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FREMONT
MUTUAL
FUNDS, INC.
- U.S. SMALL CAP FUND
September 24, 1997
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TABLE OF CONTENTS
ITEM PAGE NO.
Summary of Fees and Expenses . . . . . . . . . . . . . . . . . . . . 2
The Advisor, The Sub-Advisor and the Fund. . . . . . . . . . . . . . 3
Investment Objective, Policies and Risk Considerations . . . . . . . 4
General Investment Policies. . . . . . . . . . . . . . . . . . . . . 5
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . 9
How to Invest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Shareholder Account Services and Privileges. . . . . . . . . . . . .10
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . .11
Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . .12
Dividends, Distributions and Federal Income Taxation . . . . . . . .13
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . .14
Calculation of Net Asset Value and Public Offering Price . . . . . .14
Execution of Portfolio Transactions. . . . . . . . . . . . . . . . .14
General Information. . . . . . . . . . . . . . . . . . . . . . . . .15
Telephone Numbers and Addresses. . . . . . . . . . . . . . . . . . .16
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PROSPECTUS
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under
this Prospectusis offering shares in the FREMONT U.S. SMALL CAP FUND (the
"Fund").
FREMONT U.S. SMALL CAP FUND seeks to achieve long-term capital appreciation
by investing primarily in common stocks of small, rapidly growing U.S.
companies.
There can be no assurance that the Fund will achieve its investment
objective. The Fund is a diversified fund as defined by the Investment Company
Act of 1940 (the "1940 Act").
Shares of the Fund are offered without a sales charge.
This Prospectus, which should be retained for future reference, sets
forth concisely the information an investor should know before investing.
Should more detailed information be desired, a Statement of Additional
Information, which is incorporated by reference into this Prospectus, is
available without charge by calling toll-free 800-548-4539 (press 1) or by
writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San
Francisco, California 94105.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September 24, 1997.
FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, CALL 800-548-4539.
FREMONT MUTUAL FUNDS 1
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SUMMARY OF FEES AND EXPENSES
RETAIL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(a) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)(b)
Management Fee 1.00%
12b-1 Expenses .25%
Other Expenses after Reimbursement 1.25%
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Total Fund Operating Expenses 1.50%
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Example: You would pay the following total expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
1 Year $15
3 Years $47
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE
EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER
OR LESS THAN THOSE SHOWN ABOVE.
The purpose of the above table is to give you information and assistance in
understanding the various costs and expenses of the Fund that an investor may
bear directly or indirectly. Other expenses include, but are not limited to,
administrative and transfer agent fees paid to Fremont Investment Advisors,
Inc.; custody, legal and audit fees; costs of registration of Fund shares under
applicable laws; and costs of printing and distributing reports to shareholders.
The percentages expressing annual fund operating expenses of the Fund are based
on estimated expenses for the current fiscal year.
See "The Advisor, the Sub-Advisor and the Fund."
(a) A wire transfer fee is charged by the Transfer Agent in the case of
redemptions made by wire. Such fee is subject to change and is currently
$10. See "How to Redeem Shares."
(b) The Advisor has agreed to limit the Fund's total operating expenses to
1.50% of average daily net assets. The Fund may reimburse the Advisor for
any reductions in the Advisor's fees during the three years following that
reduction if such reimbursement is requested by the Advisor, if such
reimbursement can be achieved within the foregoing expense limit, and if
the Board of Directors approves the reimbursement at the time of the
request as not inconsistent with the best interests of the Fund. The
Advisor generally seeks to reimburse the oldest reductions and waivers
before payment of fees and expenses for the current year. Absent
reimbursements of expenses by the Advisor, other expenses and total
operating expenses are estimated to be .55% and 1.80%, respectively.
2 FREMONT MUTUAL FUNDS
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THE ADVISOR, THE SUB-ADVISOR
AND THE FUND
FREMONT MUTUAL FUNDS, INC. (the "Investment Company") is an open-end investment
company which under this Prospectus is offering shares in the Fremont U.S. Small
Cap Fund. The Investment Company has other series offered under a different
prospectus, and the Board of Directors of the Investment Company is permitted to
create additional series at any time. The Fund has its own investment objective
and policies and operates as a separate mutual fund.
The management of the business and affairs of the Investment Company is the
responsibility of the Board of Directors. Fremont Investment Advisors, Inc.
(the "Advisor") provides 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. As described
more fully below, the Advisor has retained Kern Capital Management LLC (the
"Sub-Advisor") to provide the Fund with portfolio management services. The
Advisor's Investment Committee oversees the portfolio management of the Fund,
including the services provided by the Sub-Advisor.
The professional staff of the Advisor has offered professional investment
management services regarding asset allocation in connection with securities
portfolios to the Bechtel Trust and Thrift Plan and the Bechtel Foundation since
1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987.
The Advisor also provides investment advisory services regarding asset
allocation, investment manager selection and portfolio diversification to a
number of large Bechtel-related investors. The Investment Company is one of its
clients.
As compensation for its services to the Fund, the Advisor receives from the Fund
an advisory fee, computed daily and paid monthly, of 1.00% per annum of the
Fund's average net assets. The Advisory Agreement also provides that the Fund
will pay to the Advisor an administrative fee of .15% per annum of average net
assets. In addition to the fees described above, the Fund pays its own
operating expenses including, but not limited to: the Advisor's fees; taxes, if
any; brokerage and commission expenses, if any; interest charges on any
borrowings; transfer agent, administrator, custodian, legal and auditing fees;
shareholder servicing fees including fees to third-party servicing agents; fees
and expenses of Directors who are not interested persons of the Advisor or the
Sub-Advisor; costs and expenses of calculating daily net asset value; costs and
expenses of accounting, bookkeeping and recordkeeping required under the 1940
Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of shares under federal and applicable
state securities laws; all costs associated with shareholders' meetings and the
preparation and dissemination of proxy materials, except for meetings called
solely for the benefit of the Advisor of its affiliates; printing and mailing
prospectuses, statements of additional information and reports to shareholders;
and other expenses relating to the Fund's operations, plus any extraordinary and
non-recurring expenses that are not expressly assumed by the Advisor.
The Advisor anticipates waiving fees and reimbursing the Fund for other
operating expenses in order to limit total operating expenses to 1.50% of
average daily net assets. To the extent management fees are waived and/or other
expenses are reimbursed by the Advisor, the Advisor may elect to recapture such
amounts if it requests reimbursement within three years of the year in which the
waiver and/or reimbursement is made, and the Board of Directors approves the
reimbursement, and the Fund is able to make reimbursement and still stay within
the then current operating expense limitation.
Kern Capital Management LLC, 114 West 47th Street, Suite 1926, New York, New
York 10036, serves as Sub-Advisor for the Fund pursuant to a Portfolio
Management Agreement. The controlling economic and voting members of the
Sub-Advisor are Robert E. Kern, David G. Kern, and the Advisor; consequently,
the Advisor is an affiliate of the Sub-Advisor. The portfolio manager for the
Fund is David G. Kern. David was a Vice President of the Advisor from May 1997
until September 1997. From January 1995 until April 1997, David was employed as
a portfolio manager and from February 1997 until April 1997 was employed as a
Vice President of Founders Asset Management, Inc., a registered investment
advisor located in Denver, Colorado. David also served as an Assistant
Portfolio Manager for the Delaware Management Company of Philadelphia,
Pennsylvania from February 1990 until December 1994.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the Fund), the Advisor and the Sub-Advisor provides
that the Sub-Advisor will manage the investment and reinvestment of the assets
of the Fund and continually review and administer the Fund's investments. As
compensation for its services, the Advisor (not the Fund) pays the Sub-Advisor a
fee equal to .65% per annum of Fund assets managed by the Sub-Advisor. The
Sub-Advisor has agreed to waive its fee until January 1, 1999, or until the Fund
reaches $25 million in assets, whichever occurs first. The Portfolio Management
Agreement with the Sub-Advisor may be terminated by the Advisor or the
Investment Company upon 30 days' written notice. The Advisor has day-to-day
authority to increase or decrease the amount of the Fund's assets under
management by the Sub-Advisor.
The Advisor will provide direct portfolio management services to the extent that
the Sub-Advisor does not provide these services. The Investment Company and the
Advisor have received from the Securities and Exchange Commission an order (the
"SEC Order") exempting the Fund from the provisions of the 1940 Act that require
the shareholders of the
FREMONT MUTUAL FUNDS 3
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Fund to approve the Fund's sub-advisory agreement(s) and any amendments thereto.
The SEC Order permits the Advisor to hire new sub-advisors, terminate
sub-advisors, rehire existing sub-advisors whose agreements have been assigned
(and, thus, automatically terminated), and modify sub-advisory agreements
without the prior approval of shareholders. By eliminating shareholder approval
in these matters, the Advisor would have greater flexibility in managing
sub-advisors, and shareholders would save the considerable expense involved in
holding shareholder meetings and soliciting proxies. The Advisor may in its
discretion manage all or a portion of the Fund's portfolio directly with or
without the use of a sub-advisor.
Investment Company Administration Corporation (the "Administrator"), pursuant to
an administrative agreement with the Advisor, supervises the administration of
the Investment Company and the Fund including, among other responsibilities, the
preparation and filing of documents required for compliance by the Fund with
applicable laws and regulations. Certain officers of the Investment Company may
be provided by the Administrator.
For additional information, see "Investment Advisory and Other Services" in the
Statement of Additional Information.
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of the Fund are stated below. The Fund is
intended for long-term investors, not for those who may wish to redeem their
shares after a short period of time.
All investments, including mutual funds, have risks, and no investment is
suitable for all investors. Investors should consult with their financial and
other advisors concerning the suitability of this investment for their own
particular circumstances. There is no assurance that the Fund will achieve its
investment objective.
The Fund seeks to achieve long-term capital appreciation by investing primarily
in a diversified portfolio of common stocks. Under normal market conditions, at
least 65% of the total assets of the Fund will be invested in common stocks of
small, rapidly growing U.S. companies. Typically, these companies are not listed
on a national securities exchange but trade on the over-the-counter (OTC)
market. Although the Fund will normally invest in common stocks of U.S.
companies, up to 25% of the Fund's total assets, at the time of purchase, may be
invested in securities of companies domiciled outside the United States,
including sponsored and unsponsored American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs"). See "General Investment Policies" for a
discussion of ADRs. EDRs are similar to ADRs but are designed for use in the
European securities market. The Fund may also invest in stock index futures
contracts, options on index futures, and options on portfolio securities and
stock indices.
The Fund generally selects its portfolio securities among small-cap companies,
which the Fund defines as companies whose individual market capitalizations
would place them in the smallest 20% of market capitalization of companies in
the United States. Currently, these companies have a market capitalization of
about $2.4 billion or less.
Many small-cap companies in which the Fund is likely to invest may be more
vulnerable than larger companies to adverse business or market developments, may
have limited product lines, markets, or financial resources, and may lack
management depth. In addition, many small-cap companies are not well-known to
the investing public, do not have significant institutional ownership, and are
followed by relatively few securities analysts, with the result that there may
tend to be less publicly available information concerning such companies
compared to what is available for larger capitalization securities. Finally,
the securities of small-cap companies traded in the OTC market may have fewer
market makers, wider spreads between their quoted bid and asked prices, and
lower trading volumes, resulting in comparatively greater price volatility and
less liquidity than the securities of companies that have larger market
capitalizations and/or that are traded on the New York or American Stock
Exchanges or the market averages in general. Thus, the Fund may involve
considerably more risk than an investment company investing in the more liquid
equity securities of companies traded on the New York or American Stock
Exchanges.
The Advisor and Sub-Advisor believe that an investment in shares of the Fund
provides an opportunity for greater rewards but will involve more risk than an
investment in a fund which seeks capital appreciation from investment in common
stocks of larger, better-known companies.
The Fund generally selects its portfolio securities among small-cap companies
which are still in the developing stages of their life cycles and are able to
achieve rapid growth in both sales and earnings. Capable management and fertile
operating areas are two of the most important characteristics of such companies.
In addition, these companies should employ sound financial and accounting
policies; demonstrate effective research and successful product development and
marketing; provide efficient service; and possess pricing flexibility. The
Advisor and Sub-Advisor will attempt to avoid investing in companies where
operating results may be adversely affected by excessive competition, severe
governmental regulation, or unsatisfactory productivity. The investable
universe provides what the Advisor and Sub-Advisor believe is a broad range of
stock selection opportunities.
Although the Fund invests primarily in common stocks, for liquidity purposes it
will normally invest a portion of its assets in high quality debt securities and
money market instruments with remaining maturities of one year or less,
including repurchase agreements. Whenever in the judgment of the Advisor or
Sub-Advisor market or economic conditions
4 FREMONT MUTUAL FUNDS
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warrant, the Fund may, for temporary defensive purposes, invest without
limitation in these instruments. During times that the Fund is investing
defensively, the Fund will not be pursuing its stated investment objective.
The Fund may also hold other types of securities from time to time, including
convertible and non-convertible bonds and preferred stocks, when the Advisor and
Sub-Advisor believe that these investments offer opportunities for capital
appreciation. Preferred stocks and bonds will be rated at the time of purchase
in the top four categories of Moody's Investors Service, Inc. (Baa or higher) or
Standard & Poor's Ratings Group (BBB or higher) or be of comparable quality as
determined by the Advisor or Sub-Advisor. Bonds and preferred stocks in the
lowest investment grade category (Baa or BBB) have speculative characteristics;
as a result, changes in the economy or other circumstances are more likely to
lead to a weakened capacity of such securities to make principal and interest
payments or to pay the preferred stock obligations than would occur with bonds
and preferred stocks in higher categories. See Appendix A to the Statement of
Additional Information for a description of rating categories.
GENERAL INVESTMENT POLICIES
MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following "money
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances, and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations, and governments; U.S. Government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Fund's quality guidelines. The Fund also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
At the time of purchase, short-term securities must be rated in the top rating
category by at least two nationally recognized statistical rating organizations
("NRSROs") or by a single NRSRO in the case of a security rated by only one
NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined
by the Advisor or the 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 or the Sub-Advisor. 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 certificates, are
supported by the full faith and credit of the United States; others, such as
those of the Federal Home Loan Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities as described above in the future, other than as set forth
above, because it is not obligated to do so by law.
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 when-issued securities the value of which is greater
than 5% of its net assets. 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 or hold
a covered position in an amount sufficient to meet its payment obligations
thereunder.
There is always a risk that the securities may not be delivered and that the
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 Fund as
when-issued or forward commitment transactions and, accordingly, are not subject
to the foregoing limitations, even though some of the risks described above may
be present in such transactions.
SHARES OF INVESTMENT COMPANIES. 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
FREMONT MUTUAL FUNDS 5
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only in investment companies which do not charge a sales load; however, the Fund
may invest in such companies with distribution plans and fees, and may pay
customary brokerage commissions to buy and sell shares of closed-end investment
companies.
The return on the Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Fund's investment in a closed-end investment company may
require the payment of a premium above the net asset value of the investment
company's shares, and the market price of the investment company thereafter may
decline without any change in the value of the investment company's assets. The
Fund, however, will not invest in any investment company or trust unless it is
believed that the potential benefits of such investment are sufficient to
warrant the payment of any such premium.
As an exception to the above, the Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions, and
policies as that of the Fund. The Fund will notify its shareholders prior to
initiating such an arrangement.
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 short period of time, often less than a week. The seller must maintain
with the Fund's custodian collateral equal to at least 100% of the repurchase
price, including accrued interest, as monitored daily by the Advisor and/or
Sub-Advisor . The Fund will not enter into a repurchase agreement with a
maturity of more than seven business days if, as a result, more than 15% of the
value of its net assets would then be invested in such repurchase agreements.
The Fund will only enter into repurchase agreements where (1) the underlying
securities are issued or guaranteed by the U.S. Government, (2) 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 (3) 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: (1) a possible decline in the value of the
underlying security during the period in which the Fund seeks to enforce its
rights thereto; (2) possible subnormal levels of income and lack of access to
income during this period; and (3) expenses of enforcing the Fund's rights.
PORTFOLIO TURNOVER. The Fund expects to 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.
LOANS OF PORTFOLIO SECURITIES. The Fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors in an
amount not exceeding 33 1/3% of its net assets. The borrower must maintain with
the Fund's custodian collateral consisting of cash, cash equivalents, or U.S.
Government securities equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. The Fund will receive any interest or
dividends paid on the loaned securities and a fee or a portion of the interest
earned on the collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities, or possible loss of
rights in the collateral should the borrower fail financially. The lender also
may bear the risk of capital loss on investment of the cash collateral, which
must be returned in full to the borrower when the loan is terminated. Loans
will be made only to firms deemed by the Advisor to be of good standing and will
not be made unless, in the judgment of the Advisor, the consideration to be
earned from such loans would justify the associated risk.
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 assets value would decline faster
than otherwise would be the case.
RESTRICTED SECURITIES. The Fund may purchase securities that are not registered
("restricted securities") under federal securities laws, but can be offered and
sold to "qualified institutional buyers." However, the Fund will not invest more
than 15% of its assets in illiquid investments, which includes repurchase
agreements and fixed time deposits maturing in more than seven days, and
securities that are not readily marketable and restricted securities, unless the
Board of
6 FREMONT MUTUAL FUNDS
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Directors determines, based upon a continuing review of the trading markets for
the specific restricted security, that such restricted securities are liquid.
The Board of Directors may adopt guidelines and delegate to the Advisor or
Sub-Advisor the daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain sufficient oversight and
be ultimately responsible for the determinations.
WARRANTS OR RIGHTS. Warrants or rights may be acquired by the 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 the 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 Fund in units or attached to
securities will be deemed to be without value for purposes of this restriction.
OPTIONS AND FUTURES CONTRACTS. When the Fund is not fully invested,
strategies such as buying calls, writing puts, and buying futures may be used
to increase its exposure to price changes in stocks or debt securities. When
the Advisor and/or Sub-Advisor wishes to hedge against market fluctuations,
strategies such as buying puts, writing calls, and selling futures may be
used to reduce market exposure. Because most stock index futures and options
are based on broad stock market indices, their performance tends to track the
performance of common stocks generally -- which may or may not correspond to
the types of securities in which the Fund invests. The Fund will maintain
segregated accounts consisting of cash, U.S. Government securities, or other
liquid securities (or, as permitted by applicable regulations, enter into
certain offsetting positions) to cover its obligations under options and
futures contracts to avoid leveraging.
In seeking appreciation or to reduce principal volatility, the Fund may also (1)
enter into futures contracts -- contracts for the future delivery of debt
securities, stock, stock index futures contracts with respect to the S&P 500
Index, small capitalization stock market indices, or other similar broad-based
stock market indices, the initial margins of which are limited to 5% of the
Fund's assets; and (2) purchase put and call options on portfolio securities,
stock indices, or stock index futures contracts--the premiums of which are
limited to 5% of the Fund's assets.
The Fund may write put and call options. It will only do so by writing covered
put or call options, and the aggregate value of the securities underlying put
options, as of the date of sale of the options, will not exceed 50% of the net
assets of the Fund.
The Fund will set aside cash, cash equivalents, or liquid securities, or hold a
covered position against any potential delivery or payment obligations under any
outstanding option or futures contacts.
Options and futures can be volatile investments. If the Advisor and/or
Sub-Advisor applies a hedge at an inappropriate time or evaluates market
conditions incorrectly, options and futures strategies may lower the Fund's
return. The Fund could also experience a loss if the prices of its options or
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
Although these investment practices will be used primarily to generate income or
to minimize the fluctuation of principal, they do involve risks which are
different in some respects from the investment risks associated with similar
funds which do not engage in such activities. These risks may include the
following: futures contracts -- no assurance that closing purchase transactions
will be available at favorable prices, possible reduction of the Fund's income
due to the use of hedging, possible reduction in value of both the securities
hedged and the hedging instrument, possible loss in excess of the initial margin
payment; options and futures contracts -- imperfect correlation between the
contract and the underlying security, commodity, or index and unsuccessful
hedging transactions due to incorrect forecasts of market trends; writing
covered call options --inability to effect closing transactions at favorable
prices and inability to participate in the appreciation of the underlying
securities above the exercise price and premium received; and purchasing or
selling put and call options -- possible loss of the entire premium. A more
thorough description of these investment practices and their associated risks is
contained in the Statement of Addition Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS FOR INTERNATIONAL INVESTING. Investment
in securities of foreign entities and securities denominated in foreign
currencies involves risks typically not present to the same degree in domestic
investments. Likewise, investment in ADRs and EDRs presents similar risks, even
though the Fund will purchase, sell, and be paid dividends on ADRs in U.S.
dollars. These risks include fluctuations in currency exchange rates, which are
affected by international balances of payments and other economic and financial
conditions; government intervention; speculation; and other factors. With
respect to certain foreign countries, there is the possibility of expropriation
or nationalization of assets, confiscatory taxation, and political, social, or
economic instability. The Fund may be required to pay foreign withholding or
other taxes on certain of its foreign investments, 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. income taxes. See
"Dividends, Distributions, and Federal Income Taxation."
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 which are not required to
meet either the reporting or accounting standards of the United States. Many
foreign financial markets, while
FREMONT MUTUAL FUNDS 7
<PAGE>
generally growing in volume, continue to have substantially less volume than
domestic markets, and securities of many foreign companies are less liquid and
their prices are more volatile than are securities of comparable U.S. companies.
Such markets may have longer settlement periods than markets in the United
States. In addition, brokerage commissions, custodial services, and other costs
related to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have 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 the 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 the Fund due to subsequent
declines in value of a portfolio security or, if the 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, 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 the 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 the 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 Fund will not invest in a foreign currency or in securities denominated in a
foreign currency if such currency is not at the time of investment considered by
the Advisor or Sub-Advisor to be fully exchangeable into U.S. dollars without
legal restriction. The Fund may purchase securities that are issued by the
government or a corporation or financial institution of one nation but
denominated in the currency of another nation. To the extent that the Fund
invests in ADRs, the depository bank generally pays cash dividends in U.S.
dollars regardless of the currency in which such dividends originally are paid
by the issuer of the underlying security.
The operating expense ratio of the Fund when investing in foreign securities may
be higher than that of an investment company investing exclusively in U.S.
securities because certain expenses, such as custodial costs, may be higher.
Several of the countries in which the Fund 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 Fund intends to invest
in such countries through the purchase of shares of investment companies
organized under the laws of such countries.
The Fund's interest and dividend income from foreign issuers may be subject to
non-U.S. withholding taxes. The 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 Fund 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 Fund. See "Dividends,
Distributions, and Federal Income Taxation."
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 ADRs presents risks not present to the same degree as
investing in domestic securities even though the Fund will purchase, sell, and
be paid dividends on ADRs in U.S.
8 FREMONT MUTUAL FUNDS
<PAGE>
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 Fund may be required to pay
foreign withholding or other taxes on certain of its ADRs, but investors may or
may not be able to deduct their pro rata shares of such taxes in computing their
taxable income, or take such shares as a credit against their U.S. federal
income tax. See "Dividends, Distributions, and Federal Income Taxation."
Unsponsored ADRs are offered by companies which are not prepared to meet either
the reporting or accounting standards of the United States. While readily
exchangeable with stock in local markets, unsponsored ADRs may be less liquid
than sponsored ADRs. Additionally, there generally is less publicly available
information with respect to unsponsored ADRs.
INVESTMENT RESTRICTIONS. The Fund has certain fundamental policies that are
described in the Statement of Additional Information under "Investment
Restrictions." These investment restrictions include prohibitions against
borrowing money (except as described above) and against concentrating the Fund's
investments in issuers conducting their principal business activities in a
single industry (except that this limitation does not apply with respect to U.S.
Government securities). These investment restrictions and the Fund's investment
objective cannot be changed without the approval of shareholders of the Fund;
all other investment practices described in this Prospectus and in the Statement
of Additional Information can be changed by the Board of Directors without
shareholder approval.
INVESTMENT RESULTS
The Fund may from time to time include information on its investment results
and/or comparisons of its investment results to various unmanaged indices or
results of other mutual funds or groups of mutual funds in advertisements, sales
literature, or reports furnished to present or prospective shareholders. All
such figures are based on historical performance data and are not intended to be
indicative of future performance. The investment return on and principal value
of an investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The Fund may calculate performance on an average annual total return basis for
1-, 5-, and 10-year periods and over the life of the Fund, after such periods
have elapsed. Average annual total return will be computed by determining the
average annual compounded rate of return over the applicable period that would
equate the initial amount invested to the ending redeemable value of the
investment. Ending redeemable value includes dividends and capital gain
distributions, reinvested at net asset value at the reinvestment date determined
by the Board of Directors. The resulting percentages indicate the positive or
negative investment results that an investor would have experienced from
reinvested income dividends and capital gain distributions and changes in share
price during the period. The average annual compounded rate of return over
various periods may also be computed by utilizing ending redeemable values as
determined above.
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 any investment results reported by the Fund should not be
considered representative of what an investment in the Fund may earn in any
future period. When utilized, total return for the unmanaged indices described
in the Statement of Additional Information will be calculated assuming
reinvestment of dividends and interest, but will not reflect any deductions for
recurring expenses such as advisory fees, brokerage costs, or administrative
expenses. These factors and possible differences in calculation methods should
be considered when comparing the Fund's investment results with those published
for other investment companies, other investment vehicles, and unmanaged
indices. The comparison of the Fund to an alternative investment should be made
with consideration of differences in features and expected performance. The
Fund may also be mentioned in newspapers, magazines, or other media from time to
time. The Fund assumes no responsibility for the accuracy of such data. The
Fund's results also should be considered relative to the risks associated with
the Fund's investment objective and policies. See "Investment Results" in the
Statement of Additional Information.
Additional performance information regarding the Fund will be included in its
annual report, which will be mailed to shareholders without charge upon request.
HOW TO INVEST
The shares of the Fund may be purchased through the Transfer Agent by submitting
payment by check, bank wire, or electronic (Automated Clearing House or "ACH")
transfer and, in the case of new accounts, a completed account application form.
There is no sales load or contingent deferred sales load charged to purchase
shares of the Fund. All orders for the purchase of shares are subject to
acceptance or rejection by the Board of Directors or the Advisor. Purchases of
shares are made at the current public offering price next determined after the
purchase order is received by the Transfer Agent or by a selling agent of the
Fund. A minimum initial investment of $2,000 is required to open a shareholder
account, except for retirement plans such as Individual Retirement Accounts
(IRAs) and Keogh Plans. Retirement plans are subject to a $1,000 minimum initial
investment. The minimum initial investment is waived for accounts opened with
the Automatic Investment Plan and may be waived in other instances at the sole
discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent
investment in the Fund must be $100 or more except in the case of retirement
plans or Automatic Investment Plans. There
FREMONT MUTUAL FUNDS 9
<PAGE>
is a minimum continuing balance of $1,500 required for non-retirement accounts
(calculated on the basis of original investment value). All investments not
meeting the minimum will be returned. In some cases, the minimum balance
requirement may be waived. All purchases made by check should be in U.S.
dollars and be made payable to the appropriate Fremont Fund. Third party
checks, credit cards, and cash will not be accepted.
Investors wishing to open a new account by bank wire must call the Transfer
Agent at 800-548-4539 to obtain an account number and detailed wire
instructions. All bank wire investments received before 4:00 p.m., Eastern
time, will be credited the same day. Bank wire investments received after 4:00
p.m., Eastern time, will be credited the next business day. A bank wire
investment is considered received when the Transfer Agent is notified that the
bank wire has been credited to its account.
Shares of the Fund may also be purchased through broker-dealers or other
financial intermediaries who have made appropriate arrangements with the Fund.
Such agents are responsible for ensuring that the account documentation is
complete and that timely payment is made for the Fund shares purchased for their
customers pursuant to such orders. These agents may charge a reasonable
transaction fee to their customers. In some instances, all or a portion of the
transaction fee may be paid by the Advisor. To the extent these agents perform
shareholder servicing activities for the Fund, they may receive fees from the
Fund or the Advisor for such services.
From time to time the Advisor may engage third parties as "finders" for the
purpose of soliciting potential investors. Such parties may be compensated by
the Advisor to do so.
As a condition of this offering, if an order to purchase shares is cancelled due
to nonpayment (for example, a check returned for "insufficient funds"), the
person who made the order must reimburse the Fund for any loss incurred by
reason of such cancellation. For more information, see "Other Investment and
Redemption Services" in the Statement of Additional Information.
First Fund Distributors, Inc., 4455 Camelback Road, Suite 261E, Phoenix,
Arizona, 85018, is the principal underwriter for the Fund.
SHAREHOLDER ACCOUNT SERVICES
AND PRIVILEGES
STATEMENTS AND REPORTS. When a shareholder makes an initial investment in the
Fund, a shareholder account is opened in accordance with registration
instructions. Each time there is a transaction, such as an additional
investment, a dividend or other distribution, or a redemption, the shareholder
will receive from the Transfer Agent a confirmation statement showing the
current transaction in the account and the transaction date. Shareholders of
the Fund will receive statements as of the end of March, June, September, and
December.
Shares are issued only in book-entry form (without certificates).
The fiscal year of the Fund ends on October 31 of each year. The Investment
Company issues to its shareholders semi-annual and annual reports, which contain
a schedule of the Fund's portfolio securities and financial statements. Annual
reports will include audited financial statements. The federal income tax
status of shareholder distributions also will be reported to the Fund's
shareholders after the end of the calendar year on Form 1099-DIV.
EXCHANGES BETWEEN FUNDS. Shares of one Fremont Fund may be exchanged for shares
of another Fremont Fund at their respective net asset values, provided that the
account registration remains identical. Exchanges may only be made for shares of
a Fremont Fund then offered for sale in your state of residence. It is required
that (1) all shares in one Fund must be exchanged or (2) the remaining balance
must be at least $1,500. This minimum balance requirement may be waived. These
exchanges are not tax-free and will result in a shareholder realizing a gain or
loss for tax purposes, except in the case of tax-deferred retirement accounts or
other tax-exempt shareholders that have not borrowed to acquire the shares
exchanged.
Exchanges by mail should be sent to the Transfer Agent at the address set forth
in the last section of this Prospectus.
Purchases, redemptions, and exchanges should be made for investment purposes
only. A pattern of frequent exchanges, purchases, and sales is not acceptable
and, at the discretion of the Board of Directors, can be limited by the
Investment Company's refusal to accept further purchase and exchange orders from
a shareholder.
The Investment Company reserves the right to modify or eliminate the exchange
privilege upon 60 days' written notice to shareholders.
TELEPHONE EXCHANGE PRIVILEGE. An investor may elect on the account application
to authorize exchanges by telephone. A shareholder may give instructions
regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate
the telephone exchange privilege should contact the Fund. This privilege will
not be added to an account without written instruction to do so from the
shareholder. Telephone requests received by 4:00 p.m., Eastern time, will be
processed the same day. During times of drastic economic or market conditions,
the telephone exchange privilege may be difficult to implement. The Transfer
Agent will make its best effort to accommodate shareholders when its telephone
lines are used to capacity. Under these circumstances, a shareholder should
consider using overnight mail to send a written exchange request.
See "Telephone Redemption Privilege" in the next section of this Prospectus.
AUTOBUY PRIVILEGE. The autobuy privilege allows shareholders to purchase
subsequent shares by moving money directly from
10 FREMONT MUTUAL FUNDS
<PAGE>
their checking account to a Fremont Fund. The Autobuy privilege will not be
added to an account without written authorization from the shareholder. A
shareholder may then purchase additional shares in an existing account by
calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount
wanting to be invested. The investment will automatically be processed through
the Automatic Clearing House (ACH) system. There is no fee for this option. If
the privilege was not established at the time the account was opened, the
shareholder must complete the appropriate form. The form is available on
request.
AUTOMATIC INVESTMENT PLAN. A shareholder may authorize a withdrawal to be made
automatically once or twice each month from a credit balance in the
shareholder's bank checking, savings, negotiable on withdrawal (NOW), or similar
account, with the proceeds to be used to purchase shares of the Fund. The
minimum initial investment is waived for accounts opened with the Automatic
Investment Plan. The amount of the monthly investment must be at least $50, and
is not otherwise subject to the $100 minimum for subsequent investments. If the
purchase falls on a weekend or holiday, the purchase will be made on the
previous business day. Shareholders should note that if there is an Automatic
Investment Plan established for an account and the entire account is exchanged
into another Fund, the Automatic Investment Plan must be renewed by the
shareholder to the Transfer Agent. There is no obligation to make additional
payments, and the plan may be terminated by the shareholder at any time.
Termination requests must be received in writing at least 5 days prior to the
regular draft date, or the drafts will not cease until the next cycle. The
Transfer Agent may impose a charge for this service, although no such charge
currently is contemplated. If a shareholder's order to purchase shares is
cancelled due to nonpayment (for example, "insufficient funds"), the shareholder
will be responsible for reimbursing the Fund for any loss incurred by reason of
such cancellation. A shareholder wishing to initiate the plan on a new or
existing account must fill out an Automatic Investment Plan form. The form is
available on request.
HOW TO REDEEM SHARES
Shares are redeemed at no charge (other than wire transfer fees, if any) at the
net asset value next determined after receipt by the Transfer Agent of proper
written redemption instructions. The current charge for a wire transfer is $10
per wire. This is subject to change by the Transfer Agent at any time, without
prior notification. See "Calculation of Net Asset Value and Public Offering
Price."
Redemption orders received in proper form by the Transfer Agent before 4:00
p.m., Eastern time, will be priced at the net asset value determined on that day
(with certain limited exceptions discussed in the Statement of Additional
Information). Orders received by the Transfer Agent after 4:00 p.m., Eastern
time, will be entered at the next calculated net asset value.
Redemption proceeds can be sent by check, electronic transfer, or bank wire. An
electronic transfer can be processed only to bank checking and savings accounts.
Before requesting an electronic transfer, shareholders should confirm that their
financial institution can receive an electronic transfer. Currently, there is
no charge to shareholders for processing an electronic transfer.
Shareholders may have redemption proceeds sent by bank wire, electronic
transfer, or check to a designated bank account by providing in writing the
appropriate bank information to the Transfer Agent at the time of original
application. If the investor wishes to change the predesignated account, this
must be requested in writing with a signature guarantee (see "Signature
Guarantee" below).
Redemptions from retirement accounts require a written request, with a signature
guarantee, unless authorized under the Automatic Withdrawal Plan. Call the
Transfer Agent for specific instructions on redemptions.
For written redemption requests for an amount greater than $25,000, or a
redemption request that directs proceeds to a party other than the registered
account owner(s), all signatures must be guaranteed (see "Signature Guarantee"
below).
Because of market fluctuations, the amount a shareholder receives for shares
redeemed may be more or less that the amount paid for them.
Redemption of shares by exchanges, transfers and redemptions under an Automatic
Withdrawal Plan may result in taxable capital gains or losses.
TELEPHONE REDEMPTION PRIVILEGE. An investor may elect on the regular account
application to authorize redemptions by telephone. This privilege will not be
added to an account without written authorization to do so from the shareholder.
A shareholder may then give instructions regarding redemptions by calling
800-548-4539. (The Telephone Redemption Privilege is not available for IRA or
other retirement accounts.) Telephone requests received by 4:00 p.m., Eastern
time, will be processed at the net asset value calculated that same day. During
times of drastic economic or market conditions, the telephone redemption
privilege may be difficult to implement. The Transfer Agent will make its best
effort to accommodate shareholders when its telephone lines are used to
capacity. Under these circumstances, a shareholder should consider using
overnight mail to send a written redemption request.
Neither the Investment Company, the Transfer Agent, nor their respective
affiliates will be liable for complying with telephone instructions they
reasonably believe to be genuine or for any loss, damage, cost, or expense in
acting on such telephone instructions. The affected shareholder(s) will bear the
risk of any such loss. The Investment Company, or the Transfer Agent, or both,
will employ reasonable procedures to determine that telephone instructions are
genuine. If the Investment Company and/or the Transfer Agent do not employ such
FREMONT MUTUAL FUNDS 11
<PAGE>
procedures, they may be liable for losses due to unauthorized or fraudulent
instructions. These procedures may include, among others, requiring forms of
personal identification prior to acting upon telephone instructions, providing
written confirmation of the transactions, and/or tape recording telephone
instructions.
AUTOMATIC WITHDRAWAL PLAN. A shareholder may request redemptions of a specified
dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis.
Currently, there is no charge for this service. Redemptions by check will be
made on the 15th and/or the last business day of the month. Redemptions made by
electronic transfer will be made on any date the shareholder chooses.
Shareholders may also request automatic exchanges and transfers of a specified
dollar amount. Exchanges and transfers will be made on any date the shareholder
chooses. Because a redemption constitutes a liquidation of shares, the number
of shares owned in the account will be reduced. Automatic redemptions should
not reduce the account below the minimum balance required (currently $1,500).
If the redemption date falls on a weekend or holiday, the redemption will be
made on the previous business day. Shareholders may terminate the Automatic
Withdrawal Plan at any time, but not less than five days before a scheduled
payment date. When an exchange is made between Funds, shareholders must specify
if they desire the automatic withdrawal option to be transferred to a new
account opened by the exchange. As an account balance declines to the minimum
permitted, the shareholder must advise the Transfer Agent if the automatic
withdrawal feature is to be transferred to another account of the shareholder.
Shareholders should note that if there is an Automatic Withdrawal Plan
established for an account and the entire account is exchanged into another
Fremont Fund, the automatic withdrawal option must be renewed by the shareholder
to the Transfer Agent. A shareholder wishing to initiate automatic redemptions
must complete an Automatic Withdrawal Plan form available from the Transfer
Agent.
SIGNATURE GUARANTEE. To better protect the Fund and shareholders' accounts, a
signature guarantee is required for certain transactions. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in applicable
regulations. Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies, and savings associations. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
OTHER IMPORTANT REDEMPTION INFORMATION. A request for redemption will not be
processed until all of the documentation described above has been received by
the Transfer Agent in proper form. A shareholder in doubt about what documents
are required should contact the Transfer Agent.
Payment in redemption of shares is normally made within three business days
after receipt by the Transfer Agent of a request in proper form, provided that
payment in redemption of shares purchased by check or draft will be effected
only after such check or draft has been collected. Although it is anticipated
that this process will be completed in less time, it may take up to 15 days.
Redemption proceeds will not be delayed when shares have been paid for by bank
wire or where the account holds a sufficient number of shares already paid for
with collected funds.
Except in extraordinary circumstances, payment for shares redeemed will be made
promptly after receipt of a redemption request, if in good order, but not later
than seven calendar days after the redemption request is received in proper
form. Requests for redemption which are subject to any special conditions or
which specify an effective date other than as provided herein cannot be
accepted.
The Fund reserves the right to redeem mandatorily the shares in a shareholder's
account (other than a retirement plan account) if the balance is reduced to less
than $1,500 in net asset value through redemptions or other action by the
shareholder. Notice will be given to the shareholder at least 30 days prior to
the date fixed for such redemption, during which time the shareholder may
increase its holdings to an aggregate amount of $1,500 or more (with a minimum
purchase of $100 or more.) This minimum balance may be waived.
REDEMPTION IN KIND. The Investment Company reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Fund and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made in
securities, a shareholder may incur transaction expenses in converting these
securities into cash.
TRANSFER AGENT. State Street Bank and Trust Company, c/o NFDS, P.O. Box
419343, Kansas City, Missouri, 64141, serves 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 ("United Missouri
Bank") through which all payments for the funds will be processed.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with various tax-deferred
retirement plans. These include Individual
12 FREMONT MUTUAL FUNDS
<PAGE>
Retirement Accounts (IRAs); SEP-IRAs; SIMPLE IRAs; corporate pension and
profit-sharing plans; and Section 403(b) Plans, which are deferred compensation
arrangements for employees of public schools and certain charitable
organizations. Forms for establishing IRAs, SEP-IRAs, SIMPLE IRAs, and
Qualified Retirement Plans are available through the Investment Company, as are
forms for corporate Pension and Profit-Sharing plans. Please contact the
Investment Company for more information about establishing these accounts. In
accordance with industry practice, there may be an annual account charge for
participation in these plans. Information regarding these charges is available
from the Investment Company.
Retirement plan participants may receive additional services related to their
plan at no extra cost to any shareholder.
DIVIDENDS, DISTRIBUTIONS AND
FEDERAL INCOME TAXATION
The Fund intends to qualify and elect, and to continue to qualify, to be treated
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). For any tax year in which the Fund so
qualifies and meets certain other distribution requirements, it will not incur a
federal tax liability. Such qualification under the Code requires a Fund to
diversify its investments so that, at the end of each fiscal quarter, (1) at
least 50% of the market value of the Fund's assets is represented by cash, U.S.
government securities, securities of other regulated investment companies, and
other securities, limited, in respect to any one issuer, to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (2) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment companies), or in two
or more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.
The Fund intends to distribute substantially all of its net investment income
once each year in October.
The Fund intends to distribute substantially all of its net realized capital
gains, if any, at the end of the calendar year (on or about December 15).
Dividend and capital gains distributions, if any, may be reinvested in
additional shares at net asset value on the day of reinvestment, or may be
received in cash. All dividends and distributions are taxable to a shareholder
(except tax-exempt shareholders who have not borrowed to acquire their shares)
whether or not they are reinvested in shares of the Fund. Any long-term capital
gains distributions are taxable to shareholders as long-term capital gains,
regardless of how long shareholders have held Fund shares. Distributions of
short-term capital gains will be subject to the tax as ordinary income.
Corporate investors may be entitled to the "dividends received" deduction on all
or a portion of the dividends paid by the Fund. Availability of the "dividends
received" deduction is subject to certain holding period and debt-financing
limitations.
Shareholders may elect:
- - to have all dividends and capital gain distributions automatically
reinvested in additional shares; or
- - to receive the income dividends and short-term capital gains distributions
in cash and accept the long-term capital gains distributions in additional
shares; or
- - to receive all distributions of income dividends and capital gains in cash.
- - to invest all dividend and capital gain distributions in another Fremont
Fund owned through an identically registered account.
Automatic reinvestments will be at net asset value on the day of reinvestment.
If no election is made by a shareholder, all dividends and capital gain
distributions will be automatically reinvested. These elections may be changed
by the shareholder at any time, but to be effective for a particular dividend or
capital gain distribution, the election must be received by the Transfer Agent
approximately 5 business days prior to the payment date to permit the change to
be entered into the shareholder account. The federal income tax status of
dividends and capital gains distributions is the same whether taken in cash or
reinvested in shares.
Dividends and capital gains generally are taxable to shareholders at the time
they are paid. However, dividends or capital gains declared in October,
November, or December by the Fund and paid in January are taxable as if paid in
December. The Fund will provide to its shareholders federal tax information
annually by January 31, including information about dividends and distributions
paid during the year.
If a shareholder has not furnished a certified correct taxpayer identification
number (generally a Social Security number) and has not certified that
withholding does not apply, or if the Internal Revenue Service has notified the
Fund that the taxpayer identification number listed on the account is incorrect
according to their records or that the shareholder is subject to backup
withholding, federal law generally requires the Fund to withhold 31% from any
dividends and/or redemptions to the shareholder. Amounts withheld are applied
to the shareholder's federal tax liability; a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. A
shareholder should contact the Transfer Agent if the shareholder is uncertain
whether a proper taxpayer identification number is on file with the Transfer
Agent. Federal law also requires the Fund to withhold 30%, or the applicable
tax treaty rate, from ordinary dividends paid to certain nonresident alien,
non-U.S. partnership, and non-U.S. corporation shareholder accounts. Long-term
capital gains distributions may be subject to this withholding.
Dividends and interest from foreign issuers earned by the Fund may give rise to
withholding and other taxes imposed by
FREMONT MUTUAL FUNDS 13
<PAGE>
foreign countries, generally at rates from 10% to 40%. Tax conventions between
certain countries and the United States may reduce or eliminate these taxes.
Foreign countries generally do not impose taxes on capital gains with respect to
investments by non-resident investors. Except as indicated below, to the extent
that the Fund does pay foreign withholding or other foreign taxes on certain of
its investments, investors will not be able to deduct their pro rata shares of
such taxes in computing their taxable income nor be able to take their shares of
such taxes as a credit against U.S. income taxes.
If more than 50% of the value of the Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, the Fund will be
eligible to file, and will file, elections with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include in their
federal income tax returns as gross income their respective pro rata portions of
foreign taxes paid by the Fund, to treat such amounts as foreign taxes paid by
them, and to deduct such respective pro rata portions in computing their taxable
incomes, or, alternatively, to use them as foreign tax credits (subject to
certain limitations) against their U.S. income taxes. The Fund will report
annually to its shareholders the amount per share of such withholding, if any.
The foregoing is a brief discussion of certain federal income tax
considerations. Please see "Taxes -- Mutual Funds" in the Statement of
Additional Information for further information regarding the tax implications of
an investment in the Fund.
PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan of
distribution (the "Plan") under which the Fund may directly compensate the
Advisor, paying for certain distribution-related expenses, including payments to
securities dealers and others (including the Underwriter) who are engaged in
promoting the sale of shares of the Fund and who may be advising investors
regarding the purchase, sale, or retention of such shares; expenses of
maintaining personnel who engage in or support distribution of shares or who
render shareholder support services not otherwise provided by the Advisor or the
Transfer Agent; expenses of formulating and implementing marketing and
promotional activities, including direct mail promotions and mass media
advertising; expenses of preparing, printing, and distributing sales literature,
prospectuses, statements of additional information, and reports for recipients
other than existing shareholders of the Fund; expenses of obtaining such
information, analyses, and reports with respect to marketing and promotional
activities as the Investment Company may, from time to time, deem advisable; and
other expenses related to the distribution of the Fund's shares.
The annual limitation for compensation to the Advisor pursuant to the Plan is
.25% of the Fund's average daily net assets. All payments will be reviewed by
the Fund's Board of Directors. However, it is possible that in certain periods,
the amount of the Advisor's compensation could exceed the Advisor's distribution
expenses resulting in a profit to the Advisor. In the event the Plan is
terminated by the Fund in accordance with its terms, the Fund will not be
required to make any payments for expenses incurred by the Advisor after the
date the Plan terminates.
CALCULATION OF NET ASSET VALUE
AND PUBLIC OFFERING PRICE
The Fund's net asset value per share is computed by dividing the value of the
securities held by the Fund, plus any cash or other assets (including interest
accrued and dividends declared but not yet received) minus all liabilities
(including accrued expenses), by the total number of shares outstanding at such
time. There is no sales charge in connection with purchases or redemptions of
Fund shares.
The Fund will calculate its net asset value and public offering price and
complete orders to purchase, exchange, or redeem shares on a Monday through
Friday basis when the New York Stock Exchange is open. The Fund's portfolio may
include securities which trade primarily on non-U.S. exchanges or otherwise in
non-U.S. markets. Because of time zone differences, the prices of these
securities, as used for net asset value calculations, may be established
substantially in advance of the close of the New York Stock Exchange. Foreign
securities may also trade on days when the New York Stock Exchange is closed
(such as a Saturday). The net asset value and public offering price of the
Fund, to the extent that it holds securities valued on foreign markets, may vary
during periods when the New York Stock Exchange is closed. As a result, the
value of the Fund's portfolio may be affected significantly by such trading on
days when a shareholder has no access to the Fund. For further information, see
"How to Invest," "How to Redeem Shares," and "Exchanges Between Funds" in this
Prospectus, and "How to Invest" and "Other Investment and Redemption Services"
in the Statement of Additional Information.
The net asset value and public offering price of the Fund will be determined as
of the close of the regular session of the New York Stock Exchange. The shares
of the Fund are offered at net asset value without a sales charge. Purchase,
redemption, and exchange orders received in proper form by the Transfer Agent
before 4:00 p.m., Eastern time, will be priced at the net asset value next
determined on that day (with certain limited exceptions discussed in the
Statement of Additional Information). Orders received by the Transfer Agent
after 4:00 p.m., Eastern time, will be entered at the next calculated net asset
value.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the Fund's portfolio securities transactions are placed by the
Advisor or Sub-Advisor, as applicable. The Advisor and Sub-Advisor strive to
obtain the best available prices in the Fund's portfolio transactions, taking
into account the costs and promptness of executions. Subject to this policy,
transactions may be directed to those broker-dealers who
14 FREMONT MUTUAL FUNDS
<PAGE>
provide research, statistical, and other information to the Fund, the Advisor or
the Sub-Advisor, or who provide assistance with respect to the distribution of
Fund shares. There is no agreement or commitment to place orders with any
broker-dealer.
Debt securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. Government securities
issued by the United States and other countries and money market securities in
which the Fund may invest are generally traded in the OTC markets. In
underwritten offerings, securities usually are purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. Dealers may receive commissions on futures, currency, and options
transactions. Commissions or discounts in foreign securities exchanges or OTC
markets typically are fixed and generally are higher than those in U.S.
securities exchanges or OTC markets. There is generally less government
supervision and regulation of foreign exchanges and brokers than in the United
States. Foreign security settlements may, in some instances, be subject to
delays and related administrative uncertainties.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor or the Sub-Advisor, or an affiliated
person of such person.
GENERAL INFORMATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed open-end investment company. Currently, the Investment Company
has authorized several series of capital stock with equal dividend and
liquidation rights within each series. Investment Company shares are entitled to
one vote per share (with proportional voting for fractional shares) and are
freely transferable. Shareholders have no preemptive or conversion rights.
Shares may be voted in the election of directors and on other matters submitted
to the vote of shareholders. As permitted by Maryland law, there normally will
be no annual meeting of shareholders in any year, except as required under the
1940 Act. The 1940 Act requires that a meeting be held within 60 days in the
event that less than a majority of the directors holding office has been elected
by shareholders. Directors shall continue to hold office until their successors
are elected and have qualified. Investment Company shares do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of directors can elect all of the directors.
Shareholders holding 10% of the outstanding shares may call a meeting of
shareholders for any purpose, including that of removing any director. A
director may be removed upon a majority vote of the shareholders qualified to
vote in the election. The 1940 Act requires the Investment Company to assist
shareholders in calling such a meeting.
On any matter submitted to a vote of shareholders, such matter shall be voted by
the Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval of the Advisory Agreement with the Advisor) except
in matters where a vote of all series in the aggregate is required by the 1940
Act or otherwise.
Pursuant to the Articles of Incorporation, the Investment Company may issue ten
billion shares. This amount may be increased or decreased from time to time in
the discretion of the Board of Directors. Each share of a series represents an
interest in that series only, has a par value of $0.0001 per share, represents
an equal proportionate interest in that series with other shares of that series,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to that series as may be declared at the discretion of the
Board of Directors. Shares of a series when issued are fully paid and are
non-assessable. The Board of Directors may, at its discretion, establish and
issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Fund under applicable Securities and Exchange Commission regulations.
FREMONT MUTUAL FUNDS 15
<PAGE>
TELEPHONE NUMBERS AND ADDRESSES
To make an initial purchase:
1. By mail:
Fremont Mutual Funds, Inc.
c/o National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
Street address:
1004 Baltimore Avenue
Kansas City, MO 64105
2. By wire:
Please call the Transfer Agent at 800-548-4539 (press 2) to
obtain an account number and detailed instructions.
TO MAKE A SUBSEQUENT PURCHASE:
Include shareholder name and account number. Use the same instructions for
initial purchase.
To redeem shares:
1. By mail: same instructions as above for purchase by mail. Redemptions
greater than $25,000 or payments to a party or address other than
registered on the account require a signature guarantee. See "Signature
Guarantees."
2. By telephone: 800-548-4539
Requires prior selection of telephone redemption option.
For further copies of this Prospectus, the Statement of Additional Information,
and details of automatic investment, retirement and automatic withdrawal plans,
please contact:
Fremont Mutual Funds, Inc.
50 Beale Street, Suite 100
San Francisco, CA 94105
800-548-4539
FREMONT MUTUAL FUNDS, INC.
Fremont Money Market Fund
Fremont Bond Fund
Fremont California Intermediate Tax-Free Fund
Fremont Global Fund
Fremont Growth Fund
Fremont International Growth Fund
Fremont U.S. Small Cap Fund
Fremont International Small Cap Fund
Fremont Emerging Markets Fund
Fremont U.S. Micro-Cap Fund
Fremont Institutional U.S. Micro-Cap Fund
For more information on the Fremont Mutual Funds please call 800-548-4539 or
write to:
Fremont Mutual Funds
50 Beale Street, Suite 100
San Francisco, CA 94105
ADVISOR/TRANSFER AGENT
Fremont Investment Advisors, Inc.
333 Market Street, Suite 2600
San Francisco, CA 94105
SUB-TRANSFER AGENT
Mailing Address:
National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
800-548-4539 (press 2)
Street Address:
National Financial Data Services
1004 Baltimore Avenue
Kansas City, MO 64105
CUSTODIAN
The Northern Trust Company
50 South Lasalle Street
Chicago, IL 60675
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
AUDITORS
Coopers & Lybrand, L.L.P.
333 Market Street
San Francisco, CA 94105
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS OR THE ADVISOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER IN SUCH JURISDICTION.
16 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT FUNDS
[LOGO]
50 Beale Street, Suite 100, San Francisco, CA 94105 - 800-548-4539 (press 1)
9801 Washingtonian Blvd., Suite 105, Gaithersburg, MD 20878 - 888-373-6684
3000 Post Oak Blvd., Suite 100, Houston, TX 77056 - 800-735-2705
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
P022-9709
