net Operating Expenses .............. 0.49%
*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 0.49% until
March 1, 2001.
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 $190 $342 $784
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.
<TABLE>
<CAPTION>
ANNUAL PERFORMANCE
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10.71% 7.30% 9.95% -4.90% 14.89% 4.06% 7.27% 5.71% -0.96%
</TABLE>
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont California Intermediate
Tax-Free Fund
Since Inception
1 Yr 5 Yrs (11/16/90)
- --------------------------------
- -0.96% 6.07% 5.89%
Lehman Bros. 5-Yr. State G.O. Index
Since
1 Yr 5 Yrs 11/16/90
- --------------------------------
0.71% 5.75% 5.90%
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 the 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, 1999, Rayner Associates managed over $135 million in fixed
income assets for private and public clients.
[PHOTO]
Arno A. Rayner
Important Tax Note:
A portion of the Fund's distribution may be subject to federal, state, or local
taxes, or the alternative minimum tax (AMT).
Page 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 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 ...................... 0.21%
Total Annual Fund
Operating Expenses .............. 0.42%
*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
- ------------------------------------
$43 $135 $235 $530
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 for the past 10 years. The Fund
commenced operations on November 18, 1988.
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.
<TABLE>
<CAPTION>
ANNUAL PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.94% 7.95% 6.04% 3.37% 2.64% 3.96% 5.87% 5.28% 5.43% 5.41%
- -----------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont Money Market Fund
1 Yr 5 Yrs 10 Yrs
- --------------------------
4.94% 5.39% 5.08%
IBC First Tier Taxable Average
1 Yr 5 Yrs 10 Yrs
- --------------------------
4.48% 4.88% 4.68%
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 over 20 years of professional money market investment experience. He
has served as portfolio manager of the Fund since its inception on November 18,
1988.
[PHOTO]
Norman Gee
Important Money Market Fund Features
The Fremont Money Market Fund has three features that should be of interest to
people who have money to invest over the short term:
o Share price of $1.00 - The Fund is committed to maintaining a net asset
value of $1.00 per share.
o Monthly dividends - dividends are calculated daily and paid monthly.
o Checkwriting - checks are free; a $250 minimum applies.
Page 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 served its
purpose. 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.
- --------------------------------------------------------------------------------
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 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. As further European countries adopt
the euro, the Funds and the Advisor will work with the providers of
services to the Funds in the areas of clearance and settlement of trades 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.
22
<PAGE>
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 Pre-payment Risk: If the principal amount of a mortgage-backed or other
asset-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 concentrating investments 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.
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 (referred 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.
(continued next page)
23
<PAGE>
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FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
ABOUT THE ADVISOR (CON'T)
Additional Information on the Fremont Global Fund
The following details the business experience of the investment managers
representing the Fremont Global Fund's five sub-advisors:
Kern Capital Management LLC (KCM) was founded in 1997 by Robert E. Kern, Jr.,
president and chief executive officer, and David G. Kern, CFA, executive vice
president. Prior to forming KCM, Bob Kern was employed as a portfolio manager by
Morgan Grenfell Asset Management for ten years. David Kern was employed as a
portfolio manager for Founders Asset Management, from 1995 to 1997. Judy R.
Finger, CFA, senior vice president, joined KCM in 1997. From 1995 to 1997, she
was assistant portfolio manager for Delaware Management Company.
Eugene C. Sit, CFA, CPA founded Sit Investment Associates, Inc. (SIA) in 1981.
Since the company's founding, he has served as chief investment officer,
overseeing all investment decisions made by SIA's equity investment team.
Lee R. Thomas, III, managing director, manages Pacific Investment Management
Company's (PIMCO's) portion of the Global Fund's assets. Mr. Thomas joined PIMCO
in 1995.
The Capital Guardian Trust Company's (CGTC's) portion of the Global Fund is
managed by a team of portfolio managers with an average of 24 years of
international investing experience. CGTC is part of The Capital Group Companies
organization, which traces its roots back to 1931.
Lex C. Huberts, director of Asset Allocation and Strategies, manages Mellon
Capital Management Corporation's portion of the Global Fund using their Global
Tactical Assset AllocationSM 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
- --------------------------------------------------------------------------------
Global 0.60%
International Growth 1.00%
Emerging Markets 1.00%
Growth 0.50%
U.S. Small Cap 1.00%
U.S. Micro-Cap 1.82% +
Real Estate Securities 1.00%
Bond 0.40%
California Intermediate Tax-Free 0.34%
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
- --------------------------------------------------------------------------------
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>
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ACCOUNT TYPE PURPOSE DESCRIPTION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDIVIDUAL For your general investment needs. Individual accounts are owned by one
person.
- ----------------------------------------------------------------------------------------------------------------------
JOINT TENANTS For the general investment needs of Joint tenant accounts are owned by
two or more people. more than
one person.
- ----------------------------------------------------------------------------------------------------------------------
GIFT TO MINOR To invest for a minor's education or Gift or Transfer to Minor (UGMA/UTMA)
other future needs. custodial accounts provide a way to
invest on behalf of a minor.
- ----------------------------------------------------------------------------------------------------------------------
TRUST For money being invested by a trust, The trust or plan must be established
employee benefit plan, or before an account can be opened.
profit-sharing plan.
- ----------------------------------------------------------------------------------------------------------------------
CORPORATION, PARTNERSHIP OR OTHER For investment needs of You will need to provide a certified
ENTITY corporations, associations, corporate resolution with your
partnerships, institutions, or other application.
groups.
- ----------------------------------------------------------------------------------------------------------------------
RETIREMENT ACCOUNTS These accounts require a specific application. To order, call 800-548-4539 (press 1).
- ----------------------------------------------------------------------------------------------------------------------
TRADITIONAL IRA Allows you to make deductible or This type of retirement account
non-deductible contributions to your allows anyone under age 701/2 with
retirement account, and defer paying earned income to save up to $2,000
taxes on your earnings until after per tax year. If your spouse has
you withdraw the money from your less than $2,000 in earned income,
account - usually after retirement. he or she may still contribute up to
$2,000 to an IRA, as long as you and
your spouse's combined earned income
is at least $4,000.
- ----------------------------------------------------------------------------------------------------------------------
ROTH IRA Allows you to make non-deductible Single taxpayers with Adjusted Gross
contributions to your retirement Income (AGI) up to $95,000 per year,
account today, and withdraw your and married couples with AGI up to
earnings tax-free after you are $150,000 per year, may contribute up
591/2 and have had the account for to $2,000 each, or $4,000 per couple,
at least 5 years. respectively, per year.
- ----------------------------------------------------------------------------------------------------------------------
SIMPLIFIED EMPLOYEE Allows owners and employees of small SEP-IRAs allow small business owners
PENSION PLAN businesses with fewer than 5 or those with self-employment income
(SEP-IRA) employees to invest tax-deferred for to make tax-deductible contributions
retirement. of up to 15% of the first $160,000
of compensation per year for
themselves and any eligible
employees.
- ----------------------------------------------------------------------------------------------------------------------
SIMPLE IRA Allows owners and employees of small This type of IRA must be established
businesses with 5 to 99 participants by an employer (including a
to invest tax-deferred for self-employed person).
retirement. SIMPLE IRAs enable all employees of
the employer to invest up to $6,000
of pre-tax income, deferring taxes
until retirement. The employer is
also generally required to make a
contribution for each employee who
elects to contribute.
- ----------------------------------------------------------------------------------------------------------------------
OTHER A Fremont Mutual Fund may be used as
RETIREMENT an investment in many other kinds of
PLANS employer-sponsored retirement
plans. All of these accounts need
to be established by the trustee of
the plan.
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</TABLE>
25
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SHAREHOLDER GUIDE
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HOW TO INVEST
There are a number of ways to invest with Fremont. The minimum initial
investment is $2,000 for a regular account and $1,000 for an IRA. Establish an
Automatic Investment Plan when opening an account and Fremont will waive the new
account minimum.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT METHOD TO OPEN AN ACCOUNT TO ADD TO YOUR INVESTMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Mail in an Account Application with Mail your check or money order
your check or money order payable to payable to Fremont Mutual Funds for
Fremont Mutual Funds. Fremont will $100 or more.
not accept third party checks.
- ----------------------------------------------------------------------------------------------------------------------
BY TELEPHONE Use the Telephone Exchange Privilege Use the Telephone Exchange Privilege
(TELEPHONE EXCHANGE to move $2,000 or more ($1,000 for to move your investment from one
PRIVILEGE) IRAs) from an existing Fremont Fund Fremont fund to another. Please
account into a new, identically note that exchanges between funds in
registered account. To use the non-retirement accounts are subject
Telephone Exchange Privilege, you to capital gains taxes.
must first sign up for the privilege
by checking the appropriate box on
your Account Application. After you
sign up, please allow time for
Fremont to open your account.
- ----------------------------------------------------------------------------------------------------------------------
BY TELEPHONE - Transfer money from your bank to
(AUTOBUY PROGRAM) your Fremont account by telephone.
You must sign up for this privilege
on your Account Application, and
attach a voided check.
- ----------------------------------------------------------------------------------------------------------------------
BY WIRE - Call 800-548-4539 (press 2) to
request bank routing information for
wiring your money to Fremont. Not
available for IRA accounts.
- ----------------------------------------------------------------------------------------------------------------------
BY AUTOMATIC - Use the Automatic Investment Plan to
INVESTMENT PLAN move money ($50 minimum) from your
financial institution (via Automated
Clearing House) to your Fremont
account once or twice each month.
For more information about the
Automatic Investment Plan, see the
text immediately below. To
participate, call to request an
Automatic Investment Plan Request
form.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
FREMONT MAKES IT EASY TO INVEST
The Automatic Investment Plan
This convenient service allows you to automatically transfer money once or twice
a month from your 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.
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SHAREHOLDER GUIDE
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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.
Abusive trading practices
Fremont does not permit excessive short-term trading, market-timing, or other
abusive trading practices in our Funds. These practices may disrupt portfolio
management strategies and harm fund performance. To minimize harm to the Funds
and their shareholders, we reserve the right to reject any purchase order
(including exchanges) from any investor we believe has a history of abusive
trading or whose trading, in our judgement, has been or may be disruptive to a
fund. Fremont defines abusive trading practices as making six or more complete
exchanges - into and out of - one fund within a 12-month period.
Fremont may modify 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.
The Funds may compensate third-party service providers who perform shareholder
servicing normally performed by the 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 419343 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 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 than
(continued on 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 obtain a signature guarantee 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.)
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.
If your account balance falls below $1,500, the Fund has the right to redem your
shares after giving you 30-days' notice.
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
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SHAREHOLDER GUIDE
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DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions help your investment grow
When you open a taxable account, you should specify on your application how you
would like to receive your dividends and capital gains distributions.
A Fund pays dividends based on the income that it has received from its
investments. The dividends may be taxed as ordinary income. Capital gains
distributions occur when a Fund pays out gains realized on the sale of
investment securities. Your capital gains distributions are taxed at different
rates, depending on how long the Fund owned the security. Long-term capital
gains are those from securities held more than 12 months, and short-term capital
gains are from securities held less than 12 months.
Five options are available
As an investor, there are five different ways you can choose to receive
dividends and distributions:
o Automatically reinvest all dividends and capital gains distributions in
additional shares.
o Receive all distributions of income dividends and capital gains in cash.
o Receive income dividends and short-term capital gains distributions in cash
and accept long-term capital gains distributions in additional shares.
o Automatically reinvest income distributions and short-term capital gains
distributions and receive long-term gains distributions in cash.
o Invest all dividends and capital gains 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 Free Monthly Annually
Money Market Monthly Annually
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS
Tax planning is essential
As with any investment, you should consider how your investment in a Fund will
be taxed. If your account is tax-deferred or tax-exempt (for example, an IRA or
an employee benefit plan account), the information on these two pages does not
apply. If your account is not tax-deferred or tax-exempt, however, you should be
aware of these tax rules.
Distributions may be taxable.
A distribution is a payout of realized investment gains on securities in a
Fund's portfolio. When, for example, a Fund sells a stock at a profit, that
profit has to be recorded for tax purposes, combined with all the other profits
made that year, and distributed to shareholders based on the number of shares
held.
Distributions are subject to federal income tax, and may also be subject to
state or local taxes.
(continued on next page)
31
<PAGE>
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SHAREHOLDER GUIDE
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TAX CONSIDERATIONS (CON'T)
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 gains distributions are taxed as dividends,
meaning that you'll pay tax at your marginal tax rate on this amount;
o Long-term capital gains 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, a bond issuer that is considered less credit
worthy must pay a higher interest rate 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.
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 Bond 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.
Market Capitalization (Market Cap) - The market value of a corporation's stock,
determined by multiplying the number of stock shares issued by the market price
of a share of stock. Investment managers often use market capitalization as one
investment criterion, requiring, for example, that a company have a market
capitalization of $100 million or more to qualify as an investment.
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).
Moody's Investors Service (Moody's) - a national recognized statistical rating
organization which evaluates the creditworthiness of an issuer in terms of their
capacity and willingness to meet a financial commitment on a bond or commercial
paper.
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.
33
<PAGE>
INVESTMENT TERMS
Morgan Stanley Capital International Europe, Australasia, 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.
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 for the benefit of investors. Like a stock,
publicly traded 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 Smith Barney 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.
Standard & Poor's Rating Services (S&P) - a national recognized statistical
rating organization which evaluates the creditworthiness of an issuer in terms
of their capacity and willingness to meet a financial commitment on a bond or
commercial paper.
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,
1999, is included in the Fund's Annual Report.
<TABLE>
<CAPTION>
GLOBAL FUND YEAR ENDED OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.13 $ 14.16 $ 15.11 $ 14.24 $ 13.13
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .41 .34 .45 .39 .40
Net realized and unrealized gain 1.89 .17 1.31 1.49 1.24
---------- ---------- ---------- ---------- ----------
Total investment operations 2.30 .51 1.76 1.88 1.64
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income (.50) (.25) (.52) (.44) (.50)
From net realized gains (1.18) (.29) (2.19) (.57) (.03)
---------- ---------- ---------- ---------- ----------
Total distributions (1.68) (.54) (2.71) (1.01) (.53)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.75 $ 14.13 $ 14.16 $ 15.11 $ 14.24
========== ========== ========== ========== ==========
TOTAL RETURN 17.37% 3.62% 13.01% 13.72% 12.78%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 686,808 $ 631,165 $ 665,747 $ 572,150 $ 482,355
Ratio of expenses to average net assets .86% .85% .85% .87% .88%
Ratio of net investment income
to average net assets 2.85% 2.80% 2.66% 2.66% 2.98%
Portfolio turnover rate 113% 75% 48% 71% 83%
<CAPTION>
INTERNATIONAL GROWTH FUND YEAR ENDED OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.34 $ 10.37 $ 10.40 $ 9.72 $ 9.79
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) --3 .05 .02 (.02) .10
Net realized and unrealized gain (loss) 3.69 .03 (.02) .71 (.09)
---------- ---------- ---------- ---------- ----------
Total investment operations 3.69 .08 -- .69 .01
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income (.01) -- -- (.01) (.08)
From net realized gains (1.01) (.11) (.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (1.02) (.11) (.03) (.01) (.08)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.01 $ 10.34 $ 10.37 $ 10.40 $ 9.72
========== ========== ========== ========== ==========
TOTAL RETURN 38.70%1 .80%1 -0.01% 7.07% 0.13%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 59,974 $ 41,623 $ 38,643 $ 35,273 $ 32,156
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 1.74% 1.65% 1.50% 1.50% 1.50%
Ratio of net investment income (loss)
to average net assets .04% .53% .34% -.20% 1.19%
Portfolio turnover rate 76% 106% 95% 74% 32%
</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
1999 1998 1997 10/31/96
---------- ---------- ---------- ----------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.89 $ 9.58 $ 9.62 $ 10.00
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.04) .09 .17 .10
Net realized and unrealized gain (loss) 2.17 (3.64) 1.03 (.41)
---------- ---------- ---------- ----------
Total investment operations 2.13 (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 $ 8.02 $ 5.89 $ 9.58 $ 9.62
========== ========== ========== ==========
TOTAL RETURN1 36.16% -37.59% 12.55% -3.12%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 11,588 $ 8,742 $ 12,175 $ 3,772
Ratio of net expenses to average net assets2 1.50% 1.50% .26% --
Ratio of gross expenses to
average net assets2 2.77% 2.34% 2.63% 4.95%*
Ratio of net investment income (loss)
to average net assets -.70% .99% 2.04% 3.32%*
Portfolio turnover rate 148% 135% 208% 7%
<CAPTION>
U.S. MICRO-CAP FUND YEAR ENDED OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.34 $ 22.69 $ 19.63 $ 14.34 $ 10.34
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment (loss) (.18) (.25) (.10) (.04) (.05)
Net realized and unrealized gain (loss) 17.94 (4.86) 5.60 5.83 4.05
---------- ---------- ---------- ---------- ----------
Total investment operations 17.76 (5.11) 5.50 5.79 4.00
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income -- -- -- -- --
From net realized gains (5.74) (1.24) (2.44) (.50) --
---------- ---------- ---------- ---------- ----------
Total distributions (5.74) (1.24) (2.44) (.50) --
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 28.36 $ 16.34 $ 22.69 $ 19.63 $ 14.34
========== ========== ========== ========== ==========
TOTAL RETURN 110.46% -23.45% 28.80%1 41.46%1 38.68%1
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 300,503 $ 120,016 $ 171,507 $ 102,481 $ 7,792
Ratio of net expenses to average net assets2 1.82% 1.94% 1.88% 1.96% 2.04%
Ratio of gross expenses to
average net assets2 1.82% 1.94% 1.90% 2.22% 2.50%
Ratio of net investment (loss)
to average net assets -.97% -1.22% -.67% -.51% -.67%
Portfolio turnover rate 164% 170% 125% 81% 144%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 40.
36
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. SMALL CAP FUND YEAR ENDED OCTOBER 31 PERIOD FROM
- --------------------------------------------------------------------------- 9/24/97 TO
1999 1998 10/31/97
---------- ---------- ----------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.87 $ 9.57 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.02) (.04) .02
Net realized and unrealized gain (loss) 7.49 (.66) (.42)
---------- ---------- ----------
Total investment operations 7.47 (.70) (.40)
---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income -- --3 (.02)
From net realized gains (.60) --3 (.01)
---------- ---------- ----------
Total distributions (.60) --3 (.03)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 15.74 $ 8.87 $ 9.57
========== ========== ==========
TOTAL RETURN1 84.60% -7.29% -4.06%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 29,579 $ 7,367 $ 5,350
Ratio of net expenses to average net assets2 1.50% 1.50% 1.50%*
Ratio of gross expenses to
average net assets2 2.15% 2.85% 3.32%*
Ratio of net investment income (loss)
to average net assets -.75% -.52% 1.81%*
Portfolio turnover rate 161% 273% 8%
<CAPTION>
GROWTH FUND YEAR ENDED OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.56 $ 14.96 $ 15.02 $ 13.06 $ 10.46
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .14 .20 .20 .10 .13
Net realized and unrealized gain 3.20 .87 3.43 2.65 2.74
---------- ---------- ---------- ---------- ----------
Total investment operations 3.34 1.07 3.63 2.75 2.87
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income (.16) (.17) (.22) (.08) (.17)
From net realized gains (3.04) (.30) (3.47) (.71) (.10)
---------- ---------- ---------- ---------- ----------
Total distributions (3.20) (.47) (3.69) (.79) (.27)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 15.70 $ 15.56 $ 14.96 $ 15.02 $ 13.06
========== ========== ========== ========== ==========
TOTAL RETURN 24.24% 7.30% 29.26% 22.06% 28.12%1
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 142,759 $ 159,375 $ 147,641 $ 78,624 $ 59,632
Ratio of net expenses to average net assets2 .82% .82% .85% .92% .97%
Ratio of gross expenses to
average net assets2 .82% .82% .85% .92% 1.01%
Ratio of net investment income
to average net assets .82% 1.25% 1.44% .75% 1.02%
Portfolio turnover rate 80% 111% 48% 129% 108%
</TABLE>
For footnote references, see "Notes to Financial Highlights" on page 40.
37
<PAGE>
FINANCIAL HIGHLIGHTS
REAL ESTATE SECURITIES FUND
- ---------------------------------------------
YEAR ENDED
OCTOBER 31 DECEMBER 31,
1999 1997
---------- ----------
SELECTED PER SHARE DATA
for one share outstanding during the period
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.98 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .35 .19
Net realized and unrealized (loss) (.34) (2.07)
---------- ----------
Total investment operations .01 (1.88)
---------- ----------
LESS DISTRIBUTIONS
From net investment income (.39) (.14)
From net realized gains -- --
Return of capital distribution (.09) --
---------- ----------
Total distributions (.48) (.14)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 7.51 $ 7.98
========== ==========
TOTAL RETURN1 -.07% -18.78%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 31,499 $ 33,482
Ratio of net expenses to
average net assets2 1.50% 1.09%*
Ratio of gross expenses to
average net assets2 1.88% 1.80%*
Ratio of net investment income
to average net assets 4.32% 4.10%*
Portfolio turnover rate 198% 196%
<TABLE>
<CAPTION>
BOND FUND YEAR ENDED OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.44 $ 10.23 $ 9.99 $ 10.13 $ 9.29
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .60 .60 .67 .67 .65
Net realized and unrealized gain (loss) (.60) .41 .25 .11 .83
---------- ---------- ---------- ---------- ----------
Total investment operations -- 1.01 .92 .78 1.48
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income (.60) (.62) (.66) (.70) (.64)
From net realized gains (.18) (.18) (.02) (.22) --
---------- ---------- ---------- ---------- ----------
Total distributions (.78) (.80) (.68) (.92) (.64)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.66 $ 10.44 $ 10.23 $ 9.99 $ 10.13
========== ========== ========== ========== ==========
TOTAL RETURN1 .01% 10.31% 9.54% 8.18% 16.49%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 184,435 $ 228,001 $ 90,302 $ 70,577 $ 86,343
Ratio of net expenses to
average net assets2 .60% .60% .61% .68% .60%
Ratio of gross expenses to
average net assets2 .67% .72% .76% .83% .75%
Ratio of net investment income
to average net assets 6.01% 5.92% 6.40% 6.82% 6.69%
Portfolio turnover rate 298% 256% 191% 154% 21%
</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
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
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 .05 .06
---------- ---------- ---------- ---------- ----------
Total investment operations .05 .05 .05 .05 .06
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income (.05) (.05) (.05) (.05) (.06)
---------- ---------- ---------- ---------- ----------
Total distributions (.05) (.05) (.05) (.05) (.06)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN1 4.89% 5.45% 5.39% 5.34% 5.84%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 760,950 $ 717,291 $ 433,152 $ 329,652 $ 299,312
Ratio of net expenses to average net assets2 .37% .29% .30% .31% .30%
Ratio of gross expenses to
average net assets2 .42% .44% .45% .46% .45%
Ratio of net investment income
to average net assets 4.83% 5.33% 5.26% 5.22% 5.70%
<CAPTION>
CALIFORNIA INTERMEDIATE TAX-FREE FUND YEAR ENDED OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.25 $ 10.99 $ 10.80 $ 10.86 $ 10.13
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51 .51 .51 .52 .53
Net realized and unrealized gain (loss) (.58) .26 .20 (.03) .73
---------- ---------- ---------- ---------- ----------
Total investment operations (.07) .77 .71 .49 1.26
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income (.51) (.51) (.51) (.52) (.53)
From net realized gains -- -- (.01) (.03) --
---------- ---------- ---------- ---------- ----------
Total distributions (.51) (.51) (.52) (.55) (.53)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.67 $ 11.25 $ 10.99 $ 10.80 $ 10.86
========== ========== ========== ========== ==========
TOTAL RETURN1 -.68% 7.16% 6.75% 4.63% 12.77%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 63,919 $ 64,011 $ 64,309 $ 51,156 $ 50,313
Ratio of net expenses to average net assets2 .45% .47% .49% .51% .50%
Ratio of gross expenses
to average net assets2 .64% .67% .69% .73% .72%
Ratio of net investment income
to average net assets 4.59% 4.55% 4.72% 4.86% 5.08%
Portfolio turnover rate 6% 9% 6% 6% 18%
</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 11, 1999, the
Advisor is contractually obligated to limit fund expenses until March 1,
2001. For the Bond Fund and the Money Market Fund, all fees waived in the
past 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, the Real Estate
Securities Fund, and the California Intermediate Tax-Free 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, 1999. 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 0.05% out of the 0.15%
administrative fee beginning on March 1, 1999. From March 1, 1998 to
February 28, 1999, the Advisor voluntarily waived 0.10% out of the 0.15%
administrative fee. 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 entire
administrative fee until February 28, 1999. Beginning on March 1, 1999, the
administrative fee waiver was removed.
For the California Intermediate Tax-Free Fund, the Advisor voluntarily
limited the total operating expenses to 0.49% of average net assets
beginning March 1, 1999. Prior to March 1, 1999, 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
<PAGE>
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<PAGE>
- --------------------
FREMONT MUTUAL FUNDS
- --------------------
For More Information
In addition to the Fund information contained in this Prospectus, you may also
request the following free publications from Fremont Mutual Funds:
o Annual and Semi-Annual Reports
Additional information about the Funds' investments is available in the
Funds' Annual and Semi-Annual Reports to shareholders. In these 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.
Phone: 202-942-8090
Web site: http://www.sec.gov
E-mail: [email protected]
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 2000 Fremont Mutual Funds, Inc. All rights reserved.
P010-0002 [LOGO]
<PAGE>
FEBRUARY 10, 2000
FREMONT MUTUAL FUNDS, INC.
PROSPECTUS
o Institutional
U.S. Micro-Cap Fund
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities, nor has it passed on the accuracy or adequacy
of this prospectus. It is a criminal offense to represent otherwise.
Fremont
Funds [LOGO]
<PAGE>
[BLANK PAGE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- -----------------------------------------
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
- -----------------------------------------
Objective and Strategy ........................................................2
Main Risks ....................................................................2
Performance ...................................................................2
Fees and Expenses .............................................................3
Portfolio Management ..........................................................3
Understanding Investment Risk .................................................4
About the Advisor .............................................................5
- -----------------
SHAREHOLDER GUIDE
- -----------------
How to Invest .................................................................6
How to Sell Your Shares .......................................................8
Dividends, Distributions, and Taxes ..........................................11
- --------
APPENDIX
- --------
Investment Terms .............................................................12
Financial Highlights .........................................................13
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
- -----------------------------------------
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
- -----------------------------------------
OBJECTIVE AND STRATEGY
The Fremont Institutional U.S. Micro-Cap Fund seeks long-term capital
appreciation by investing in stocks of U.S. micro-cap companies. These companies
have market capitalizations that, at the time of initial purchase, place them
among the smallest 5% of companies listed on U.S. exchanges.
Normally, the Fund will invest at least 65% of its total assets in these U.S.
micro-cap stocks. Fund management is committed to keeping a micro-cap focus for
the overall portfolio, but is not obligated to sell a security that has
appreciated beyond the micro-cap capitalization range.
Fund management seeks to identify companies early in their growth cycle.
Emphasis is placed on those companies possessing a variety of characteristics,
such as a leading market position, an enterpreneurial management team, and a
focused business plan. They 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, and services.
o Uses fundamental analysis to identify small, relatively unknown companies
that exhibit the potential to become much larger and more successful.
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 publicly available corporate
information, 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 micro-cap companies are traded on the over-the-counter (OTC)
market rather than on the New York or American Stock Exchanges. Sometimes,
buyers and sellers of these stocks are difficult to find. As a result, the value
of the Fund's investments and its shares may also be subject to rapid and
significant price changes.
There is the risk that you may lose money on your investment. For more
information on this and other investment risks, please turn to page 4.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees+ (None)
Annual Fund Operating Expenses
Deducted from Fund assets
Management Fees ..................... 1.15%
Distribution (12b-1) Fees ........... None
Other Expenses ...................... 0.20%
Total Annual Fund
Operating Expenses .............. 1.35%
Less: Fees waived and
Reimbursed++ .................... 0.10%
Net Operating Expenses .............. 1.25%
+The Transfer Agent charges a $10 service fee on wire redemptions. ++The Advisor
is contractually obligated to limit the Fund's expenses to 1.25% until March 1,
2001.
EXAMPLE
The example below is intended to help you compare the cost of investing in this
fund with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
Fremont Institutional U.S. Micro-Cap Fund
1 Yr 3 Yrs 5 Yrs 10 Yrs
- ------------------------------------
$127 $418 $730 $1,615
This example assumes:
o That you invest $10,000 in the Fund for the time periods indicated, and
then redeem all of your shares at the end of those periods.
o That your investment has a 5% return each year.
o That the Fund's operating expenses remain the same.
- --------------------------------------------------------------------------------
PERFORMANCE
The information below shows the risks of investing in the Fund by showing
changes in the Fund's performance from year-to-year. The performance shown is
for complete calendar year annual returns.
During the period shown in the bar chart, the highest return for a quarter was
53.05% for the quarter ending 12/31/99. The lowest return for a quarter was
- -28.51% for the quarter ending 9/30/98. Past performance is no indication of
future performance.
<TABLE>
<CAPTION>
ANNUAL PERFORMANCE*
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
140.26% -0.27% 77.41% 5.78% 19.78% -17.07% 54.23% 52.29% 13.55% 5.53%
</TABLE>
*Fund returns reflect performance of a separate account, the post-venture fund
of Fund A of Bechtel Group Inc.'s retirement plan, net of fees and expenses of
the separate account. On 8/6/97, the assets of the separate account were
transferred to and became the Fremont Institutional U.S. Micro-Cap Fund. The
separate account was not registered under the Investment Company Act of 1940, as
amended (the "1940 Act") and, therefore, was not subject to certain investment
restrictions imposed by the 1940 Act. Had the separate account been registered
under the 1940 Act, its performance may have been negatively affected, since the
methodology used to calculate performance for the separate account is different
from that required for mutual funds. However, the Advisor believes that the
performance for the separate account would be substantially the same if it were
recalculated in accordance with standard mutual fund performance rules.
COMPARATIVE RETURNS
Average Annual Total Returns for the periods ended December 31, 1999
Fremont Institutional
U.S. Micro-Cap Fund*
1 Yr 5 Yrs 10 Yrs
- --------------------------
140.26% 46.56% 28.81%
Russell 2000 Index
1 Yr 5 Yrs 10 Yrs
- --------------------------
21.26% 16.69% 13.40%
The table above compares the performance of the Fremont Institutional U.S.
Micro-Cap Fund to that of its benchmark index, the Russell 2000 Index. (See
"Investment Terms" on page 12 for a description of the index.)
PORTFOLIO MANAGEMENT
The Fremont Institutional U.S. Micro-Cap Fund is managed by Sub-Advisor, Kern
Capital Management LLC, ("KCM"). Founded in 1997, KCM is an investment
management firm specializing in small cap and micro-cap companies. As of
December 31, 1999, KCM managed over $1.6 billion in assets.
Robert E. Kern, Jr., president, chief executive officer and co-founder of KCM,
has been the portfolio manager of the Fund and its predecessor since 1982. He
was one of the first investment professionals to focus on post-venture, or
micro-cap, investing, when he began managing a separate account, consisting of
U.S. micro-cap assets, for the retirement plan for Bechtel Group, Inc. Employed
by Morgan Grenfell Capital Management, Inc., from 1986 to 1997, Bob Kern lead
the team that managed the separate account. In August 1997, the assets of the
separate account were transferred to and became the Fremont Institutional U.S.
Micro-Cap Fund. The Fund is co-managed by David G. Kern, CFA, and Judy R.
Finger, CFA.
David Kern, executive vice president and co-founder of KCM, was employed as a
portfolio manager for Founders Asset Management from 1995 to 1997.
Ms. Finger, senior vice president, joined KCM in 1997. From 1995 to 1997, she
was assistant portfolio manager for Delaware Management Company, Inc.
[PHOTO]
Robert E. Kern, Jr.
2 and 3
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
UNDERSTANDING INVESTMENT RISK
GENERAL RISKS
o Market Risk: The market value of individual securities may go up or down,
sometimes rapidly and unpredictably. These changes may occur over long or
short periods of time, and may cause the Fund's shares to be worth more or
less than they were at the time of purchase. Market risk could apply to
individual securities, a segment of the market, or the market overall.
o Liquidity Risk: From time-to-time, certain Fund investments may be
illiquid, or difficult to sell, and this could affect performance. If, for
example, the Fund is not able to sell certain stocks or bonds at the
desired time and price, this may limit its ability to buy other securities.
o Portfolio Turnover: The Fund generally intends to purchase securities for
long-term investment rather than short-term gains. However, a security may
be held for a shorter than expected period of time if, among other things,
the manager needs to raise cash or feels that the investment has served its
purpose. Also, stocks or bonds may be sold sooner than anticipated due to
unexpected changes in the markets, or in the company that issued the
securities. Portfolio turnover rates are generally not a factor in making
buy and sell decisions. A high portfolio turnover rate may result in higher
costs relating to brokerage commissions, dealer mark-ups and other
transaction costs. The sale of securities may also create taxable capital
gains.
o Temporary Defensive Measures: From time-to-time, the Fund may invest a
portion of its assets in money market securities as a temporary defensive
measure. Of course, the Fund cannot pursue its stated investment objective
while taking defensive measures.
4
<PAGE>
ABOUT THE ADVISOR
Fremont Investment Advisors, Inc. (referred to in this prospectus as the
"Advisor"), located at 333 Market Street, Suite 2600, San Francisco, California,
provides the Fremont Institutional U.S. Micro-Cap Fund (the "Fund") with
investment management and administrative services. The Advisor was formed in
1986 by a group of investment professionals that served as the in-house
investment management team for Bechtel Group, Inc., the global engineering firm.
These professionals have provided investment management services to the Bechtel
Retirement Plan and the Bechtel Foundation since 1978. The Advisor now manages
investments for institutions and individuals, in addition to continuing to
service the Bechtel Group. The Advisor's Investment Committee oversees the
portfolio management of the Fund.
The management fee paid to the Advisor over the past fiscal year was 1.15% of
average daily net assets.
The Sub-Advisor
In addition to directly managing the Fund, the Advisor has hired an investment
management firm, Kern Capital Management LLC, (referred to as the "sub-advisor")
to manage the portfolio of the Fund. The sub-advisor also manages the Fremont
U.S. Small Cap Fund, the Fremont U.S. Micro-Cap Fund and a portion of the
Fremont Global Fund, and is partially owned by the Advisor.
Even though the Advisor may hire a sub-advisor, the Advisor may choose to manage
all or a portion of the Fund's portfolio directly. The sub-advisor is paid by
the Advisor and not by the Fund.
In 1996, Fremont Mutual Funds and the Advisor obtained from the Securities and
Exchange Commission an order that permits the Advisor to hire and terminate
sub-advisors, and modify sub-advisory agreements without the prior approval of
shareholders. Fremont Mutual Funds' Board of Directors reviews and approves the
hiring of new sub-advisors. If the Advisor hires a new sub-advisor or materially
changes a sub-advisory agreement, the Advisor will notify shareholders of all
changes including sub-advisory fees.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS
- --------------------------------------------------------------------------------
HOW TO INVEST
There are a number of ways to invest with Fremont. The minimum initial
investment in the Fremont Institutional U.S. Micro-Cap Fund is $250,000 for all
types of accounts.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
INVESTMENT METHOD TO OPEN AN ACCOUNT TO ADD TO YOUR INVESTMENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Mail in an Account Application with Mail your check or money order
your check or money order for at payable to Fremont Mutual Funds for
least $250,000 payable to Fremont $5,000 or more.
Mutual Funds. Fremont will not
accept third party checks.
- -----------------------------------------------------------------------------------------------------
BY TELEPHONE Use the Telephone Exchange Privilege Use the Telephone Exchange Privilege
(TELEPHONE EXCHANGE to move $250,000 or more from an to move your investment from one
PRIVILEGE) existing Fremont Fund account into Fremont fund to another. Please
a new, identically registered note that exchanges between funds
account. To use the Telephone are subject to capital gains taxes.
Exchange Privilege, you must first
sign up for the privilege by
checking the appropriate box on
your Account Application. After
you sign up, please allow time for
Fremont to open your account.
- -----------------------------------------------------------------------------------------------------
BY TELEPHONE -- Transfer money from your bank to
(AUTOBUY PROGRAM) your Fremont account by telephone.
You must sign up for this privilege
on your Account Application, and
attach a voided check.
- -----------------------------------------------------------------------------------------------------
BY WIRE -- Call 800-548-4539 (press 2) to
request bank routing information for
wiring your money to Fremont. Not
available for IRA accounts.
- -----------------------------------------------------------------------------------------------------
BY AUTOMATIC -- Use the Automatic Investment Plan to
INVESTMENT PLAN move money ($50 minimum) from your
financial institution (via Automated
Clearing House) to your Fremont
account once or twice each month.
For more information about the
Automatic Investment Plan, see the
text immediately below. To
participate, call to request an
Automatic Investment Plan Request
form.
- -----------------------------------------------------------------------------------------------------
</TABLE>
FREMONT MAKES IT EASY TO INVEST
The Automatic Investment Plan
This convenient service allows you to automatically transfer money once or twice
a month from your pre-designated bank account to your Fremont account.
You must make your initial investment of $250,000 before starting your automatic
purchases.
o The amount of the monthly investment must be at least $50.
o If your transfer date falls on a weekend or holiday, we will process the
transaction on the previous business day. To change the amount or frequency
of your automatic investments, or to stop future investments, you must
notify us in writing or by calling 800-548-4539 (press 2). We must receive
your request at least 5 days prior to your next scheduled investment date.
6
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
WHAT YOU SHOULD KNOW WHEN MAKING AN INVESTMENT
How a mutual fund is priced
The Fund's net asset value, or NAV, is the price of a single share. The NAV is
computed by adding up the value of the Fund's investments, cash, and other
assets, subtracting its liabilities, and then dividing the total by the number
of shares outstanding.
The Fund's NAV is calculated after the close of trading on the New York Stock
Exchange (NYSE), usually 4:00 p.m. Eastern time, on each day that the exchange
is open for trading ("Closing Time").
The Fund values its portfolio securities and assets using price quotes from the
primary market in which they are traded. If prices are not readily available,
values will be determined using a method adopted by the Fund's Board of
Directors. This value may be higher or lower than the securities' closing price
in their relevant markets.
When an order to buy (or sell) is considered received
Your investment and your application must both be received by Closing Time in
order for you to receive that day's price.
All orders received after Closing Time will be processed with the next day's
NAV.
An order is considered received when the application (for a new account) or
information identifying the account and the investment are received in good
order by National Financial Data Services (NFDS), Fremont's transfer agent.
Other purchasing policies
All of your purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks. Fremont Mutual Funds does not accept third party checks, cash,
credit cards, or credit card checks.
If you purchase shares by check, and then you sell those shares, your payment
may be delayed until your purchase check has cleared.
If Fremont receives notice of insufficient funds for a purchase made by check or
autobuy, the purchase will be canceled and you will be liable for any related
losses or fees the Fund or its transfer agent incurs.
During times of drastic economic or market conditions, it may be difficult to
purchase shares by telephone. The transfer agent will do its best to accommodate
all Fremont shareholders, but you should consider using overnight mail if you
find that you are unable to get through on the telephone.
Abusive trading practices
Fremont does not permit excessive short-term trading, market-timing, or other
abusive trading practices in our Funds. These practices may disrupt portfolio
management strategies and harm fund performance. To minimize harm to the Funds
and their shareholders, we reserve the right to reject any purchase order
(including exchanges) from any investor we believe has a history of abusive
trading or whose trading, in our judgement, has been or may be disruptive to a
fund. Fremont defines abusive trading practices as making six or more complete
exchanges - into and out of - one fund within a 12-month period.
Fremont may modify exchange privileges by giving 60 days' written notice to
shareholders.
Investing through other investment firms
You may purchase or redeem shares of the Fund through authorized broker-dealers,
banks, or other financial institutions. These institutions may charge for their
services or place limitations on the extent to which you may use the services
offered by Fremont Mutual Funds.
The Fund may compensate third-party service providers who perform shareholder
servicing normally performed by the Fund.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO SELL YOUR SHARES
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
calculated NAV, or share price, after your request is received in good order. We
will not process a redemption request until the documentation described below
has been received in good order by the transfer agent.
When you sell your shares, you may choose one of the selling methods described
in the table below, as well as how you would like to receive your money.
Fremont has put several safeguards in place which are intended to protect the
interests of our shareholders. By providing all the information requested when
you sell your shares, you help us to complete your order in as timely a manner
as possible.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SELLING METHOD FEATURES AND REQUIREMENTS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Mail your instructions to: If you are using overnight mail:
Fremont Mutual Funds, Inc. Fremont Mutual Funds, Inc.
c/o National Financial Data Services c/o National Financial Data Services
P.O. Box 219343 330 W. 9th Street
Kansas City, MO 64121-6343 Kansas City, MO 64105
- -------------------------------------------------------------------------------------------------------------------------
BY TELEPHONE The Telephone Redemption Privilege allows you to redeem your shares by
(TELEPHONE REDEMPTION phone. You must make your telephone redemptions by Closing Time to
PRIVILEGE) receive that day's price. You must provide written authorization to add
this privilege to your account prior to making the request.
- -------------------------------------------------------------------------------------------------------------------------
BY AUTOMATIC The Automatic Withdrawal Plan (explained more fully below) lets you set
WITHDRAWAL PLAN up automatic monthly, quarterly, or annual redemptions from your account
in specified dollar amounts ($100 minimum). To establish this feature,
complete an Automatic Withdrawal Request form which is available by
calling 800-548-4539 (press 2).
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
How would you like to receive your money?
o By Check - Your check will be sent by regular mail to your address on file.
o By Wire - There is a $10 service fee.
o By Electronic Transfer - Please allow 3 business days. Before placing your
order, check to make sure that your financial institution can receive
electronic transfers made through the Automated Clearing House.
- --------------------------------------------------------------------------------
SPECIAL SERVICES AVAILABLE:
Automatic Withdrawal Plan
This convenient service allows you to arrange to receive as little as $100 from
a Fremont account on either a monthly, quarterly, or annual basis. There is
currently no charge for this service, but there are several policies you should
be aware of:
o Redemptions by check will be made on the 15th and/or the last business day
of the month.
o Redemptions made by electronic transfer will be made on the date you
indicate on your Automatic Withdrawal Form.
o If the withdrawal date falls on a weekend or holiday we will process the
transaction on the prior business day.
o You may also request automatic exchanges and transfers of a specified
dollar amount.
Wire Transfer
You may wish to wire the proceeds of a redemption from your Fremont account to
another financial institution. If you wire money from your Fremont account,
shares from your Fremont account are sold on the day we receive your
instructions (if you call before the Closing Time).
Generally, the wire transfer is processed the next business day. The
(continued next page)
8
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
SPECIAL SERVICES AVAILABLE (CON'T)
money should arrive at your financial institution the same day the wire is sent.
In order to use the wire redemption feature, bank account instructions must be
established prior to the requests. You may authorize the wire privilege on your
new account application, or by written instruction with a signature guarantee,
and provide Fremont with bank account instructions. A $10 fee applies each time
you wire money from your Fremont account.
- --------------------------------------------------------------------------------
WHAT YOU SHOULD KNOW BEFORE REDEEMING SHARES:
How we determine the redemption price
The price at which your shares will be redeemed is determined by the time of day
National Financial Data Services (NFDS), Fremont's transfer agent, or another
authorized agent, receives your redemption request.
If a request is received before Closing Time, the redemption price will be the
Fund's net asset value reported for that day. If a request is received after
Closing Time, the redemption price will be the Fund's net asset value reported
for the next day the market is open.
How to redeem at today's price
If you have signed up for the Telephone Redemption Privilege, you may call in
your redemption request before Closing Time to receive that day's share price.
Or, you may arrange to have your written redemption request, with a signature
guarantee, if required, and any supporting documents, delivered to NFDS before
Closing Time.
Redemptions in Kind
In extreme conditions, there is a possibility that Fremont may honor all or some
of a redemption amount as a "redemption in kind." This means that you could
receive some or all of your redemption in readily marketable securities held by
the Fund.
About redemption checks
Normally, redemption proceeds will be mailed within three days after your
redemption request is received although it can take up to 10 days. The Fund may
hold payment on redemptions until it is reasonably satisfied that it has
received payment for a recent purchase.
Redemption checks are made payable to the shareholder(s) of record; if you wish
for the check to be made payable to someone other than the account owners, you
must submit your request in writing, and the signatures of all shareholders of
record must be guaranteed. For more information about a "signature guarantee"
please see page 10.
If your account balance falls below $200,000, the Fund has the right to redeem
your shares after giving you 30 days' notice.
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.
- --------------------------------------------------------------------------------
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 10. Be sure to obtain a signature guarantee if your
sale meets those requirements.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
OTHER POLICIES YOU SHOULD KNOW ABOUT (CON'T.)
During times of drastic economic or market conditions, it may be difficult to
sell shares by telephone. Fremont will do its best to accommodate all
shareholders, but you should consider using overnight mail if you find that you
are unable to get through by telephone.
When additional documentation is required
Certain accounts (such as trust accounts, corporate accounts and custodial
accounts) may require documentation in addition to the redemption request. For
more information, please call 800-548-4539 (press 2).
When you need a signature guarantee
Certain requests must include a signature guarantee, which is designed to
protect you and Fremont from fraudulent activities. Your request must be made in
writing and include a signature guarantee if any of the following situations
applies:
o You wish to redeem more than $50,000 worth of shares.
o The check is being mailed to an address different from the one on your
account (address of record).
o The check is being made payable to someone other than the account owner.
o You are instructing us to change your bank account information.
How to obtain a signature guarantee
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
If you would like more information about the signature guarantee, or would like
to sign up for the Telephone Redemption Privilege after you have already opened
your account, please call 800-548-4539 (press 2).
- --------------------------------------------------------------------------------
MONITORING YOUR INVESTMENT
There are a variety of ways to track your mutual fund investment. Most major
newspapers carry daily mutual fund listings.
You can check fund prices, your account balances, and process transactions by
calling our 24-hour automated line at 800-548-4539 (press 3).
In addition, you will receive statements and reports regarding your account on a
regular basis:
o Confirmation statements will be sent when you make a transaction in your
account or change your account registration.
o Quarterly statements, with account information as of the end of March,
June, September and December.
o Annual and Semi-Annual Reports for shareholders.
You can request duplicate statements or copies of your historical account
information by calling 800-548-4539 (press 2).
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions help your investment grow
When you open a taxable account, you should specify on your application how you
would like to receive your distributions and dividends.
The Fund pays dividends based on the income that it has received from its
investments. The dividends may be taxed as ordinary income. Capital gains
distributions occur when your Fund pays out gains realized on its sale of
investment securities. Your capital gains distributions are taxed at different
rates, depending on how long the Fund owned the security. Long-term capital
gains are those from securities held more than 12 months, and short-term capital
gains are from securities held less than 12 months. The Fund pays dividends and
makes capital gains distributions annually.
As an investor, there are five different ways you can choose to receive
dividends and distributions:
o Automatically reinvest all dividends and capital gains distributions in
additional shares.
o Receive all distributions of income dividends and capital gains in cash.
o Receive income dividends and short-term capital gains distributions in cash
and accept long-term capital gains distributions in additional shares.
o Automatically reinvest income and short-term capital gains distributions
and receive long-term capital gains distributions in cash.
o Invest all dividends and capital gains distributions in another Fremont
fund owned through an identically registered account.
If circumstances change after you make your selection, you can always change
your options by calling 800-548-4539 (press 2).
Policies and Procedures
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 have not provided a correct taxpayer identification number, usually a
Social Security number, the Fund is required by the Internal Revenue Service
(IRS) to withhold 31% from any dividend and/or redemption that you receive.
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS
Tax planning is essential
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is tax-deferred or tax-exempt (for example, an IRA or
an employee benefit plan account), the information on this page does not apply.
If your account is not tax-deferred or tax-exempt, however, you should be aware
of these tax rules.
Distributions may be taxable
A distribution is a payout of realized investment gains on securities in the
Fund's portfolio. When, for example, the Fund sells a stock at a profit, that
profit has to be recorded for tax purposes, combined with all the other profits
made that year, and distributed to shareholders based on the number of shares
held.
Distributions are subject to federal income tax, and may also be subject to
state or local taxes.
Distributions are taxable when they are paid, whether you take them in cash or
reinvest them in additional shares. However, distributions declared in December
and paid in January are taxable as if they were paid on December 31.
Capital gains are federally taxable
For federal tax purposes, the Fund's:
o Income and short-term capital gains distributions are taxed as dividends,
meaning that you'll pay tax at your marginal tax rate on this amount;
o Long-term capital gains distributions are taxed as long-term capital gains
(currently at a maximum of 20%).
Tax reporting
Every year, Fremont will send you and the IRS a statement, called a Form
1099-DIV, showing the amount of each taxable distribution you received in the
previous year.
Taxes on transactions
A capital gain or loss is the difference between the cost of your shares and the
price you receive when you sell them.
Your redemptions-including exchanges between Funds-are subject to capital gains
tax.
11
<PAGE>
INVESTMENT TERMS
Advisor - A firm that provides investment management and administrative
services, in this case, Fremont Investment Advisors, Inc.
Automated Clearing House (ACH) - An outside service provider for Fremont Mutual
Funds that transfers money between Fremont and other participating financial
institutions.
Benchmark Index - A recognized measure of performance, of stock or bond markets.
All mutual funds are required to have a relevant benchmark index, so that
investors have a standard by which to judge fund performance over time.
Broker-Dealer - A firm that is licensed to carry out a securities transaction.
Examples would be Charles Schwab or E*Trade.
Capital Gain - The sale price of an investment less the original purchase price.
If the number is positive there is a gain. For example, if the Fund manager buys
10,000 shares of Stock A for $2,000,000 and later sells the same 10,000 shares
for $3,000,000, the result is a capital gain of $1,000,000 ($3,000,000 -
$2,000,000 = $1,000,000).
o Short-Term Gains - Capital gains on securities held for less than 12
months.
o Long-Term Gains - Capital gains on securities held for more than 12 months.
Closing Time - When regular session trading closes on the New York Stock
Exchange, usually 4:00 p.m. Eastern time, but sometimes earlier.
Distribution - A payout of realized capital gains on the securities in a Fund's
portfolio. Generally, once a year each Fremont Mutual Fund calculates the
profits it has made that year on the sale of securities, adds all other profits,
and distributes the profits to the Fund's investors based on the number of
shares they hold.
Dividend - The payout of income earned on an investment to a shareholder. Like
other mutual funds, Fremont Mutual Funds periodically pay dividends to
shareholders based on the income received from investments.
Liquidity - the ability to buy or sell an investment quickly without affecting
its price.
Market Capitalization (Market Cap) - The market value of a corporation's stock,
determined by multiplying the number of stock shares issued by the market price
of a share of stock. Investment managers often use market capitalization as one
investment criterion, requiring, for example, that a company have a market
capitalization of $100 million or more to qualify as an investment.
Mutual Fund - An investment company that pools the money of many people to
invest in any of a variety of different types of securities. A mutual fund
offers investors the advantages of investment diversification and professional
management.
Net Asset Value (or NAV) - The price of a single fund share. Calculated by
adding up the value of all the Fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
No-Load Mutual Fund - A type of mutual fund that does not impose a charge for
purchasing or redeeming shares, so that all of your money goes to work for you.
Portfolio - An investor's or a Fund's combined holdings.
Portfolio Turnover - The percentage of the dollar value of the portfolio which
is replaced each year. This is calculated by dividing the total purchases or
sales for the year, whichever is less, by the average assets for the year.
Redemption - The act of selling shares of a mutual fund.
Russell 2000 Index - Composed of the 2000 smallest stocks in the Russell 3000
Index, and is widely regarded in the industry as the premier measure of small
cap stocks.
Russell 3000 Index - Composed of the 3000 largest U.S. companies as measured by
market capitalization, and represents about 98% of the U.S. stock market.
Security - A type of investment whose authenticity is attested to by a legal
document. Stocks, bonds, options and warrants are examples of a security. A
stock certificate signifies partial ownership of a corporation. A bond
demonstrates that the possessor is owed money by a corporation or government
body.
Signature Guarantee - A security measure that confirms your identity, required
for certain transactions in order to reduce fraud. For these transactions,
signatures must be guaranteed by an "eligible guarantor" - a bank,
broker-dealer, credit union, national securities exchange, registered securities
association, clearing agency or savings association. A notary public is not an
acceptable guarantor.
Stock - A share of ownership in a corporation.
Sub-Advisor - A firm hired by the advisor of a fund to manage or co-manage that
fund's investment portfolio.
Transfer Agent - The service provider retained by a mutual fund company to keep
shareholder records, manage the flow of shareholders' funds, and resolve
administrative issues.
Wire - A method of transferring money between your Fremont account and another
financial institution using the Federal Reserve Wiring System.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights of the Fund presented here have been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report covering the
fiscal year ended October 31, 1999, is included in the Fund's Annual Report.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED AUGUST 4, 19971 TO
INSTITUTIONAL U.S. MICRO-CAP FUND OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
for one share outstanding during the period
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.52 $ 9.78 $ 10.00
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (.04) (.04) --
Net realized and unrealized gain (loss) 8.80 (1.98) .09
----------- ----------- -----------
Total investment operations 8.76 (2.02) .09
----------- ----------- -----------
LESS DISTRIBUTIONS
From net realized gains (2.60) (.24) (.31)
----------- ----------- -----------
Total distributions (2.60) (.24) (.31)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.68 $ 7.52 $ 9.78
=========== =========== ===========
TOTAL RETURN2 118.10% -21.03% 0.90%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 104,971 $ 37,347 $ 40,545
Ratio of net expenses to average net assets3 1.25% 1.25% 1.25%*
Ratio of gross expenses to average net assets3 1.35% 1.38% 1.49%*
Ratio of net investment loss to average net assets3 -.53% -.44% -.21%*
Portfolio turnover rate 155% 187% 28%
</TABLE>
1 Fund's date of inception
2 Total return would have been lower had the advisor not waived and/or
reimbursed expenses.
3 For its advisory and administrative services, the Advisor receives a
management fee based on the average daily net assets of the Fund at an
annual rate of 1.15%. The Advisor has agreed to limit the Fund's total
operating expenses to 1.25% of average daily net assets. The Fund may
reimburse the Advisor for any reductions in the Fund's expenses during the
three years following that reduction if such reimbursement is requested by
the Advisor, if such reimbursement can be achieved within the foregoing
expense limit, and if the Board of Directors approves the reimbursement at
the time of the request as not inconsistent with the best interests of the
Fund. Ratios of expenses have been disclosed both before and after the
impact of these various waivers and/or reimbursements.
* Annualized
<PAGE>
- --------------------
FREMONT MUTUAL FUNDS
- --------------------
For More Information
In addition to the Fund information contained in this Prospectus, you may also
request the following free publications from Fremont Mutual Funds:
o Annual and Semi-Annual Reports
Additional information about the Fund's investments is available in the
Fund's Annual and Semi-Annual Reports to shareholders. In these reports,
you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the
last fiscal year.
o Statement of Additional Information
This publication gives you more information about the Fund's investment
strategy. Legally it is "incorporated by reference," or considered part of,
this Prospectus.
You may also obtain copies of these publications by visiting the Securities and
Exchange Commission's (SEC) Public Reference Room in Washington, D.C., or by
sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
Phone: 202-942-8090
Web site: http://www.sec.gov
E-mail: [email protected]
Fremont
Funds [LOGO]
For general information:
800-565-0254, or 415-284-8562 (outside U.S.)
Please visit our web site at: www.fremontfunds.com
SEC File No: 811-05632
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
Copyright 2000 Fremont Mutual Funds, Inc. All rights reserved.
P030-0002 [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 February 10, 2000 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 February 10, 2000.
1
<PAGE>
TABLE OF CONTENTS
PAGE
----
THE CORPORATION................................................................4
INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS.......................5
Fremont Global Fund.........................................................5
Fremont International Growth Fund...........................................7
Fremont Emerging Markets Fund...............................................7
Fremont Growth Fund.........................................................8
Fremont U.S. Small Cap Fund.................................................9
Fremont U.S. Micro-Cap Fund.................................................9
Real Estate Securities Fund................................................10
Bond Fund..................................................................11
Fremont California Intermediate Tax-Free Fund..............................12
Money Market Fund..........................................................13
GENERAL INVESTMENT POLICIES...................................................14
Diversification............................................................14
Money Market Instruments...................................................14
U.S. Government Securities.................................................15
Repurchase Agreements......................................................15
Reverse Repurchase Agreements and Leverage.................................16
Floating Rate and Variable Rate Obligations
and Participation Interests..............................................16
Swap Agreements............................................................17
Bond Arbitrage Strategies..................................................18
When-Issued Securities and Firm Commitment Agreements......................19
Commercial Bank Obligations................................................19
Temporary Defensive Posture................................................20
Borrowing..................................................................20
Lending of Portfolio Securities............................................20
Portfolio Turnover.........................................................20
Shares of Investment Companies.............................................21
Illiquid and Restricted Securities.........................................21
Warrants or Rights.........................................................22
Municipal Securities.......................................................22
Municipal Notes............................................................23
Commercial Paper...........................................................23
Mortgage-Related And Other Asset-Backed Securities.........................23
Writing Covered Call Options...............................................26
Writing Covered Put Options................................................28
Purchasing Put Options.....................................................29
Purchasing Call Options....................................................30
Description of Futures Contracts...........................................30
2
<PAGE>
Futures Contracts Generally................................................32
Options on Interest Rate and/or Currency Futures Contracts, and
with Respect to the Fremont Global Fund, Gold Futures Contracts..........34
Forward Currency and Options Transactions..................................34
Risk Factors and Special Considerations for International Investing........35
Depository Receipts........................................................37
Particular Risk Factors Relating to California Municipal Securities
(Fremont California Intermediate Tax-Free Fund)..........................38
Guaranteed Investment Contracts (Fremont Global Fund)......................40
Corporate Debt Securities (Fremont Global Fund and Fremont Bond Fund)......41
Reduction in Bond Rating (Fremont Global Fund and Fremont Bond Fund).......41
Concentration (Fremont Real Estate Securities Fund)........................42
The Euro: Single European Currency.........................................42
INVESTMENT RESTRICTIONS.......................................................42
INVESTMENT COMPANY DIRECTORS AND OFFICERS.....................................44
INVESTMENT ADVISORY AND OTHER SERVICES........................................46
PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH FUND,
REAL ESTATE SECURTIES FUND AND EMERGING MARKETS FUND ONLY)..................52
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................54
HOW TO INVEST.................................................................56
OTHER INVESTMENT AND REDEMPTION SERVICES......................................60
TAXES - MUTUAL FUNDS..........................................................61
ADDITIONAL INFORMATION........................................................66
INVESTMENT RESULTS............................................................70
3
<PAGE>
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
management services to the extent that a sub-advisor does not provide those
services. In the future, the Advisor may propose to the Investment Company that
different or additional sub-advisor(s) be engaged to provide investment advisory
or portfolio management services to a Fund. Prior to such engagement, any
agreement with a sub-advisor must be approved by the Board of Directors and, if
required by law, by the shareholders of the Fund. The Advisor may in its
4
<PAGE>
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
certain 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.
<PAGE>
FREMONT GLOBAL FUND
- -------------------
The Fund may invest in U.S. stocks, U.S. bonds, foreign stocks, foreign bonds,
real estate securities, precious metals and cash equivalents. The Fund may
adjust the level of investment maintained in each asset category in response to
changing market conditions. The Advisor will allocate the assets of the Fund
among the following categories of assets:
U.S. Stocks --The Fund may invest in common and preferred stocks of
U.S.-based companies traded on a U.S. exchange or in the over-the-counter
("OTC") market. The Fund may also invest in stock index futures contracts,
options on index futures and options on stock indexes.
U.S. Dollar-Denominated Debt Securities--The Fund may invest in the
following: obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; U.S. dollar-denominated corporate debt
securities of domestic or foreign issuers; mortgage and other asset-backed
securities; variable and floating rate debt securities; convertible bonds;
U.S. dollar-denominated obligations of a foreign government, or any of its
political subdivisions, authorities, agencies or instrumentalities or by
supranational organizations (such as the World Bank); and
5
<PAGE>
securities that are eligible as short-term cash equivalents. The Fund will
not invest more than 15% of its net assets in variable and floating rate
debt securities (not including adjustable rate mortgages), 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 having a rating of Ba by Moody's Investors Services
("Moody's"), BB by Standard & Poor's Ratings Group ("S&P"), or an
equivalent rating by another Nationally Recognized Statisitical Rating
Organization ("NRSRO")(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 and/or management from time to time based on its outlook
for currency values. Cross currency hedging against price movements caused
by exchange rate fluctuations is permitted by entering into forward foreign
currency contracts between currencies other than the U.S. dollar. The
Fund's success in these transactions will depend principally on the ability
of the Advisor and/or Sub-Advisor to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar
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 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.
6
<PAGE>
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.
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
7
<PAGE>
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, have a rating of Baa
or higher by Moody's, BBB or higher by S&P, an equivalent rating by another
NRSRO, or, if unrated by an NRSRO, 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.
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 by either Moody's or S&P, an
equivalent rating by another NRSRO, or if unrated by an NRSRO, 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.
8
<PAGE>
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
- ---------------------------
Under normal conditions, at least 65% of the Fund's total assets will be
invested in common stocks of small, rapidly growing U.S. companies. These
companies would have a market capitalization that would place them in the
smallest 20% of market capitalizations of U.S. exchange listed companies,
measured at the time of purchase. The Fund will generally seek companies whose
market capitalizations fall within the smallest 15% of the U.S. exchange listed
companies. As the value of the total market capitalization changes, the smallest
15% cap size may also change. Up to 25% of the Fund's total assets, at the time
of purchase, may be invested in securities of companies domiclied 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. See "General Investment
Policies" for a discussion of these investment practices.
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, have a rating of Baa
or higher by Moody's, BBB or higher by S&P, an equivalent rating by another
NRSRO, or, if unrated by an NRSRO, have been determined by the Advisor and/or
Sub-Advisor to be of comparable quality. Such securities are considered
investment grade, but may have speculative characteristics. Changes in economic
conditions may lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than is the case with higher-rated
securities. See Appendix A for a description of rating categories.
FREMONT 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 companies would
have a market capitalization that would place them in the smallest 10% of market
capitalizations of U.S. exchange listed companies, measured at the time of
purchase. The Fund will generally
9
<PAGE>
seek companies whose market capitalizations fall within the smallest 5% of the
U.S. exchange listed companies or on the OTC market. As the value of the total
market capitalziation changes, the smallest 5% cap size many also change. Up to
25% of the Fund's total assets, at the time of purchase, may be invested in
securities of micro-cap companies domiciled outside the United States, including
sponsored and unsponsored ADRs and GDRs. 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, have a
rating of Aaa or Aa by Moody's, AAA or AA by S&P, equivalent ratings by another
NRSRO, or, if unrated by an NRSRO, 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 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.
10
<PAGE>
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, have a rating of Baa or better by Moody's, BBB or better by
S&P, an equivalent rating by another NRSRO, or, if not rated by an NRSRO, have
been determined by the Advisor and/or Sub-Advisor to be of comparable quality.
Such bonds and preferred stocks 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,
have a rating of Aa or better by Moody's, AA or better by S&P, an equivalent
rating by another NRSRO, or, if not rated by an NRSRO, have been determined by
the Advisor and/or 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, or have a
comparable rating by another NRSRO. 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 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
11
<PAGE>
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 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
12
<PAGE>
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 or 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.
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.
13
<PAGE>
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), foreign & U.S. debt issued by domestic or foreign
governments and government agencies, 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.
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
14
<PAGE>
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 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.
15
<PAGE>
REVERSE REPURCHASE AGREEMENTS AND LEVERAGE
- ------------------------------------------
The Funds may enter into reverse repurchase agreements which involve the sale of
a security by a Fund and its agreement to repurchase the security at a specified
time and price. The Fund involved will maintain in a segregated account, with
its custodian, cash, cash equivalents, or liquid securities in an amount
sufficient to cover its obligations under reverse repurchase agreements with
broker-dealers (but not with banks). Under the 1940 Act, reverse repurchase
agreements are considered borrowings by a Fund; accordingly, each Fund will
limit its investments in these transactions, together with any other borrowings,
to no more than one-third of its total assets. The use of reverse repurchase
agreements by a Fund creates leverage which increases the Fund's investment
risk. If the income and gains on securities purchased with the proceeds of these
transactions exceed the cost, a Fund's earnings or net asset value will increase
faster than otherwise would be the case; conversely, if the income and gains
fail to exceed the costs, earnings or net asset value would decline faster than
otherwise would be the case. If the 300% asset coverage required by the 1940 Act
should decline as a result of market fluctuation or other reasons, a Fund may be
required to sell some of its portfolio securities within three days to reduce
the borrowings (including reverse repurchase agreements) and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. The Funds intend to enter into
reverse repurchase agreements only if the income from the investment of the
proceeds is greater than the expense of the transaction, because the proceeds
are invested for a period no longer than the term of the reverse repurchase
agreement.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS AND PARTICIPATION INTERESTS
- -----------------------------------------------------------------------
The Funds may purchase floating rate and variable rate obligations, including
participation interests therein. Floating rate or variable rate obligations
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate at a major commercial bank) or is
reset on a regular basis by a bank or investment banking firm to a market rate.
At specified times, the owner can demand payment of the obligation at par plus
accrued interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external interest
rate. Frequently, banks provide letters of credit or other credit support or
liquidity arrangements to secure these obligations. The quality of the
underlying creditor or of the bank, as the case may be, must meet the minimum
credit quality standards, as 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
16
<PAGE>
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, credit,
index, and currency exchange rate swap agreements for purposes of attempting to
obtain a particular desired return at a lower cost to the Fund than if the Fund
had invested directly in an instrument that yielded that desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Commonly used swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which, a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding minimum
or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). A Fund's obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or high-grade debt
obligations, to avoid any potential leveraging of the Fund's portfolio. A Fund
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 5%
of the Fund's net assets.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Advisor's or the Sub-Advisor's ability
to predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements will be
considered to be illiquid 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
17
<PAGE>
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. 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.
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<PAGE>
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 or the
Fremont Global Fund. A Fund, as purchaser, assumes the risk of any decline in
value of the security beginning on the date of the agreement or purchase, and no
interest accrues to the Fund until it accepts delivery of the security. A Fund
will not use such transactions for leveraging purposes, and accordingly, will
segregate cash, cash equivalents, or liquid securities in an amount sufficient
to meet its payment obligations thereunder. There is always a risk that the
securities may not be delivered and that a Fund may incur a loss or will have
lost the opportunity to invest the amount set aside for such transaction in the
segregated asset account. Settlements in the ordinary course of business, which
may take substantially more than three business days for non-U.S. securities,
are not treated by the Funds as when-issued or forward commitment transactions
and, accordingly, are not subject to the foregoing limitations, even though some
of the risks described above may be present in such transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent a
Fund's aggregate commitments under these transactions exceed its holdings of
cash and securities that do not fluctuate in value (such as short-term money
market instruments), the Fund temporarily will be in a leveraged position (i.e.,
it will have an amount greater than its net assets subject to market risk).
Should market values of a Fund's portfolio securities decline while the Fund is
in a leveraged position, greater depreciation of its net assets would likely
occur than were it not in such a position. As the Fund's aggregate commitments
under these transactions increase, the opportunity for leverage similarly
increases. A Fund will not borrow money to settle these transactions and,
therefore, will liquidate other portfolio securities in advance of settlement if
necessary to generate additional cash to meet its obligations thereunder.
COMMERCIAL BANK OBLIGATIONS
- ---------------------------
For the purposes of each Fund's investment policies with respect to bank
obligations, obligations of foreign branches of U.S. banks and of foreign banks
may be general obligations of the parent bank in addition to the issuing bank,
or may be limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general, investments in
the obligations of foreign branches of U.S. banks, and of foreign banks may
subject the Funds to investment risks that are different in some respects from
those of investments in obligations of domestic 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.
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<PAGE>
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.
PORTFOLIO TURNOVER
- ------------------
Each Fund (except for the Fremont Money Market Fund) may trade in securities for
short-term gain whenever deemed advisable by the Advisor and/or Sub-Advisor in
order to take advantage of anomalies occurring in general market, economic or
political conditions. Therefore, each Fund may have a higher portfolio turnover
rate than that of some other investment companies, but it is anticipated that
the annual portfolio turnover rate of each Fund will not exceed 200%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of long-term portfolio securities by the Fund's average month-end
long-term investments. High portfolio turnover involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions and
other costs that the Funds will bear directly, and may result in the realization
of net capital gains, which are generally taxable whether or not distributed to
shareholders.
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<PAGE>
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 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 Act. Additionally, the Advisor and
the Funds believe that a similar market exists for commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act. The
Funds may invest without limitation in these forms of restricted securities if
such securities are determined by the Advisor or Sub-Advisor to be liquid in
accordance with standards established by the Investment Company's Board of
Directors.
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<PAGE>
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 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.
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<PAGE>
The proceeds of these obligations are used to fund a wide range of public
facilities such as the construction or improvement of schools, roads and sewer
systems.
The principal source of payment for a limited obligation bond or revenue bond is
generally the net revenue derived from particular facilities financed with such
bonds. In some cases, the proceeds of a special tax or other revenue source may
be committed by law for use to repay particular revenue bonds. For example,
revenue bonds have been issued to lend the proceeds to a private entity for the
acquisition or construction of facilities with a public purpose such as
hospitals and housing. The loan payments by the private entity provide the
special revenue source from which the obligations are to be repaid.
MUNICIPAL NOTES
- ---------------
Municipal notes generally are used to provide short-term capital funding for
municipal issuers and generally have maturities of one year or less. Municipal
notes of municipal issuers include tax anticipation notes, revenue anticipation
notes and bond anticipation notes:
TAX ANTICIPATION NOTES are issued to raise working capital on a short-term
basis. Generally, these notes are issued in anticipation of various
seasonal tax revenues being paid to the issuer, such as property, income,
sales, use and business taxes, and are payable from these specific future
taxes.
REVENUE ANTICIPATION NOTES are issued in anticipation of the receipt of
non-tax revenue, such as federal revenues or grants.
BOND ANTICIPATION NOTES are issued to provide interim financing until
long-term financing can be arranged. In most cases, long-term bonds are
issued to provide the money for the repayment of these notes.
COMMERCIAL PAPER
- ----------------
Issues of municipal commercial paper typically represent short-term, unsecured,
negotiable promissory notes. Agencies of state and local governments issue these
obligations in addition to or in lieu of notes to finance seasonal working
capital needs or to provide interim construction financing and are paid from
revenues of the issuer or are refinanced with long-term debt. In most cases,
municipal commercial paper is backed by letters of credit, lending agreements,
note repurchase agreements or other credit facility agreements offered by banks
or other institutions.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
- --------------------------------------------------
Mortgage pass-through securities are securities representing interests in
"pools" of mortgages in which payments of both interest and principal on the
securities are made monthly, in effect, "passing through" monthly payments made
by the individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities). The
total return on mortgage-related securities typically varies with changes in the
general level of interest rates. The maturities of mortgage- related securities
are variable and unknown when issued because their
23
<PAGE>
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 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
24
<PAGE>
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 related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, a Fund may fail to fully recoup
its initial investment in these securities even if the security is rated
AAA or Aaa, and could even lose its investment entirely. Although Stripped
Mortgage Securities are purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. Consequently, established
trading markets have not yet developed for certain Stripped Mortgage
Securities. Investments in Stripped Mortgage Securities for which there is
no established market are considered illiquid and together with other
illiquid securities will not exceed 15% (10% for the Money Market Fund) of
a Fund's net assets.
OTHER ASSET-BACKED SECURITIES (unrelated to mortgage loans) have been
offered to investors, such as Certificates for Automobile Receivables-SM-
("CARS-SM") and interests in pools of credit card receivables. CARS-SM
represent undivided fractional interests in a trust whose assets consist of
a pool of motor vehicle retail
25
<PAGE>
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 mortgage-related (or other asset-backed) securities
either (i) issued by U.S. government sponsored corporations or (ii) having a
rating of A or higher by Moody's or S&P, an equivalent rating by another NRSRO,
or, if not rated by an NRSRO, have been determined to be of equivalent
investment quality 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
- ----------------------------
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, are deemed to be attractive investments for the Funds. The aggregate
value of the securities underlying call 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
26
<PAGE>
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 Fund will
identify assets for the purpose of segregation to cover the call. 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 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
27
<PAGE>
effect a closing transaction prior to, or concurrently with, the sale of the
security or currency. There is, of course, no assurance that the Fund involved
will be able to effect such closing transactions at a favorable price. If a Fund
cannot enter into such a transaction, it may be required to hold a security or
currency that it might otherwise have sold, in which case it would continue to
be at market risk with respect to the security or currency. The Fund involved
will pay transaction costs in connection with the purchasing of options to close
out previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Funds will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, a Fund may
purchase an underlying security or currency for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering such
security or currency from its portfolio. In such cases, additional costs will be
incurred.
A Fund will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security
or currency, any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the underlying security or
currency owned by the Fund involved.
WRITING COVERED PUT OPTIONS
- ---------------------------
The Funds (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 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
28
<PAGE>
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. Additionally, the
Funds may simultaneously write a put option and purchase a call option with the
same strike price and expiration date.
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
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.
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<PAGE>
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 or
obtain exposure to 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 underlying security or currency with
the same exercise price and expiration date as the option previously written.
Additionally, a Fund may simultaneously write a put option and purchase a call
option with the same strike price and expiration date.
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
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<PAGE>
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 to obtain market exposure, increase liquidity,
hedge dividend accruals and as a hedge against changes in prevailing levels of
stock values, interest rates, or currency exchange rates in order to establish
more definitely the effective return on securities or currencies held or
intended to be acquired by such Fund. A Fund's hedging may include sales of
Futures as an offset against the effect of expected increases in currency
exchange rates, purchases of such Futures as an offset against the effect of
expected declines in currency exchange rates, and purchases of Futures in
anticipation of purchasing underlying index stocks prior to the availability of
sufficient assets to purchase such stocks or to offset potential increases in
the prices of such stocks. When selling options or Futures Contracts, a Fund
will segregate cash and liquid securities to cover any related liability.
The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal Futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission. Futures are also traded in various overseas markets.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce a Fund's exposure to currency exchange rate fluctuations, a Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through using Futures Contracts.
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A Fund will not enter into a Futures Contract if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to "margin" (down payment) deposits on
such Futures Contracts.
A Stock Index contract such as the S&P 500 Stock Index Contract, for example, is
an agreement to take or make delivery at a specified future date of an amount of
cash equal to $500 multiplied by the difference between the value of the Stock
Index at purchase and at the close of the last trading day of the contract. In
order to close long positions in the Stock Index contracts prior to their
settlement date, the Fund will enter into offsetting sales of Stock Index
contracts.
Using Stock Index contracts in anticipation of market transactions involves
certain risks. Although a Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for the contracts at any particular
time. In addition, the price of Stock Index contracts may not correlate
perfectly with the movement in the Stock Index due to certain market
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the Stock Index
and movements in the price of Stock Index contracts, a correct forecast of
general market trends may not result in a successful anticipatory hedging
transaction.
FUTURES CONTRACTS GENERALLY
- ---------------------------
Persons who trade in futures contracts may be broadly classified as "hedgers"
and "speculators." Hedgers whose business activity involves investment or other
commitments in debt securities, equity securities, or other obligations, such as
the Funds, use the futures markets primarily to offset unfavorable changes in
value that may occur because of fluctuations in the value of the securities and
obligations held or expected to be acquired by them or fluctuations in the value
of the currency in which the securities or obligations are denominated. Debtors
and other obligors may also hedge the interest cost of their obligations. The
speculator, like the hedger, generally expects neither to deliver nor to receive
the financial instrument underlying the futures contract, but, unlike the
hedger, hopes to profit from fluctuations in prevailing interest rates,
securities prices, or currency exchange rates.
A public market exists in futures contracts covering foreign financial
instruments such as U.K. Pound and Japanese Yen, among others. Additional
futures contracts may be established from time to time as various exchanges and
existing futures contract markets may be terminated or altered as to their terms
or methods of operation.
A Fund's futures transactions will be entered into for 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. A Fund may also use futures to
obtain market exposure, increase liquidity and hedge dividend accruals.
"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
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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 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 short to medium term debt instruments and/or cash securities equal in value
to the current value of the underlying instrument less the margin deposit.
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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 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
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<PAGE>
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.
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,
35
<PAGE>
custodial services and other costs related to investment in foreign markets
(particularly emerging markets) generally are more expensive than in the United
States. Such foreign markets also may have longer settlement periods than
markets in the United States as well as different settlement and clearance
procedures. In certain markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. The inability of a Fund to make intended
securities purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to a Fund
due to subsequent declines in value of a portfolio security or, if a Fund had
entered into a contract to sell the security, could result in possible liability
to the purchaser. Settlement procedures in certain emerging markets also carry
with them a heightened risk of loss due to the failure of the broker or other
service provider to deliver cash or securities.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility and risk of
principal, have less liquidity and have settlement arrangements which are less
efficient than in developed markets. Furthermore, the economies of emerging
market countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the countries with which they
trade. These emerging market economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
The value of a Fund's portfolio securities computed in U.S. dollars will vary
with increases and decreases in the exchange rate between the currencies in
which the Fund has invested and the U.S. dollar. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of a Fund's holdings of securities denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value and
net investment income and capital gains, if any, to be distributed in U.S.
dollars to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is influenced
by many factors, including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the price of oil, the pace of activity in the industrial countries,
including the United States, and other economic and financial conditions
affecting the world economy.
The Funds will not invest in a foreign currency or in securities denominated in
a foreign currency if such currency is not at the time of investment considered
by the Advisor and/or Sub-Advisor to be fully exchangeable into U.S. dollars
without legal restriction. The Funds may purchase securities that are issued by
the government, a corporation, or a financial institution of one nation but
denominated in the currency of another nation. To the extent that a Fund invests
in ADRs, the depository bank generally pays
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<PAGE>
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."
DEPOSITORY RECEIPTS
- -------------------
(Except for the Money Market Fund.) Global Depository Receipts ("GDRs") are
negotiable certificates held in the bank of one country representing a specific
number of shares of a stock traded on an exchange of another country. American
Depository Receipts ("ADRs") are negotiable receipts issued by a United States
bank or trust to evidence ownership of securities in a foreign company which
have been deposited with such bank or trust's office or agent in a foreign
country. Investing in GDRs and 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 GDRs and ADRs in U.S. dollars. These risks include
fluctuations in currency exchange rates, which are affected by international
balances of payments and other economic and financial conditions; government
intervention; speculation; and other factors. With respect to certain foreign
countries, there is the possibility of expropriation or nationalization of
assets, confiscatory taxation and political, social and economic instability.
The Funds may be required to pay foreign withholding or other taxes on certain
of its GDRs or 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 GDRs and ADRs are offered by companies which are not prepared to
meet either the reporting or accounting
37
<PAGE>
standards of the United States. While readily exchangeable with stock in local
markets, unsponsored GDRs and ADRs may be less liquid than sponsored GDRs and
ADRs. Additionally, there generally is less publicly available information with
respect to unsponsored GDRs and 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.
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
38
<PAGE>
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 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
39
<PAGE>
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.
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
40
<PAGE>
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, Baa by Moody's, or an equivalent rating
by another NRSRO 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, BBB by S&P, or equivalent by another NRSRO (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, by S&P and Moody's, respectively, but
not lower than B by either (or the equivalent ratings by another NRSRO). In the
event that the rating for any security held by the Funds drops below the minimum
acceptable rating applicable to that Fund, the Fund's Advisor and/or Sub-Advisor
will determine whether the Fund should continue to hold such an obligation in
its portfolio. Bonds rated below BBB or Baa, or equivalents thereof, 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.
41
<PAGE>
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.
o The effects of additional countries joining the union.
These and other factors (including political and economic risks) could cause
market disruptions and affect the value of those Funds that invest in companies
conducting business in Europe. We understand that our key service providers have
taken steps to address euro-related issues, but there can be no assurance that
these efforts are sufficient.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental investment policies and
restrictions in addition to the policies and restrictions discussed in its
prospectus. With respect to each Fund, the policies and restrictions listed
below cannot be changed without approval by the holders of a "majority of the
outstanding voting securities" of that Fund (which is defined in the 1940 Act to
mean the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). These restrictions provide that no Fund may:
1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same
industry, except that 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
42
<PAGE>
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 as
described in the Prospectus and this Statement of Additional
Information, and except that the Investment Company and the Funds may
issue shares of common stock in multiple series or classes.
8. Notwithstanding any other fundamental investment restriction or
policy, each Fund may invest all of its assets in the securities of a
single open-end investment company with substantially the same
fundamental investment objectives, restrictions, and policies as that
Fund.
Other current investment policies of the Funds, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. A Fund may not:
9. Invest in companies for the purpose of exercising control or
management.
10. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in
connection with any permissible borrowing.
43
<PAGE>
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.
Certain market strategies and market definitions applicable to the Funds - such
as the market capitalization ranges for the U. S. Small Cap and U.S. Micro Cap
Funds - may be adjusted from time to time to reflect changing market
circumstances subject to review and approval by the Funds' Board of Directors.
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 and Director, President, CEO, CIO and Director,
Fremont Investment, Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor Managing Director, Fremont Group, LLC
San Francisco, CA 94105 and Fremont Investors, Inc.;
Director, Sequoia Ventures,
Sit/Kim International
Investment Associates, and
J.P. Morgan Securities Asia.
44
<PAGE>
Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present, Managing Director,
Fremont Investment Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor 10/77 - 7/96, Senior Vice President
San Francisco, CA 94105 Business Development, Benham
Management.
Richard E. Holmes(3) 5-14-43 Director Vice President and Director, BelMar
P.O. Box 479 Advisors, Inc. (marketing firm)
Sanibel, FL 33957
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. and Treasurer and COO, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 1/94 - 7/98,
San Francisco, CA 94105 Director, J.P. Morgan
Securities, Asia
Norman Gee 3-29-50 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Alexandra W. Kinchen(4) 4-25-45 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Andrew L. Pang(4) 4-15-49 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Robert J. Haddick(4) 2-26-60 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 Secretary, and Chief Compliance
333 Market Street, 26th Floor Officer, Fremont Investment Advisors,
San Francisco, CA 94105 Inc., 9/88 - 5/96 Chief
Compliance Officer and Vice
President, Bailard, Biehl &
Kaiser, Inc. (BB&K);
Treasurer, BB&K International
Fund Group, Inc. and BB&K
Fund Group; Principal, BB&K
Fund Services, Inc.
45
<PAGE>
Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26h Floor
San Francisco, CA 94105
Allyn Hughes 6-12-60 Vice President 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 Chief Financial Officer, Fremont
333 Market Street, 26th Floor Investment Advisors, Inc.; 11/95-10/97,
San Francisco, CA 94105 Chief Financial Officer and Treasurer
Sife, Inc.;6/91-6/95, Controller,
Concord General Corp
Conor Sheridan 7-5-69 Vice President 10/94 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
</TABLE>
(1) Director who is an "interested person" of the Company due to his
affiliation with the Company's investment manager.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee and the Contracts Committee.
(4) Member of the Fremont Investment Committee.
During the fiscal year ended October 31, 1999, Richard E. Holmes and David L.
Egan each received $16,000, and Donald C. Luchessa and Kimun Lee each received
$12,000, for serving as directors of the Investment Company.
As of January 12, 2000, 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.
46
<PAGE>
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. Small Cap 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 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, 1999, 1998 and
1997:
47
<PAGE>
FISCAL YEAR ENDED OCTOBER 31,
(IN '000'S)
--------------------------------------
1999 1998 1997
---- ---- ----
Money Market Fund $ 1,534 $ 1,129 $ 837
Bond Fund 823 542 303
Real Estate Securities Fund 327 114 --
Global Fund 3,927 4,050 3,850
Growth Fund 745 819 604
International Growth Fund 453 469 618
U.S. Small Cap Fund 151 64 5
Emerging Markets Fund 93 135 17
U.S. Micro-Cap Fund 3,638 2,861 3,050
CA Tax-Free Fund 238 197 183
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, 1999, 1998 and 1997:
FISCAL YEAR ENDED OCTOBER 31,
(IN '000'S)
------------------------------------
1999 1998 1997
---- ---- ----
Money Market Fund $ 756 Waived Waived
Bond Fund 171 $ 50 Waived
Real Estate Securities Fund N/A N/A N/A
Global Fund 982 1,012 $ 962
Growth Fund 223 246 181
International Growth Fund 68 43 N/A
U.S. Small Cap Fund 23 10 1
Emerging Markets Fund 14 20 3
U.S. Micro-Cap Fund N/A N/A N/A
Ca Tax Free Fund 61 3 3
The Funds' Board of Directors approved an Operating Expense Agreement which
contractually obligates the Advisor to limit the expenses of certain funds (as a
percentage of average net assets) until March 1, 2001 as follows: International
Growth Fund 1.50%; International Small Cap Fund 1.50%; Emerging Markets Fund
1.50%; U.S. Micro Cap Fund 1.98%; U.S. Small Cap Fund 1.50%; Real Estate
Securities Fund 1.50%; and the California Intermediate Tax-Free Fund 0.49%.
Also, under the Operating Expense Agreement, the Advisor is obligated to waive
0.05% of the 0.15% administrative fee for the Bond Fund until March 1, 2001.
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The Advisor's employees may engage in personal securities transactions. However,
the Investment Company and the Advisor have adopted a Code of Ethics for the
purpose of establishing standards of conduct for the Advisor's employees with
respect to such transactions. The Code of Ethics includes some broad
prohibitions against fraudulent conduct, and also includes specific rules,
restrictions, and reporting obligations with respect to personal securities
transactions of the Advisor's employees. Generally, each employee is required to
obtain prior approval from the Advisor's compliance officer in order to purchase
or sell a security for the employee's own account. Purchases or sales of
securities which are not eligible for purchase or sale by the Funds or any other
client of the Advisor are exempted from the prior approval requirement, as are
certain other transactions which the Advisor believes present no potential
conflict of interest. The Advisor's employees are also required to file with the
Advisor quarterly reports of their personal securities transactions.
THE SUB-ADVISORS
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.++
Capital Guardian Trust Company
- --------------------------------------------------------------------------------
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 CMG First State (Hong Kong) LLC
- --------------------------------------------------------------------------------
U.S. Micro-Cap Fund Kern Capital Management LLC+
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Fund Rayner Associates, Inc.
- --------------------------------------------------------------------------------
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.
- --------------------
+ Kern Capital Management LLC is partially owned by the Advisor.
++ An executive officer of the Advisor is a member of the Board of Directors of
the subadvisor's subsidiary company. The executive officer has no control
relationship with the subadvisor and is not involved with its management or
affairs.
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For their services under the Portfolio Management Agreements, the Advisor (not
the Funds) has agreed to pay the Sub-Advisors an annual fee equal to the
percentages set forth below of the value of the applicable Fund's average net
assets 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 assets in excess of $300 million
0.50 % to Kern Capital Management LLC
0.45% to Sit Investment Associates, Inc.
To 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
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 CMG First State (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 0.20% to Rayner Associates, Inc.
Tax-Free Fund
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For the fiscal year ended October 31, 1999, Pacific Investment Management
Company, Kern Capital Management LLC, CMG First State (Hong Kong) LLC, Capital
Guardian Trust Company, Kensington Investment Group, Rayner Associates, Inc.,
Mellon Capital Management Corporation, and Sit Investment Associates, Inc.
received from the Advisor (not the Funds) subadvisory fees (net of voluntary fee
waivers) of $552,194, $2,064,670, $43,159, $307,020, $163,477, $133,834,
$136,369 and $4,969, respectively. 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,
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, $57,002 and $32,815, respectively. For
the fiscal year ended October 31, 1997, Pacific Investment Management Company,
Kern Capital Management LLC and Nicholas-Applegate Capital Management received
from the Advisor (not the Funds) subadvisory fees (net of voluntary fee waivers)
of $189,286, $359,873, and $15,038, respectively.
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,
1999 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
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<PAGE>
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.
The Funds may compensate other third party service providers who act as a
shareholder servicing agent or who perform shareholder servicing normally
performed by the Funds.
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, prospectuses, statements of additional information,
marketing materials; 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; and perform such additional services as may be
agreed upon by the Advisor and the Sub-Administrator. For its services, the
Advisor (not the Fund) pays the Sub-Administrator an annual fee equal to .02% of
the first $1 billion of each Fund's average daily net assets, 0.015% thereafter,
subject to a minimum annual fee of $20,000. In addition, the Sub-Administrator
will prepare periodic financial reports, shareholder reports and other
regulatory reports or filings required for the Funds; 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 these additional services, the Advisor
(not the Fund) will pay the Sub-Administrator an annual fee of $100,000 for the
years 2000, 2001, and 2002. After the year 2002, the Sub-Administrator will
receive from the Advisor (not the Fund) an annual fee, calculated on each Fund's
average daily net assets, equal to 0.005% of the first $2 billion and 0.0025%
thereafter.
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.
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<PAGE>
Agreements implementing the Plan (the "Implementation Agreements") are in
writing and have been approved by the Board of Directors. All payments made
pursuant to the Plan are made in accordance with written agreements and are
reviewed by the Board of Directors at least quarterly.
The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Investment Company's
Board of Directors and by a vote of the Directors who are not interested persons
of the Investment Company and have no direct or indirect financial interest in
the Plan or any Implementation Agreement (the "Independent Directors") at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time by a vote of a majority of the Independent Directors or
by a vote of the holders of a majority of the outstanding shares of each Fund.
In the event the Plan is terminated in accordance with its terms, the Funds will
not be required to make any payments for expenses incurred by the Advisor after
the termination date. Each Implementation Agreement terminates automatically in
the event of its assignment and may be terminated at any time by a vote of a
majority of the Independent Directors or by a vote of the holders of a majority
of the outstanding shares of each Fund on not more than 60 days' written notice
to any other party to the Implementation Agreement. The Plan may not be amended
to increase materially the amount to be spent for distribution without
shareholder approval. All material amendments to the Plan must be approved by a
vote of the Investment Company's Board of Directors and by a vote of the
Independent Directors.
In approving the Plan, the Directors determined, in the exercise of their
business judgment and in light of their fiduciary duties as Directors, that
there is a reasonable likelihood that the Plan will benefit the Funds and its
shareholders. The Board of Directors believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Funds, which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification, and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Directors make a similar determination for
each subsequent year of the Plan. 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
53
<PAGE>
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law. If a bank were prohibited from continuing to perform all or a part of
such services, management of the Investment Company believes that there would be
no material impact on the Funds or their shareholders. Banks may charge their
customers fees for offering these services to the extent permitted by regulatory
authorities, and the overall return to those shareholders availing themselves of
the bank services will be lower than to those shareholders who do not. The Funds
may from time to time purchase securities issued by banks which provide such
services; however, in selecting investments for the Funds, no preference will be
shown for such securities.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions in which portfolio transactions for a Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Advisor or Sub-Advisor, including other series of
the Investment Company. Although such concurrent authorizations potentially
could be either advantageous or disadvantageous to a Fund, they will be effected
only when the Advisor or Sub-Advisor believes that to do so will be in the best
interest of such Fund. When such concurrent authorizations occur, the objective
will be to allocate the executions in a manner which is deemed equitable to the
accounts involved, including the other series of the Investment Company.
The Bond Fund, the Global Fund, the Growth Fund, the International Growth Fund,
the 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
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<PAGE>
amount of brokerage commissions paid by the other Funds during the last three
years are as follows:
FISCAL YEAR ENDED OCTOBER 31,
-----------------------------------------------
1999 1998 1997
---- ---- ----
Bond Fund $ 36,775 $ 17,551 $ 6,238
Global Fund 1,077,244 1,197,193 998,130
Real Estate Securities Fund 399,275 317,331 --
Growth Fund 199,202 296,782 143,250
International Growth Fund 114,053 169,064 327,835
U.S. Small Cap Fund 66,077 27,821 3,034
Emerging Markets Fund 81,401 117,643 136,653
U.S. Micro-Cap Fund 621,905 453,287 298,178
Subject to the requirement of seeking the best available prices and executions,
the Advisor or Sub-Advisor may, in circumstances in which two or more
broker-dealers are in a position to offer comparable prices and executions, give
preference to broker-dealers who have provided investment research, statistical,
and other related services to the Advisor or Sub-Advisor for the benefit of a
Fund and/or other accounts served by the Advisor or Sub-Advisor. Such
preferences would only be afforded to a broker-dealer if the Advisor determines
that the amount of the commission is reasonable in relation to the value of the
brokerage and research services provided by that broker-dealer and only to a
broker-dealer acting as agent and not as principal. The Advisor is of the
opinion that, while such information is useful in varying degrees, it is of
indeterminable value and does not reduce the expenses of the Advisor in managing
each Fund's portfolio.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Funds may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor, or a Sub-Advisor, or an affiliated
person of such person. It is presently anticipated that certain affiliates of
the Sub-Advisor(s) will effect brokerage transactions of the Funds in certain
markets and receive compensation for such services.
As of October 31, 1999, 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.
$7,998,814, For Motor Credit Corp $9,927,453, State Street Bank $44,406 and J.P.
Morgan & Co., Inc. $24,478,159 . As of October 31, 1999, 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:
Morgan Stanley Mortgage Trust $747,929, Associates Corp $4,827,250, Bear Stearns
& Co., Inc. $500,596, Ford Motor Credit Corp $9,938,548, Goldman Sachs Group
$9,996,798, Lehman Brothers Holdings, Inc. $1,889,864 and State Street Bank
$861,472. As of October 31, 1999, 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: Ford Motor
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<PAGE>
Company $2,935,813, Ford Motor Credit Corp $8,679,555, Deutsche Bank AG
$635,047, Prudential Corp. PLC $429,856, J.P. Morgan & Co. $1,177,875, Morgan
Stanley, Dean Witter & Co. $1,423,031, Deutsche Bank Finance $199,580, Lehman
Brothers Holdings Inc. $3,014,640, Merrill Lynch & Co., Inc. $9,989,146 and
State Street Bank $13,216,239. As of October 31, 1999, 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:
Ford Motor Company $4,077,213, Morgan Stanley, Dean Witter & Co. $1,731,906,
J.P. Morgan & Co., Inc. $1,047,000 and State Street Bank $541,939. As of October
31, 1999, 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: Merrill Lynch & Co., Inc.
$11,994,680 and State Street Bank $13,603. As of October 31, 1999, 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 AG $238,929 and State Street Bank
$6,912,608. As of October 31, 1999, the Real Estate Securities 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:
State Street Bank $3,019,455. As of October 31, 1999, the U.S. Small 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:
State Street Bank $4,513,744. As of October 31, 1999, the Emerging Markets 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:
State Street Bank $629,185.
HOW TO INVEST
PRICE OF SHARES. The price to be paid by an investor for shares of a Fund, the
public offering price, is based on the net asset value per share which is
calculated once daily as of the close of trading (currently 4:00 p.m., Eastern
time) each day the New York Stock Exchange is open as set forth below. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: (i) New Year's Day, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas Day; and
(ii) the preceding Friday when any one of those holidays falls on a Saturday or
the subsequent Monday when any one of those holidays falls on a Sunday. The
Money Market Fund will also observe additional federal holidays that are not
observed by the New York Stock Exchange: Columbus Day, and Veterans Day.
Each Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). The Bond Fund's, the
Global Fund's, the Growth Fund's, the International Growth Fund's, the 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
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<PAGE>
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 (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
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<PAGE>
deems that the particular event would materially affect net asset
value, in which case an adjustment will be made.
4. With respect to the Global Fund, gold bullion and bullion-type coins
are valued at the closing price of gold on the New York Commodity
Exchange.
5. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market
rate as determined by the Advisor and/or Sub-Advisor.
6. Each Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure
is obtained.
7. The net assets so obtained are then divided by the total number of
shares outstanding (excluding treasury shares), and the result,
rounded to the nearest cent, is the net asset value per share.
FREMONT MONEY MARKET FUND:
The Money Market Fund uses its best efforts to maintain a constant per share
price of $1.00.
The portfolio instruments of the Money Market Fund are valued on the basis of
amortized cost. This involves valuing an instrument at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value, as determined by amortized cost,
is higher or lower than the price the Money Market Fund would receive if it sold
the instrument.
The valuation of the Money Market Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of a per share net asset value at
$1.00 are permitted by Rule 2a-7 adopted by the Securities and Exchange
Commission. Under this rule, the Money Market Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less as allowed by
regulations under the 1940 Act, and invest only in securities determined by the
Board of Directors to be of high quality with minimal credit risks. In
accordance with this rule, the Board of Directors has established procedures
designed to stabilize, to the extent reasonably practicable, the Money Market
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the portfolio holdings by the Board of
Directors at such intervals as it may deem appropriate, to determine whether the
net asset value of the Money Market Fund calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost. The rule also provides that a deviation between the Money Market
Fund's net asset value based upon available market quotations or market
equivalents and $1.00 per share net asset value based on amortized cost
exceeding $0.005 per share must be examined by the Board of Directors. In the
event the Board of Directors determines that the deviation may result in
material dilution or is otherwise unfair to investors or existing shareholders,
the Board of Directors must cause the Money Market Fund to take such
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<PAGE>
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 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
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<PAGE>
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. Investors
whose purchase orders have been cancelled due to nonpayment may be prohibited
from placing future orders.
Each Fund 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 a Fund
until it has been confirmed in writing by the Transfer Agent (or other
arrangements made with the Fund, in the case of orders utilizing wire transfer
of funds) and payment has been received. To protect existing shareholders, each
Fund reserves the right to reject any offer for a purchase of shares by any
individual.
REDEMPTION IN KIND. Each Fund may elect to redeem shares in assets other than
cash but must pay in cash (if so requested) 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. Any Fund may suspend redemption privileges
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
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<PAGE>
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 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
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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 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 has elected and intends to continue 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
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<PAGE>
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.
Capital loss carryforwards result when a Fund has net capital losses during a
tax year. These are carried over to subsequent years and may reduce
distributions of realized gains in those years. Unused capital loss
carryforwards expire in eight years. Until such capital loss carryforwards are
offset or expire, it is unlikely that the Board of Directors will authorize a
distribution of any net realized gains.
NON-U.S. SHAREHOLDERS. Under the Code, distributions of net investment income by
a Fund to a shareholder who, as to the U.S., is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign shareholder") will be subject to U.S. tax
withholding (at a 30% or lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected" with
a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
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OTHER INFORMATION. The amount of any realized gain or loss on closing out a
futures contract such as a forward commitment for the purchase or sale of
foreign currency will generally result in a realized capital gain or loss for
tax purposes. Under 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.
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.
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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. State Street Bank & 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 11
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 JANUARY
FUND NAME & ADDRESS 12, 2000
- ---- -------------- --------------------
<S> <C> <C>
Money Market Fund Bechtel Mast Trust for Qualifed Employees 53%
100 Plaza One
Mailstop 3048
Jersey City, NJ 07311
Bond Fund Bechtel Mast Trust for Qualifed Employees 48%
100 Plaza One
Mailstop 3048
Jersey City, NJ 07311
Charles Schwab & Co., Inc. 12%
101 Montgomery Street
San Francisco, CA 94104-4122
Real Estate Securities Charles Schwab & Co., Inc. 54%
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
National Investor Services Corp 8%
55 Water Street
New York, NY 10041-0098
Global Fund Bechtel Mast Trust for Qualifed Employees 51%
100 Plaza One
Mailstop 3048
Jersey City, NJ 07311
Growth Fund BF Fund Limited 15%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Fremont Sequoia Holding LP 7%
50 Fremont, Suite 3700
San Francisco, CA 94105-2230
International Growth Fund BF Fund Limited 22%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Stephen D. Bechtel Jr. Trust 11%
P.O. Box 193809
San Francisco, CA 94119-3809
Charles Schwab & Co., Inc. 10%
101 Montgomery Street
San Francisco, CA 94104-4122
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U.S. Small Cap Fund Charles Schwab & Co., Inc. 28%
101 Montgomery Street
San Francisco, CA 94104-4122
Fremont Sequoia Holding LP 19%
50 Fremont, Suite 3700
San Francisco, CA 94105-2230
National Financial Services Corp 8%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003
Enele Co. FBO Omni 6%
601 SW 2nd Ave., #1800
Portland, OR 97204-3154
Emerging Markets Fund Fremont Investment Advisors, Inc. 15%
333 Market Street, Ste. 2600
San Francisco, Ca 94105-2127
Charles Schwab & Co., Inc. 13%
101 Montgomery Street
San Francisco, CA 94104-4122
Wells Fargo Bank 9%
Fremont Excess Benefit Plan
P.O. Box 9800
Calabasas, CA 91372-0800
Fremont Investors, Inc. 6%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Fremont Group 6%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
U.S. Micro-Cap Fund Charles Schwab & Co., Inc. 48%
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp 17%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003
National Investor Services Corp 7%
55 Water Street
New York, NY 10041-0098
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California Intermediate BF Fund Limited 42%
Tax-Free Fund 50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239
Charles Schwab & Co., Inc. 13%
101 Montgomery Street
San Francisco, CA 94104-4122
Willis S. Slusser and Marion B. Slusser 8%
200 Deer Valley Road, #1D
San Rafael, CA 94903-5513
</TABLE>
OTHER INVESTMENT INFORMATION. The Advisor directs the management of over
$billion of assets and internally manages over $billion of assets for retirement
plans, foundations, private portfolios, and mutual funds. The Advisor's
philosophy is to apply a long-term approach to investing that balances risk and
return potential.
The Global Fund's investment objectives are similar to the objectives of Bechtel
Trust & Thrift Plan, Fund A. The Bond Fund's investment objectives are the same
as the objectives of Bechtel Trust & Thrift Plan, Fund B. The Money Market
Fund's investment objectives are the same as the objectives of Bechtel Trust &
Thrift Plan, Fund C.
Historical annual returns of various market indices may be used to represent the
returns of various asset classes as follows:
(1) U.S. Stocks: Standard & Poor's 500 Index;
(2) Foreign Stocks: Morgan Stanley Europe, Australia and Far East (EAFE)
Index;
(3) Intermediate U.S. Bonds: Lehman Brothers Intermediate Government/
Corporate Bond Index;
(4) Foreign Bonds: Salomon Brothers Non-U.S. Dollar Bond Index;
(5) Money Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate:
1987-1998 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 1999 are as
follows (source: Fremont Investment Advisors, Inc.):
Foreign Intermediate Foreign Money Market
U.S. Stocks Stocks U.S. Bonds Bonds Securities NAREIT
----------- ------ ---------- ----- ---------- ------
1980 32.4% 24.4% 6.4% 14.2% 11.8% 28.02%
1981 -5.0% -1.0% 10.5% -4.6% 16.1% 8.58%
1982 21.3% -0.9% 26.1% 11.9% 10.7% 31.64%
1983 22.3% 24.6% 8.6% 4.4% 8.6% 25.47%
1984 6.3% 7.9% 14.4% -1.9% 10.0% 14.82%
1985 31.8% 56.7% 18.1% 35.0% 7.5% 5.92%
1986 18.7% 70.0% 13.1% 31.4% 5.9% 19.18%
1987 5.1% 24.9% 3.7% 35.2% 6.0% -10.67%
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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%
1999 21.0% 27.0% -2.2% -5.1% 4.5% -6.48%
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].
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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 redemption at the end of any period illustrated.
Each Fund will calculate total return for one, five, and ten-year periods after
such a period has elapsed, and may calculate total returns for other periods as
well. In addition, each Fund will provide lifetime average annual total return
figures.
The average annual total returns of the Funds for the periods ended October 31,
1999 are as follows:
- --------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- ---------
- --------------------------------------------------------------------------------
Money Market Fund 4.89% 5.38% 5.45%
- --------------------------------------------------------------------------------
Bond Fund 0.01% 8.78% 6.76%
- --------------------------------------------------------------------------------
Real Estate Securities Fund -0.07% -- -10.76%
- --------------------------------------------------------------------------------
Global Fund 17.37% 12.01% 10.41%
- --------------------------------------------------------------------------------
Growth Fund 24.24% 21.93% 17.27%
- --------------------------------------------------------------------------------
International Growth Fund 38.70% 8.43% 7.83%
- --------------------------------------------------------------------------------
U.S. Small Cap Fund 84.60% -- 26.64%
- --------------------------------------------------------------------------------
Emerging Markets Fund 36.16% -- -2.25%
- --------------------------------------------------------------------------------
U.S. Micro-Cap Fund 110.46% 32.42% 30.96%
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Fund -0.68% 6.04% 5.99%
- --------------------------------------------------------------------------------
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
71
<PAGE>
The Bond Fund's 30-day yield as of October 31, 1998 was 6.03%. The California
Intermediate Tax-Free Fund's 30-day yield as of October 31, 1998 was 3.55%.
Each Fund's investment results will vary from time to time depending upon market
conditions, the composition of a Fund's portfolio and operating expenses of a
Fund, so that current or past yield or total return should not be considered
representations of what an investment in a Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing a Fund's investment
results with those published for other investment companies and other investment
vehicles. A Fund's results also should be considered relative to the risks
associated with such Fund's investment objective and policies.
The Investment Company may from time to time compare the investment results of a
Fund with, or refer to, the following:
(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During certain periods, the maximum rates paid on some
savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other
goods and services that people buy for day-to-day living).
(3) Statistics reported by Lipper Analytical Services, Inc., which ranks
mutual funds by overall performance, investment objectives, and
assets.
(4) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
large publicly traded U.S. common stocks.
(5) Dow Jones Industrial Average.
(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.
72
<PAGE>
(11) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.
(12) Morgan Stanley Europe, Australia and Far East (EAFE) Index, which is
composed of foreign stocks.
(13) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.
(14) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.
(15) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed-income securities.
(16) Lehman Brothers Government/Corporate Intermediate Bond Index, which is
a widely used index composed of investment quality U.S. government and
corporate fixed income securities with maturities between one and ten
years.
(17) Salomon Brothers World Government Bond Index, which is a widely used
index composed of U.S. and non-U.S. government fixed income securities
of the major countries of the World.
(18) 90-day U.S. Treasury Bills Index, which is a measure of the
performance of constant maturity 90-day U.S. Treasury Bills.
(19) 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.
73
<PAGE>
(27) Various publications and annual reports such as the World Development
Report, produced by the World Bank and its affiliates.
(28) Various publications from the International Bank for Reconstruction
and Development/The World Bank.
(29) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch IBCA, Inc. and Standard
Poor's Ratings Group.
(30) Various publications from the Organization for Economic Cooperation
and Development.
(31) Bechtel Trust & Thrift Plan, Fund A (Global Multi-Asset Fund), Fund B
(Bond Fund), Fund C (Money Market Fund), and Fund D (U.S. Stock
Fund).*
* Bechtel Trust & Thrift Plan performance results include reinvestment of
dividends, interest, and other income, and are net of investment management
fees. Results for Fund A, Fund B, and Fund D were in part achieved through
the efforts of investment managers selected by Fremont Investment Advisors
or its predecessor organizations.
Indices prepared by the research departments of such financial organizations as
the Sub-Advisor of the Funds; J.P. Morgan; Lehman Brothers; S.G. Warburg;
Jardine Fleming; the Asian Development Bank; Bloomberg, L.P.; Morningstar, Inc;
Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith, Inc.; Morgan
Stanley; Bear Stearns & Co., Inc.; and Ibbottson Associates of Chicago, Illinois
("Ibbotson") may be used, as well as information provided by the Federal Reserve
and the respective central banks of various countries.
The Investment Company may use performance rankings and ratings reported
periodically in national financial publications such as, but not limited to,
Money Magazine, Forbes, The Wall Street Journal, Investor's Business Daily,
Fortune, Smart Money, Business Week, and Barron's.
The Advisor believes the Funds are an appropriate investment for long-term
investment goals including, but not limited to, funding retirement, paying for
education, or purchasing a house. The Funds do not represent a complete
investment program, and investors should consider the Funds as appropriate for a
portion of their overall investment portfolio with regard to their long-term
investment goals.
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.
74
<PAGE>
From time to time, the Investment Company may refer to the number of
shareholders in a Fund or the aggregate number of shareholders in all Fremont
Mutual Funds or the dollar amount of Fund assets under management or rankings by
DALBAR Savings, Inc. in advertising materials.
A Fund may compare its performance to that of other compilations or indices of
comparable quality to those listed above which may be developed and made
available in the future. The Funds may be compared in advertising to
Certificates of Deposit (CDs), the Bank Rate Monitor National Index, an average
of the quoted rates for 100 leading banks and thrifts in ten U.S. cities chosen
to represent the ten largest Consumer Metropolitan statistical areas, or other
investments issued by banks. The Funds differ from bank investments in several
respects. The Funds may offer greater liquidity or higher potential returns than
CDs; but unlike CDs, the Funds will have a fluctuating share price and return
and are not FDIC insured.
A Fund's performance may be compared to the performance of other mutual funds in
general, or to the performance of particular types of mutual funds. These
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. (Lipper), an independent service which monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of total
return, assuming reinvestment of distributions, but does not take sales charges
or redemption fees into consideration, and is prepared without regard to tax
consequences. In addition to the mutual fund rankings, a Fund's performance may
be compared to mutual fund performance indices prepared by Lipper.
The Investment Company may provide information designed to help individuals
understand their investment goals and explore various financial strategies. For
example, the Investment Company may describe general principles of investing,
such as asset allocation, diversification, and risk tolerance.
Ibbottson provides historical returns of capital markets in the United States,
including common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the CPI), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices.
The Investment Company may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not 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.
75
<PAGE>
A Fund may discuss its NASDAQ symbol, CUSIP number, and its current portfolio
management team.
From time to time, a Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, the Funds may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. In addition, the Funds may quote financial
or business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques. Rankings that compare the
performance of Fremont Mutual Funds to one another in appropriate categories
over specific periods of time may also be quoted in advertising.
The Funds may quote various measures of volatility and benchmark correlation
such as beta, standard deviation, and R2 in advertising. In addition, the Funds
may compare these measures to those of other funds. Measures of volatility seek
to compare a Fund's historical share price fluctuations or total returns
compared to those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data.
The Funds may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if a
fixed number of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
through periods of low price levels.
The Funds may be available for purchase through retirement plans of other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $10,000 investment earning
a taxable return of 10% annually would have an after-tax value of $17,976 after
ten years, assuming tax was deducted from the return each year at a 39.6% rate.
An equivalent tax-deferred investment would have an after-tax value of $19,626
after ten years, assuming tax was deducted at a 39.6% rate from the deferred
earnings at the end of the ten-year period.
A Fund may describe in its sales material and advertisements how an investor may
invest in the Fund through various retirement accounts and plans that offer
deferral of income taxes on investment earnings and may also enable an investor
to make pre-tax contributions. Because of their advantages, these retirement
accounts and plans may 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
76
<PAGE>
exceed $150,000. Some individuals may be able to take an income tax deduction
for the contribution. Regular contributions may not be made for the year after
you become 70 1/2, or thereafter.
ROLLOVER IRAS: Individuals who receive distributions from qualified retirement
plans (other than required distributions) and who wish to keep their savings
growing tax-deferred can rollover (or make a direct transfer of) their
distribution to a Rollover IRA. These accounts can also receive rollovers or
transfers from an existing IRA.
SEP-IRAS AND SIMPLE IRAS: Simplified employee pension (SEP) plans and SIMPLE
plans provide employers and self-employed individuals (and any eligible
employees) with benefits similar to Keogh-type plans or 401(k) plans, but with
fewer administrative requirements and therefore lower annual administration
expenses.
ROTH IRA: The Roth IRA allows investment of after-tax dollars in a retirement
account that provides tax-free growth. Funds can be withdrawn without federal
income tax or penalty after the account has been open for five years and the age
of 59 1/2 has been attained.
PROFIT SHARING (INCLUDING 401(K) AND MONEY PURCHASE PENSION PLANS): Corporations
can sponsor these qualified defined contribution plans for their employees. A
401(k) plan, a type of profit sharing plan, additionally permits the eligible,
participating employees to make pre-tax salary reduction contributions to the
plan (up to certain limitations).
The Advisor may from time to time in its sales methods and advertising discuss
the risks inherent in investing. The major types of investment risk are market
risk, industry risk, credit risk, interest rate risk, and inflation risk. Risk
represents the possibility that you may lose some or all of your investment over
a period of time. A basic tenet of investing is the greater the potential
reward, the greater the risk.
From time to time, the Funds and the Advisor will quote certain information
including, but not limited to, data regarding: individual countries, regions,
world stock exchanges, and economic and demographic statistics from sources the
Advisor deems reliable, including, but not limited to, the economic and
financial data of such financial organizations as:
1) Stock market capitalization: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.
2) Stock market trading volume: Morgan Stanley Capital International World
Indices, and International Finance Corporation.
3) The number of listed companies: International Finance Corporation, Salomon
Brothers, Inc., and S.G. Warburg.
4) Wage rates: U.S. Department of Labor Statistics and Morgan Stanley Capital
International World Indices.
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.
77
<PAGE>
7) The Consumer Price Index and inflation rate: The World Bank, Datastream,
and International Finance Corporation.
8) Gross Domestic Product (GDP): Datastream and The World Bank.
9) GDP growth rate: International Finance Corporation, The World Bank, and
Datastream.
10) Population: The World Bank, Datastream, and United Nations.
11) Average annual growth rate (%) of population: The World Bank, Datastream,
and United Nations.
12) Age distribution within populations: Organization for Economic Cooperation
and Development and United Nations.
13) Total exports and imports by year: International Finance Corporation, The
World Bank, and Datastream.
14) Top three companies by country, industry, or market: International Finance
Corporation, Salomon Brothers, Inc., and S.G. Warburg.
15) Foreign direct investments to developing countries: The World Bank and
Datastream.
16) Supply, consumption, demand, and growth in demand of certain products,
services, and industries, including, but not limited to, electricity,
water, transportation, construction materials, natural resources,
technology, other basic infrastructure, financial services, health care
services and supplies, consumer products and services, and
telecommunications equipment and services (sources of such information may
include, but would not be limited to, The World Bank, OECD, IMF, Bloomberg,
and Datastream).
17) Standard deviation and performance returns for U.S. and non-U.S. equity and
bond markets: Morgan Stanley Capital International.
18) Political and economic structure of countries: Economist Intelligence Unit.
19) Government and corporate bonds - credit ratings, yield to maturity and
performance returns: Salomon Brothers, Inc.
20) Dividend for U.S. and non-U.S. companies: Bloomberg.
In advertising and sales materials, the Advisor or a Sub-Advisor may make
reference to or discuss its products, services, and accomplishments. Such
accomplishments do not provide any assurance that the Fremont Mutual Funds'
investment objectives will be achieved.
78
<PAGE>
Appendix 1
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
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FREMONT MUTUAL FUNDS, INC.
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
TOLL-FREE: 800-548-4539
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information concerning Fremont Mutual Funds, Inc.
(the "Investment Company") is not a prospectus. This Statement of Additional
Information supplements the Prospectus for the Fremont Institutional U.S.
Micro-Cap Fund (the "Fund") dated February 10, 2000 and should be read in
conjunction with the Prospectus. Copies of the Prospectus are available without
charge by calling the Investment Company at the phone number printed above.
The date of this Statement of Additional Information is February 10, 2000.
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TABLE OF CONTENTS
PAGE
The Corporation.............................................................. 3
Investment Objective, Policies, And Risk
Considerations............................................................. 4
Investment Restrictions...................................................... 18
Investment Company Directors And Officers.................................... 21
Investment Advisory And Other Services....................................... 23
Execution Of Portfolio Transactions.......................................... 25
How To Invest................................................................ 26
Other Investment And Redemption Services..................................... 28
Taxes - Mutual Funds......................................................... 29
Additional Information....................................................... 32
Investment Results........................................................... 34
Appendix A: Description Of Ratings........................................... 42
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THE CORPORATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed, open-end investment company. Currently, the Investment Company
has authorized several series of capital stock with equal dividend and
liquidation rights within each series. This Statement of Additional Information
pertains to the Fremont Institutional U.S. Micro-Cap Fund (the "Fund").
Investment Company shares are entitled to one vote per share (with proportional
voting for fractional shares) and are freely transferable. Shareholders have no
preemptive or conversion rights. Shares may be voted in the election of
directors and on other matters submitted to the vote of shareholders. As
permitted by Maryland law, there normally will be no annual meeting of
shareholders in any year, except as required under the Investment Company Act of
1940, as amended (the "1940 Act"). The 1940 Act requires that a meeting be held
within 60 days in the event that less than a majority of the directors holding
office has been elected by shareholders. Directors shall continue to hold office
until their successors are elected and have qualified. Investment Company shares
do not have cumulative voting rights, which means that the holders of a majority
of the shares voting for the election of directors can elect all of the
directors. Shareholders holding 10% of the outstanding shares may call a meeting
of shareholders for any purpose, including that of removing any director. A
director may be removed upon a majority vote of the shareholders qualified to
vote in the election. The 1940 Act requires the Investment Company to assist
shareholders in calling such a meeting.
The management of the business and affairs of the Investment Company is the
responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the
"Advisor") provides the Fund with investment management and administrative
services under an Investment Advisory and Administrative Agreement (the
"Advisory Agreement") with the Investment Company. The Advisory Agreement
provides that the Advisor shall furnish advice to the Fund with respect to its
investments and shall, to the extent authorized by the Board of Directors,
determine what securities shall be purchased or sold by the Fund. The Advisor's
Investment Committee oversees the portfolio management of the Fund.
The professional staff of the Advisor has offered professional investment
management services regarding asset allocation in connection with securities
portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation
since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since
1987. The Advisor also provides investment advisory services regarding asset
allocation, investment manager selection and portfolio diversification to a
number of large Bechtel-related investors. The Investment Company is one of the
Advisor's clients.
The Advisor will provide direct portfolio management services to the extent that
a sub-advisor does not provide those services. In the future, the Advisor may
propose to the Investment Company that different or additional sub-advisor(s) be
engaged to provide investment advisory or portfolio management services to the
Fund. Prior to such engagement, any agreement with a sub-advisor must be
approved by the Board of Directors and, if required by law, by the shareholders
of the Fund. The Advisor may in its discretion manage all or a portion of the
Fund's portfolio directly with or without the use of a sub-advisor.
On any matter submitted to a vote of shareholders, such matter shall be voted by
the Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval
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of the Advisory Agreement with the Advisor) except in matters where a vote of
all series in the aggregate is required by the 1940 Act or otherwise.
Pursuant to the Articles of Incorporation, the Investment Company may issue ten
billion shares. This amount may be increased or decreased from time-to-time at
the discretion of the Board of Directors. Each share of a series represents an
interest in that series only, has a par value of $0.0001 per share, represents
an equal proportionate interest in that series with other shares of that series,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to that series as may be declared at the discretion of the
Board of Directors. Shares of a series when issued are fully paid and are
non-assessable. The Board of Directors may, at its discretion, establish and
issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Fund under applicable Securities and Exchange Commission regulations.
INVESTMENT OBJECTIVE, POLICIES, AND RISK CONSIDERATIONS
The descriptions below are intended to supplement the material in the
Prospectus.
Under normal market conditions, at least 65% of the total assets of the Fund
will be invested in equity securities of U.S. micro-cap companies (described
below). These companies would have a market capitalization that would place them
in the smallest 10% of market capitalization measured at the time of purchase.
The Fund will generally seek companies whose market capitalization fall within
the smallest 5% of the U.S. exchange listed companies or on the OTC market. As
the value of the total market capitalziation changes, the smallest 5% cap size
many also change. Up to 25% of the Fund's total assets, at the time of purchase,
may be invested in securities of micro-cap companies domiciled outside the
United States, including sponsored and unsponsored American Depository Receipts
("ADRs") and Global Depository Receipts ("GDRs"). The Fund may also invest in
stock index futures contracts, options on index futures and options on portfolio
securities and stock indices.
Although the Fund invests primarily in common stocks and securities convertible
into common stock, for liquidity purposes it will normally invest a portion of
its assets in high quality debt securities and money market instruments with
remaining maturities of one year or less, including repurchase agreements.
Whenever, in the judgment of the Advisor or the Sub-Advisor, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in these instruments. Of course, during times that the Fund
is investing defensively, the Fund will not be able to pursue its stated
investment objective. The Fund may also hold other types of securities from time
to time, including non-convertible bonds and preferred stocks, in an amount not
exceeding 5% of its net assets. Preferred stocks and bonds will be, at the time
of purchase, (i) rated in the top two categories of Moody's Investor Service,
Inc. (Aaa or Aa) or Standard & Poor's Ratings Group, (AAA or AA), or (ii) have a
comparable rating by another Nationally Recognized Statistical Rating
Organization ("NRSRO), or (iii) be of comparable quality as determined by the
Advisor and/or Sub-Advisor.
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GENERAL INVESTMENT POLICIES
DIVERSIFICATION. The Fund intends to operate as a "diversified" management
investment company, as defined in the 1940 Act. A "diversified" investment
company means a company which meets the following requirements: At least 75% of
the value of the Fund's total assets is represented by cash and cash items
(including receivables), "Government Securities" (as defined below), securities
of other investment companies, and other securities for the purposes of this
calculation limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of such issuer. "Government Securities"
means securities issued or guaranteed as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an
instrumentality of the Government of the United States pursuant to authority
granted by the Congress of the United States.
MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following "money
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations and governments; U.S. government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Fund's quality guidelines. The Fund also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
At the time of purchase, short-term securities must be rated in the top rating
category by at least two NRSROs or, in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or if not rated by an
NRSRO, must be determined to be of comparable quality by the Advisor and/or
Sub-Advisor. Generally, high quality short-term securities must be issued by an
entity with an outstanding debt issue rated A or better by an NRSRO, or an
entity of comparable quality as determined by the Advisor and/or Sub-Advisor,
using guidelines approved by the Board of Directors. Obligations of foreign
banks, foreign corporations and foreign branches of domestic banks must be
payable in U.S. dollars. See Appendix A to the Statement of Additional
information for a description of rating categories.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. government securities,
which are obligations of, or guaranteed by, the U.S. government, its agencies or
instrumentalities. Some U.S. government securities, such as Treasury bills,
notes and bonds and Government National Mortgage Association ("GNMA")
certificates, are supported by the full faith and credit of the United States;
those of the Federal Home Loan Mortgage Corporation ("FHLMC") are supported by
the right of the issuer to borrow from the Treasury; those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and those
of the Student Loan Marketing Association are supported only by the credit of
the instrumentality. The U.S. government is not obligated by law to provide
future financial support to the U.S. government agencies or instrumentalities
named above.
REPURCHASE AGREEMENTS. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer, or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a period of less than one week. The seller must maintain with the
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Fund's custodian collateral equal to at least 100% of the repurchase price,
including accrued interest, as monitored daily by the Advisor and/or
Sub-Advisor. The Fund will not enter into a repurchase agreement with a maturity
of more than seven business days if, as a result, more than 15% of the value of
its net assets would then be invested in such repurchase agreements. The Fund
will only enter into repurchase agreements where (i) the underlying securities
are issued or guaranteed by the U.S. government, (ii) the market value of the
underlying security, including accrued interest, will be at all times equal to
or in excess of the value of the repurchase agreement, and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (i) a possible decline in the value of the
underlying security during the period in which the Fund seeks to enforce its
rights thereto; (ii) possible subnormal levels of income and lack of access to
income during this period; and (iii) expenses of enforcing the Fund's rights.
REVERSE REPURCHASE AGREEMENTS AND LEVERAGE. The Fund may enter into reverse
repurchase agreements which involve the sale of a security by the Fund and its
agreement to repurchase the security at a specified time and price. The Fund
will maintain in a segregated account with its custodian cash, cash equivalents,
or liquid securities in an amount sufficient to cover its obligations under
reverse repurchase agreements with broker-dealers (but not with banks). Under
the 1940 Act, reverse repurchase agreements are considered borrowings by the
Fund; accordingly, the Fund will limit its investments in these transactions,
together with any other borrowings, to no more than one-third of its total
assets. The use of reverse repurchase agreements by the Fund creates leverage
which increases the Fund's investment risk. If the income and gains on
securities purchased with the proceeds of these transactions exceed the cost,
the Fund's earnings or net asset value will increase faster than otherwise would
be the case; conversely, if the income and gains fail to exceed the costs,
earnings or net asset value would decline faster than otherwise would be the
case. If the 300% asset coverage required by the 1940 Act should decline as a
result of market fluctuation or other reasons, the Fund may be required to sell
some of its portfolio securities within three days to reduce the borrowings
(including reverse repurchase agreements) and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint to sell
securities at that time. The Fund intends to enter into reverse repurchase
agreements only if the income from the investment of the proceeds is greater
than the expense of the transaction, because the proceeds are invested for a
period no longer than the term of the reverse repurchase agreement.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS AND PARTICIPATION INTERESTS. The
Fund may purchase floating rate and variable rate obligations, including
participation interests therein. Floating rate or variable rate obligations
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate at a major commercial bank) or is
reset on a regular basis by a bank or investment banking firm to a market rate.
At specified times, the owner can demand payment of the obligation at par plus
accrued interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external
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interest rate. Frequently, banks provide letters of credit or other credit
support or liquidity arrangements to secure these obligations. The quality of
the underlying creditor or of the bank, as the case may be, must meet the
minimum credit quality standards, as determined by the Advisor and/or
Sub-Advisor, prescribed for the Fund by the Board of Directors with respect to
counterparties in repurchase agreements and similar transactions.
The Fund may invest in participation interests purchased from banks in floating
rate or variable rate obligations owned by banks. A participation interest gives
the Fund an undivided interest in the obligation in the proportion that the
Fund's participation interest bears to the total principal amount of the
obligation, and provides a demand repayment feature. Each participation is
backed by an irrevocable letter of credit or guarantee of a bank (which may be
the bank issuing the participation interest or another bank). The bank letter of
credit or guarantee must meet the prescribed investment quality standards for
the Fund. The Fund has the right to sell the participation instrument back to
the issuing bank or draw on the letter of credit on demand for all or any part
of the Fund's participation interest in the underlying obligation, plus accrued
interest.
SWAP AGREEMENTS. The Fund may enter into interest rate, index, and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include interest
rate caps, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates exceed a specified rate,
or "cap"; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall
below a specified level, or "floor"; and interest rate collars, under which a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). The Fund's obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or high-grade debt
obligations, to avoid any potential leveraging of the Fund's portfolio. The Fund
will not enter into a swap agreement with any
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single party if the net amount owed or to be received under existing contracts
with that party would exceed 5% of the Fund's net assets.
Whether the Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Advisor's and/or 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 as illiquid. Moreover, the Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Advisor and/or Sub-Advisor will
cause the Fund to enter into swap agreements only with counterparties that would
be eligible for consideration as repurchase agreement counterparties under the
Fund's repurchase agreement guidelines. Certain restrictions imposed on the Fund
by the Internal Revenue Code may limit the Fund's ability to use swap
agreements. The swaps market is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect the Fund's ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase
securities on a delayed delivery or "when-issued" basis and enter into firm
commitment agreements (transactions whereby the payment obligation and interest
rate are fixed at the time of the transaction but the settlement is delayed).
The Fund will not purchase securities the value of which is greater than 5% of
its net assets on a when-issued or firm commitment basis. The Fund, as
purchaser, assumes the risk of any decline in value of the security beginning on
the date of the agreement or purchase, and no interest accrues to the Fund until
it accepts delivery of the security. The Fund will not use such transactions for
leveraging purposes and, accordingly, will segregate cash, cash equivalents, or
liquid securities in an amount sufficient to meet its payment obligations
thereunder. There is always a risk that the securities may not be delivered and
that a Fund may incur a loss or will have lost the opportunity to invest the
amount set aside for such transaction in the segregated asset account.
Settlements in the ordinary course of business, which may take substantially
more than three business days for non-U.S. securities, are not treated by the
Funds as when-issued or forward commitment transactions and, accordingly, are
not subject to the foregoing limitations, even though some of the risks
described above may be present in such transactions. Although these transactions
will not be entered into for leveraging purposes, to the extent the Fund's
aggregate commitments under these transactions exceed its holdings of cash and
securities that do not fluctuate in value (such as short-term money market
instruments), the Fund temporarily will be in a leveraged position (i.e., it
will have an amount greater than its net assets subject to market risk). Should
market values of the Fund's portfolio securities decline while the Fund is in a
leveraged position, greater depreciation of its net assets would likely occur
than were it not in such a position. As the Fund's aggregate commitments under
these transactions increase, the opportunity for leverage similarly increases.
The Fund will not borrow money to settle these transactions and, therefore, will
liquidate other portfolio securities in advance of settlement if necessary to
generate additional cash to meet its obligations thereunder.
COMMERCIAL BANK OBLIGATIONS. For the purposes of the Fund's investment policies
with respect to bank obligations, obligations of foreign branches of U.S. banks
and of foreign banks
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may be general obligations of the parent bank in addition to the issuing bank,
or may be limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general, investments in
the obligations of foreign branches of U.S. banks, and of foreign banks may
subject the Fund to investment risks that are different in some respects from
those of investments in obligations of domestic issuers. Although the Fund will
typically acquire obligations issued and supported by the credit of U.S. or
foreign banks having total assets at the time of purchase in excess of $1
billion, this $1 billion figure is not a fundamental investment policy or
restriction of the Fund. For the purposes of calculating the $1 billion figure,
the assets of a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.
TEMPORARY DEFENSIVE POSTURE. When a temporary defensive posture in the market is
appropriate in the Advisor's and/or Sub-Advisor's opinion, the Fund may
temporarily invest up to 100% of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. The
Fund may also hold other types of securities from time to time, including bonds.
BORROWING. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and may enter into
reverse repurchase agreements. If the income and gains on securities purchased
with the proceeds of borrowings or reverse repurchase agreements exceed the cost
of such borrowings or agreements, the Fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the cost, earnings or net asset value would decline faster
than otherwise would be the case.
LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing additional income,
the Fund may make secured loans of portfolio securities amounting to not more
than 33-1/3% of its net assets. Securities loans are made to broker-dealers or
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent marked to market on a daily basis. The collateral received
will consist of cash, short-term U.S. Government securities, bank letters of
credit, or such other collateral as may be permitted under the Fund's investment
program and by regulatory agencies and approved by the Board of Directors. While
the securities are being lent, the Fund will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Fund has a right to call each loan and obtain the securities on five business
days' notice. The Fund will not have the right to vote equity securities while
they are being lent, but it will call a loan in anticipation of any vote in
which it seeks to participate.
PORTFOLIO TURNOVER. The Fund may trade in securities for short-term gain
whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take
advantage of anomalies occurring in general market, economic or political
conditions. Therefore, the Fund may have a higher portfolio turnover rate than
that of some other investment companies, but it is anticipated that the annual
portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover
rate is calculated by dividing the lesser of sales or purchases of long-term
portfolio securities by the Fund's average month-end long-term investments. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads or brokerage commissions and other costs that the Fund
will bear directly, and may result in the realization of net capital gains,
which are generally taxable whether or not distributed to shareholders.
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SHARES OF INVESTMENT COMPANIES. The Fund may invest some portion of its assets
in shares of other no-load, open-end investment companies and closed-end
investment companies to the extent that they may facilitate achieving the
objective of the Fund or to the extent that they afford the principal or most
practical means of access to a particular market or markets or they represent
attractive investments in their own right. The percentage of Fund assets which
may be so invested is not limited, provided that the Fund and its affiliates do
not acquire more than 3% of the shares of any such investment company. The
provisions of the 1940 Act may also impose certain restrictions on redemption of
the Fund's shares in other investment companies. The Fund's purchase of shares
of investment companies may result in the payment by a shareholder of
duplicative management fees. The Advisor and/or Sub-Advisor will consider such
fees in determining whether to invest in other mutual funds. The Fund will
invest only in investment companies which do not charge a sales load; however,
the Fund may invest in such companies with distribution plans and fees, and may
pay customary brokerage commissions to buy and sell shares of closed-end
investment companies.
The return on the Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Fund's investment in a closed-end investment company may
require the payment of a premium above the net asset value of the investment
company's shares, and the market price of the investment company thereafter may
decline without any change in the value of the investment company's assets. The
Fund, however, will not invest in any investment company or trust unless the
potential benefits of such investment are sufficient to warrant the payment of
any such premium.
As an exception to the above, the Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions, and
policies as that of the Fund. The Fund will notify its shareholders prior to
initiating such an arrangement.
ILLIQUID AND RESITRICTED SECURITIES. The Fund may invest up to 15% of its net
assets in all forms of "illiquid securities."
An investment is generally deemed to be "illiquid" if it cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which such securities are valued by the Fund. "Restricted" securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933 (the "1933 Act"). However, a
market exists for certain restricted securities (for example, securities
qualifying for resale to certain "qualified institutional buyers" pursuant to
Rule 144A under the 1933 Act). Additionally, the Advisor, the Sub-Advisor and
the Fund believe that a similar market exists for commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act. The
Fund may invest without limitation in these forms of restricted securities if
such securities are determined by the Advisor to be liquid in accordance with
standards established by the Investment Company's Board of Directors. Under
these standards, the Advisor must consider (a) the frequency of trades and
quotes for the security, (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (c) any dealer
undertaking to make a market in the security, and (d) the nature of the security
and the nature of the marketplace trades (for example, the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The Board, however, will retain sufficient oversight and will be
ultimately responsible for the determination.
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It is not possible to predict with accuracy how the markets for certain
restricted securities will develop. Investing in restricted securities could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
REDUCTION IN BOND RATING. In the event that the rating for any security held by
the Fund drops below the minimum acceptable rating applicable to the Fund, the
Advisor will determine whether the Fund should continue to hold such an
obligation in its portfolio. Bonds rated below BBB or Baa are commonly known as
"junk bonds." These bonds are subject to greater fluctuations in value and risk
of loss of income and principal due to default by the issuer than are higher
rated bonds. The market values of junk bonds tend to reflect short-term
corporate, economic, and market developments and investor perceptions of the
issuer's credit quality to a greater extent than higher rated bonds. In
addition, it may be more difficult to dispose of, or to determine the value of,
junk bonds. See Appendix A for a complete description of the bond ratings.
WRITING COVERED CALL OPTIONS. The Fund may write (sell) "covered" call options
and purchase options to close out options previously written by the Fund. The
purpose of writing covered call options is to generate additional premium income
for the Fund. This premium income will serve to enhance the Fund's total return
and will reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities and currencies which, in the opinion of the Advisor, are not expected
to make any major price moves in the near future but which, over the long term,
are deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a security or
currency at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him or her to deliver
the underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by purchasing an
option identical to that previously sold. To secure his or her obligation to
deliver the underlying security or currency in the case of a call option, a
writer is required to deposit in escrow the underlying security or currency or
other assets in accordance with the rules of the Options Clearing Corporation.
The Fund will write only covered call options. This means that the Fund will
only write a call option on a security, index, or currency which the Fund
already effectively owns or has the right to acquire without additional cost.
Portfolio securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with the
Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely limits the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Fund has no control over when it may be required to
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<PAGE>
sell the underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency. The Fund will
identify assets for the purpose of segregation to cover the call. The Fund will
consider a security or currency covered by a call to be "pledged" as that term
is used in its policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the Fund
receives from writing a call option reflects, among other things, the current
market price of the underlying security or currency, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security or currency, and the length of the option period. Once the
decision to write a call option has been made, the Advisor and/or Sub-Advisor,
in determining whether a particular call option should be written on a
particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by the Fund for writing covered call
options will be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sales price at the time at which the net
asset value per share of the Fund is computed (close of the regular trading
session of the New York Stock Exchange), or, in the absence of such sale, the
latest asked price. The liability will be extinguished upon expiration of the
option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to sell
a particular security or currency from its portfolio on which it has written a
call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security or currency. There is, of course, no
assurance that the Fund will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security or currency that it might otherwise have sold, in
which case it would continue to be at market risk with respect to the security
or currency. The Fund will pay transaction costs in connection with the
purchasing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, the Fund
may purchase an underlying security or currency for delivery in accordance with
an exercise notice of a call option assigned to it, rather than delivering such
security or currency from its portfolio. In such cases, additional costs will be
incurred.
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<PAGE>
The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security
or currency, any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the underlying security or
currency owned by the Fund.
WRITING COVERED PUT OPTIONS. The Fund may write covered put options. With a put
option, the purchaser of the option has the right to sell, and the writer
(seller) may have the obligation to buy, the underlying security or currency at
the exercise price during the option period. So long as the writer is short the
put options, the writer may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the writer to make payment of the
exercise price against delivery of the underlying security or currency. The
operation of put options in other respects, including their related risks and
rewards, is substantially identical to that of call options.
The Fund may write put options only on a covered basis, which means that the
Fund would maintain in a segregated account cash and liquid securities in an
amount not less than the exercise price at all times while the put option is
outstanding. (The rules of the Options Clearing Corporation currently require
that such assets be deposited in escrow to secure payment of the exercise
price.) The Fund would generally write covered put options in circumstances
where the Advisor and/or Sub-Advisors wishes to purchase the underlying security
or currency for the Fund's portfolio at a price lower than the current market
price of the security or currency. In such event the Fund would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Fund would also
receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received.
PURCHASING PUT OPTIONS. The Fund may purchase put options. As the holder of a
put option, the Fund has the right to sell the underlying security or currency
at the exercise price at any time during the option period. The Fund may enter
into closing sale transactions with respect to such options, exercise them, or
permit them to expire. The Fund may purchase put options for defensive purposes
in order to protect against an anticipated decline in the value of its
securities or currencies. An example of such use of put options is provided
below.
The Fund may purchase a put option on an underlying security or currency (a
"protective put") owned as a defensive technique in order to protect against an
anticipated decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a put option
may be purchased in order to protect unrealized appreciation of a security or
currency where the Advisor and/or Sub-Advisor deems it desirable to continue to
hold the security or currency because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security or currency is eventually
sold.
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<PAGE>
The Fund may also purchase put options at a time when the Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
The Fund will commit no more than 5% of its assets to premiums when purchasing
put options. The premium paid by the Fund when purchasing a put option will be
recorded as an asset in the Fund's statement of assets and liabilities. This
asset will be adjusted daily to the option's current market value, which will be
the latest sale price at the time at which the Fund's net asset value per share
is computed (close of trading on the New York Stock Exchange), or, in the
absence of such sale, the latest bid price. The asset will be extinguished upon
expiration of the option, the selling (writing) of an identical option in a
closing transaction, or the delivery of the underlying security or currency upon
the exercise of the option.
PURCHASING CALL OPTIONS. The Fund may purchase call options. As the holder of a
call option, the Fund has the right to purchase the underlying security or
currency at the exercise price at any time during the option period. The Fund
may enter into closing sale transactions with respect to such options, exercise
them, or permit them to expire. The Fund may purchase call options for the
purpose of increasing its current return or avoiding tax consequences which
could reduce its current return. The Fund may also purchase call options in
order to acquire the underlying securities or currencies. Examples of such uses
of call options are provided below.
Call options may be purchased by the Fund for the purpose of acquiring the
underlying securities or currencies for its portfolio. Utilized in this fashion,
the purchase of call options enables the Fund involved to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to the Fund in purchasing a large block of
securities that would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying security or
currency itself, the Fund is partially protected from any unexpected decline in
the market price of the underlying security or currency and in such event could
allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
The Fund will commit no more than 5% of its assets to premiums when purchasing
call options. The Fund may also purchase call options on underlying securities
or currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses that would result in a reduction of the Fund's current
return. For example, where the Fund has written a call option on an underlying
security or currency having a current market value below the price at which such
security or currency was purchased by the Fund, an
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<PAGE>
increase in the market price could result in the exercise of the call option
written by the Fund and the realization of a loss on the underlying security or
currency with the same exercise price and expiration date as the option
previously written.
DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for the future
sale by one party and purchase by another party of a specified amount of a
specific financial instrument (security or currency) for a specified price at a
designated date, time, and place. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be maintained.
Although futures contracts typically require future delivery of and payment for
financial instruments or currencies, the futures contracts are usually closed
out before the delivery date. Closing out an open futures contract sale or
purchase is effected by entering into an offsetting futures contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
financial instrument or currency and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Fund realizes a gain;
if it is more, the Fund realizes a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the Fund realizes a gain; if it
is less, the Fund realizes a loss. The transaction costs must also be included
in these calculations. There can be no assurance, however, that the Fund will be
able to enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the future Contract.
As an example of an offsetting transaction in which the financial instrument or
currency is not delivered, the contractual obligations arising from the sale of
one Contract of September Treasury Bills on an exchange may be fulfilled at any
time before delivery of the Contract is required (e.g., on a specified date in
September, the "delivery month") by the purchase of one Contract of September
Treasury Bills on the same exchange. In such instance the difference between the
price at which the futures contract was sold and the price paid for the
offsetting purchase, after allowance for transaction costs, represents the
profit or loss to the Fund.
The Fund may enter into interest rate, S&P Index (or other major market index),
or currency futures contracts as a hedge against changes in prevailing levels of
stock values, interest rates, or currency exchange rates in order to establish
more definitely the effective return on securities or currencies held or
intended to be acquired by the Fund. The Fund's hedging may include sales of
Futures as an offset against the effect of expected increases in currency
exchange rates, purchases of such Futures as an offset against the effect of
expected declines in currency exchange rates, and purchases of Futures in
anticipation of purchasing underlying index stocks prior to the availability of
sufficient assets to purchase such stocks or to offset potential increases in
the prices of such stocks. When selling options or futures contracts, the Fund
will segregate cash and liquid securities to cover any related liability.
The Fund will not enter into futures contracts for speculation and will only
enter into futures contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal Futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission. Futures are also traded in various overseas markets.
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<PAGE>
Although techniques other than sales and purchases of futures contracts could be
used to reduce the Fund's exposure to currency exchange rate fluctuations, the
Fund may be able to hedge its exposure more effectively and perhaps at a lower
cost through using futures contracts.
The Fund will not enter into a futures contract if, as a result thereof, more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to "margin" (down payment)
deposits on such futures contracts.
A Stock Index contract such as the S&P 500 Stock Index Contract, for example, is
an agreement to take or make delivery at a specified future date of an amount of
cash equal to $500 multiplied by the difference between the value of the Stock
Index at purchase and at the close of the last trading day of the contract. In
order to close long positions in the Stock Index contracts prior to their
settlement date, the Fund will enter into offsetting sales of Stock Index
contracts.
Using Stock Index contracts in anticipation of market transactions involves
certain risks. Although the Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for the contracts at any particular
time. In addition, the price of Stock Index contracts may not correlate
perfectly with the movement in the Stock Index due to certain market
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the Stock Index
and movements in the price of Stock Index contracts, a correct forecast of
general market trends may not result in a successful anticipatory hedging
transaction.
FUTURES CONTRACTS GENERALLY. Persons who trade in futures contracts may be
broadly classified as "hedgers" and "speculators." Hedgers, such as the Fund,
whose business activity involves investment or other commitments in debt
securities, equity securities, or other obligations, use the Futures markets
primarily to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities and obligations held or expected to
be acquired by them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates, securities prices, or currency
exchange rates.
A public market exists in futures contracts covering foreign financial
instruments such as U.K. Pound and Japanese Yen, among others. Additional
futures contracts may be established from time to time as various exchanges and
existing futures contract markets may be terminated or altered as to their terms
or methods of operation.
The Fund's Futures transactions will be entered into for traditional hedging
purposes; that is, futures contracts will be sold to protect against a decline
in the price of securities or currencies that the Fund owns, or futures
contracts will be purchased to protect the Fund against an increase in the price
of securities or currencies it has a fixed commitment to purchase.
"Margin" with respect to Futures and futures contracts is the amount of funds
that must be deposited by the Fund with a broker in order to initiate Futures
trading and to maintain the
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Fund's open positions in futures contracts. A margin deposit ("initial margin")
is intended to assure the Fund's performance of the futures contract. The margin
required for a particular futures contract is set by the exchange on which the
Contract is traded, and may be significantly modified from time to time by the
exchange during the term of the Contract. futures contracts are customarily
purchased and sold on margins that may range upward from less than 5% of the
value of the futures contract being traded.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin deposit ("margin
variation"). However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund. In computing daily
net asset values, the Fund will mark to market the current value of its open
futures contracts. The Fund expects to earn interest income on its margin
deposits.
The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events.
At best, the correlation between changes in prices of futures contracts and of
the securities or currencies being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances such as: variations in
speculative market demand for Futures and for securities or currencies,
including technical influences in Futures trading; and differences between the
financial instruments being hedged and the instruments underlying the standard
futures contracts available for trading, with respect to interest rate levels,
maturities, and creditworthiness of issuers. A decision of whether, when, and
how to hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or interest
rate trends.
Because of the low margin deposits required, trading of futures contracts
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss or gain to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund segregates and commits to back the futures contract with
money market instruments equal in value to the current value of the underlying
instrument less the margin deposit.
Most futures exchanges in the United States limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount
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<PAGE>
that the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of futures contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of Futures positions and subjecting some Futures
traders to substantial losses.
OPTIONS ON INTEREST RATE AND/OR CURRENCY FUTURES CONTRACTS. Options on futures
contracts are similar to options on fixed income or equity securities or options
on currencies, except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), rather than to purchase or sell the futures contract, at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the Futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's Futures margin account which represents the
amount by which the market price of the futures contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference on the expiration date between
the exercise price of the option and the closing level of the securities or
currencies upon which the futures contracts are based. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
As an alternative to purchasing call and put options on Futures, the Fund may
purchase call and put options on the underlying securities or currencies. Such
options would be used in a manner identical to the use of options on futures
contracts. To reduce or eliminate the leverage then employed by the Fund or to
reduce or eliminate the hedge position then currently held by the Fund, the Fund
may seek to close out an option position by selling an option covering the same
securities or contract and having the same exercise price and expiration date.
FORWARD CURRENCY AND OPTIONS TRANSACTIONS. A forward currency contract is an
obligation to purchase or sell a currency against another currency at a future
date and price as agreed upon by the parties. The Fund may either accept or make
delivery of the currency at the maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. The Fund typically engages in forward currency transactions
in anticipation of, or to protect itself against, fluctuations in exchange
rates. The Fund might sell a particular currency forward, for example, when it
wanted to hold bonds denominated in that currency but anticipated, and sought to
be protected against, a decline in the currency against the U.S. dollar.
Similarly, the Fund might purchase a currency forward to "lock in" the dollar
price of securities denominated in that currency which it anticipated
purchasing.
A put option gives the Fund, as purchaser, the right (but not the obligation) to
sell a specified amount of currency at the exercise price until the expiration
of the option. A call option gives the Fund, as purchaser, the right (but not
the obligation) to purchase a specified amount of currency at the exercise price
until its expiration. The Fund might purchase a currency put option, for
example, to protect itself during the contract period against a decline in the
dollar
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<PAGE>
value of a currency in which it holds or anticipates holding securities. If the
currency's value should decline against the dollar, the loss in currency value
should be offset, in whole or in part, by an increase in the value of the put.
If the value of the currency instead should rise against the dollar, any gain to
the Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which
the Fund anticipates purchasing securities.
Currency options may be either listed on an exchange or traded over-the-counter
(OTC). Listed options are third-party contracts (i.e., performance of the
obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The Fund will not purchase an OTC option unless the Advisor and/or
Sub-Advisor believes that daily valuation for such option is readily obtainable.
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INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment policies and
restrictions in addition to the policies and restrictions discussed in its
prospectus. The policies and restrictions listed below cannot be changed without
approval by the holders of a "majority of the outstanding voting securities" of
the Fund (which is defined in the 1940 Act to mean the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares). These
restrictions provide that the Fund may not:
1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same
industry, except that this limitation shall not apply to securities
issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies or instrumentalities.
2. Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Fund may invest in
securities secured by real estate, or issued by companies which invest
in real estate or interests therein, including real estate investment
trusts, and may purchase and sell currencies (including forward
currency exchange contracts), gold, bullion, futures contracts, and
related options generally as described in the Prospectus and Statement
of Additional Information.
3. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933.
4. Make loans, except that the Fund may purchase debt securities, enter
into repurchase agreements, and make loans of portfolio securities
amounting to not more than 33 1/3% of its net assets calculated at the
time of the securities lending.
5. Borrow money, except from banks for temporary or emergency purposes
not in excess of 30% of the value of the Fund's total assets. The Fund
will not purchase securities while such borrowings are outstanding.
6. Change its status as a diversified investment company.
7. Issue senior securities, except as permitted under the 1940 Act, and
except that the Investment Company and the Fund may issue shares of
common stock in multiple series or classes.
8. Notwithstanding any other fundamental investment restriction or
policy, the Fund may invest all of its assets in the securities of a
single open-end investment company with substantially the same
fundamental investment objectives, restrictions, and policies as the
Fund.
Other current investment policies of the Fund, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. The Fund may not:
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<PAGE>
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 the Fund's net assets.
16. Make short sales of securities or maintain a short position, except
that the Fund may sell short "against the box."
17. Invest in securities of an issuer if the investment would cause the
Fund to own more than 10% of any class of securities of any one
issuer.
18. Acquire more than 3% of the outstanding voting securities of any one
investment company.
Certain market strategies and market definitions applicable to the Fund - such
as the market capitalization ranges - may be adjusted from time to time to
reflect changing market circumstances subject to review and approval by the
Fund's Board of Directors.
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INVESTMENT COMPANY DIRECTORS AND OFFICERS
The Bylaws of Fremont Mutual Funds, Inc. (the "Investment Company"), the
Maryland investment company of which the Fund is a series, authorize a Board of
Directors of between three and 15 persons, as fixed by the Board of Directors. A
majority of directors may fill vacancies caused by the resignation or death of a
director or the expansion of the Board of Directors. Any director may be removed
by vote of the holders of a majority of all outstanding shares of the Investment
Company qualified to vote at the meeting.
<TABLE>
<CAPTION>
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 and Director, President, CEO, CIO and Director,
Fremont Investment, Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor Managing Director, Fremont Group, LLC
San Francisco, CA 94105 and Fremont Investors, Inc.;
Director, Sequoia Ventures,
Sit/Kim International
Investment Associates, and
J.P. Morgan Securities Asia.
Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present, Managing Director,
Fremont Investment Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor 10/77 - 7/96, Senior Vice President
San Francisco, CA 94105 Business Development, Benham
Management.
Richard E. Holmes(3) 5-14-43 Director Vice President and Director, BelMar
P.O. Box 479 Advisors, Inc. (marketing firm)
Sanibel, FL 33957
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. and Treasurer and COO, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 1/94 - 7/98,
San Francisco, CA 94105 Director, J.P. Morgan
Securities, Asia
Norman Gee 3-29-50 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Alexandra W. Kinchen(4) 4-25-45 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
22
<PAGE>
Andrew L. Pang(4) 4-15-49 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Robert J. Haddick(4) 2-26-60 Vice President 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 Secretary, and Chief Compliance
333 Market Street, 26th Floor Officer, Fremont Investment Advisors,
San Francisco, CA 94105 Inc., 9/88 - 5/96 Chief
Compliance Officer and Vice
President, Bailard, Biehl &
Kaiser, Inc. (BB&K);
Treasurer, BB&K International
Fund Group, Inc. and BB&K
Fund Group; Principal, BB&K
Fund Services, Inc.
Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26h Floor
San Francisco, CA 94105
Allyn Hughes 6-12-60 Vice President 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 Chief Financial Officer, Fremont
333 Market Street, 26th Floor Investment Advisors, Inc.; 11/95-10/97,
San Francisco, CA 94105 Chief Financial Officer and Treasurer
Sife, Inc.;6/91-6/95, Controller,
Concord General Corp
Conor Sheridan 7-5-69 Vice President 10/94 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
</TABLE>
(1) Director who is an "interested person" of the Company due to his
affiliation with the Company's investment manager.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee and the Contracts Committee.
(4) Member of the Fremont Investment Committee.
During the fiscal year ended October 31, 1999, Richard E. Holmes and David L.
Egan each received $16,000, and Donald C. Luchessa and Kimun Lee each received
$12,000 for serving as directors of the Investment Company.
As of January 12, 2000, 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.
23
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT AGREEMENT. The Advisor, in addition to providing investment
management services, furnishes the services and pays the compensation and travel
expenses of persons who perform the executive, administrative, clerical, and
bookkeeping functions of the Investment Company, provides suitable office space,
necessary small office equipment and utilities, and general purpose accounting
forms, supplies, and postage used at the offices of the Investment Company.
The Advisor is responsible to pay sub-transfer agency fees when such entities
are engaged in connection with share holdings in the Fund acquired by certain
retirement plans.
For its services under the Investment Advisory and Administration Agreement (the
"Advisory Agreement"), the Advisor is paid a monthly fee at the annual rate of
1.15% of the Fund's average net assets. The Fund will pay all of its own
expenses not assumed by the Advisor, including, but not limited to, the
following: custodian, stock transfer, and dividend disbursing fees and expenses;
taxes and insurance; expenses of the issuance and redemption of shares of the
Fund (including stock certificates, registration or qualification fees and
expenses); legal and auditing expenses; and the costs of stationery and forms
prepared exclusively for the Fund.
The allocation of general Investment Company expenses among its series is made
on a basis that the Directors deem fair and equitable, which may be based on the
relative net assets of each series or the nature of the services performed and
relative applicability to each series.
As noted in the Prospectus, the Advisor has agreed to reduce some or all of its
fees under the Advisory Agreement if necessary to keep total operating expenses,
expressed on an annualized basis, at or below the rate of 1.25% of the Fund's
average net assets. Any reductions made by the Advisor in its fees are subject
to reimbursement by the Fund within the following three years provided the Fund
is able to effect such reimbursement and remain in compliance with the foregoing
expense limitation. In considering approval of the Fund's Advisory Agreement,
the Board of Directors specifically considered and approved the provision which
permits the Advisor to seek reimbursement of any reduction made to its fees
within the three-year period. The Advisor's ability to request reimbursement is
subject to various conditions. First, any reimbursement is subject to the Fund's
ability to effect such reimbursement and remain in compliance with the 1.25%
limitation on annual operating expenses. Second, the Advisor must specifically
request the reimbursement from the Board of Directors. Third, the Board of
Directors must approve such reimbursement as appropriate and not inconsistent
with the best interests of the Fund and the shareholders at the time such
reimbursement is requested. Because of these substantial contingencies, the
potential reimbursements will be accounted for as contingent liabilities that
are not recordable on the balance sheet of the Fund until collection is
probable; but the full amount of the potential liability will appear in a
footnote to the Fund's financial statements. At such time as it appears probable
that the Fund is able to effect such reimbursement, that the Advisor intends to
seek such reimbursement and that the Board of Directors has or is likely to
approve the payment of such reimbursement, the amount of the reimbursement will
be accrued as an expense of the Fund for that current period.
The Advisory Agreement with respect to the Fund may be renewed annually,
provided that any such renewal has been specifically approved by (i) the Board
of Directors, or by the vote of a
24
<PAGE>
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, and (ii) the vote of a majority of directors who are not parties to
the Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person, at a meeting called for the purpose of voting on
such approval. The Advisory Agreement also provides that either party thereto
has the right with respect to the Fund to terminate it without penalty upon
sixty (60) days' written notice to the other party, and that the Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act). As of October 31, 1999, the Fund paid $741,582 to the Advisor and
as of October 31, 1998, the Fund paid $570,933 to the Advisor.
The Advisor's employees may engage in personal securities transactions. However,
the Investment Company and the Advisor have adopted a Code of Ethics for the
purpose of establishing standards of conduct for the Advisor's employees with
respect to such transactions. The Code of Ethics includes some broad
prohibitions against fraudulent conduct, and also includes specific rules,
restrictions, and reporting obligations with respect to personal securities
transactions of the Advisor's employees. Generally, each employee is required to
obtain prior approval of the Advisor's compliance officer in order to purchase
or sell a security for the employee's own account. Purchases or sales of
securities which are not eligible for purchase or sale by the Fund or any other
client of the Advisor are exempted from the prior approval requirement, as are
certain other transactions which the Advisor believes present no potential
conflict of interest. The Advisor's employees are also required to file with the
Advisor quarterly reports of their personal securities transactions.
THE SUB-ADVISOR. The Advisory Agreement authorizes the Advisor, at its option
and at its sole expense, to appoint a Sub-Advisor, which may assume all or a
portion of the responsibilities and obligations of the Advisor pursuant to the
Advisory Agreement as shall be delegated to the Sub-Advisor. Any appointment of
a Sub-Advisor and assumption of responsibilities and obligations of the Advisor
by such Sub-Advisor is subject to approval by the Board of Directors and, if
required by the law, the shareholders of the Fund. Pursuant to this authority,
Kern Capital Management LLC ("the Sub-Advisor") serves as the Fund's
Sub-Advisor. The Sub-Advisor is partially owned by the Advisor. The Sub-Advisor
will be overseen by the members of the Fremont Investment Committee. See
"Investment Company Directors and Officers."
The Portfolio Management Agreement between the Advisor and the Sub-Advisor (the
"Portfolio Management Agreement") provides that the Sub-Advisor agrees to manage
the investment of the Fund's assets, subject to the applicable provisions of the
Investment Company's Articles of Incorporation, Bylaws and current registration
statements (including, but not limited to, the investment objective, policies,
and restrictions delineated in the Fund's current Prospectus and Statement of
Additional Information), as interpreted from time to time by the Board of
Directors.
For its services under the Portfolio Management Agreement, the Advisor has
agreed to pay the Sub-Advisor a monthly fee equal to the annual rate of 0.75% of
the Fund's average net assets. For the fiscal year ended October 31, 1999, Kern
Capital Management LLC received from the Advisor (not the Fund) subadvisory fees
of $486,063. For the fiscal year ended October 31, 1998, Kern Capital Management
LLC received from the Advisor (not the Fund) subadvisory fees of $372,340.
25
<PAGE>
The Portfolio Management Agreement for the Fund continues in effect from year to
year only as long as such continuance is specifically approved at least annually
by (i) the Board of Directors of the Investment Company or by a vote of a
majority of the outstanding voting shares of the Fund, and (ii) by the vote of a
majority of the directors of the Investment Company who are not parties to the
Agreement or interested persons of the Advisor or the Sub-Advisor or the
Investment Company. The Agreement may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Investment Company or
by the vote of a majority of the outstanding voting shares of the Fund, or by
the Sub-Advisor or the Advisor, upon 30 days' written notice to the other party.
Additionally, the Agreement automatically terminates in the event of its
assignment.
PRINCIPAL UNDERWRITER. The Fund's principal underwriter is First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018
(the "Distributor"). The Distributor is engaged on a non-exclusive basis to
assist in the distribution of shares in various jurisdictions. The Distributor
receives compensation from the Advisor and is not paid either directly or
indirectly by the Investment Company. The Distributor will receive compensation
of $50,000 from the Advisor with respect to the fiscal year ended October 31,
1998 for services as Distributor.
TRANSFER AGENT. The Advisor has engaged State Street Bank and Trust Company, c/o
NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Transfer and
Dividend Disbursing Agent and shareholder service agent. The Transfer Agent is
not involved in determining investment policies of the Fund or its portfolio
securities transactions. Its services do not protect shareholders against
possible depreciation of their assets. The fees of State Street Bank and Trust
Company are paid by the Fund and thus borne by the Fund's shareholders. State
Street Bank and Trust Company has contracted with National Financial Data
Services to serve as shareholder servicing agent. A depository account has been
established at United Missouri Bank of Kansas City through which all payments
for the funds will be processed.
The Fund may compensate third-party service providers who act as a shareholder
servicing agent or who perform shareholder servicing normally performed by the
Fund.
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, prospectuses, statements of additional information,
marketing materials; 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; and perform such additional services as may be
agreed upon by the Advisor and the Sub-Administrator. For its services, the
Advisor (not the Fund) pays the Sub-Administrator an annual fee equal to .02% of
the first $1 billion of each Fund's average daily net assets, 0.015% thereafter,
subject to a minimum annual fee of $20,000. In addition, the Sub-Administrator
will prepare periodic financial reports, shareholder reports and other
regulatory reports or filings required for the Funds; 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 these additional services, the Advisor
(not the Fund) will pay the Sub-Administrator an annual fee of $100,000 for the
years 2000, 2001, and 2002. After the year 2002, the Sub-Administrator will
receive from the Advisor
26
<PAGE>
(not the Fund) an annual fee, calculated on each Fund's average daily net
assets, equal to 0.005% of the first $2 billion and 0.0025% thereafter.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions in which portfolio transactions for the Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Advisor and/or Sub-Advisor including other series
of the Investment Company. Although such concurrent authorizations potentially
could be either advantageous or disadvantageous to the Fund, they will be
effected only when the Advisor and/or Sub-Advisor believes that to do so will be
in the best interest of the Fund. When such concurrent authorizations occur, the
objective will be to allocate the executions in a manner which is deemed
equitable to the accounts involved, including the Fund and the other series of
the Investment Company.
The Fund contemplates purchasing foreign equity and/or fixed-income securities
in over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Fixed commissions on foreign
stock transactions and transaction costs with respect to foreign fixed-income
securities are generally higher than negotiated commissions on United States
transactions, although the Fund will endeavor to achieve the best net results on
its portfolio transactions. There is generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign security settlements may in some instances be subject to delays and
related administrative uncertainties.
Foreign equity securities may be held by the Fund in the form of American
Depository Receipts ("ADRs") or similar instruments. ADRs may be listed on stock
exchanges or traded in the over-the-counter markets in the United States. ADRs,
like other securities traded in the United States, will be subject to negotiated
commission rates. The government securities issued by the United States and
other countries and money market securities in which the Fund may invest are
generally traded in the over-the-counter markets.
The aggregate dollar amount of brokerage commissions paid by the Fund for the
fiscal years ended October 31, 1997, October 31, 1998, and October 31, 1999, is
$22,796, $156,765, and $202,686 respectively. The Fund began operations on
August 6, 1997.
Subject to the requirement of seeking the best available prices and executions,
the Advisor and/or Sub-Advisor may, in circumstances in which two or more
broker-dealers are in a position to offer comparable prices and executions, give
preference to broker-dealers who have provided investment research, statistical,
and other related services to the Advisor and/or Sub-Advisor for the benefit of
the Fund and/or other accounts served by the Advisor and/or Sub-Advisor. Such
preferences would only be afforded to a broker-dealer if the Advisor and/or
Sub-Advisor determines that the amount of the commission is reasonable in
relation to the value of the brokerage and research services provided by that
broker-dealer and only to a broker-dealer acting as agent and not as principal.
The Advisor and/or Sub-Advisor is of the opinion that, while such information is
useful in varying degrees, it is of indeterminable value and does not reduce the
expenses of the Advisor and/or Sub-Advisor in managing the Fund's portfolio.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage
27
<PAGE>
commissions to a broker which is an affiliated person of the Investment Company,
the Advisor, or an affiliated person of such person. As of October 31, 1999, the
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 $3,998,818 and State Street Bank $487,707.
HOW TO INVEST
PRICE OF SHARES. The price to be paid by an investor for shares of the Fund, the
public offering price, is based on the net asset value per share which is
calculated once daily as of the close of trading (currently 4:00 p.m., Eastern
time) each day the New York Stock Exchange is open as set forth below. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: (i) New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas Day; and
(ii) the preceding Friday when any one of those holidays falls on a Saturday or
the subsequent Monday when any one of those holidays falls on a Sunday.
The Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). The Fund's portfolio
securities may from time to time be listed on foreign stock exchanges or
otherwise traded on foreign markets which may trade on other days (such as
Saturday). As a result, the net asset value of the Fund may be significantly
affected by such trading on days when a shareholder has no access to the Fund.
See also in the Prospectus at "General Investment Policies - Special
Considerations in International Investing," "Calculation of Net Asset Value and
Public Offering Price," "How to Invest," "How to Redeem Shares," and
"Shareholder Account Services and Privileges - Exchanges Between Funds."
1. Fixed-income obligations with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not
available, at prices for securities of comparable maturity, quality,
and type. However, in circumstances where the Advisor deems it
appropriate to do so, prices obtained for the day of valuation from a
bond pricing service will be used. The Fund amortizes to maturity all
securities with 60 days or less remaining to maturity based on their
cost to the Fund if acquired within 60 days of maturity or, if already
held by the Fund on the 60th day, based on the value determined on the
61st day. Options on currencies purchased by the Fund are valued at
their last bid price in the case of listed options or at the average
of the last bid prices obtained from dealers in the case of OTC
options. Where market quotations are not readily available, securities
are valued at fair value pursuant to methods approved by the Board of
Directors.
2. Equity securities, including ADRs, which are traded on stock
exchanges, are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last
available mean price. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under
28
<PAGE>
the authority of the Board of Directors as the primary market.
Securities traded in the over-the-counter market are valued at the
last available bid price in the over-the-counter market prior to the
time of valuation. Securities and assets for which market quotations
are not readily available (including restricted securities which are
subject to limitations as to their sale) are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors.
3. Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the
close of the business day in New York. In addition, European or Far
Eastern securities trading may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Fund's net asset value is
not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of securities
held by the Fund used in such calculation. Events affecting the values
of portfolio securities that occur between the time their prices are
determined and the close of the New York Stock Exchange will not be
reflected in the Fund's calculation of net asset value unless the
Board of Directors deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.
4. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market
rate as determined by the Advisor and/or Sub-Advisor.
5. The Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure
is obtained.
6. The net assets so obtained are then divided by the total number of
shares outstanding (excluding treasury shares), and the result,
rounded to the nearest cent, is the net asset value per share.
OTHER INVESTMENT AND REDEMPTION SERVICES
THE OPEN ACCOUNT. When an investor makes an initial investment in the Fund, a
shareholder account is opened in accordance with the investor's registration
instructions. Each time there is a transaction in a shareholder account, such as
an additional investment, redemption, or distribution (dividend or capital
gain), the shareholder will receive from the Sub-Transfer Agent a confirmation
statement showing the current transaction in the shareholder account, along with
a summary of the status of the account as of the transaction date.
PAYMENT AND TERMS OF OFFERING. Payment of shares purchased should accompany the
purchase order, or funds should be wired to the Sub-Transfer Agent as described
in the Prospectus. Payment, other than by wire transfer, must be made by check
or money order drawn on a U.S. bank. Checks or money orders must be payable in
U.S. dollars and made payable to Fremont Mutual Funds. Third party checks,
credit cards, and cash will not be accepted.
As a condition of this offering, if an order to purchase shares is cancelled due
to nonpayment (for example, because of a check returned for "not sufficient
funds"), the person who made the
29
<PAGE>
order will be responsible for reimbursing the Advisor for any loss incurred by
reason of such cancellation. If such purchaser is a shareholder, the Fund shall
have the authority as agent of the shareholder to redeem shares in the
shareholder's account for the then-current net asset value per share to
reimburse the Fund for the loss incurred. Such loss shall be the difference
between the net asset value of the Fund on the date of purchase and the net
asset value on the date of cancellation of the purchase. Investors whose
purchase orders have been cancelled due to nonpayment may be prohibited from
placing future orders.
The Fund 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
Fund until it has been confirmed in writing by the Sub-Transfer Agent (or other
arrangements made with the Fund, in the case of orders utilizing wire transfer
of funds) and payment has been received. To protect existing shareholders, the
Fund reserves the right to reject any offer for a purchase of shares by any
individual.
REDEMPTION IN KIND. The Fund may elect to redeem shares in assets other than
cash but must pay in cash (if so requested) all redemptions with respect to any
shareholder during any 90-day period in an amount equal to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period.
SUSPENSION OF REDEMPTION PRIVILEGES. The Fund may suspend redemption privileges
or postpone the date of payment for more than seven calendar days after the
redemption order is received during any period (1) when the New York Stock
Exchange is closed other than customary weekend and holiday closings, or trading
on the Exchange is restricted as determined by the SEC, (2) when an emergency
exists, as defined by the SEC, which makes it not reasonably practicable for the
Investment Company to dispose of securities owned by it or to fairly determine
the value of its assets, or (3) as the SEC may otherwise permit.
TAXES - MUTUAL FUNDS
STATUS AS A "REGULATED INVESTMENT COMPANY." The Fund will be treated under the
Internal Revenue Code of 1986, as amended (the "Code") as a separate entity, and
the Fund intends to qualify and elect, and to continue to qualify, to be treated
as a separate "regulated investment company" under Subchapter M of the Code. To
qualify for the tax treatment afforded a regulated investment company under the
Code, the Fund must annually distribute at least 90% of the sum of its
investment company taxable income (generally net investment income and certain
short-term capital gains), its tax-exempt interest income (if any) and net
capital gains, and meet certain diversification of assets and other requirements
of the Code. If the Fund qualifies for such tax treatment, it will not be
subject to federal income tax on the part of its investment company taxable
income and its net capital gain which it distributes to shareholders. To meet
the requirements of the Code, the Fund must (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or currencies; (b)
diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies, and
other securities, limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets and 10% of the outstanding voting
securities of such issuer,
30
<PAGE>
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses. Income and gain from investing in gold or other commodities will not
qualify in meeting the 90% gross income test.
Even though the Fund has elected and intends to continue 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.
If for any taxable year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.
DISTRIBUTIONS OF NET INVESTMENT INCOME. Dividends from net investment income
(including net short-term capital gains) are taxable as ordinary income.
Shareholders will be taxed for federal income tax purposes on dividends from the
Fund in the same manner whether such dividends are received as shares or in
cash. If the Fund does not receive any dividend income from U.S. corporations,
dividends from the Fund will not be eligible for the dividends received
deduction allowed to corporations. To the extent that dividends received by the
Fund would qualify for the dividends received deduction available to
corporations, the Fund must designate in a written notice to shareholders the
amount of the Fund's dividends that would be eligible for this treatment
NET CAPITAL GAINS. Any distributions designated as being made from the Fund's
net capital gains will be taxable as long-term capital gains regardless of the
holding period of the shareholders of the Fund's shares. The maximum federal
capital gains rate for individuals is 20% with respect to capital assets held
more than 12 months. The maximum capital gains rate for corporate shareholders
is the same as the maximum tax rate for ordinary income.
Capital loss carryforwards result when the Fund has net capital losses during a
tax year. These are carried over to subsequent years and may reduce
distributions of realized gains in those years. Unused capital loss
carryforwards expire in eight years. Until such capital loss carryforwards are
offset or expire, it is unlikely that the Board of Directors will authorize a
distribution of any net realized gains.
NON-U.S. SHAREHOLDERS. Under the Code, distributions of net investment income by
the Fund to a shareholder who, as to the U.S., is a nonresident alien
individual, nonresident alien
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fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. tax withholding (at a 30% or
lower treaty rate). Withholding will not apply if a dividend paid by the Fund to
a foreign shareholder is "effectively connected" with a U.S. trade or business,
in which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents, or domestic corporations will apply. Distributions of
net long-term capital gains are not subject to tax withholding, but in the case
of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. income tax at a rate of 30% if
the individual is physically present in the U.S. for more than 182 days during
the taxable year.
OTHER INFORMATION. The amount of any realized gain or loss on closing out a
futures contract such as a forward commitment for the purchase or sale of
foreign currency will generally result in a realized capital gain or loss for
tax purposes. Under Section 1256 of the Code, futures contracts held by the Fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Sixty percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain or loss from any actual sales will
be treated as long-term capital gain or loss, and the remainder will be treated
as short-term capital gain or loss. Code Section 988 may also apply to currency
transactions. Under Section 988 of the Code, each foreign currency gain or loss
is generally computed separately and treated as ordinary income or loss. In the
case of overlap between Sections 1256 and 988 of the Code, special provisions
determine the character and timing of any income, gain, or loss. The Fund will
attempt to monitor transactions under Section 988 of the Code to avoid an
adverse tax impact. See also "Investment Objective, Policies, and Risk
Considerations" in this Statement of Additional Information.
Any loss realized on redemption or exchange of the Fund's shares will be
disallowed to the extent shares are reacquired within the 61 day period
beginning 30 days before and ending 30 days after the shares are redeemed or
exchanged.
Under the Code, the Fund's taxable income for each year will be computed without
regard to any net foreign currency loss attributable to transactions after
October 31, and any such net foreign currency loss will be treated as arising on
the first day of the following taxable year. The Fund may be required to pay
withholding and other taxes imposed by foreign countries generally at rates from
10% to 40% which would reduce the Fund's investment income. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is not anticipated that shareholders will be entitled to a foreign tax
credit or deduction for such foreign taxes.
The Fund may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies ("PFICs"). Currently, PFICs
are the only or primary means by which the Fund may invest in some countries. If
the Fund invests in PFICs, it may be subject to U.S. federal income tax on a
portion of any "excess distribution" or gain from the disposition of such shares
even if such income is distributed as a taxable dividend to shareholders. In
addition to bearing their proportionate share of the Fund's expenses,
shareholders will also bear indirectly similar expenses of PFICs in which the
Fund has invested. Additional charges in the nature of interest may be imposed
on either the Fund or its shareholders in respect of deferred taxes arising from
such distributions or gains. Capital gains
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on the sale of such holdings will be deemed to be ordinary income regardless of
how long such PFICs are held. If the Fund were to invest in a PFIC and elect to
treat the PFIC as a "qualified electing fund" under the Code, in lieu of the
foregoing requirements, the Fund might be required to include in income each
year a portion of the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the Fund, and such amounts would be
subject to the 90% and calendar year distribution requirements described above.
In order to qualify for the dividends received deduction, a corporate
shareholder must hold the Fund's shares paying the dividends, upon which a
dividend received deduction would be based, for at least 46 days during the
90-day period that begins 45 days before the stock becomes ex-dividend with
respect to the dividend without protection from risk of loss. Similar
requirements apply to the Fund with respect to each qualifying dividend the Fund
receives. Shareholders are advised to consult their tax advisor regarding
application of these rules to their particular circumstances.
The foregoing is a general abbreviated summary of present United States federal
income taxes on dividends and distributions by the Fund. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state, and local taxes applicable to dividends and
distributions received.
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ADDITIONAL INFORMATION
CUSTODIAN. State Street Bank & Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, acts as Custodian for the Investment Company's assets, and as
such safekeeps the Fund's portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Investment Company's
request, and maintains records in connection with its duties.
INDEPENDENT AUDITORS; FINANCIAL STATEMENTS. The Investment Company's independent
auditor is PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105. PricewaterhouseCoopers LLP will conduct an annual audit of the
Fund, assist in the preparation of the Fund's federal and state income tax
returns, and consult with the Investment Company as to matters of accounting,
regulatory filings, and federal and state income taxation. The financial
statements of the Fund as of October 31, 1998 incorporated herein by reference
are audited. Such financial statements are included herein in reliance on the
opinion of PricewaterhouseCoopers LLP given on the authority of said firm as
experts in auditing and accounting.
LEGAL OPINIONS. The validity of the shares of common stock offered hereby will
be passed upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street,
San Francisco, California 94104. In addition to acting as counsel to the
Investment Company, Paul, Hastings, Janofsky & Walker LLP has acted and may
continue to act as counsel to the Advisor and its affiliates in various matters.
USE OF NAME. The Advisor has granted the Investment Company the right to use the
"Fremont" name and has reserved the rights to withdraw its consent to the use of
such name by the Investment Company at any time, or to grant the use of such
name to any other company, and the Investment Company has granted the Advisor,
under certain conditions, the use of any other name it might assume in the
future, with respect to any other investment company sponsored by the Advisor.
SHAREHOLDER VOTING RIGHTS. The Investment Company currently issues shares in 12
series and may establish additional classes or series of shares in the future.
When more than one class or series of shares is outstanding, shares of all
classes and series will vote together for a single set of directors, and on
other matters affecting the entire Investment Company, with each share entitled
to a single vote. On matters affecting only one class or series, only the
shareholders of that class or series shall be entitled to vote. On matters
relating to more than one class or series but affecting the classes and series
differently, separate votes by class and series are required. Shareholders
holding 10% of the shares of the Investment Company may call a special meeting
of shareholders.
LIABILITY OF DIRECTORS AND OFFICERS. The Articles of Incorporation of the
Investment Company provide that, subject to the provisions of the 1940 Act, to
the fullest extent permitted under Maryland law, no officer or director of the
Investment Company may be held personally liable to the Investment Company or
its shareholders.
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CERTAIN SHAREHOLDERS. To the best knowledge of the Fund, shareholders owning 5%
or more of the outstanding shares of the Fund as of record are set forth below:
SHAREHOLDER % HELD AS OF JANUARY
NAME & ADDRESS 12, 2000
- -------------- --------
Bechtel Mast Trust for Qualified Employees 50%
100 Plaza One
Jersey City, NJ 07311
Charles Schwab & Co. 19%
101 Montgomery Street
San Francisco, Ca 94104-4122
National Financial Services Corp. 8%
200 Liberty Street
New York, NY 10281-1003
Wells Frago Bank 7%
FBO KLA Tencor 401(k) Retirement Plan
P.O. Box 9800
Calabasas, CA 91372-0800
OTHER INVESTMENT INFORMATION. The Advisor directs the management of over $
billion of assets and internally manages over $ billion of assets for retirement
plans, foundations, private portfolios, and mutual funds. The Advisor's
philosophy is to apply a long-term approach to investing that balances risk and
return potential.
Historical annual returns of various market indices may be used to represent the
returns of various asset classes as follows:
(1) U.S. Stocks: Standard & Poor's 500 Index;
(2) Foreign Stocks: Morgan Stanley Europe, Australasia and Far East (EAFE)
Index;
(3) Intermediate U.S. Bonds: Lehman Brothers Intermediate
Government/Corporate Bond Index;
(4) Foreign Bonds: Salomon Brothers Non-U.S. Dollar Bond Index; and Money
Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate:
1987-1998 IBC First Tier Money Market Fund Average.
The total returns for the above indices for the years 1980 through 1999 are as
follows (source: Fremont Investment Advisors, Inc.):
U.S. Foreign Intermediate Foreign Money Market
Stocks Stocks U.S. Bonds Bonds Securities
1980 32.4% 24.4% 6.4% 14.2% 11.8%
1981 -5.0% -1.0% 10.5% -4.6% 16.1%
1982 21.3% -0.9% 26.1% 11.9% 10.7%
1983 22.3% 24.6% 8.6% 4.4% 8.6%
1984 6.3% 7.9% 14.4% -1.9% 10.0%
1985 31.8% 56.7% 18.1% 35.0% 7.5%
1986 18.7% 70.0% 13.1% 31.4% 5.9%
1987 5.1% 24.9% 3.7% 35.2% 6.0%
1988 16.8% 28.8% 6.7% 2.4% 6.9%
1989 31.4% 11.1% 12.8% -3.4% 8.5%
1990 -3.2% -23.0% 9.2% 15.3% 7.5%
1991 30.6% 12.9% 14.6% 16.2% 5.5%
1992 7.7% -11.5% 7.2% 4.8% 3.3%
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1993 10.0% 33.3% 8.8% 15.1% 2.6%
1994 1.3% 8.1% -1.9% 6.0% 3.6%
1995 37.5% 11.2% 15.3% 19.6% 5.3%
1996 23.0% 6.1% 4.1% 4.5% 4.8%
1997 33.4% 1.8% 7.9% -4.3% 5.0%
1998 28.6% 20.0% 9.5% 11.5% 4.9%
1999 21.0% 27.0% -2.2% -5.1% 4.5%
The Fund is best suited as a long-term investment. While it offers higher
potential total returns than certificates of deposit or money market funds, it
involves added return volatility or risk. The prospective investor must weigh
this potential for higher return against the associated higher risk.
The Investment Company offers shares in twelve additional series under separate
Prospectuses and Statements of Additional Information.
INVESTMENT RESULTS
The Investment Company may from time to time include information on the
investment results of the Fund in advertisements or in reports furnished to
current or prospective shareholders.
The average annual rate of return ("T") for a given period is computed by using
the redeemable value at the end of the period ("ERV") of a hypothetical initial
investment of $1,000 ("P") over the period in years ("n") according to the
following formula as required by the SEC:
n
P(1+T) = ERV
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the Board of
Directors; and (2) a complete redemption at the end of any period illustrated.
The Fund will calculate total return for one, five, and ten-year periods after
such a period has elapsed, and may calculate total returns for other periods as
well. In addition, the Fund will provide lifetime average annual total return
figures.
The Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and operating expenses of
the Fund, so that current or past total return should not be considered
representations of what an investment in the Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing the Fund's investment
results with those published for other investment companies and other investment
vehicles. The Fund's results also should be considered relative to the risks
associated with the Fund's investment objective and policies.
The Investment Company may from time to time compare the investment results of
the Fund with, or refer to, the following:
(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of
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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 2000 Index, which reflects the common stock price changes of
the 2,000 largest publicly traded U.S. companies by market
capitalization.
(9) Russell 3000 Index, which reflects the common stock price changes of
the 3,000 largest publicly traded U.S. companies by market
capitalization.
(10) Wilshire 5000 Index, which reflects the investment return of the
approximately 5,000 publicly traded securities for which daily pricing
is available, weighted by market capitalization, excluding income.
(11) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and
mortgage-backed fixed income securities.
(12) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.
(13) Morgan Stanley Europe, Australasia and Far East (EAFE) Index, which is
composed of foreign stocks.
(14) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.
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(15) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.
(16) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed income securities.
(17) Lehman Brothers Government/Corporate Intermediate Bond Index, which is
a widely used index composed of investment quality U.S. government and
corporate fixed income securities with maturities between one and ten
years.
(18) Salomon Brothers World Government Bond Index, which is a widely used
index composed of U.S. and non-U.S. government fixed income securities
of the major countries of the World.
(19) 90-day U.S. Treasury Bills Index, which is a measure of the
performance of constant maturity 90-day U.S. Treasury Bills.
(20) IBC First Tier Money Fund Average, which is an average of the 30-day
yield of approximately 250 major domestic money market funds.
(21) Salomon Brothers Non-U.S. World Government Bond Index, which is the
World Government Bond index excluding its U.S. market component.
(22) Salomon Brothers Non-Dollar Bond Index, which is composed of foreign
corporate and government fixed income securities.
(23) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(24) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(25) The World Bank Publication of Trends in Developing Countries ("TIDE"),
which provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks
at global and regional economic trends and their implications for the
developing economies.
(26) Datastream and Worldscope, which is an on-line database retrieval
service for information including but not limited to international
financial and economic data.
(27) International Financial Statistics, which is produced by the
International Monetary Fund.
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<PAGE>
(28) Various publications and annual reports such as the World Development
Report, produced by the World Bank and its affiliates.
(29) Various publications from the International Bank for Reconstruction
and Development/The World Bank.
(30) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch Investors Service, and
Standard Poor's Ratings Group.
(31) Various publications from the Organization for Economic Cooperation
and Development.
Indices prepared by the research departments of such financial organizations as
J.P. Morgan; Lehman Brothers; S.G. Warburg; Jardine Fleming; the Asian
Development Bank; Bloomberg, L.P.; Morningstar, Inc; Salomon Brothers, Inc.;
Merrill Lynch, Pierce, Fenner & Smith, Inc.; Morgan Stanley; Bear Stearns & Co.,
Inc.; Prudential Securities, Inc.; Smith Barney Inc.; and Ibbottson Associates
of Chicago, Illinois ("Ibbottson") may be used, as well as information provided
by the Federal Reserve and the respective central banks of various countries.
The Investment Company may use performance rankings and ratings reported
periodically in national financial publications such as, but not limited to,
Money Magazine, Forbes, The Wall Street Journal, Investor's Business Daily,
Fortune, Smart Money, Business Week, and Barron's.
The Advisor believes the Fund is an appropriate investment for long-term
investment goals including, but not limited to, funding retirement, paying for
education, or purchasing a house. The Fund does not represent a complete
investment program, and investors should consider the Fund as appropriate for a
portion of their overall investment portfolio with regard to their long-term
investment goals.
The Advisor believes that a growing number of consumer products, including, but
not limited to, home appliances, automobiles, and clothing, purchased by
Americans are manufactured abroad. The Advisor believes that investing globally
in the companies that produce products for U.S. consumers can help U.S.
investors seek protection of the value of their assets against the potentially
increasing costs of foreign manufactured goods. Of course, there can be no
assurance that there will be any correlation between global investing and the
costs of such foreign goods unless there is a corresponding change in value of
the U.S. dollar to foreign currencies. From time to time, the Investment Company
may refer to or advertise the names of such companies although there can be no
assurance that the Fund may own the securities of these companies.
From time to time, the Investment Company may refer to the number of
shareholders in the Fund or the aggregate number of shareholders in all Fremont
Mutual Funds or the dollar
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<PAGE>
amount of Fund assets under management or rankings by DALBAR Savings, Inc. in
advertising materials.
The Fund may compare its performance to that of other compilations or indices of
comparable quality to those listed above which may be developed and made
available in the future. The Fund may be compared in advertising to Certificates
of Deposit (CDs), the Bank Rate Monitor National Index, an average of the quoted
rates for 100 leading banks and thrifts in ten U.S. cities chosen to represent
the ten largest Consumer Metropolitan statistical areas, or other investments
issued by banks. The Fund differs from bank investments in several respects. The
Fund may offer greater liquidity or higher potential returns than CDs; but
unlike CDs, the Fund will have a fluctuating share price and return and is not
FDIC insured. The Fund's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings prepared by
Lipper Analytical Services, Inc. (Lipper), an independent service which monitors
the performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take sales
charges or redemption fees into consideration, and is prepared without regard to
tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.
The Investment Company may provide information designed to help individuals
understand their investment goals and explore various financial strategies. For
example, the Investment Company may describe general principles of investing,
such as asset allocation, diversification, and risk tolerance.
Ibbottson provides historical returns of capital markets in the United States,
including common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the CPI), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices.
The Investment Company may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not correspond directly to those of the Fund. The Fund
may also compare performance to that of other compilations or indices that may
be developed and made available in the future.
In advertising materials, the Advisor may reference or discuss its products and
services, which may include retirement investing, the effects of dollar-cost
averaging, and saving for college or a home. In addition, the Advisor may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques.
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The Fund may discuss its NASDAQ symbol, CUSIP number, and its current portfolio
management team.
From time to time, the Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, the Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. In addition, the Fund may quote financial or
business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques. Rankings that compare the
performance of Fremont Mutual Funds to one another in appropriate categories
over specific periods of time may also be quoted in advertising.
The Fund may quote various measures of volatility and benchmark correlation such
as beta, standard deviation, and R2 in advertising. In addition, the Fund may
compare these measures to those of other funds. Measures of volatility seek to
compare the Fund's historical share price fluctuations or total returns compared
to those of a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation are
calculated using averages of historical data.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in the Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if a
fixed number of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
through periods of low price levels.
The Fund may be available for purchase through retirement plans of other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $10,000 investment earning
a taxable return of 10% annually would have an after-tax value of $17,976 after
ten years, assuming tax was deducted from the return each year at a 39.6% rate.
An equivalent tax-deferred investment would have an after-tax value of $19,626
after ten years, assuming tax was deducted at a 39.6% rate from the deferred
earnings at the end of the ten-year period.
The Fund may describe in its sales material and advertisements how an investor
may invest in the Fund through various retirement accounts and plans that offer
deferral of income taxes on investment earnings and may also enable an investor
to make pre-tax contributions. Because of their advantages, these retirement
accounts and plans may produce returns superior to comparable non-retirement
investments. The Fund may also discuss these accounts and plans which include
the following:
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): Any individual who receives earned income
from employment (including self-employment) can contribute up to $2,000 each
year to an IRA (or
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<PAGE>
100% of compensation, whichever is less). If your spouse is not employed, a
total of $2,250 may be contributed each year to IRAs set up for each individual
(subject to the maximum of $2,000 per IRA). Some individuals may be able to take
an income tax deduction for the contribution. Regular contributions may not be
made for the year after you become 70 1/2, or thereafter.
ROLLOVER IRAS: Individuals who receive distributions from qualified retirement
plans (other than required distributions) and who wish to keep their savings
growing tax-deferred can rollover (or make a direct transfer of) their
distribution to a Rollover IRA. These accounts can also receive rollovers or
transfers from an existing IRA.
SEP-IRAS AND SIMPLE IRAS: Simplified employee pension (SEP) plans and SIMPLE
plans provide employers and self-employed individuals (and any eligible
employees) with benefits similar to Keogh-type plans or 401(k) plans, but with
fewer administrative requirements and therefore lower annual administration
expenses.
ROTH IRA: The Roth IRA allows investment of after-tax dollars in a retirement
account that provides tax-free growth. Funds can be withdrawn without federal
income tax or penalty after the account has been open for five years and the age
of 59 1/2 has been attained.
PROFIT SHARING (INCLUDING 401(K) AND MONEY PURCHASE PENSION PLANS): Corporations
can sponsor these qualified defined contribution plans for their employees. A
401(k) plan, a type of profit sharing plan, additionally permits the eligible,
participating employees to make pre-tax salary reduction contributions to the
plan (up to certain limitations).
The Advisor may from time to time in its sales methods and advertising discuss
the risks inherent in investing. The major types of investment risk are market
risk, industry risk, credit risk, interest rate risk, and inflation risk. Risk
represents the possibility that you may lose some or all of your investment over
a period of time. A basic tenet of investing is the greater the potential
reward, the greater the risk.
From time to time, the Fund and the Advisor will quote certain information
including, but not limited to, data regarding: individual countries, regions,
world stock exchanges, and economic and demographic statistics from sources the
Advisor deems reliable, including, but not limited to, the economic and
financial data of such financial organizations as:
1) Stock market capitalization: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.
2) Stock market trading volume: Morgan Stanley Capital International World
Indices, and International Finance Corporation.
3) The number of listed companies: International Finance Corporation, Salomon
Brothers, Inc., and S.G. Warburg.
4) Wage rates: U.S. Department of Labor Statistics and Morgan Stanley Capital
International World Indices.
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5) International industry performance: Morgan Stanley Capital International
World Indices, Wilshire Associates, and Salomon Brothers, Inc.
6) Stock market performance: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.
7) The Consumer Price Index and inflation rate: The World Bank, Datastream,
and International Finance Corporation.
8) Gross Domestic Product (GDP): Datastream and The World Bank.
9) GDP growth rate: International Finance Corporation, The World Bank, and
Datastream.
10) Population: The World Bank, Datastream, and United Nations.
11) Average annual growth rate (%) of population: The World Bank, Datastream,
and United Nations.
12) Age distribution within populations: Organization for Economic Cooperation
and Development and United Nations.
13) Total exports and imports by year: International Finance Corporation, The
World Bank, and Datastream.
14) Top three companies by country, industry, or market: International Finance
Corporation, Salomon Brothers, Inc., and S.G. Warburg.
15) Foreign direct investments to developing countries: The World Bank and
Datastream.
16) Supply, consumption, demand, and growth in demand of certain products,
services, and industries, including, but not limited to, electricity,
water, transportation, construction materials, natural resources,
technology, other basic infrastructure, financial services, health care
services and supplies, consumer products and services, and
telecommunications equipment and services (sources of such information may
include, but would not be limited to, The World Bank, OECD, IMF, Bloomberg,
and Datastream).
17) Standard deviation and performance returns for U.S. and non-U.S. equity and
bond markets: Morgan Stanley Capital International.
18) Political and economic structure of countries: Economist Intelligence Unit.
19) Government and corporate bonds - credit ratings, yield to maturity and
performance returns: Salomon Brothers, Inc.
20) Dividend for U.S. and non-U.S. companies: Bloomberg.
In advertising and sales materials, the Advisor may make reference to or discuss
its products, services, and accomplishments. Such accomplishments do not provide
any assurance that the Fund's investment objective will be achieved.
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APPENDIX A: DESCRIPTION OF RATINGS
DESCRIPTION OF COMMERCIAL PAPER RATINGS:
MOODY'S INVESTORS SERVICE, INC. employs the designation "Prime-1" to indicate
commercial paper having the highest capacity for timely repayment.
Issuers rated Prime-1 "have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protections; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity."
STANDARD & POOR'S RATINGS GROUP'S ratings of commercial paper are graded into
four categories ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 - "This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation."
FITCH INVESTORS SERVICES, INC.'s short-term ratings apply to debt obligations
that are payable on demand or have original maturities of generally up to three
years, including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes. The short-term rating places greater
emphasis than a long-term rating on the existence of liquidity necessary to meet
the issuer's obligations in a timely manner.
F-1+ - "Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment."
F-1 - "Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+."
DUFF & PHELPS CREDIT RATING CO. employs the designation "D-1" to indicate
high-grade short-term debt.
D-1+ - "Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources or funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations."
Appendix-1
<PAGE>
D-1 - "Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor."
D-1- - "High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small."
IBCA LIMITED's short-term ratings range from "A1" for the highest quality
obligation to "C" for the lowest.
A1 - "Obligations supported by the highest capacity for timely repayment. Where
issues possess a particularly strong credit feature, a rating of 'A1+' is
assigned."
THOMSON BANKWATCH assigns short-term debt ratings ranging from "TBW-1" to
"TBW-4." Important factors that may influence its assessment are the overall
financial health of the particular company, and the probability that the
government will come to the aid of a troubled institution in order to avoid a
default or failure.
TBW-1 - "The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis."
DESCRIPTION OF BOND RATINGS:
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C." The ratings from "Aa" through "B" may be
modified by the addition of 1, 2 or 3 to show relative standing within the major
rating categories. Investment ratings are as follows:
Aaa - Best quality. These securities "carry the smallest degree of investment
risk and are generally referred to as 'gilt edge.' Interest payments are
protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues."
Aa - High quality by all standards. "They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
A - Upper medium grade obligations. These bonds possess many favorable
investment attributes. "Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
Appendix-2
<PAGE>
Baa - Medium grade obligations. "Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well."
STANDARD & POOR'S RATINGS GROUP rates the long-term debt securities of various
entities in categories ranging from "AAA" to "D" according to quality. The
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories. Investment
ratings are as follows:
AAA - Highest rating. "Capacity to pay interest and repay principal is extremely
strong."
AA - High grade. "Very strong capacity to pay interest and repay principal."
A - "Strong capacity to pay interest and repay principal," although "somewhat
more susceptible to the adverse effects of change in circumstances and economic
conditions than debt in higher rated categories."
BBB - "Adequate capacity to pay interest and repay principal." These bonds
normally exhibit adequate protection parameters, but "adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal than for debt in higher rated
categories."
FITCH INVESTORS SERVICES, INC. rates the long-term debt securities of various
entities in categories ranging from "AAA" to "D." The ratings from "AA" through
"C" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Investment ratings are as follows:
AAA - "Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events."
AA - "Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA.' Because bonds are rated
'AAA' and 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated 'F-1+'."
A - "Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings."
Appendix-3
<PAGE>
BBB - "Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds and, therefore,
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings."
DUFF & PHELPS CREDIT RATING CO. rates the long-term debt securities of various
entities in categories ranging from "AAA" to "DD." The ratings from "AA" through
"B" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Investment ratings are as follows:
AAA - "Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt."
AA - "High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions."
A - "Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress."
BBB - "Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles."
IBCA LIMITED rates the long-term debt securities of various entities in
categories ranging from "AAA" to "C." The ratings below "AAA" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories. Investment ratings are as follows:
AAA - "Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk substantially."
AA - "Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions may increase investment
risk, albeit not very significantly."
A - "Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk."
Appendix-4
<PAGE>
BBB - "Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in other
categories."
THOMSON BANKWATCH rates the long-term debt securities of various entities in
categories ranging from "AAA" to "D." The ratings may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories. Investment ratings are as follows:
AAA - "Indicates that the ability to repay principal and interest on a timely
basis is extremely high."
AA - "Indicates a very strong ability to repay principal and interest on a
timely basis, with limited incremental risk compared to issues rated in the
highest category."
A - " Indicates the ability to repay principal and interest is strong. Issues
rated A could be more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings."
BBB - "The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. BBB issues are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings."
Appendix-5
<PAGE>
FREMONT MUTUAL FUNDS, INC.
PART C
Item 23. Exhibits
(a) (1) Articles of Incorporation -- on file (File No. 811-5632)
(2) Articles of Amendment -- on file (File No. 811-5632)
(3) Articles of Amendment changing name -- on file (File No.
811-5632)
(4) Articles Supplementary relating to shares of International Growth
Fund -- on file (File No 811-5632 under Post-Effective Amendment
No. 16 filed December 29, 1993)
(5) Articles Supplementary for Income Fund, changing name to Bond
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 17 filed March 1, 1994)
(6) Articles Supplementary relating to shares of the International
Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(7) Articles Supplementary relating to shares of the U.S. Micro-Cap
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 18 filed April 22, 1994)
(8) Articles Supplementary relating to shares of the Emerging Markets
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 22 filed April 10, 1996)
(9) Articles Supplementary relating to shares of the Institutional
U.S. Micro Cap Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(10) Articles Supplementary relating to shares of the U.S. Small Cap
Fund -- on file (File No. 811-5632 Under Post-Effective Amendment
No. 31 file March 2, 1998)
(11) Articles Supplementary relating to shares of the Real Estate
Securities Funds -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
<PAGE>
(l2) Articles Supplementary relating to shares of the Select Fund --
on file (File No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998)
(b) Bylaws -- on file (File No. 811-5632 under Post- Effective Amendment
No. 21 filed January 20, 1996)
(c) Instruments Defining Rights of Security Holder -Not Applicable
(d) (1) Amended and Restated Investment Advisory and Administrative
Services Agreement relating to Money Market Fund, Global Fund,
California Intermediate Tax-Free Fund, Bond Fund, Growth Fund and
Emerging Markets Fund on file (File No. 811-5632)
(2) Investment Advisory and Administrative Services Agreement
relating to International Growth Fund - on file (File No.
811-5632 under Post-Effective Amendment No. 17 filed March 1,
1994)
(3) Investment Advisory and Administrative Services Agreement
relating to International Small-Cap Fund and U.S. Micro-Cap
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 19 filed August 1, 1994)
(4) Portfolio Management Agreement with Pacific Investment Management
Co. and Fremont Investment Advisors, Inc. for Bond (formerly
Income) Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 17 filed March 1, 1994)
(5) Portfolio Management Agreement with Acadian Asset Management,
Inc. and Fremont Investment Advisors, Inc. for International
Small Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(6) Form of Portfolio Management Agreement with Credit Lyonnais
International Asset Management (HK) Limited for Emerging Markets
Fund -- on file (File No. 811-5632 under Post-Effective Amendment
No. 22 filed April 10, 1996)
(7) Investment Advisory and Administrative Services Agreement
relating to Institutional U.S. Micro Cap Fund -- on file (File
No. 811-5632 Under Post-Effective Amendment No. 31 file March 2,
1998)
(8) Investment Advisory and Administrative Services Agreement
relating to U.S. Small Cap Fund -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2, 1998)
(9) Investment Advisory and Administrative Services Agreement
relating to Real Estate Securities Fund -- on file (File No.
811-5632 Under Post-Effective Amendment No. 31 file March 2,
1998)
<PAGE>
(10) Investment Advisory and Administrative Services Agreement
relating to Select Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(11) Portfolio Management Agreement with Kern Capital Management LLC
and Fremont Investment Advisors, Inc. for U.S. Micro-Cap Fund --
on file (File No. 811-5632 under Post-Effective Amendment No. 31
file March 2, 1998)
(12) Portfolio Management Agreement with Kern Capital Management LLC
and Fremont Investment Advisors, Inc. for Institutional U.S.
Micro-Cap Fund -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 31 file March 2, 1998)
(13) Portfolio Management Agreement with Kern Capital Management LLC
and Fremont Investment Advisors, Inc. for U.S. Small-Cap Fund --
on file (File No. 811-5632 Under Post-Effective Amendment No. 31
file March 2, 1998
(14) Portfolio Management Agreement with Kensington Investment Group
and Fremont Investment Advisors, Inc. for Real Estate Securities
Fund -- on file (File No. 811-5632 Under Post-Effective Amendment
No. 31 file March 2, 1998)
(15) Portfolio Management Agreement with Bee & Associates, Inc. and
Fremont Investment Advisors, Inc. for International Small Cap
Fund B -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 32 file April 15, 1998)
(16) Portfolio Management Agreement with Capital Guardian Trust
Company and Fremont Investment Advisors, Inc. for International
Growth Fund B -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 32 file April 15, 1998)
(17) Portfolio Management Agreement with Rayner Associates, Inc. and
Fremont Investment Advisors, Inc. for California Intermediate
Tax-Free Fund - on file (File No. 811-5632 Under Post-Effective
Amendment No. 33 file December 15, 1998)
(18) Contractual Expense Limitation Agreement between Fremont
Investment Advisors and each of the Fremont Mutual Funds - (File
No. 811-5632 under Post-Effective Amendment No. 34, filed March
1, 1999)
<PAGE>
(e) Distribution Agreement with First Fund Distributors, Inc.-- on file
(File No. 811-5632 under Post-Effective Amendment No. 28 filed October
17, 1997)
(f) Bonus Profit Sharing Contracts - Not applicable
(g) (1) Custodian Agreement with The Northern Trust Company -- on file
(File No. 811-5632 under Post-Effective Amendment No. 21 filed
January 20, 1996)
(2) Custody Agreement with Investors Fiduciary Trust Company - on
file (File No. 811-5632 under Post-Effective Amendment No. 34
filed March 1, 1999)
(3) Custody Agreement with State Street Bank and Trust Company - file
herewith
(h) (1) Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement with Fremont Investment Advisors, Inc. -- on
file (File No. 811-5632 under Post-Effective Amendment No. 23
filed February 28, 1997)
(2) Sub-Transfer Agency Agreement with Countrywide Fund Services,
Inc. -- on file (File No. 811-5632 under Post-Effective Amendment
No. 23 filed February 28, 1997)
(3) Administration Agreement with Investment Company Administration
Corporation (File No. 811-5632 under Post-Effective Amendment No.
28 filed October 17, 1997)
(4) License Agreement relating to the Mark "Fremont" with Fremont
Investment Advisors, Inc. -- on file (File No. 811-5632)
(5) Investment Accounting Agreement between Investors Fiduciary Trust
Company and Fremont Mutual Funds, Inc. -- on file (File No.
811-5632 under Post-Effective Amendment No. 17 filed March 1,
1994)
(6) Sub-Transfer Agency Agreement with National Financial Data
Services, Inc. -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 31 file March 2, 1998)
(7) Transfer Agency Agreement with National Financial Data Services,
Inc. - to be filed
(8) Investment Accounting Agreement with State Street Bank and Trust
Company - file herewith
(i) Opinion of Counsel
<PAGE>
(1) Opinion and Consent of Counsel - file herewith
(2) Institutional U.S. Micro-Cap Fund B -- on file (File No. 811-5632
Under Post-Effective Amendment No. 31 file March 2, 1998)
(3) U.S. Small Cap Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(4) Real Estate Securities Fund -- on file (File No. 811-5632 Under
Post-Effective Amendment No. 31 file March 2, 1998)
(5) Select Fund -- on file (File No. 811-5632 Under Post-Effective
Amendment No. 31 file March 2, 1998)
(j) Independent Auditors' Consent - file herewith
(k) Omitted Financial Statements - Not Applicable.
(l) Initial Capital Agreements
(1) Subscription Agreement with initial shareholders -- on file (File
No. 811-5632 under Post-Effective Amendment filed May 1992)
(2) Subscription Agreement with initial shareholders of International
Growth Fund - on file (File No. 811-5632 under Post-Effective
Amendment No. 16 filed December 29, 1993)
(3) Subscription Agreement with initial shareholders of International
Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(4) Subscription Agreement with initial shareholders of U.S.
Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective
Amendment No. 18 filed April 22, 1994)
(m) Form of Plan of Distribution Pursuant to Rule 12b-1 -- on file (File
No. 811-5632 under Post-Effective Amendment No. 31 file March 2, 1998)
(n) Financial Data Schedule. Financial Data Schedules are incorporated by
reference to Form NSAR-B filed on December 30, 1998.
(o) 18f-3 Plan - Not Applicable.
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
Stephen D. Bechtel, Jr. and members of his family, including trusts
for family members, would be considered controlling persons under
applicable Securities and Exchange Commission regulations, on account
of their shareholdings in the Funds.
Item 25. INDEMNIFICATION
Article VII(g) of the Articles of Incorporation, filed as Exhibit (1),
Item 24(b), provides for indemnification of certain persons acting on
behalf of the Funds.
The Funds and the Advisor are jointly insured under an errors and
omissions policy issued by American International Specialty Lines
Insurance Company.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons by the Registrant's charter and bylaws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in said Act, and is, therefore,
unenforceable. In particular, the Articles of the Company provide
certain limitations on liability of officers and directors. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Series of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issues.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The information required by this item is contained in the Form Adv of
the following entities and is incorporated herein by reference:
NAME OF INVESTMENT ADVISOR FILE NO.
-------------------------- --------
Kern Capital Management LLC 801-54766
Pacific Investment Management Company 801-48187
CMG First State (Hong Kong) LLC
Kensington Investment Group 801-44964
Capital Guardian Trust
Mellon Capital Management Corporation
SIT Investment Associates, Inc.
Item 27. Principal Underwriter.
(a) First Fund Distributors, Inc. is the principal underwriter for
the following investment companies or series thereof:
Advisors Series Trust
Allegiance Investment Trust
Builders Fixed Income Fund, Inc.
Guinness Flight Investment Funds
Fleming Mutual Fund Group, Inc.
Fremont Mutual Funds
Investors Research Fund, Inc.
Jurika & Voyles Mutual Funds
Kayne Anderson Mutual Funds
Masters' Select Funds Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
Brandes Investment Funds
RNC Mutual Fund Group, Inc.
Trust For Investment Managers
Puget Sound Alternative Investment Series Trust
Dessauer Global Equity Fund
(b) The following information is furnished with respect to the
officers of First Fund Distributors, Inc.:
Name and Principal Position and Offices with First Positions and Offices
Business Address* Fund Distributors, Inc. with Registrant
- ----------------- ----------------------- ---------------
Robert H. Wadsworth President and Treasurer None
Steven J. Paggioli Vice President and Secretary Assistant Secretary
Eric M. Banhazl Vice President Assistant Treasurer
*The principal business address of persons and entities listed is
4455 E. Camelback Road, Suite 261E, Phoenix, AZ 85018.
(c) The distributor receives and annual fee of $50,000 per year.
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books, and other records required by Rules 31a-1 and 31a-2
under the Investment Company Act of 1940, as amended, are maintained
and held in the offices of the Registrant and its investment manager,
Fremont Investment Advisors, Inc., 333 Market Street, 26th Floor, San
Francisco, California 94105. Other books and records will be
maintained by the sub-advisers to the Funds.
Records covering stockholder accounts and portfolio transactions are
also maintained and kept by the Funds' Transfer Agent, National
Financial Data Services, Inc., and by the Custodian and Fund
Accountants, Investors Fiduciary Trust Company.
Item 29. MANAGEMENT SERVICES
There are no management-related services contracts not discussed in
Parts A and B.
Item 30. UNDERTAKINGS
(a) Inapplicable
(b) The information required by part 5A of the Form N-1A is or will be
contained in the latest annual report to shareholders, and Registrant
undertakes to furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
(c) The Registrant undertakes that within five business days after
receipt of a written application by shareholders holding in the
aggregate at least 1% of the shares then outstanding or shares then
having a net asset value of $25,000, which is less, each of whom shall
have been a shareholder for at least six months prior to the date of
application (hereinafter the "Petitioning Shareholders"), requesting
to communicate with other shareholders with a view to obtaining
signatures to a request for a meeting for the purpose of voting upon
removal of any Director of the Registrant, which application shall be
accompanied by a form of communication and request which such
Petitioning Shareholders wish to transmit, Registrant will: (i)
provide such Petitioning Shareholders with access to a list of the
names and addresses of all shareholders of the Registrant; or (ii)
inform such Petitioning Shareholders of the approximate number of
shareholders and the estimated costs of mailing such communication,
and to undertake such mailing promptly after tender by such
Petitioning Shareholders to the Registrant of the material to be
mailed and the reasonable expenses of such mailing.
<PAGE>
SIGNATURE OF THE REGISTRANT
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of San Francisco, and the State of
California, on the 10th day of February 2000.
FREMONT MUTUAL FUNDS, INC.
By: /S/ _________________
DAVID L. REDO
Chairman
Pursuant to the requirements of the Securities Act of 1933 this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities listed, and each on _______________________.
PRINCIPAL EXECUTIVE OFFICER:
/S/ __________________ Chairman and Chief
David L. Redo Executive Officer
PRINCIPAL ACCOUNTING OFFICER:
/S/ ________________
Jack Gee Vice President and Controller
<PAGE>
DIRECTORS:
/S/ RICHARD E. HOLMES* Director
- -----------------------------
Richard E. Holmes
/S/ DONALD C. LUCHESSA* Director
- -----------------------------
Donald C. Luchessa
/S/ DAVID L. EGAN* Director
- -----------------------------
David L. Egan
/S/ Director
- -----------------------------
Peter F. Landini
/S/ Director
- -----------------------------
David L. Redo
/S/ Director
- -----------------------------
Michael H. Kosich
*By: /s/
-----------------------------
Robert M. Slotky
Pursuant to Power of Attorney -- on file
(File No. 811-5632 under Post-Effective
Amendment No. 31 file March 2, 1998)
<PAGE>
PART C OF FORM N-1A
- -------------------
EXHIBIT INDEX
-------------
ITEM DESCRIPTION
- ---- -----------
99. (g.)(3) Custody Agreement with State Street Bank & Trust Company
99. (h.)(8) Investment Accounting Agreement with State Street Bank & Trust
Company
99. (i.) Opinion of Counsel
99. (j.) Independent Auditor's Consent
CUSTODY AGREEMENT
THIS AGREEMENT is made effective the ___ day of __________, 2000, by and
between STATE STREET BANK AND TRUST COMPANY, a trust company chartered under the
laws of the Commonwealth of Massachusetts, having its trust office located at
225 Franklin Street, Boston, Massachusetts 02110 ("State Street"), and FREMONT
MUTUAL FUNDS, INC., a Maryland corporation, having its principal office and
place of business at 333 Market Street, Suite 2600, San Francisco, California
94105 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint State Street as custodian of the assets of
the Fund's investment portfolio or portfolios (each a "Portfolio", and
collectively the "Portfolios"); and
WHEREAS, State Street is willing to accept such appointment on the terms
and conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN AND AGENT. Fund hereby constitutes and appoints
State Street as custodian of the investment securities, interests in loans
and other non-cash investment property, and monies at any time owned by
each of the Portfolios and delivered to State Street as custodian hereunder
("Assets").
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to State Street:
1. That it is a corporation duly organized and existing and in good
standing under the laws of its state of organization, and that it
is registered under the 1940 Act; and
2. That it has the requisite power and authority under applicable
law, its articles of incorporation and its bylaws to enter into
this Agreement; that it has taken all requisite action necessary
to appoint State Street as custodian for the Portfolios; that
this Agreement has been duly executed and delivered by Fund; and
that this Agreement constitutes a legal, valid and binding
obligation of Fund, enforceable in accordance with its terms.
B. State Street hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of
Massachusetts; and
<PAGE>
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by State Street; and that this Agreement constitutes a
legal, valid and binding obligation of State Street, enforceable
in accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
A. DELIVERY OF ASSETS. Except as permitted by the 1940 Act, Fund will
deliver or cause to be delivered to State Street on the effective date
hereof, or as soon thereafter as practicable, and from time to time
thereafter, all Assets acquired by, owned by or from time to time
coming into the possession of each of the Portfolios during the term
hereof. State Street has no responsibility or liability whatsoever for
or on account of assets not so delivered.
B. DELIVERY OF ACCOUNTS AND RECORDS. Fund will turn over or cause to be
turned over to State Street all of each Portfolio's relevant accounts
and records needed by State Street to fully and properly perform its
duties and responsibilities hereunder. State Street may rely
conclusively on the completeness and correctness of such accounts and
records.
C. DELIVERY OF ASSETS TO THIRD PARTIES. State Street will receive
delivery of and keep safely the Assets of each Portfolio segregated in
a separate account. State Street will not deliver, assign, pledge or
hypothecate any such Assets to any person except as permitted by the
provisions hereof or any agreement executed according to the terms of
Section 3.P hereof. Upon delivery of any such Assets to a subcustodian
appointed pursuant hereto (hereinafter referred to as "Subcustodian"),
State Street will create and maintain records identifying such Assets
as belonging to the applicable Portfolio. State Street is responsible
for the safekeeping of the Assets only until they have been
transmitted to and received by other persons as permitted under the
terms hereof, except for Assets transmitted to Subcustodians, for
which State Street remains responsible to the extent provided herein.
State Street may participate directly or indirectly through a
subcustodian in the Depository Trust Company (DTC), Treasury/Federal
Reserve Book Entry System (Fed System), Participant Trust Company
(PTC) or other depository approved by Fund (as such entities are
defined at 17 CFR Section 270.17f-4(b)) (each a "Depository" and
collectively the "Depositories"). State Street will be responsible to
Fund for any loss, damage or expense suffered or incurred by Fund
resulting from the actions or omissions of any Depository only to the
same extent such Depository is responsible to State Street.
E. REGISTRATION. State Street will at all times hold registered Assets in
the name of State Street as custodian, the applicable Portfolio, or a
nominee of either of them, unless specifically directed by
Instructions, as hereinafter defined, to hold such registered Assets
in so-called "street name;" provided that, in any event, State Street
will hold all such Assets in an account of State Street as custodian
containing only Assets of the applicable Portfolio, or only assets
held by State Street as a fiduciary or custodian for customers; and
provided further, that State Street's records at all times will
indicate the Portfolio or other customer for which such Assets are
held and the
<PAGE>
respective interests therein. If, however, Fund directs State Street
to maintain Assets in "street name", notwithstanding anything
contained herein to the contrary, State Street will be obligated only
to utilize its best efforts to timely collect income due the Portfolio
on such Assets and to notify the Portfolio of relevant information,
such as maturities and pendency of calls, and corporate actions
including, without limitation, calls for redemption, tender or
exchange offers, declaration, record and payment dates and amounts of
any dividends or income, reorganization, recapitalization, merger,
consolidation, split-up of shares, change of par value, or conversion
("Corporate Actions"). All Assets and the ownership thereof by
Portfolio will at all times be identifiable on the records of State
Street. Fund agrees to hold State Street and its nominee harmless for
any liability as a shareholder of record of securities held in
custody.
F. EXCHANGE. Upon receipt of Instructions, State Street will exchange, or
cause to be exchanged, Assets held for the account of a Portfolio for
other Assets issued or paid in connection with any Corporate Action or
otherwise, and will deposit any such Assets in accordance with the
terms of any such Corporate Action. Without Instructions, State Street
is authorized to exchange Assets in temporary form for Assets in
definitive form, to effect an exchange of shares when the par value of
stock is changed, and, upon receiving payment therefor, to surrender
bonds or other Assets at maturity or when advised of earlier call for
redemption, except that State Street will receive Instruction prior to
surrendering any convertible security.
G. PURCHASES OF INVESTMENTS -- OTHER THAN OPTIONS AND FUTURES. On each
business day on which a Portfolio makes a purchase of Assets other
than options and futures, Fund will deliver to State Street
Instructions specifying with respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the Asset;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer through
whom the purchase was made; and
9. Whether the Asset is to be received in certificated form or via a
specified Depository.
<PAGE>
In accordance with such Instructions, State Street will pay for out of
monies held for the purchasing Portfolio, but only insofar as such
monies are available for such purpose, and receive the Assets so
purchased by or for the account of such Portfolio, except that State
Street, or a Subcustodian, may in its sole discretion advance funds to
such Portfolio which may result in an overdraft because the monies
held on behalf of such Portfolio are insufficient to pay the total
amount payable upon such purchase. Except as otherwise instructed by
Fund, State Street will make such payment only upon receipt of Assets:
(a) by State Street; (b) by a clearing corporation of a national
exchange of which State Street is a member; or (c) by a Depository.
Notwithstanding the foregoing, (i) State Street may release funds to a
Depository prior to the receipt of advice from the Depository that the
Assets underlying a repurchase agreement have been transferred by
book-entry into the account maintained with such Depository by State
Street on behalf of its customers; provided that State Street's
instructions to the Depository require that the Depository make
payment of such funds only upon transfer by book-entry of the Assets
underlying the repurchase agreement in such account; (ii) State Street
may make payment for time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures
contracts or options, before receipt of an advice or confirmation
evidencing said deposit or entry into such transaction; and (iii)
State Street may make, or cause a Subcustodian to make, payment for
the purchase of Assets the settlement of which occurs outside of the
United States of America in accordance with generally accepted local
custom and market practice.
H. SALES AND DELIVERIES OF INVESTMENTS -- OTHER THAN OPTIONS AND FUTURES.
On each business day on which a Portfolio makes a sale of Assets other
than options and futures, Fund will deliver to State Street
Instructions specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the Asset;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the Assets sold were purchased or other
information identifying the Assets sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by the Portfolio upon such sale;
and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
State Street will deliver or cause to be delivered the Assets thus
designated as sold for the account of the selling Portfolio as
specified in the Instructions. Except as otherwise instructed by Fund,
State Street will make such delivery upon receipt of: (a) payment
therefor in such form as is satisfactory to State Street; (b) credit
to the account of State Street with a clearing corporation of a
national securities exchange of which State Street is a member; or (c)
credit to the account maintained by State Street on behalf of its
customers with a Depository. Notwithstanding the foregoing:
<PAGE>
(i) State Street will deliver Assets held in physical form in
accordance with "street delivery custom" to a broker or its clearing
agent; or (ii) State Street may make, or cause a Subcustodian to make,
delivery of Assets the settlement of which occurs outside of the
United States of America upon payment therefor in accordance with
generally accepted local custom and market practice.
I. PURCHASES OR SALES OF OPTIONS AND FUTURES. On each business day on
which a Portfolio makes a purchase or sale of the options and/or
futures listed below, Fund will deliver to State Street Instructions
specifying with respect to each such purchase or sale:
1. If applicable, the name of the Portfolio making such purchase or
sale;
2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
<PAGE>
e. The need for a segregated margin account (in addition to
Instructions, and if not already in the possession of State
Street, Fund will deliver a substantially complete and
executed custodial safekeeping account and procedural
agreement, incorporated herein by this reference); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
J. ASSETS PLEDGED OR LOANED. If specifically allowed for in the
prospectus of a Portfolio, and subject to such additional terms and
conditions as State Street may require:
1. Upon receipt of Instructions, State Street will release or cause
to be released Assets to the designated pledgee by way of pledge
or hypothecation to secure any loan incurred by a Portfolio;
provided, however, that State Street will release Assets only
upon payment to State Street of the monies borrowed, except that
in cases where additional collateral is required to secure a
borrowing already made, further Assets may be released or caused
to be released for that purpose. Upon receipt of Instructions,
State Street will pay, but only from funds available for such
purpose, any such loan upon redelivery to it of the Assets
pledged or hypothecated therefor and upon surrender of the note
or notes evidencing such loan.
2. Upon receipt of Instructions, State Street will release Assets to
the designated borrower; provided, however, that the Assets will
be released only upon deposit with State Street of full cash
collateral as specified in such Instructions, and that the
lending Portfolio will retain the right to any dividends,
interest or distribution on such loaned Assets. Upon receipt of
Instructions and the loaned Assets, State Street will release the
cash collateral to the borrower.
K. ROUTINE MATTERS. State Street will, in general, attend to all routine
and mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with the Assets
except as may be otherwise provided herein or upon Instruction from
Fund.
<PAGE>
L. DEPOSIT ACCOUNTS. State Street will open and maintain one or more
special purpose deposit accounts for each Portfolio in the name of
State Street in such banks or trust companies (including, without
limitation, affiliates of State Street) as may be designated by it or
Fund in writing ("Accounts"), subject only to draft or order by State
Street upon receipt of Instructions. State Street will deposit all
monies received by State Street from or for the account of a Portfolio
in an Account maintained for such Portfolio. Subject to Section 5.J
hereof, State Street agrees:
1. To make Fed Funds available to the applicable Portfolio at 9:00
a.m., Kansas City time, on the second business day after deposit
of any check into an Account, in the amount of the check;
2. To make funds available immediately upon a deposit made by
Federal Reserve wire; and
3. To make funds available on the next business day after deposit of
ACH wires.
M. INCOME AND OTHER PAYMENTS. State Street will:
1. Collect, claim and receive and deposit for the account of the
applicable Portfolio all income (including income from the
Accounts) and other payments which become due and payable on or
after the effective date hereof with respect to the Assets, and
credit the account of such Portfolio in accordance with the
schedule attached hereto as Exhibit A. If, for any reason, a
Portfolio is credited with income that is not subsequently
collected, State Street may reverse that credited amount. If
monies are collected after such reversal, State Street will
credit the Portfolio in that amount;
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with (a) the collection, receipt and deposit of such
income and other payments, including but not limited to the
presentation for payment of all coupons and other income items
requiring presentation; and all other Assets which may mature or
be called, redeemed, retired or otherwise become payable and
regarding which State Street has actual knowledge, or should
reasonably be expected to have knowledge; and (b) the endorsement
for collection, in the name of Fund or a Portfolio, of all
checks, drafts or other negotiable instruments.
State Street, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon receipt
of Instructions and upon being indemnified to its satisfaction against
the costs and expenses of such suit or other actions. State Street
will receive, claim and collect all stock dividends, rights and other
similar items and will deal with the same pursuant to Instructions.
<PAGE>
N. PROXIES AND NOTICES. State Street will promptly deliver or mail (or
have delivered or mailed) to Fund all proxies properly signed, all
notices of meetings, all proxy statements and other notices, requests
or announcements affecting or relating to Assets and will, upon
receipt of Instructions, execute and deliver or mail (or cause its
nominee to execute and deliver or mail) such proxies or other
authorizations as may be required. Except as provided herein or
pursuant to Instructions hereafter received by State Street, neither
it nor its nominee will exercise any power inherent in any such
Assets, including any power to vote the same, or execute any proxy,
power of attorney, or other similar instrument voting any of such
Assets, or give any consent, approval or waiver with respect thereto,
or take any other similar action.
O. DISBURSEMENTS. State Street will pay or cause to be paid, insofar as
funds are available for the purpose, bills, statements and other
obligations of each Portfolio (including but not limited to
obligations in connection with the conversion, exchange or surrender
of Assets, interest charges, dividend disbursements, taxes, management
fees, custodian fees, legal fees, auditors' fees, transfer agents'
fees, brokerage commissions, compensation to personnel, and other
operating expenses of such Portfolio) pursuant to Instructions setting
forth the name of the person to whom payment is to be made, and the
amount and purpose of the payment.
P. DAILY STATEMENT OF ACCOUNTS. State Street will, within a reasonable
time, render to Fund a detailed statement of the amounts received or
paid and of Assets received or delivered for the account of each
Portfolio during each business day. State Street will maintain such
books and records as are necessary to enable it to render, from time
to time upon request by Fund, a detailed statement of the Assets.
State Street will permit, and upon Instruction will cause any
Subcustodian to permit, such persons as are authorized by Fund,
including Fund's independent public accountants, reasonable access to
such records or will provide reasonable confirmation of the contents
of such records, and if demanded, State Street will permit, and will
cause any Subcustodian to permit, federal and state regulatory
agencies to examine the Assets, books and records of the Portfolios.
Q. APPOINTMENT OF SUBCUSTODIANS. Notwithstanding any other provisions
hereof:
1. All or any of the Assets may be held in State Street's own
custody or in the custody of one or more other banks or trust
companies (including, without limitation, affiliates of State
Street) acting as Subcustodians as may be selected by State
Street. Any such Subcustodian selected by State Street must have
the qualifications required for a custodian under the 1940 Act.
State Street will be responsible to the applicable Portfolio for
any loss, damage or expense suffered or incurred by such
Portfolio resulting from the actions or omissions of any
Subcustodians selected and appointed by State Street (except
Subcustodians appointed at the request of Fund and as provided in
Subsection 2 below) to the same extent State Street would be
responsible to Fund hereunder if it committed the act or omission
itself.
2. Upon request of Fund, State Street will contract with other
Subcustodians reasonably acceptable to State Street for purposes
of (a) effecting third-party
<PAGE>
repurchase transactions with banks, brokers, dealers, or other
entities through the use of a common custodian or subcustodian,
or (b) providing depository and clearing agency services with
respect to certain variable rate demand note securities, or (c)
for other reasonable purposes specified by Fund; provided,
however, that State Street will be responsible to Fund for any
loss, damage or expense suffered or incurred by Fund resulting
from the actions or omissions of any such Subcustodian only to
the same extent such Subcustodian is responsible to State Street.
Fund may review State Street's contracts with such Subcustodians.
Q. FOREIGN CUSTODY MANAGER.
1. DELEGATION TO STATE STREET AS FCM. The Fund, pursuant to
resolution adopted by its Board of Trustees or Directors (the
"Board"), hereby delegates to State Street, subject to Section
(b) of Rule 17f-5, the responsibilities set forth in this Section
Q with respect to Foreign Assets held outside the United States,
and State Street hereby accepts such delegation, as Foreign
Custody Manager ("FCM") of each Portfolio.
2. DEFINITIONS. Capitalized terms in this Section Q have the
following meanings:
"Country Risk" means all factors reasonably related to the
systemic risk of holding Foreign Assets in a particular country
including, but not limited to, such country's political
environment; economic and financial infrastructure (including
financial institutions such as any Mandatory Securities
Depositories operating in the country); prevailing or developing
custody and settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held
in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section
(a)(1) of Rule 17f-5, except that the term does not include
Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments
(including foreign currencies) for which the primary market is
outside the United States and such cash and cash equivalents in
amounts deemed by Fund to be reasonably necessary to effect the
Portfolios' transactions in such investments.
"Foreign Custody Manager" or "FCM" has the meaning set forth in
section (a)(2) of Rule 17f-5.
"Mandatory Securities Depository" means a foreign securities
depository or clearing agency that, either as a legal or
practical matter, must be used if the Fund determines to place
Foreign Assets in a country outside the United States (i) because
required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing
agency; or (iii) because maintaining or effecting trades in
securities outside the foreign
<PAGE>
securities depository or clearing agency is not consistent with
prevailing or developing custodial or market practices.
3. COUNTRIES COVERED. The FCM is responsible for performing the
delegated responsibilities defined below only with respect to the
countries and custody arrangements for each such country listed
on Exhibit C hereto , which may be amended from time to time by
the FCM. The FCM will list on Exhibit C the Eligible Foreign
Custodians selected by the FCM to maintain the assets of each
Portfolio. Mandatory Securities Depositories are listed on
Exhibit D hereto, which Exhibit D may be amended from time to
time by the FCM. The FCM will provide amended versions of
Exhibits C and D in accordance with subsection 7 of this Section
Q.
<PAGE>
Upon the receipt by the FCM of Instructions to open an account,
or to place or maintain Foreign Assets in a country listed on
Exhibit C, and the fulfillment by the Fund of the applicable
account opening requirements for such country, the FCM is deemed
to have been delegated by the Board responsibility as FCM with
respect to that country and to have accepted such delegation.
Following the receipt of Instructions directing the FCM to close
the account of a Portfolio with the Eligible Foreign Custodian
selected by the FCM in a designated country, the delegation by
the Board to State Street as FCM for that country is deemed to
have been withdrawn and State Street will immediately cease to be
the FCM of the Portfolio with respect to that country.
The FCM may withdraw its acceptance of delegated responsibilities
with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties
agree in writing) after receipt of any such notice by the Fund,
State Street will have no further responsibility as FCM to a
Portfolio with respect to the country as to which State Street's
acceptance of delegation is withdrawn.
<PAGE>
4. SCOPE OF DELEGATED RESPONSIBILITIES.
a. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the
provisions of this Section Q, the FCM may place and maintain
the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the FCM in each country listed on
Exhibit C, as amended from time to time.
In performing its delegated responsibilities as FCM to place
or maintain Foreign Assets with an Eligible Foreign
Custodian, the FCM will determine that the Foreign Assets
will be subject to reasonable care, based on the standards
applicable to custodians in the country in which the Foreign
Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of
such assets, including, without limitation, those set forth
in Rule 17f-5(c)(1)(I) through (iv).
b. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The FCM will
determine that the contract (or the rules or established
practices or procedures in the case of an Eligible Foreign
Custodian that is a foreign securities depository or
clearing agency) governing the foreign custody arrangements
with each Eligible Foreign Custodian selected by the FCM
will provide reasonable care for the Foreign Assets held by
that Eligible Foreign Custodian based on the standards
applicable to custodians in the particular country. Each
such contract will include the provisions set forth in Rule
17f-5(c)(2)(I)(A) through (F), or, in lieu of any or all of
the provisions set forth in said (A) through (F), such other
provisions that the FCM determines will provide, in their
entirety, the same or greater level of care and protection
for the Foreign Assets as the provisions set forth in said
(A) through (F) in their entirety.
c. MONITORING. In each case in which the FCM maintains Foreign
Assets with an Eligible Foreign Custodian selected by the
FCM, the FCM will establish a system to monitor (a) the
appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian and (b) the contract governing
the custody arrangements established by the FCM with the
Eligible Foreign Custodian. In the event the FCM determines
that the custody arrangements with an Eligible Foreign
Custodian it has selected are no longer appropriate, the FCM
will notify the Board in accordance with subsection 7 of
this Section Q.
5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes
of this Section Q, the Board will be solely responsible for
considering and determining to accept such Country Risk, or for
delegating that responsibility to the investment advisor for the
Portfolio, as is incurred by placing and maintaining the Foreign
Assets in each country for which State Street is serving as FCM
of a Portfolio, and the Board will be solely responsible for
<PAGE>
monitoring on a continuing basis such Country Risk not otherwise
delegated to the advisor and to the extent that the Board
considers necessary or appropriate. The Fund, on behalf of the
Portfolios, and State Street each expressly acknowledge that the
FCM will not be delegated any responsibilities under this Section
Q with respect to Mandatory Securities Depositories.
6. STANDARD OF CARE AS FCM OF A PORTFOLIO. In performing the
responsibilities delegated to it, the FCM agrees to exercise
reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of management
investment companies registered under the 1940 Act would
exercise.
7. REPORTING REQUIREMENTS. The FCM will report the withdrawal of the
Foreign Assets from an Eligible Foreign Custodian and the
placement of such Foreign Assets with another Eligible Foreign
Custodian by providing to the Board amended Exhibits C and D at
the end of the calendar quarter in which an amendment to either
Schedule has occurred. The FCM will make written reports
notifying the Board of any other material change in the foreign
custody arrangements of a Portfolio described in this Section Q
after the occurrence of the material change.
8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The FCM represents to
the Fund that it is a U.S. Bank as defined in section (a)(7) of
Rule 17f-5.
The Fund represents to State Street that the Board has determined
that it is reasonable for the Board to rely on State Street to
perform the responsibilities delegated pursuant to this Agreement
to State Street as the FCM of each Portfolio.
9. EFFECTIVE DATE AND TERMINATION OF STATE STREET AS FCM. The
Board's delegation to State Street as FCM of a Portfolio will be
effective as of the date hereof and will remain in effect until
terminated at any time, without penalty, by written notice from
the terminating party to the non-terminating party. Termination
will become effective thirty days after receipt by the
non-terminating party of such notice. The provisions of
subsection 3 of this Section Q govern the delegation to and
termination of State Street as FCM of the Fund with respect to
designated countries.
R. ACCOUNTS AND RECORDS PROPERTY OF FUND. State Street acknowledges that
all of the accounts and records maintained by State Street pursuant
hereto are the property of Fund, and will be made available to Fund
for inspection or reproduction within a reasonable period of time,
upon demand. State Street will assist Fund's independent auditors, or
upon approval of Fund, or upon demand, any regulatory body, in any
requested review of Fund's accounts and records but Fund will
reimburse State Street for all expenses and employee time invested in
any such review outside of routine and normal periodic reviews. Upon
receipt from Fund of the necessary information or instructions, State
Street will supply information from the books and records it maintains
for Fund that Fund needs for tax returns, questionnaires, periodic
reports
<PAGE>
to shareholders and such other reports and information requests as
Fund and State Street agree upon from time to time.
S. ADOPTION OF PROCEDURES. State Street and Fund hereby adopt the Funds
Transfer Operating Guidelines attached hereto as Exhibit B. State
Street and Fund may from time to time adopt such additional procedures
as they agree upon, and State Street may conclusively assume that no
procedure approved or directed by Fund, Fund's or Portfolio's
accountants or other advisors conflicts with or violates any
requirements of the prospectus, articles of incorporation, bylaws, any
applicable law, rule or regulation, or any order, decree or agreement
by which Fund may be bound. Fund will be responsible for notifying
State Street of any changes in statutes, regulations, rules,
requirements or policies which might necessitate changes in State
Street's responsibilities or procedures.
T. ADVANCES. Fund will pay on demand any advance of cash or securities
made by State Street or any Subcustodian, in its sole discretion, for
any purpose (including but not limited to securities settlements,
purchase or sale of foreign exchange or foreign exchange contracts and
assumed settlement) for the benefit of any Portfolio. Any such cash
advance will be subject to an overdraft charge at the rate set forth
in the then-current fee schedule from the date advanced until the date
repaid. As security for each such advance, Fund hereby grants State
Street and such Subcustodian a lien on and security interest in all
Assets at any time held for the account of the applicable Portfolio,
including without limitation all Assets acquired with the amount
advanced. Should Fund fail to promptly repay the advance, State Street
and such Subcustodian may utilize available cash and to dispose of
such Portfolio's Assets pursuant to applicable law to the extent
necessary to obtain reimbursement of the amount advanced and any
related overdraft charges.
U. EXERCISE OF RIGHTS; TENDER OFFERS. Upon receipt of Instructions, State
Street will: (1) deliver warrants, puts, calls, rights or similar
securities to the issuer or trustee thereof, or to the agent of such
issuer or trustee, for the purpose of exercise or sale, provided that
the new Assets, if any, are to be delivered to State Street; and (2)
deposit securities upon invitations for tenders thereof, provided that
the consideration for such securities is to be paid or delivered to
State Street or the tendered securities are to be returned to State
Street.
V. FUND SHARES.
1. Fund will deliver to State Street Instructions with respect to
the declaration and payment of any dividend or other distribution
on the shares of capital stock of a Portfolio ("Fund Shares") by
a Portfolio. On the date specified in such Instruction, State
Street will pay out of the monies held for the account of the
Portfolio, insofar as it is available for such purposes, and
credit to the account of the Dividend Disbursing Agent for the
Portfolio, the amount specified in such Instructions.
<PAGE>
2. Whenever Fund Shares are repurchased or redeemed by a Portfolio,
Portfolio or its agent will give State Street Instructions
regarding the aggregate dollar amount to be paid for such shares.
Upon receipt of such Instruction, State Street will charge such
aggregate dollar amount to the account of the Portfolio and
either deposit the same in the account maintained for the purpose
of paying for the repurchase or redemption of Fund Shares or
deliver the same in accordance with such Instruction. State
Street has no duty or responsibility to determine that Fund
Shares have been removed from the proper shareholder accounts or
that the proper number of Fund Shares have been canceled and
removed from the shareholder records.
3. Whenever Fund Shares are purchased from Fund, Fund will deposit
or cause to be deposited with State Street the amount received
for such shares. State Street has no duty or responsibility to
determine that Fund Shares purchased from Fund have been added to
the proper shareholder account or that the proper number of such
shares have been added to the shareholder records.
4. INSTRUCTIONS.
A. The term "Instructions", as used herein, means written (including
telecopied, telexed, or electronically transmitted) or oral
instructions which State Street reasonably believes were given by a
designated representative of Fund. Fund will deliver to State Street,
prior to delivery of any Assets to State Street and thereafter from
time to time as changes therein are necessary, written Instructions
naming one or more designated representatives to give Instructions in
the name and on behalf of Fund, which Instructions may be received and
accepted by State Street as conclusive evidence of the authority of
any designated representative to act for Fund and may be considered to
be in full force and effect until receipt by State Street of notice to
the contrary. Unless such written Instructions delegating authority to
any person to give Instructions specifically limit such authority to
specific matters or require that the approval of anyone else will
first have been obtained, State Street will be under no obligation to
inquire into the right of such person, acting alone, to give any
Instructions whatsoever. If Fund fails to provide State Street any
such Instructions naming designated representatives, any Instructions
received by State Street from a person reasonably believed to be an
appropriate representative of Fund will constitute valid and proper
Instructions hereunder. "Designated representatives" may include
Fund's or a Portfolio's employees and agents, including investment
managers and their employees.
<PAGE>
B. No later than the next business day immediately following each oral
Instruction, Fund will send State Street written confirmation of such
oral Instruction. At State Street's sole discretion, State Street may
record on tape, or otherwise, any oral Instruction whether given in
person or via telephone, each such recording identifying the date and
the time of the beginning and ending of such oral Instruction.
C. Fund will provide, upon State Street's request a certificate signed by
an officer or designated representative of Fund, as conclusive proof
of any fact or matter required to be ascertained from Fund hereunder.
Fund will also provide State Street Instructions with respect to any
matter concerning this Agreement requested by State Street. If State
Street reasonably believes that it could not prudently act according
to the Instructions, or the instruction or advice of Fund's or a
Portfolio's accountants or counsel, it may in its discretion, with
notice to Fund, not act according to such Instructions.
5. LIMITATION OF LIABILITY OF STATE STREET. State Street is not responsible or
liable for, and Fund will indemnify and hold State Street harmless from and
against, any and all costs, expenses, losses, damages, charges, counsel
fees, payments and liabilities which may be asserted against or incurred by
State Street or for which State Street may be held to be liable, arising
out of or attributable to:
A. State Street's action or omission to act pursuant hereto; provided
that State Street has acted in good faith and with due diligence and
reasonable care; and provided further, that State Street is not liable
for consequential, special, or punitive damages in any event.
B. State Street's payment of money as requested by Fund, or the taking of
any action which might make it or its nominee liable for payment of
monies or in any other way; provided, however, that nothing herein
obligates State Street to take any such action or expend its own
monies except in its sole discretion.
C. State Street's action or omission to act hereunder upon any
Instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been
properly executed, including any Instructions, communications, data or
other information received by State Street by means of the Systems, as
hereinafter defined, or any electronic system of communication.
D. State Street's action or omission to act in good faith reliance on the
advice or opinion of counsel for Fund or of its own counsel with
respect to questions or matters of law, which advice or opinion may be
obtained by State Street at the expense of Fund, or on the
Instructions, advice or statements of any officer or employee of Fund,
or Fund's accountants or other authorized individuals, and other
persons believed by it in good faith to be expert in matters upon
which they are consulted.
E. The purchase or sale of any securities or foreign currency positions.
Without limiting the generality of the foregoing, State Street is
under no duty or obligation to inquire into:
<PAGE>
1. The validity of the issue of any securities purchased by or for
any Portfolio, or the legality of the purchase thereof or of
foreign currency positions, or evidence of ownership required by
Fund to be received by State Street, or the propriety of the
decision to purchase or the amount paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for any Portfolio, or the propriety of the amount
for which the same are sold; or
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor, the legality
of the repurchase or redemption of any Fund Shares, or the
propriety of the amount to be paid therefor, or the legality of
the declaration of any dividend by Fund, or the legality of the
issue of any Fund Shares in payment of any stock dividend.
F. Any error, omission, inaccuracy or other deficiency in any Portfolio's
accounts and records or other information provided by or on behalf of
a Portfolio to State Street, or the failure of Fund to provide, or
provide in a timely manner, any accounts, records, or information
needed by State Street to perform hereunder.
G. Fund's refusal or failure to comply with the terms hereof (including
without limitation Fund's failure to pay or reimburse State Street
under Section 5 hereof), Fund's negligence or willful misconduct, or
the failure of any representation or warranty of Fund hereunder to be
and remain true and correct in all respects at all times.
H. The use or misuse, whether authorized or unauthorized, of the Systems
or any electronic system of communication used hereunder, by Fund or
by any person who acquires access to the Systems or such other systems
through the terminal device, passwords, access instructions or other
means of access to such Systems or such other system which are
utilized by, assigned to or otherwise made available to Fund, except
to the extent attributable to any negligence or willful misconduct by
State Street.
I. Any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment
of money to be received by State Street on behalf of a Portfolio until
actually received; provided, however, that State Street will advise
Fund promptly if it fails to receive any such money in the ordinary
course of business and will cooperate with Fund toward the end that
such money is received.
J. Except as provided in Section 3.P hereof, loss occasioned by the acts,
neglects, defaults or insolvency of any broker, bank, trust company,
or any other person with whom State Street may deal.
K. The failure or delay in performance of its obligations hereunder, or
those of any entity for which it is responsible hereunder, arising out
of or caused, directly or indirectly, by circumstances beyond the
affected entity's reasonable control, including, without limitation:
any interruption, loss or malfunction of any utility, transportation,
<PAGE>
computer (hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornadoes, acts of God or public enemy,
revolutions, or insurrection.
6. COMPENSATION. In consideration for its services hereunder, Fund will pay to
State Street the compensation set forth in a separate fee schedule,
incorporated herein by this reference, to be agreed to by Fund and State
Street from time to time, and reimbursement for State Street's cash
disbursements and reasonable out-of-pocket costs and expenses, including
attorney's fees, incurred by State Street in connection with the
performance of services hereunder, on demand. State Street may charge such
compensation against monies held by it for the account of the Portfolios.
State Street will also be entitled to charge against any monies held by it
for the account of the Portfolios the amount of any loss, damage,
liability, advance, overdraft or expense for which it is entitled to
reimbursement from Fund, including but not limited to fees and expenses due
to State Street for other services provided to Fund by State Street. State
Street will be entitled to reimbursement by Fund for the losses, damages,
liabilities, advances, overdrafts and expenses of Subcustodians only to the
extent that (a) State Street would have been entitled to reimbursement
hereunder if it had incurred the same itself directly, and (b) State Street
is obligated to reimburse the Subcustodian therefor.
7. TERM AND TERMINATION. The initial term of this Agreement is for a period of
two (2) years. Thereafter, Fund or State Street may terminate the same by
notice in writing, delivered or mailed, postage prepaid, to the other party
and received not less than ninety (90) days prior to the date upon which
such termination will take effect. Upon termination hereof:
A. Fund will pay State Street its fees and compensation due hereunder and
its reimbursable disbursements, costs and expenses paid or incurred to
such date;
B. Fund will designate a successor custodian by Instruction to State
Street by the termination date. In the event no such Instruction has
been delivered to State Street on or before the date when such
termination becomes effective, then State Street may, at its option,
(i) choose as successor custodian a bank or trust company meeting the
qualifications for custodian set forth in the 1940 Act and having not
less than Two Million Dollars ($2,000,000) aggregate capital, surplus
and undivided profits, as shown by its last published report, or (ii)
apply to a court of competent jurisdiction for the appointment of a
successor or other proper relief, or take any other lawful action
under the circumstances; provided, however, that Fund will reimburse
State Street for its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith; and
C. State Street will, upon payment of all sums due to State Street from
Fund hereunder or otherwise, deliver all Assets, duly endorsed and in
form for transfer, to the successor custodian, or as specified by the
court, at State Street's office. State Street will co-operate in
effecting changes in book-entries at all Depositories. Upon delivery
to a successor or as specified by the court, State Street will have no
further
<PAGE>
obligations or liabilities hereunder. Thereafter such successor will
be the successor hereunder and will be entitled to reasonable
compensation for its services.
In the event that Assets remain in the possession of State Street after the
date of termination hereof for any reason other than State Street's failure
to deliver the same, State Street is entitled to compensation as provided
in the then-current fee schedule for its services during such period, and
the provisions hereof relating to the duties and obligations of State
Street will remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at the address set forth above, or at such other address as Fund may
have designated to State Street in writing, will be deemed to have been
properly given to Fund hereunder. Notices, requests, Instructions and other
writings addressed to State Street at 801 Pennsylvania Avenue, Kansas City,
Missouri 64105, Attention: Custody Department, or to such other address as
it may have designated to Fund in writing, will be deemed to have been
properly given to State Street hereunder.
9. THE SYSTEMS; CONFIDENTIALITY.
A. If State Street provides Fund direct access to the computerized
investment portfolio custody systems used by State Street ("Systems")
or if State Street and Fund agree to utilize any electronic system of
communication, Fund agrees to implement and enforce appropriate
security policies and procedures to prevent unauthorized or improper
access to or use of the Systems or such other system.
B. Fund will preserve the confidentiality of the Systems and the tapes,
books, reference manuals, instructions, records, programs,
documentation and information of, and other materials relevant to, the
Systems and the business of State Street ("Confidential Information").
Fund agrees that it will not voluntarily disclose any such
Confidential Information to any other person other than its own
employees who reasonably have a need to know such information pursuant
hereto. Fund will return all such Confidential Information to State
Street upon termination or expiration hereof.
C. Fund has been informed that the Systems are licensed for use by State
Street from one or more third parties ("Licensors"), and Fund
acknowledges that State Street and Licensors have proprietary rights
in and to the Systems and all other State Street or Licensor programs,
code, techniques, know-how, data bases, supporting documentation, data
formats, and procedures, including without limitation any changes or
modifications made at the request or expense or both of Fund
(collectively, the "Protected Information"). Fund acknowledges that
the Protected Information constitutes confidential material and trade
secrets of State Street and Licensors. Fund will preserve the
confidentiality of the Protected Information, and Fund hereby
acknowledges that any unauthorized use, misuse, disclosure or taking
of Protected Information, residing or existing internal or external to
a computer, computer system, or computer network, or the knowing and
unauthorized accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject to civil
liabilities and criminal penalties under applicable law. Fund will so
inform employees and agents who have access to the Protected
Information
<PAGE>
or to any computer equipment capable of accessing the same. Licensors
are intended to be and are third party beneficiaries of Fund's
obligations and undertakings contained in this Section.
D. Fund hereby represents and warrants to State Street that it has
determined to its satisfaction that the Systems are appropriate and
suitable for its use. THE SYSTEMS ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. State Street EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
10. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio will be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered hereby,
every reference herein to Fund is deemed to relate solely to the
particular Portfolio to which such transaction relates. Under no
circumstances will the rights, obligations or remedies with respect to
a particular Portfolio constitute a right, obligation or remedy
applicable to any other Portfolio. The use of this single document to
memorialize the separate agreement of each Portfolio is understood to
be for clerical convenience only and will not constitute any basis for
joining the Portfolios for any reason.
B. Fund may appoint State Street as its custodian for additional
Portfolios from time to time by written notice, provided that State
Street consents to such addition. Rates or charges for each additional
Portfolio will be as agreed upon by State Street and Fund in writing.
11. MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights and
liabilities of the parties hereto will be governed by, the laws of the
Commonwealth of Massachusetts, without reference to the choice of laws
principles thereof.
B. All terms and provisions hereof will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9 hereof are intended to and
will continue after and survive the expiration, termination or
cancellation hereof.
D. No provisions hereof may be amended or modified in any manner except
by a written agreement properly authorized and executed by each party
hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions hereof or to enforce any rights resulting from any
breach of any of the terms or
<PAGE>
conditions hereof, including the payment of damages, will not be
construed as a continuing or permanent waiver of any such terms,
conditions, rights or privileges, but the same will continue and
remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver, release or discharge of any party's rights
hereunder will be effective unless contained in a written instrument
signed by the party sought to be charged.
F. The captions herein are included for convenience of reference only,
and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which is deemed an original but all of which together constitute one
and the same instrument.
H. If any provision hereof is determined to be invalid, illegal, in
conflict with any law or otherwise unenforceable, the remaining
provisions hereof will be considered severable and will not be
affected thereby, and every remaining provision hereof will remain in
full force and effect and will remain enforceable to the fullest
extent permitted by applicable law.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance hereof will be deemed to create
a partnership or joint venture by and between State Street and Fund or
any Portfolio.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder will not
affect any rights or obligations of the other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
STATE STREET BANK AND TRUST COMPANY FREMONT MUTUAL FUNDS, INC.
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
<PAGE>
EXHIBIT A -- INCOME AVAILABILITY SCHEDULE
FOREIGN--Income will be credited contractually on pay day in the markets noted
with Contractual Income Policy. The markets noted with Actual income policy will
be credited income when it is received.
<TABLE>
<CAPTION>
====================================================================================================================================
MARKET INCOME POLICY MARKET INCOME POLICY MARKET INCOME POLICY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina Actual Hong Kong Contractual Poland Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Australia Contractual Hungary Actual Portugal Contractual
- ------------------------------------------------------------------------------------------------------------------------------------
Austria Contractual India Actual Russia Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Bahrain Actual Indonesia Actual Singapore Contractual
- ------------------------------------------------------------------------------------------------------------------------------------
Bangladesh Actual Ireland Actual Slovak Republic Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Belgium Contractual Israel Actual South Africa Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Bermuda Actual Italy Contractual South Korea Actual
- ------------------------------------------------------------------------------------------------------------------------------------
* Bolivia Actual Ivory Coast Actual Spain Contractual
- ------------------------------------------------------------------------------------------------------------------------------------
Botswana Actual * Jamaica Actual Sri Lanka Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil Actual Japan Contractual Swaziland Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Canada Contractual Jordan Actual Sweden Contractual
- ------------------------------------------------------------------------------------------------------------------------------------
Chile Actual Kenya Actual Switzerland Contractual
- ------------------------------------------------------------------------------------------------------------------------------------
China Actual Lebanon Actual Taiwan Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Colombia Actual Luxembourg Actual Thailand Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Cyprus Actual Malaysia Actual * Trinidad & Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Czech Republic Actual Mauritius Actual * Tunisia Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Denmark Contractual Mexico Actual Turkey Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Ecuador Actual Morocco Actual UnitedKingdom Contractual
- ------------------------------------------------------------------------------------------------------------------------------------
Egypt Actual Namibia Actual United States See Attached
- ------------------------------------------------------------------------------------------------------------------------------------
**Euroclear Contractual/ Netherlands Contractual Uruguay Actual
Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Euro CDs Actual New Zealand Contractual Venezuela Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Finland Contractual Norway Contractual Zambia Actual
- ------------------------------------------------------------------------------------------------------------------------------------
France Contractual Oman Actual Zimbabwe Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Germany Contractual Pakistan Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Ghana Actual Peru Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Greece Actual Philippines Actual
====================================================================================================================================
</TABLE>
* Market is not 17F-5 eligible
** For Euroclear, contractual income paid only in markets listed with Income
Policy of Contractual.
<PAGE>
<TABLE>
<CAPTION>
UNITED STATES--
====================================================================================================================================
INCOME TYPE DTC FED PTC PHYSICAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividends Contractual N/A N/A Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Rate Interest Contractual Contractual N/A Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Rate Interest Contractual Contractual N/A Actual
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA I N/A N/A Contractual PD +1 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA II N/A N/A Contractual PD *** N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgages Actual Contractual Contractual Actual
- ------------------------------------------------------------------------------------------------------------------------------------
Maturities Actual Contractual N/A Actual
====================================================================================================================================
</TABLE>
Exceptions to the above Contractual Income Policy include securities that are:
o Involved in a trade whose settlement either failed, or is pending over the
record date, (excluding the United States);
o On loan under a self directed securities lending program other than State
Street's own vendor lending program;
o Known to be in a condition of default, or suspected to present a risk of
default or payment delay; < In the asset categories, without limitation, of
Private Placements, Derivatives, Options, Futures, CMOs, and Zero Coupon
Bonds.
o Securities whose amount of income and redemption cannot be calculated in
advance of payable date, or determined in advance of actual collection,
examples include ADRs;
o Payments received as the result of a corporate action, not limited to, bond
calls, mandatory or optional puts, and tender offers.
*** For GNMA II securities, if the 19th day of the month is a business day,
Payable/Distribution Date is the next business day. If the 19th is not a
business day, but the 20th is a business day, Payable/Distribution date is the
first business day after the 20th. If both the 19th and 20th are not business
days, Payable/Distribution will be the next business day thereafter.
<PAGE>
EXHIBIT B -- FUNDS TRANSFER OPERATING GUIDELINES
1 OBLIGATION OF THE SENDER: State Street is authorized to promptly debit Fund's
("Client's") account(s) upon the receipt of a payment order in compliance with
any of the Security Procedures chosen by the Client, from those offered on the
attached selection form (and any updated selection forms hereafter executed by
the Client), for funds transfers and in the amount of money that State Street
has been instructed to transfer. State Street is hereby instructed to accept
funds transfer instructions only via the delivery methods and Security
Procedures indicated on the attached selection form (and any updated executed by
the Client). The Client agrees that the Security Procedures are reasonable and
adequate for its wire transfer transactions and agrees to be bound by any
payment orders, amendments and cancellations, whether or not authorized, issued
in its name and accepted by State Street after being confirmed by any of the
selected Security Procedures. The Client also agrees to be bound by any other
valid and authorized payment order accepted by State Street. State Street shall
execute payment orders in compliance with the selected Security Procedures and
with the Client's/Investment Manager's instructions on the execution date
provided that such payment order is received by the customary deadline for
processing such a request, unless the payment order specifies a later time.
State Street will use reasonable efforts to execute on the execution date
payment orders received after the customary deadline, but if it is unable to
execute any such payment order on the execution date, such payment order will be
deemed to have been received on the next business day.
2 SECURITY PROCEDURES: The Client acknowledges that the selected Security
Procedures were selected by the Client from Security Procedures offered by State
Street. The Client shall restrict access to confidential information relating to
the Security Procedures to authorized persons as communicated in writing to
State Street. The Client must notify State Street immediately if it has reason
to believe unauthorized persons may have obtained access to such information or
of any change in the Client's authorized personnel. State Street shall verify
the authenticity of all instructions according to the selected Security
Procedures.
3 ACCOUNT NUMBERS: State Street shall process all payment orders on the basis of
the account number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number, the
account number shall take precedence and govern. Financial institutions that
receive payment orders initiated by State Street at the instruction of the
Client may also process payment orders on the basis of account numbers,
regardless of any name included in the payment order. State Street will also
rely on any financial institution identification numbers included in any payment
order, regardless of any financial institution name included in the payment
order.
4 REJECTION: State Street reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of State Street's receipt of such payment
order; (b) if initiating such payment order would cause State Street, in State
Street's sole judgment, to exceed any applicable volume, aggregate dollar,
network, time, credit or similar limits upon wire transfers; or (c) if State
Street, in good faith, is unable to satisfy itself that the transaction has been
properly authorized.
5 CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act on
all authorized requests to cancel or amend payment orders received in compliance
with the selected Security Procedures provided that such requests are received
in sufficient time to afford State Street a reasonable opportunity to act prior
to executing the payment order. However, State Street assumes no liability if
the request for amendment or cancellation cannot be satisfied by State Street's
reasonable efforts.
6 ERRORS: State Street shall assume no responsibility for failure to detect any
erroneous payment order provided that State Street complies with the payment
order instructions as received and State Street complies with the selected
Security Procedures. The Security Procedures are established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7 INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility for
lost interest with respect to the refundable amount of any unauthorized payment
order, unless State Street is notified of the unauthorized payment order within
thirty (30) days of notification by State Street of the acceptance of such
payment order. In no event (including but not limited to failure to execute a
payment order) shall State Street be liable for special, indirect or
consequential damages, even if advised of the possibility of such damages.
8 AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When the
Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the Mid-America Payment Exchange or other similar body, State Street or its
agent will act as an Originating Depository Financial Institution and/or
Receiving Depository Financial Institution, as the case may be, with respect to
such entries. Credits given with respect to an ACH credit entry are provisional
until final settlement for such entry is received from the Federal Reserve Bank.
If such final settlement is not received, the Client agrees to promptly refund
the amount credited to the Client in connection with such entry, and the party
making payment to the Client via such entry shall not be deemed to have paid the
amount of the entry.
9 CONFIRMATIONS: Confirmation of State Street's execution of payment orders
shall ordinarily be provided within 24 hours. Notice may be delivered through
State Street's account statements, advices, information systems, or by facsimile
or callback. The Client must report any objections to the execution of a payment
order within 30 days.
10 MISCELLANEOUS: State Street may use the Federal Reserve System Fedwire to
execute payment orders, and any payment order carried in whole or in part
through Fedwire will be subject to applicable Federal Reserve Board rules and
regulations. State Street and the Client agree to cooperate to attempt to
recover any funds erroneously paid to wrong parties, regardless of any fault of
State Street or the Client, but the party responsible for the erroneous payment
shall bear all costs and expenses incurred in trying to effect such recovery.
These Guidelines may not be amended except by a written agreement signed by the
parties.
<PAGE>
SECURITY PROCEDURES SELECTION FORM
Please select one or more of the funds transfer security procedures
indicated below.
[] SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication)
is a cooperative society owned and operated by member financial
institutions that provides telecommunication services for its membership.
Participation is limited to securities brokers and dealers, clearing and
depository institutions, recognized exchanges for securities, and
investment management institutions. SWIFT provides a number of security
features through encryption and authentication to protect against
unauthorized access, loss or wrong delivery of messages, transmission
errors, loss of confidentiality and fraudulent changes to messages.
Selection of this security procedure would be most appropriate for existing
SWIFT members.
[] REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via
Computer-to-Computer (CPU-CPU) data communications between the Client
and/or its agent and State Street and/or its agent. Security procedures
include encryption and/or the use of a test key by those individuals
authorized as Automated Batch Verifiers or a callback procedure to those
individuals. Clients selecting this option should have an existing facility
for completing CPU-CPU transmissions. This delivery mechanism is typically
used for high-volume business such as shareholder redemptions and dividend
payments.
[] TELEPHONE CONFIRMATION (CALL BACK) This procedure requires Clients to
designate individuals as authorized initiators and authorized verifiers.
State Street will verify that the instruction contains the signature of an
authorized person and prior to execution of the payment order, will contact
someone other than the originator at the Client's location to authenticate
the instruction. Selection of this alternative is appropriate for Clients
who do not have the capability to use other security procedures.
[] TEST KEY Test Key confirmation will be used to verify all non-repetitive
funds transfer instructions received via facsimile or phone. State Street
will provide test keys if this option is chosen. State Street will verify
that the instruction contains the signature of an authorized person and
prior to execution of the payment order, will authenticate the test key
provided with the corresponding test key at State Street. Selection of this
alternative is appropriate for Clients who do not have the capability to
use other security procedures.
[] REPETITIVE WIRES For situations where funds are transferred periodically
from an existing authorized account to the same payee (destination bank and
account number) and only the date and currency amount are variable, a
repetitive wire may be implemented. Repetitive wires will be subject to a
$10 million limit. If the payment order exceeds the $10 million limit, the
instruction will be confirmed by telephone or test key prior to execution.
Repetitive wire instructions must be reconfirmed annually. Clients may
establish Repetitive Wires by following the agreed upon security procedures
as described by Telephone Confirmation (Call Back) or Test Key. This
alternative is recommended whenever funds are frequently transferred
between the same two accounts.
<PAGE>
[] STANDING INSTRUCTIONS Funds are transferred by State Street to a counter
party on the Client's established list of authorized counter parties. Only
the date and the dollar amount are variable. Clients may establish Standby
Instructions by following the agreed upon security procedures as described
by Telephone Confirmation (Call Back) or Test Key. This option is used for
transactions that include but are not limited to Foreign Exchange
Contracts, Time Deposits and Tri-Party Repurchase Agreements.
[] AUTOMATED CLEARING HOUSE (ACH) State Street or its agent receives an
automated transmission from a Client for the initiation of payment (credit)
or collection (debit) transactions through the ACH network. The
transactions contained on each transmission or tape must be authenticated
by the Client. The transmission is sent from the Client's or its agent's
system to State Street's or its agent's system with encryption.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
<PAGE>
EXHIBIT C
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
COUNTRY SUBCUSTODIAN OPTIONAL DEPOSITORIES
CLIENT OPERATIONS CONTACT
ALTERNATE CONTACT
<PAGE>
Raymund Santiago Jack Gee
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Name Name
333 Market Street, Suite 2600 333 Market Street, Suite 2600
- ----------------------------------- -----------------------------------
Address Address
San Francisco, CA 94105 San Francisco, CA 94105
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City/State/Zip Code City/State/Zip Code
415-284-8831 415-284-8831
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Telephone Number Telephone Number
415-284-8158
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Facsimile Number
- -----------------------------------
SWIFT Number
FREMONT MUTUAL FUNDS, INC.
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria GiroCredit Bank Aktiengesellschaft der Sparkassen --
Bahrain The British Bank of the Middle East (as delegate of the --
Hongkong and Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's The Hongkong and Shanghai Banking Corporation --
Republic of Limited Shanghai and Shenzhen branches
China
Colombia Cititrust Colombia S.A.Sociedad Fiduciaria --
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC Cyprus Offshore Banking Unit --
Czech Ceskoslovenska Obchodni Banka A.S. --
Republic
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
<PAGE>
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
India Deutsche Bank AG;The Hongkong and Shanghai --
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques en Cote d'Ivoire --
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; The Fuji Bank Limited Japan Securities Depository
The Sumitomo Trust & Banking Co., Ltd.
Jordan The British Bank of the Middle East (as delegate of the --
Hongkong and Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of Citibank, N.A. --
Korea
Lebanon The British Bank of the Middle East Custodian and Clearing Center of
(as delegate of the Hongkong and Financial Instruments for Lebanon
Corporation Limited) Shanghai Banking (MIDCLEAR) S.A.L.;
Malaysia Standard Chartered Bank Malaysia Berhad --
Mauritius The Hongkong and Shanghai Banking --
Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa --
Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group (New Zealand) Limited --
Norway Christiania Bank og Kreditkasse --
Oman The British Bank of the Middle East(as delegate of the --
Hongkong and Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich via Credit --
Suisse First Boston Limited, Moscow
Singapore The Development Bank of Singapore Ltd. --
Slovak Ceskoslovenska ObchodnaBanka A.S. --
Republic
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai Banking Corporation Limited--
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - Central Trust of China --
R.O.C.
Thailand Standard Chartered Bank --
Trinidad Republic Bank Ltd. --
& Tobago
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
United State Street Bank and Trust --
Kingdom
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
</TABLE>
<PAGE>
EXHIBIT D
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
COUNTRY MANDATORY DEPOSITORIES (INCLUDES ENTITIES FOR WHICH USE IS
MANDATORY AS A MATTER OF LAW OR EFFECTIVELY MANDATORY AS A
MATTER OF MARKET PRACTICE)
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information andTransfer System
Austria -Oesterreichische Kontrollbank AG (Wertpapiersammelbank
Division)
Belgium -Caisse Interprofessionnelle de Depots et de Virements de
Titres S.A.;
-Banque Nationale de Belgique
Brazil -Bolsa de Valores de Sao Paulo;
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use Calispa
-Central de Custodia e de Liquidacao Financeira de Titulos
-Banco Central do Brasil, Systema Especial de Liquidacao e
Custodia
Canada -The Canadian Depositoryfor Securities Limited; West Canada
Depository Trust Company [depositories linked]
People's Republic -Shanghai Securities Central Clearing and Registration
of China Corporation;
-Shenzhen Securities Central Clearing Co., Ltd.
Croatia Ministry of Finance
Czech Republic --Stredisko cennych papiru';
-Czech National Bank
Denmark -Vaerdipapircentralen - The Danish Securities Center
Egypt -Misr Company for Clearing, Settlement, and Central
Depository
Estonia -Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities Depository
France -Societe Interprofessionnelle pour la Compensation des
Valeurs Mobilieres;
-Banque de France, Saturne System
Germany -The Deutscher Kassenverein AG
Greece -The Central Securities Depository (Apothetirion Titlon
A.E.);
<PAGE>
Hong Kong -The Central Clearing and Settlement System;
-The Central Money Markets Unit
Hungary -The Central Depository and Clearing House (Budapest) Ltd.
[Mandatory for Gov't Bonds only; SSB does not use for other
securities]
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland, The Gilt Settlement Office
Israel -The Clearing House of the Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Republic of Korea -Korea Securities Depository
Lebanon -The Central Bank of Lebanon
Malaysia -Malaysian Central Depository Sdn. Bhd.;
-Bank Negara Malaysia, Scripless Securities Trading and
Safekeeping Systems
Mauritius -The Central Depository & Settlement System
Mexico -S.D. INDEVAL, S.A. de C.V.(Instituto para el Deposito de
Valores);
Netherlands -Nederlands Centraal Instituut voor Giraal Effectenverkeer
B.V. ('NECIGEF') [** It is planned that as of 1/1/98 NBNV
will no longer hold government securities, all securities
will be transferred to NECIGEF];
-De Nederlandsche Bank N.V. ('NBNV')**
New Zealand -New Zealand Central Securities Depository Limited
Norway -Verdipapirsentralen - The Norwegian Registry of Securities
Oman -Muscat Securities Market
Peru -Caja de Valores y Liquidaciones (CAVALI, S.A.)
<PAGE>
Philippines -The Philippines Central Depository Inc.
-The Book-Entry-System of Bangko Sentral ng Pilipinas;
-The Registry of Scripless Securities of the Bureau of the
Treasury
Poland -The National Depository of Securities (Krajowy Depozyt
Papierow Wartos'ciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
Romania -National Securities Clearing, Settlement and Depository
Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pte)Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y Liquidacion de Valores, S.A.;
-Banco de Espana, Anotaciones en Cuenta
Sri Lanka -Central Depository System (Pvt) Limited
Sweden -Vardepapperscentralen VPC AB - The Swedish Central
Securities Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central Depository Company, Ltd.
Thailand -Thailand Securities Depository Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
<PAGE>
United Kingdom -The Bank of England, The Central Gilts Office; The Central
Moneymarkets Office; The European Settlements Office;
-First Chicago Clearing Centre
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
INVESTMENT ACCOUNTING AGREEMENT
-------------------------------
THIS AGREEMENT made and effective as of this ___ day of __________, 2000,
by and between FREMONT MUTUAL FUNDS, INC., a Maryland corporation, having its
principal place of business at 333 Market Street, Suite 2600, San Francisco,
California 94105 ("Fund"), and STATE STREET BANK AND TRUST COMPANY, a state
chartered trust company organized and existing under the laws of the
Commonwealth of Massachusetts, having its principal place of business at 225
Franklin Street, Boston, Massachusetts 94105 ("State Street").
WHEREAS, Fund is registered as an "investment company" under the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, State Street performs certain investment accounting and
recordkeeping services on a computerized accounting system (the "System") which
is suitable for maintaining certain accounting records of the Portfolios of the
Fund; and
WHEREAS, Fund desires to appoint State Street as investment accounting and
recordkeeping agent for the assets of the Fund's investment portfolio or
portfolios (each a "Portfolio" and collectively the "Portfolios") of the Fund,
and State Street is willing to accept such appointment;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF RECORDKEEPING AGENT. Fund hereby constitutes and appoints
State Street as investment accounting and recordkeeping agent for the
Portfolios to perform accounting and recordkeeping functions related to
portfolio transactions required of Fund under Rule 31a of the 1940 Act and
to calculate the net asset value of the Portfolios.
2. REPRESENTATIONS AND WARRANTIES OF FUND. Fund hereby represents, warrants
and acknowledges to State Street:
A. That it is a corporation duly organized and existing and in good
standing under the laws of Maryland, and that it is registered under
the 1940 Act;
B. That it has the requisite power and authority under applicable law,
its charter and its bylaws to enter into this Agreement; that it has
taken all requisite action necessary to appoint State Street as
investment accounting and recordkeeping agent for the Portfolios of
the Fund; that this Agreement has been duly executed and delivered by
Fund; and that this Agreement constitutes a legal, valid and binding
obligation of Fund, enforceable in accordance with its terms; and
C. That it has determined to its satisfaction that the System is
appropriate and suitable for its needs.
3. REPRESENTATIONS AND WARRANTIES OF STATE STREET. State Street hereby
represents, warrants and acknowledges to Fund:
1
<PAGE>
A. That it is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts;
B. That it has the requisite power and authority under applicable law,
its charter and its bylaws to enter into and perform this Agreement;
that this Agreement has been duly executed and delivered by State
Street; and that this Agreement constitutes a legal, valid and binding
obligation of State Street, enforceable in accordance with its terms;
and
C. That the accounts and records maintained and preserved by State Street
shall be the property of Fund and that it will not use any information
made available to it under the terms hereof for any purpose other than
complying with its duties and responsibilities hereunder or a
specifically authorized by Fund in writing.
4. DUTIES AND RESPONSIBILITIES OF FUND.
A. Fund shall turn over to State Street all of each Portfolio's accounts
and records previously maintained, if any.
B. Fund shall provide to State Street the information necessary to
perform State Street's duties and responsibilities hereunder in
writing or its electronic or digital equivalent prior to the close of
the New York Stock Exchange on each day on which State Street prices
the Portfolios' securities and foreign currency holdings.
C. Fund shall furnish State Street with the declaration, record and
payment dates and amounts of any dividends or income and any other
special actions required concerning the securities in the Portfolios
when such information is not readily available from generally accepted
securities industry services or publications.
D. Fund shall pay to State Street such compensation at such time as may
from time to time be agreed upon in writing by State Street and Fund.
Fund shall also reimburse State Street on demand for all out-of-pocket
disbursements, costs and expenses incurred by State Street in
connection with services performed pursuant to this Agreement.
E. Fund shall notify State Street of any changes in statutes, rules,
regulations, requirements, or policies which may necessitate changes
in State Street's responsibilities or procedures.
F. Fund shall provide to State Street, as conclusive proof of any fact or
matter required to be ascertained from Fund as determined by State
Street, a certificate signed by Fund's president or other officer of
Fund, or other authorized individual, as requested by State Street.
G. Fund shall preserve the confidentiality of the System and the tapes,
books, reference manuals, instructions, records, programs,
documentation and information of, and other materials relevant to, the
System and the business of State Street ("Confidential Information").
Fund shall not voluntarily disclose such Confidential Information to
any other person other than its own employees
2
<PAGE>
who reasonably have a need to know such information pursuant to his
Agreement. Fund shall return all such Confidential Information to
State Street upon termination or expiration of this Agreement.
H. Fund has been informed that the System is licensed for use by State
Street from a third party ("Licensor"), and Fund acknowledges that
State Street and Licensor have proprietary rights in and to the System
and all other State Street or Licensor programs, code, techniques,
know-how, data bases, supporting documentation, data formats and
procedures, including without limitation any changes or modifications
made at the request or expense or both of Fund (collectively, the
"Protected Information"). Fund acknowledges that the Protected
Information constitutes confidential material and trade secrets of
State Street and Licensor. Fund shall preserve the confidentiality of
the Protected Information, and Fund hereby acknowledges that any
unauthorized use, misuse, disclosure or taking of Protected
Information, residing or existing internal or external to a computer,
computer system, or computer network, or the knowing and unauthorized
accessing or causing to be accessed of any computer, computer system,
or computer network, may be subject to civil liabilities and criminal
penalties under applicable law. Fund shall so inform employees and
agents who have access to the Protected Information or to any computer
equipment capable of accessing the same. Licensor is intended to be
and shall be a third party beneficiary of the Fund's obligations and
undertakings contained in this paragraph.
5. DUTIES AND RESPONSIBILITIES OF STATE STREET.
A. State Street shall calculate each Portfolio's (as applicable) net
asset value, public offering price, dividend distribution rates and
yields in accordance with Fund's instructions utilizing the pricing
sources designated by Fund on Exhibit A hereto. State Street will
price the securities and foreign currency holdings of the Portfolios
for which market quotations are available by the use of outside
services designated by Fund which are normally used and contracted
with for this purpose; all other securities and foreign currency
holdings will be priced in accordance with Fund's instructions.
B. State Street shall prepare and maintain, with the direction and as
interpreted by Fund or Fund's accountants and/or other advisors, in
complete, accurate, and current form, all accounts and records needed
to be maintained as a basis for the calculations to be done pursuant
to Section 5.A., and as further agreed upon by the parties in writing,
and shall preserve such records in the manner and for the periods
required by law or for such longer period as the parties may agree
upon in writing. Fund shall advise State Street in writing of all
applicable record retention requirements, other than those set forth
in the 1940 Act.
C. State Street will reconcile all accounts and records to Fund's
custodian's records on a monthly basis and report any discrepancies to
both the custodian and Fund. Also, State Street will reconcile on a
daily basis share purchases, redemptions, total shares outstanding and
accrued dividends/distributions payable to the Fund's transfer agent's
records and report any discrepancies to both the transfer agent and
Fund.
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<PAGE>
D. State Street shall make available to Fund for inspection or
reproduction within a reasonable time, upon demand, all accounts and
records of Fund maintained and preserved by State Street.
E. State Street shall be entitled to rely conclusively on the
completeness and correctness of any and all accounts and records
turned over to it by Fund.
F. State Street shall assist Fund's independent accountants, or upon
approval of Fund or upon demand, any regulatory body, in any requested
review of Fund's accounts and records maintained by State Street but
shall be reimbursed by Fund for all expenses and employee time
invested in any such review outside of routine and normal periodic
reviews.
G. Upon receipt from Fund of any necessary information or instructions,
State Street shall provide information from the books and records it
maintains for Fund that Fund needs for tax returns, questionnaires, or
periodic reports to shareholders and such other reports and
information requests as Fund and State Street shall agree on from time
to time.
H. State Street shall not have any responsibility hereunder to Fund,
Fund's shareowners or any other person or entity for moneys or
securities of Fund, whether held by Fund or custodians of Fund.
6. INDEMNIFICATION. State Street shall not be responsible or liable for, and
Fund shall indemnify and hold State Street harmless from and against, any
and all costs, expenses, losses, damages, charges, counsel fees, payments
and liabilities, which may be asserted against or incurred by State Street
or for which it may be liable, arising out of or attributable to:
A. State Street's action or omission to act pursuant hereto, except for
any loss or damage arising from any negligent act or willful
misconduct of State Street.
B. State Street's payment of money as requested by Fund, or the taking of
any action which might make State Street liable for payment of money;
provided, however, that State Street shall not be obligated to expend
its own moneys or to take any such action except in State Street's
sole discretion.
C. State Street's action or omission to act hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been
properly executed.
D. The purchase or sale of any securities or foreign currency positions.
Without limiting the generality of the foregoing, State Street shall
be under no duty or obligation to inquire into:
(1) The validity of the issue of any securities purchased by or for
Fund, or the legality of the purchase thereof, or the propriety
of the purchase price;
4
<PAGE>
(2) The legality of the sale of any securities by or for Fund, or the
propriety of the sale price;
(3) The legality of the issue, sale or purchase of any shares of
Fund, or the sufficiency of the purchase or sale price; or
(4) The legality of the declaration of any dividend by Fund, or the
legality of the issue of any shares of Fund in payment of any
stock dividend.
E. Any error, omission, inaccuracy or other deficiency in Fund's accounts
and records provided to State Street pursuant to Section 4.A.
hereunder or otherwise, or in the failure of Fund to provide, or
provide in a timely manner, any accounts, records, or information
needed by State Street to perform its function hereunder.
F. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay or
reimburse State Street under this indemnification provision), the
Fund's negligence or willful misconduct, or the failure of any
representation or warranty of the Fund hereunder to be and remain true
and correct in all respects at all times.
G. State Street shall indemnify and hold the Fund harmless from and
against any and all costs, expenses, losses, damages, charges, counsel
fees, payments and liabilities which may be asserted against or
incurred by Fund or for which it may be liable to the extent arising
out of or attributable to any negligent act or willful misconduct of
State Street; provided, however, that State Street shall not be liable
for consequential, special or punitive damages in any event.
7. LIMITATION OF LIABILITY. State Street shall not be responsible or liable
for:
A. Its failure or delay in performance of its obligations under this
Agreement arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including, without
limitation: any interruption, loss or malfunction of any utility,
transportation or communication service; inability to obtain material,
equipment or transportation, or a delay in mails; governmental or
exchange action, statute, ordinance, rulings, regulations or
direction; war, riot, emergency, civil disturbance, terrorism,
vandalism, explosions, labor disputes, freezes, floods, fires,
tornados, acts of God or public enemy, revolutions, or insurrection.
B. Its action or omission to act in good faith reliance on the advice or
opinion of counsel for Fund or its own counsel, which advice or
opinion may be obtained by State Street at the expense of Fund, or on
the advice and statements of Fund, Fund's accountants and officers or
other authorized individuals, and others believed by it in good faith
to be expert in matters upon which they are consulted.
8. PROCEDURES. State Street and Fund may from time to time adopt procedures as
they agree upon, and State Street may conclusively assume that any
procedure approved or directed by Fund or its accountants or other advisors
does not conflict with or violate any requirements of Fund's prospectus,
charter or declaration of trust, bylaws, any applicable
5
<PAGE>
law, rule or regulation, or any order, decree or agreement by which the
Fund may be bound.
9. TERM AND TERMINATION. The initial term of this Agreement shall be a period
of one (1) year commencing on the effective date hereof. This Agreement
shall continue thereafter until terminated by either party by notice in
writing received by the other party not less than ninety (90) days prior to
the date upon which such termination shall take effect. Upon termination of
this Agreement:
A. Fund shall pay to State Street its fees and compensation due hereunder
and its reimbursable disbursements, costs and expenses paid or
incurred to such date.
B. Fund shall designate a successor (which may be Fund) by notice in
writing to State Street on or before the termination date.
C. State Street shall deliver to the successor, or if none has been
designated, to Fund, at State Street's office, all records, funds and
other properties of Fund deposited with or held by State Street
hereunder. In the event that neither a successor nor Fund takes
delivery of all records, funds and other properties of Fund by the
termination date, State Street's sole obligation with respect thereto
from the termination date until delivery to a successor or Fund shall
be to exercise reasonable care to hold the same in custody in its form
and condition as of the termination date, and State Street shall be
entitled to reasonable compensation therefor, including but not
limited to all of its out-of-pocket costs and expenses incurred in
connection therewith.
10. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at the address set forth above or at such address as Fund may have
designated to State Street in writing, shall be deemed to have been
properly given to Fund hereunder; and notices, requests, instructions and
other writings addressed to State Street at its offices at 801 Pennsylvania
Avenue, Kansas City, MO 64105, Attn: Allen Strain, or to such other address
as it may have designated to Fund in writing, shall be deemed to have been
properly given to State Street hereunder.
11. MULTIPLE PORTFOLIOS.
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to
relate solely to the particular Portfolio to which such transaction
relates. Under no circumstances shall the rights, obligations or
remedies with respect to a particular Portfolio constitute a right,
obligation or remedy applicable to any other Portfolio. The use of
this single document to memorialize the separate agreement of each
Portfolio is understood to be for clerical convenience only and shall
not constitute any basis for joining the Portfolios for any reason.
<PAGE>
B. Fund may appoint State Street as its investment accounting and
recordkeeping agent for additional Portfolios from time to time by
written notice, provided that State Street consents to such addition.
Rate or charges for each additional Portfolio shall be as agree upon
by State Street and Fund in writing.
12. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Massachusetts, without reference to the choice of laws
principles thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnification extended
hereunder, and the provisions of Sections 4.G and 4.H. are intended to
and shall continue after and survive the expiration, termination or
cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by each party hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions of this Agreement or to enforce any rights
resulting from any breach of any of the terms or conditions of this
Agreement, including the payment of damages, shall not be construed as
a continuing or permanent waiver of any such terms, conditions, rights
or privileges, but the same shall continue and remain in full force
and effect as if no such forbearance or waiver had occurred. No
waiver, release or discharge of any party's rights hereunder shall be
effective unless contained in a written instrument signed by the party
sought to be charged.
F. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more separate counterparts,
each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
H. If any part, term or provision of this Agreement is determined by the
courts or any regulatory authority to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
I. This Agreement may not be assigned by either party without the prior
written consent of the other.
<PAGE>
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between Fund
and State Street.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by any party hereunder shall not
affect any rights or obligations of any other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective and duly authorized officers, to be effective as of the day
and year first above written.
STATE STREET BANK AND TRUST COMPANY
By:________________________________
Title:_____________________________
FREEMONT MUTUAL FUNDS, INC.
By:________________________________
Title:_____________________________
<PAGE>
EXHIBIT A
Pricing Source
- --------------------------------------------------------------------------------
Security Type Pricing Source
- --------------------------------------------------------------------------------
Domestic Equities* Reuters
- --------------------------------------------------------------------------------
Foreign Equities Interactive Data Corp.
Foreign Bonds
- --------------------------------------------------------------------------------
Municipal Bonds J.J. Kenny Co., Inc.
- --------------------------------------------------------------------------------
Corporate Bonds Merrill Lynch
Interactive Data Corp.
- --------------------------------------------------------------------------------
Short Term** Amortized Cost
- --------------------------------------------------------------------------------
Futures Options*** Bloomberg
- --------------------------------------------------------------------------------
ADRs Interactive Data Corp.
If unavailable from interactive Data
Corp - use
Reuters
- --------------------------------------------------------------------------------
Mortgage-Backed Securities Interactive Data Corp.
- --------------------------------------------------------------------------------
* If a problem arises with the Reuters transmission Fremont has contracted to
receive prices from interactive Data Corp.
** Amortized Cost is used for securities with a maturity date that is less than
60 days.
*** Futures prices are obtained from Bloomberg and manually input into PAS Vs an
automated transmission.
There are additional manual prices that are received from various brokers,
Bloomberg and subadvisors as instructed by the client.
