<PAGE>
FREMONT
MUTUAL
FUNDS, INC.
- - Money Market Fund
- - Bond Fund
- - Global Fund
- - Growth Fund
- - International Growth Fund
- - International Small Cap Fund
- - Emerging Markets Fund
- - U. S. Micro-Cap Fund
March 1, 1997; revised on September 30, 1997
<PAGE>
TABLE OF CONTENTS
ITEM PAGE NO.
Summary of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . .2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
The Advisor, The Sub-Advisors and the Funds. . . . . . . . . . . . . . . . .9
Investment Objectives, Policies and Risk Considerations. . . . . . . . . . 12
General Investment Policies. . . . . . . . . . . . . . . . . . . . . . . . 22
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
How to Invest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Shareholder Account Services and Privileges. . . . . . . . . . . . . . . . 30
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Dividends, Distributions and Federal Income Taxation . . . . . . . . . . . 33
Plan of Distribution (Emerging Markets Fund only) . . . . . . . . . . . . 34
Calculation of Net Asset Value and Public Offering Price . . . . . . . . . 35
Execution of Portfolio Transactions. . . . . . . . . . . . . . . . . . . . 35
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Telephone Numbers and Addresses. . . . . . . . . . . . . . . . . . . . . . 37
<PAGE>
PROSPECTUS
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under
this Prospectus is offering shares in eight series, or Funds:
FREMONT MONEY MARKET FUND seeks to maximize current income to the extent
consistent with preservation of capital and liquidity by investing in short-term
money market instruments. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT OR ANY OTHER ENTITY. THE FUND
WILL ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
FREMONT BOND FUND seeks to realize maximum total return consistent with the
preservation of capital and prudent investment management by investing primarily
in bonds, notes, bills and money market instruments of U.S. and foreign issuers.
FREMONT GLOBAL FUND seeks to maximize total return (including income and
capital gains) while reducing risk by investing in multiple categories of U.S.
and foreign securities.
FREMONT GROWTH FUND seeks to provide growth of capital over the long term
by investing primarily in common stocks of companies domiciled within the United
States.
FREMONT INTERNATIONAL GROWTH FUND seeks to achieve long-term growth of
capital by investing primarily in equity securities of issuers domiciled outside
the United States.
FREMONT INTERNATIONAL SMALL CAP FUND seeks to achieve long-term capital
appreciation by investing primarily in equity securities of small cap companies
domiciled outside the United States.
FREMONT EMERGING MARKETS FUND seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers domiciled in
countries with emerging or developing capital markets.
FREMONT U.S. MICRO-CAP FUND seeks to achieve long-term capital appreciation
by investing primarily in equity securities of micro-cap companies domiciled
within the United States.
There can be no assurance that any Fund will achieve its investment
objective. Each of the Funds, except for the Fremont Emerging Markets Fund, is
a diversified fund as defined by the Investment Company Act of 1940.
Shares of each 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.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE SHARES INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
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.
This Prospectus is dated March 1, 1997 and revised on September 30, 1997.
FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION, CALL 800-548-4539.
PLEASE READ THIS PROSPECTUS CAREFULLY. IT IS DESIGNED TO PROVIDE YOU WITH
INFORMATION AND TO HELP YOU DECIDE WHICH OF THE FUNDS' OBJECTIVES MEETS YOUR OWN
GOALS.
FREMONT MUTUAL FUNDS 1
<PAGE>
SUMMARY OF FEES AND EXPENSES
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)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT 12b-1 OTHER OPERATING
FEE FEES EXPENSES EXPENSES
--- ---- -------- --------
<S> <C> <C> <C> <C>
Money Market Fund(b) .22% None .09% .31%
Bond Fund(c) .40% None .28% .68%
Global Fund .60% None .27% .87%
Growth Fund .50% None .42% .92%
International Growth Fund(d) 1.50% None None 1.50%
International Small Cap Fund(d) 1.50% None None 1.50%
Emerging Markets Fund(e) None None None None
U.S. Micro-Cap Fund(f) 1.96% None None 1.96%
</TABLE>
- --------------------------------------------------------------------------------
Example: You would pay the following total expenses on a $1,000 investment in
each Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund $ 3 $10 $17 $39
Bond Fund 7 22 38 85
Global Fund 9 28 48 107
Growth Fund 9 29 51 113
International Growth Fund 15 47 82 179
International Small Cap Fund 15 47 82 179
Emerging Markets Fund 0 43
U.S. Micro-Cap Fund 20 62 106 229
</TABLE>
THESE EXAMPLES 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 tables is to give you information and assistance
in understanding the various costs and expenses of the Funds 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, 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 Emerging
Markets Fund are based on estimated amounts for the current fiscal year. The
percentages expressing annual fund operating expenses of the remaining Funds are
based on actual expenses incurred during the most recent fiscal year, except
that the management fee of the International Small Cap Fund has been restated to
reflect the management fee currently being charged to the Fund.
See "The Advisor, the Sub-Advisor and the Funds."
(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) Administrative fees of .15% have been waived by the Advisor. Absent such
waiver, other expenses and total fund operating expenses of the Money
Market Fund would have been .24% and .46%, respectively, for the fiscal
year ended October 31, 1996.
(c) Administrative fees of .15% have been waived by the Advisor. Absent such
waiver, other expenses and total operating expenses of the Bond Fund would
have been .43% and .83%, respectively, for the fiscal year ended October
31, 1996.
(d) Each of the International Growth Fund and the International Small Cap Fund
is obligated, under the terms of the management agreement, to pay the
Advisor an annual management fee of 1.5% of average net assets. However,
the Advisor is obligated to pay all of the Funds' other ordinary operating
expenses.
(e) The Advisor has voluntarily agreed to limit the total operating expenses to
1.50% of average net assets until further notice. Absent this limitation,
the management fee, 12b-1 fee, other expenses and total operating expenses
would be 1.00%, .25%, .70% and 1.95%, respectively.
(f) The U.S. Micro-Cap Fund is obligated, under the terms of the management
agreement, to pay the Advisor an annual management fee of 2.5% of average
net assets with respect to the first $30 million, 2.0% with respect to the
next $70 million and 1.5% thereafter. However, the Advisor is obligated to
pay all of the Fund's other ordinary operating expenses. Absent waivers of
management fees, the management fee and total operating expenses would have
been 2.22% for the fiscal year ended October 31, 1996.
2 FREMONT MUTUAL FUNDS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights of the Funds presented below have been audited by
Coopers & Lybrand, L.L.P., independent accountants. Their report covering each
of the five fiscal years in the period ended October 31, 1996, is included in
the Funds' Annual Report. Further information about the Funds' performance is
also contained in the Annual Report, which is included in the Funds' Statement
of Additional Information and which may be obtained without charge.
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD FROM
---------------------------------------------------------------- NOVEMBER 18, 1988
1996 1995 1994 1993 1992 1991 1990 TO OCTOBER 31, 1989
---- ---- ---- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .05 .06 .03 .03 .04 .06 .08 .08
----- ----- ----- ----- ----- ----- ----- -----
Total investment operations .05 .06 .03 .03 .04 .06 .08 .08
----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
From net investment income (.05) (.06) (.03) (.03) (.04) (.06) (.08) (.08)
----- ----- ----- ----- ----- ----- ----- -----
Total distributions (.05) (.06) (.03) (.03) (.04) (.06) (.08) (.08)
----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN# 5.34% 5.84% 3.49% 2.66% 3.73% 6.51% 7.99% 8.52%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $329,652 $299,312 $224,439 $24,207 $31,832 $33,814 $62,599 $56,477
Ratio of expenses to average net
assets(a) .31% .30% .46% .67% .70% .51% .60% .65%*
Ratio of net investment income to
average net assets(a) 5.22% 5.70% 4.02% 2.62% 3.70% 6.44% 7.66% 8.04%*
</TABLE>
*Annualized
(a) Administrative fees have been voluntarily waived from April 1, 1990
onwards. If fees had been charged fully, net investment income per share,
ratio of expenses to average net assets and ratio of net investment income
to average net assets would have been $.05, .46% and 5.07%, respectively,
for the year ended October 31, 1996; $.06, .45% and 5.55%, respectively,
for the year ended October 31, 1995; $.03, .61% and 3.87%, respectively,
for the year ended October 31, 1994; $.03, .82% and 2.47%, respectively,
for the year ended October 31, 1993; $.04, .85% and 3.55%, respectively,
for the year ended October 31, 1992; $.06, .66% and 6.29%, respectively,
for the year ended October 31, 1991; and $.08, .69% and 7.57%,
respectively, for the year ended October 31, 1990.
# Total return would have been lower had the Advisor not waived expenses.
FREMONT MUTUAL FUNDS 3
<PAGE>
BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD FROM
------------------------------- APRIL 30, 1993 TO
1996 1995 1994 OCTOBER 31, 1993
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $10.13 $9.29 $10.27 $10.04
------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .67 .65 .53 .27
Net realized and unrealized gain (loss) .11 .83 (.98) .24
------ ----- ------ ------
Total investment operations .78 1.48 (.45) .51
------ ----- ------ ------
LESS DISTRIBUTIONS
From net investment income (.70) (.64) (.53) (.27)
From net realized gains (.22) -- -- (.01)
------ ----- ------ ------
Total distributions (.92) (.64) (.53) (.28)
------ ----- ------ ------
NET ASSET VALUE, END OF PERIOD $9.99 $10.13 $9.29 $10.27
------ ----- ------ ------
------ ----- ------ ------
TOTAL RETURN # 8.18% 16.49% -4.42% 5.15%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $70,577 $86,343 $64,244 $11,738
Ratio of expenses to average net assets(a) .68% .60% .66% .50%*
Ratio of net investment income to average net assets(a) 6.82% 6.69% 5.76% 5.35%*
Portfolio turnover rate 154% 21% 205% 13%*
</TABLE>
*Annualized
(a) Management and other expenses charged since the Fund's inception have been
phased in over time. If fees had been charged fully, net investment income
per share, ratio of expenses to average net assets and ratio of net
investment income to average net assets would have been $.66, .83% and
6.67%, respectively, for the year ended October 31, 1996; $.64, .75% and
6.54%, respectively, for the year ended October 31, 1995; $.50, 1.04% and
5.38%, respectively, for the year ended October 31, 1994; and $.23, 1.23%
and 4.62%, respectively, for the period from April 30, 1993 to October 31,
1993.
# Total return would have been lower had the Advisor not waived expenses.
4 FREMONT MUTUAL FUNDS
<PAGE>
GLOBAL FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD FROM
---------------------------------------------------------------- NOVEMBER 18, 1988
1996 1995 1994 1993 1992 1991 1990 TO OCTOBER 31, 1989
---- ---- ---- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $14.24 $13.13 $13.17 $11.52 $11.25 $9.93 $10.77 $10.00
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .39 .40 .26 .32 .39 .47 .54 .57
Net realized and unrealized gain (loss) 1.49 1.24 (.03) 1.67 .40 1.34 (.82) (.79)
------ ------ ------ ------ ------ ------ ------ ------
Total investment operations 1.88 1.64 .23 1.99 .79 1.81 (.28) 1.36
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income (.44) (.50) (.14) (.26) (.40) (.45) (.54) (.45)
From net realized gains (.57) (.03) (.13) (.08) (.11) (.04) (.02) (.14)
Return of capital -- -- -- -- (.01) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.01) (.53) (.27) (.34) (.52) (.49) (.56) (.59)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $15.11 $14.24 $13.13 $13.17 $11.52 $11.25 $9.93 $10.77
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN 13.72% 12.78% 1.74% 17.51% 7.10% 18.38% -2.64% 13.71%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $572,150 $482,355 $453,623 $186,325 $101,839 $74,502 $55,028 $43,918
Ratio of expenses to average net assets .87% .88% .95% .99% 1.09% 1.12% 1.10% 1.02%*
Ratio of net investment income to
average net assets 2.66% 2.98% 2.47% 2.89% 3.41% 4.34% 5.01% 5.30%*
Portfolio turnover rate 71% 83% 52% 40% 50% 81% 36% 51%*
Average commission rate paid $.0238 -- -- -- -- -- -- --
</TABLE>
*Annualized
FREMONT MUTUAL FUNDS 5
<PAGE>
GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD FROM
---------------------------------------- AUGUST 14, 1992 TO
1996 1995 1994 1993 OCTOBER 31, 1992
---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.06 $ 10.46 $ 11.25 $ 10.08 $ 9.92
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .10 .13 .21 .13 .02
Net realized and unrealized gain (loss) 2.65 2.74 (.02) 1.16 .18
------- ------- ------- ------- -------
Total investment operations 2.75 2.87 .19 1.29 .20
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
From net investment income (.08) (.17) (.18) (.12) (.04)
From net realized gains (.71) (.10) (.80) -- --
------- ------- ------- ------- -------
Total distributions (.79) (.27) (.98) (.12) (.04)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 15.02 $ 13.06 $ 10.46 $ 11.25 $ 10.08
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN # 22.06% 28.12% 1.72% 12.80% 2.00%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $78,624 $59,632 $27,244 $42,306 $32,388
Ratio of expenses to average net assets(a) .92% .97% .94% .87% .94%*
Ratio of net investment income to average net assets(a) .75% 1.02% 1.31% 1.19% 1.08%*
Portfolio turnover rate 129% 108% 55% 44% 49%*
Average commission rate paid $ .0429 -- -- -- --
</TABLE>
*Annualized
(a) Management and other expenses charged since the Fund's inception have been
phased-in over time. If fees had been charged fully, net investment income
per share, ratio of expenses to average net assets, and ratio of net
investment income to average net assets would have been $.12, 1.01% and
.98%, respectively, for the year ended October 31, 1995; $.19, 1.08% and
1.17%, respectively, for the year ended October 31, 1994; $.11, 1.02% and
1.04%, respectively, for the year ended October 31, 1993; and $.02, 1.18%
and 0.84%, respectively, for the period from August 14, 1992 to October 31,
1992.
# Total return would have been lower had the Advisor not waived expenses.
6 FREMONT MUTUAL FUNDS
<PAGE>
INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD FROM
----------------------- MARCH 1, 1994 TO
1996 1995 OCTOBER 31, 1994
---- ---- ----------------
<S> <C> <C> <C>
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.72 $ 9.79 $ 9.57
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.02) .10 .02
Net realized and unrealized gain (loss) .71 (.09) .20
------- ------- -------
Total investment operations .69 .01 .22
------- ------- -------
LESS DISTRIBUTIONS
From net investment income (.01) (.08) --
From net realized gains -- -- --
------- ------- -------
Total distributions (.01) (.08) --
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 9.72 $ 9.79
------- ------- -------
------- ------- -------
TOTAL RETURN 7.07% 0.13% 2.30%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $35,273 $32,156 $29,725
Ratio of expenses to average net assets 1.50% 1.50% 1.50%*
Ratio of net investment income (loss) to average net assets -.20% 1.19% .35%*
Portfolio turnover rate 74% 32% 44%*
Average commission rate paid $ .0150 -- --
</TABLE>
*Annualized
INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD FROM
----------------------- JUNE 30, 1994 TO
1996 1995 OCTOBER 31, 1994
---- ---- ----------------
<S> <C> <C> <C>
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.00 $ 9.86 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)(a) .14 .10 (.01)
Net realized and unrealized gain (loss) 1.08 (.88) (.13)
------ ------ ------
Total investment operations 1.22 (.78) (.14)
------ ------ ------
LESS DISTRIBUTIONS
From net investment income (.07) (.08) --
From net realized gains -- -- --
------ ------ ------
Total distributions (.07) (.08) --
------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.15 $ 9.00 $ 9.86
------ ------ ------
------ ------ ------
TOTAL RETURN # 13.69% -7.96% -1.40%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $9,214 $4,245 $1,768
Ratio of expenses to average net assets(a) 1.81% 2.06% 2.50%*
Ratio of net investment income (loss) to average net assets(a) 1.61% 1.67% -.28%*
Portfolio turnover rate 74% 96% --
Average commission rate paid $.0003 -- --
</TABLE>
*Annualized
(a) Management fees have been voluntarily waived from February 1, 1995 onwards.
If fees had been charged fully, net investment income (loss) per share,
ratio of expenses to average net assets and ratio of net investment income
(loss) to average net assets would have been $.08, 2.50% and 0.92%,
respectively, for the year ended October 31, 1996, and $.07, 2.50% and
1.23%, respectively, for the year ended October 31, 1995.
# Total return would have been lower had the Advisor not waived expenses.
FREMONT MUTUAL FUNDS 7
<PAGE>
EMERGING MARKETS FUND
PERIOD FROM
JUNE 24, 1996 TO
OCTOBER 31, 1996
----------------
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .10
Net realized and unrealized loss (.41)
------
Total investment operations (.31)
------
LESS DISTRIBUTIONS
From net investment income (.07)
From net realized gains --
------
Total distributions (.07)
------
NET ASSET VALUE, END OF PERIOD $ 9.62
------
------
TOTAL RETURN # -3.12%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $3,772
Ratio of expenses to average net assets(a) 0.00%*
Ratio of net investment income to average net assets(a) 3.32%*
Portfolio turnover rate 20%*
Average commission rate paid $.0063
*Annualized
(a) Management fees and all other expenses have been voluntarily waived or
reimbursed from June 24, 1996 onwards. If fees had been charged fully,
net investment income (loss) per share, ratio of expenses to average net
assets and ratio of net investment income (loss) to average net assets
would have been -$.05, 4.95% and -1.63%, respectively, for the period
ended October 31, 1996.
# Total return would have been lower had the Advisor not waived or reimbursed
expenses.
U.S. MICRO-CAP FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD FROM
----------------------- JUNE 30, 1994 TO
1996 1995 OCTOBER 31, 1994
---- ---- ----------------
<S> <C> <C> <C>
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.34 $10.34 $10.00
-------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)(a) (.04) (.05) .02
Net realized and unrealized gain 5.83 4.05 .34
-------- ------ ------
Total investment operations 5.79 4.00 .36
-------- ------ ------
LESS DISTRIBUTIONS
From net investment income -- -- (.02)
From net realized gains (.50) -- --
-------- ------ ------
Total distributions (.50) -- (.02)
-------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 19.63 $14.34 $10.34
-------- ------ ------
-------- ------ ------
TOTAL RETURN # 41.46% 38.68% 3.60%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $102,481 $7,792 $2,052
Ratio of expenses to average net assets(a) 1.96% 2.04% 2.50%*
Ratio of net investment income (loss) to average net assets(a) -.51% -.67% .68%*
Portfolio turnover rate 81% 144% 129%*
Average commission rate paid $.0541 -- --
</TABLE>
*Annualized
(a) Management fees have been voluntarily waived from February 1, 1995 onwards.
If fees had been charged fully, net investment income (loss) per share,
ratio of expenses to average net assets and ratio of net investment income
(loss) to average net assets would have been -$.06, 2.22% and -.77%,
respectively, for the year ended October 31, 1996, and -$.08, 2.50% and -
1.13%, respectively, for the year ended October 31, 1995.
# Total return would have been lower had the Advisor not waived expenses.
8 FREMONT MUTUAL FUNDS
<PAGE>
THE ADVISOR, THE SUB-ADVISORS
AND THE FUNDS
Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment
company which under this Prospectus is offering shares in eight series, or
Funds. The Board of Directors of the Investment Company is permitted to create
additional Funds at any time. Each Fund has its own investment objective and
policies and operates as a separate mutual fund.
FREMONT INVESTMENT ADVISORS, INC. PROVIDES INVESTMENT ADVISORY SERVICES TO THE
FREMONT FUNDS.
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 each 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 investment management firms (the
"Sub-Advisors") to provide certain of the Funds with portfolio management
services. The Advisor's Investment Committee oversees the portfolio management
of the Funds, including the services provided by the Sub-Advisors.
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 its 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
Funds. 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 applicable Fund. The Advisor may in its discretion manage all or a
portion of a Fund's portfolio directly with or without the use of a sub-advisor.
For additional information about the Advisor and the Sub-Advisors, see
"Investment Advisory and Other Services" in the Statement of Additional
Information.
MONEY MARKET FUND
As compensation for its services to the Money Market Fund, the Advisor receives
from the Fund an advisory fee, computed daily and paid monthly, of .30% per
annum of the first $50 million of the Fund's average net assets and .20% of such
assets in excess of $50 million. The Advisory Agreement also provides that the
Fund will pay to the Advisor an administrative fee of .15% per annum of average
net assets. The Advisor is waiving the entire administrative fee with respect
to the Fund until further notice. See "Other Expenses of the Funds" below.
- - Norman Gee is the Portfolio Manager for the Money Market Fund and Vice
President of the Advisor. Norman has 18 years' experience in portfolio
management and analysis. He is a graduate of San Francisco State
University.
BOND FUND
As compensation for its services to the Bond Fund, the Advisor receives from the
Fund an advisory fee of .40% per annum of the Fund's average net assets,
computed daily and paid monthly. The Advisory Agreement also provides that the
Fund will pay to the Advisor an administrative fee of .15% per annum of average
net assets. The Advisor is waiving the entire administrative fee with respect
to the Fund until further notice. See "Other Expenses of the Funds" below.
PIMCO SERVES AS SUB-ADVISOR FOR THE BOND FUND. PIMCO CURRENTLY MANAGES $83
BILLION AND IS ONE OF THE MOST RECOGNIZED BOND FUND MANAGERS IN THE WORLD.
Pacific Investment Management Company ("PIMCO"), 840 Newport Center Drive, Suite
360, Newport Beach, California 92660, serves as Sub-Advisor for the Bond Fund
pursuant to a Portfolio Management Agreement. PIMCO is an investment counseling
firm founded in 1971, and currently has $83 billion of assets under management.
The controlling partner of PIMCO is PIMCO Advisors L.P., in which Pacific Mutual
Life Insurance Company indirectly holds an approximate 62.7% interest; the
remaining interest is held indirectly by a group comprised of the managing
directors of PIMCO. PIMCO is registered as an investment advisor with the
Securities and Exchange Commission and as a commodity trading advisor with the
Commodity Futures Trading Commission. William H. Gross, CFA, Chairman and Chief
Investment Officer of PIMCO, is the portfolio manager of the Fund and has served
in that capacity since March 1, 1994. A founder of the firm, Bill has been
associated with PIMCO for 23 years. He received his bachelor's degree from Duke
University and his MBA from the UCLA Graduate School of Business.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the Bond Fund), the Advisor and PIMCO provides that
PIMCO will manage the investment and reinvestment of the assets of the Fund and
continually review, supervise, and administer the Fund's investments. PIMCO
pays all expenses of its staff and their activities in connection with its
portfolio management activities. As compensation for its services, the Advisor
(not the Bond
FREMONT MUTUAL FUNDS 9
<PAGE>
Fund) pays PIMCO a fee equal to .25% per annum of Fund assets managed by PIMCO.
The Portfolio Management Agreement with PIMCO 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 PIMCO.
GLOBAL FUND
As compensation for its services to the Global Fund, the Advisor receives from
the Fund an advisory fee of .60% per annum of the Fund's average net assets,
computed daily and paid monthly. The Advisory Agreement also provides that the
Fund will pay to the Advisor an administrative fee of .15% per annum of average
net assets. See "Other Expenses of the Funds" below.
THE ADVISOR'S ASSET ALLOCATION REVIEW IS BASED ON FORECASTS OF RETURNS FOR EACH
ASSET CLASS.
The Advisor will allocate and reallocate the assets of the Global Fund to seek
to achieve the Fund's investment objective. This will involve a periodic review
of the outlook for various securities which may result in reallocation of assets
among the categories. The Advisor's asset allocation review process is based on
forecasts of returns for each asset class. The investment environment is also
analyzed since capital markets often anticipate economic developments. Given
the Advisor's evaluation, an appropriate asset mix is determined for the Fund.
The Global Fund is managed by the Advisor's Asset Allocation Committee, whose
members are Robert J. Haddick, Alexandra Kinchen, Vincent P. Kuhn, Jr., Peter F.
Landini, and David L. Redo.
- - Robert J. Haddick, CFA, is Vice President of the Advisor and a member of
its Investment and Equity Committees. His primary responsibilities include
developing global asset allocation and investment management strategies.
Bob earned his B.A. and M.B.A. from the University of Illinois.
- - Alexandra Kinchen is Vice President of the Advisor and a member of its
Investment and Fixed Income Committees. Sandie earned her B.A. and M.B.A.
from Golden Gate University, San Francisco, California.
- - Vincent P. Kuhn is Executive Vice President and Director of Fremont Mutual
Funds and the Advisor. He is Chairman of the Advisor's Fixed Income
Committee and is also a member of the Fremont Investment Committee. Vince
received an undergraduate degree in Finance from Iona College, and an
M.B.A. from New York University.
- - Peter F. Landini is Senior Vice President, Chief Operating Officer, and
Director of the Advisor and a member of its Investment Committee. Pete
graduated from the University of Santa Clara with a degree in Accounting
and received an M.B.A. from Golden Gate University, San Francisco,
California. He is Chairman of the Advisor's Equity and Asset Allocation
Committees.
- - David L. Redo is a Director of Fremont Mutual Funds and President, CEO and
Chief Investment Officer for the Advisor. He has overall responsibility
for the management of approximately $4.5 billion of marketable securities
portfolios including the Fremont Mutual Funds. Prior to joining the
Advisor's predecessor organization in 1977, Dave was responsible for
Pacific Telesis' Pension Fund Investments. He received a B.S. in
Electrical Engineering from the University of California, Berkeley and an
M.B.A. from the University of Santa Clara.
GROWTH FUND
As compensation for its services to the Growth Fund, the Advisor receives from
the Fund an advisory fee of .50% per annum of the Fund's average net assets,
computed daily and paid monthly. The Advisory Agreement also provides that the
Fund will pay to the Advisor an administrative fee of .15% per annum of average
net assets. See "Other Expenses of the Funds" below.
The Equity Committee is responsible for managing the mix between the portion of
the Growth Fund's portfolio which is managed directly by the Advisor and the
portion of the Fund's portfolio which is managed by the Fund's Sub-Advisor, and
is responsible for reviewing the securities and overall characteristics of the
Fund's portfolio.
The portfolio managers for the Growth Fund are W. Kent Copa, John B. Kosecoff
and Peter F. Landini. Ken has co-managed the Fund since January 1995. John has
co-managed the Fund since November 1996. Pete has co-managed the Fund since its
inception.
- - W. Kent Copa, CFA, is Vice President of the Advisor and a member of its
Equity Committee. Ken earned his B.A. and M.B.A. from Brigham Young
University.
- - John B. Kosecoff is Vice President of the Advisor and a member of its
Equity Committee. John earned his B.A. from the University of California
at Berkeley and his M.B.A. from Cornell University. He was previously
employed as a senior analyst and portfolio manager at RCM Capital
Management, as a hedge fund analyst and portfolio manager at Omega
Advisors, and as a senior consumer sector analyst at Lord, Abbett & Co.
For a biography on Peter F. Landini, chairman of the Advisor's Equity Committee,
please refer to the Global Fund section.
INTERNATIONAL GROWTH FUND
Under the terms of the Advisory Agreement, the International Growth Fund pays
the Advisor a fee of 1.50% per annum of the Fund's average net assets, computed
daily and paid monthly. Under this Agreement the Advisor has agreed to bear all
of the Fund's expenses, except extraordinary expenses (as designated by a
majority of the Investment Company's disinterested directors) and interest,
brokerage commissions and other transaction charges relating to the investing
activities of the Fund.
The portfolio managers for the International Growth Fund since
10 FREMONT MUTUAL FUNDS
<PAGE>
September 1995 are Andrew L. Pang, Peter F. Landini and Robert J. Haddick.
- - Andrew L. Pang is Vice President of the Advisor and a member of its
Investment Committee and Equity Committee. Andrew received his degree in
Finance from San Francisco State University and received an M.B.A. from
Golden Gate University, San Francisco, California.
For biographies of Peter F. Landini and Robert J. Haddick, please refer to the
Global Fund section.
INTERNATIONAL SMALL CAP FUND
Under the terms of the Advisory Agreement, the International Small Cap Fund pays
the Advisor a fee, computed daily and paid monthly, of 1.50% per annum of the
Fund's average net assets. Under this Agreement the Advisor has agreed to bear
all of the Fund's expenses, except extraordinary expenses (as designated by a
majority of the Investment Company's disinterested directors) and interest,
brokerage commissions and other transaction charges relating to the investing
activities of the Fund.
ACADIAN ASSET MANAGEMENT SERVES AS THE SUB-ADVISOR FOR THE INTERNATIONAL SMALL
CAP FUND. ACADIAN MANAGES
OVER $4 BILLION IN INTERNATIONAL PORTFOLIOS.
Acadian Asset Management, Inc. ("Acadian"), Two International Place, Boston,
Massachusetts 02110, serves as Sub-Advisor to the International Small Cap Fund
pursuant to a Portfolio Management Agreement. Acadian is an international
investment management firm and currently manages approximately $3.9 billion in
assets. Acadian is a wholly-owned subsidiary of United Asset Management
Corporation and provides investment management services to corporations, pension
and profit-sharing plans, 401(k) and thrift plans, endowments, foundations and
other institutions and individuals. Dr. Gary L. Bergstrom, President of
Acadian, oversees the day-to-day investment decisions for the Fund and has done
so since the Fund's inception. Dr. Bergstrom founded Acadian's predecessor,
Acadian Financial Research, Inc., in 1977.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the International Small Cap Fund), the Advisor and
Acadian provides that Acadian will manage the investment and reinvestment of the
assets of the Fund and continually review, supervise and administer the Fund's
investments. Acadian pays all expenses of its staff and their activities in
connection with its portfolio management activities. As compensation for its
services, the Advisor (not the Fund) pays Acadian a fee equal to .75% per annum
of the first $50 million of the Fund's average net assets, .65% of the next $50
million of such assets, .50% of the next $100 million of such assets and .40% of
such assets in excess of $200 million. The Portfolio Management Agreement with
Acadian 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 Acadian Asset Management.
EMERGING MARKETS FUND
As compensation for its services to the Emerging Markets 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 daily net assets. The Advisor is waiving both fees and
reimbursing the Fund for all of its other operating expenses until further
notice. See "Other Expenses of the Fund" below.
NICHOLAS-APPLEGATE HK CURRENTLY MANAGES APPROXIMATELY $32 BILLION IN ASSETS FOR
CORPORATIONS AND INDIVIDUALS AND SERVES AS SUB-ADVISOR TO THE FREMONT EMERGING
MARKETS FUND.
Nicholas-Applegate Capital Management (Hong Kong) LLC ("Nicholas-Applegate HK"),
Three Exchange Square, 38 Connaught Place, 6th floor, Hong Kong, serves as Sub-
Advisor to the Emerging Markets Fund pursuant to a Portfolio Management
Agreement. Nicholas-Applegate HK is a limited liability company which is an
affiliate of Nicholas-Applegate Capital Management, a California limited
partnership. Its managing member is Nicholas-Applegate Capital Management
Holdings, L.P., a California limited partnership, the general partner of which
is Nicholas-Applegate Capital Management Holdings, Inc., a California
corporation owned by Arthur E. Nicholas. The Nicholas-Applegate group of
companies currently manages approximately $32 billion of discretionary assets
for numerous clients, including employee benefit plans of corporations, public
retirement systems and unions, university endowments, foundations, and other
institutional investors and individuals.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the Emerging Markets Fund), the Advisor and Nicholas-
Applegate HK provides that Nicholas-Applegate HK will manage the investment and
reinvestment of the assets of the Fund and continually review, supervise and
administer the Fund's investments. Nicholas-Applegate HK pays all expenses of
its staff and their activities in connection with its portfolio management
activities. As compensation for its services, the Advisor (not the Fund) pays
Nicholas-Applegate HK a fee equal to .50% per annum of the Fund's average daily
net assets. Nicholas-Applegate HK has agreed, however, to waive its entire fee
until further notice. The Portfolio Management Agreement with Nicholas-
Applegate HK 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 Nicholas-Applegate
HK.
FREMONT MUTUAL FUNDS 11
<PAGE>
U.S. MICRO-CAP FUND
Under the terms of the Advisory Agreement, the U.S. Micro-Cap Fund pays the
Advisor a fee, computed daily and paid monthly, of 2.50% per annum of the Fund's
average net assets with respect to the first $30 million, 2.00% with respect to
the next $70 million of such assets, and 1.50% of such assets in excess of $100
million. Under this Agreement, the Advisor has agreed to bear all of the Fund's
expenses, except extraordinary expenses (as designated by a majority of the
Investment Company's disinterested directors) and interest, brokerage
commissions and other transaction charges relating to the investing activities
of the Fund.
KERN CAPITAL MANAGEMENT LLC, THE SUB-ADVISOR FOR THE U.S. MICRO-CAP FUND, IS AN
INVESTMENT MANAGEMENT FIRM DEDICATED TO SMALL CAP AND MICRO-CAP INVESTING.
Kern Capital Management LLC, ("KCM"), 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 Robert E. Kern. Bob Kern has over 30 years of investment management
experience and was employed by Morgan Grenfell Capital Management, Inc. from
1986 through April 1997, where he headed Morgan Grenfell's Smaller
Capitalization Equities Team.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the U.S. Micro-Cap Fund), the Advisor and KCM provides
that KCM will manage the investment and reinvestment of the assets of the Fund
and continually review, supervise, and administer the Fund's investments. KCM
pays all expenses of its staff and their activities in connection with its
portfolio management activities. As compensation for its services, the Advisor
(not the Fund) pays KCM a fee equal to 1.50% per annum of the first $30 million
of the Fund's average net assets, 1.00% of the next $70 million of such assets
and .75% of such assets in excess of $100 million. The Portfolio Management
Agreement with KCM 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 KCM.
OTHER EXPENSES OF THE FUNDS. In addition to the fees described above, each of
the Money Market Fund, the Bond Fund, the Global Fund, the Growth Fund and the
Emerging Markets Fund each pay their own operating expenses including;
shareholder servicing fees to third party servicing agents.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of each Fund are stated below. A broad
range of objectives and policies is offered because the Funds are intended to
offer investment alternatives for a broad range of investors, who are expected
to have a wide and varying range of investment objectives. All of the Funds
(except for 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.
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. Accordingly, there is no assurance that any Fund will
achieve its investment objective.
THE FREMONT MONEY MARKET FUND SEEKS TO MAXIMIZE CURRENT INCOME TO THE EXTENT
CONSISTENT WITH PRESERVATION OF CAPITAL AND LIQUIDITY.
MONEY MARKET FUND
The investment objective of the Money Market Fund is to maximize current income
to the extent consistent with preservation of capital and liquidity. The Fund
seeks to achieve its objective by investing primarily 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; and other
debt securities having no more than 397 days to maturity. The Money Market Fund
also may enter into repurchase agreements. Though it has no current intention
to do so, the Fund may in the future enter into reverse repurchase agreements.
THE FUND ATTEMPTS TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
The Fund attempts 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 (as allowed by regulations under the 1940
Act) which are of high quality and present minimal credit risks as determined by
the Advisor, under the direction of the Board of Directors. The portfolio must
have a dollar-weighted average maturity of not more than 90 days. At least 25%
of the Fund's assets will have a maturity of 90 days or less. All portfolio
securities will be denominated in U.S. dollars.
At the time of purchase, short-term securities must be considered "First Tier"
quality: 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 unrated, of comparable quality as
determined specifically by the Advisor, under the direction of the Board of
Directors. There are
12 FREMONT MUTUAL FUNDS
<PAGE>
currently six NRSROs: Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), Fitch Investors Services, Inc. ("Fitch"), Duff &
Phelps Credit Rating Co. ("D&P"), IBCA Limited and its affiliate IBCA, Inc.
("IBCA"), 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 entity of comparable
quality as determined specifically by the Advisor, under the direction of 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 of the Statement of Additional Information for a description of
rating categories.
The Fund may invest no more than 5% of its total assets in the securities of any
one issuer, other than U.S. Government securities, except in times of unexpected
shareholder redemptions or purchases. In such circumstances, the Fund may
invest temporarily in the securities of any one issuer in excess of 5% (but not
more than 25%) of the Fund's total assets for up to three business days after
the purchase to allow the Fund to manage its portfolio liquidity. The Fund will
not invest more than 10% of its assets in time deposits with a maturity of
greater than seven days. The Fund may make loans of its portfolio securities
and enter into repurchase agreements as described in the Statement of Additional
Information, 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. For a description
of these investments, see "General Investment Policies."
THE FREMONT BOND FUND SEEKS TO REALIZE MAXIMUM TOTAL RETURN CONSISTENT WITH THE
PRESERVATION OF CAPITAL AND PRUDENT INVESTMENT MANAGEMENT.
BOND FUND
The investment objective of the Bond Fund is to seek to realize maximum total
return consistent with the preservation of capital and prudent investment
management.
Under normal market conditions, the Fund will invest at least 65% of the value
of its total assets in debt securities, such as obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; obligations issued or
guaranteed by a foreign government, or any of its political subdivisions,
authorities, agencies or instrumentalities or by supranational organizations
(such as the World Bank); obligations of domestic or foreign corporations and
other entities; and mortgage-related and other asset-backed securities. The
obligations in which the Fund may invest may have fixed, variable or floating
interest rates. Depending upon the level of interest rates, the average maturity
of these securities will vary between 5 and 15 years. In addition, the Fund may
invest in obligations of domestic and foreign commercial banks and bank holding
companies (such as commercial paper, bankers' acceptances, certificates of
deposit and time deposits).
The Fund will invest primarily in securities rated Baa or better by Moody's, or
BBB or better by S&P or, if unrated, determined by the Fund's Sub-Advisor,
PIMCO, to be of comparable quality. The Fund also may invest up to 10% of its
assets in corporate debt securities that are not investment grade but are rated
B or higher by Moody's or S&P. Although long-term securities generally produce
higher income than short-term securities, long-term securities are more
susceptible to market fluctuations resulting from changes in interest rates.
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 be expected to decline. See "Corporate
Debt Securities" below for more information on quality ratings and risks
involved with lower rated securities.
THE FUND'S INVESTMENTS WILL BE CONCENTRATED IN AREAS OF THE BOND MARKET THAT THE
SUB-ADVISOR BELIEVES ARE RELATIVELY UNDERVALUED.
The Fund may invest directly in foreign currency-denominated debt securities
which meet the credit quality guidelines set forth for U.S. holdings. Under
normal market conditions, at least 60% of the Fund's total assets will be
invested in securities of U.S. issuers and at least 80% of the Fund's total
assets, adjusted to reflect the Fund's net exposure after giving effect to
currency transactions and positions, will be denominated in U.S. dollars. The
Fund may not invest more than 25% of its total assets in the securities of
issuers domiciled in a single country other than the United States.
In selecting securities and currencies for the Fund's portfolio, the Sub-Advisor
utilizes economic forecasting, interest rate expectations, credit and call risk
analysis and other security and currency selection techniques. The proportion
of the Fund's assets invested in securities with particular characteristics
(such as maturity, type, and coupon rate) may vary based on the Sub-Advisor's
outlook for the economy, the financial markets, and other factors. The Fund's
investments will be concentrated in areas of the bond market (based on quality,
sector, coupon or maturity) that the Sub-Advisor believes are relatively
undervalued.
The Fund may also employ certain active currency and interest rate management
techniques. The 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. See "General Investment Policies" and the Statement of
Additional Information for further information regarding these securities and
other instruments. 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.
FREMONT MUTUAL FUNDS 13
<PAGE>
In addition, the Fund may purchase securities on a when-issued or forward
commitment basis, engage in portfolio securities lending, invest in reverse
repurchase agreements and borrow money for temporary administrative or emergency
purposes. See "General Investment Policies" and the Statement of Additional
Information for more information.
A portion of the Fund's assets may be invested in mortgage-related and other
asset-backed securities. See "General Investment Policies" for a discussion of
these securities.
The Fund may invest in convertible debentures (convertible to equity securities)
and preferred stocks (which may or may not have a dividend yield) using the same
quality and rating criteria noted above. The Fund may also invest in a small
percentage of assets in common stock consistent with its investment objectives.
Fixed-income securities of the type held by the Fund generally appreciate in
value when market interest rates decline. If the currency in which a security is
denominated appreciates against the U.S. dollar, the dollar value of the
security will increase. Conversely, a rise in interest rates or a decline in
the exchange rate of the currency would result in a depreciation in value or
adversely affect the value of the security expressed in dollars.
The Fund may participate in the options market, and may enter into futures
contracts and purchase and sell options on such contracts on a non-leveraged
basis. 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 over-the-counter options, the risk of
default by the counterparty; 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. The Fund currently intends 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 50% of the
Fund's net assets. A more thorough description of these investment practices
and their associated risks is contained in "General Investment Policies" and the
Statement of Additional Information.
CORPORATE DEBT SECURITIES. The Fund's investments in dollar-denominated and
non-dollar-denominated corporate debt securities of domestic or foreign issuers
are limited to corporate debt securities (corporate bonds, debentures, notes and
other similar corporate debt instruments) which meet the minimum ratings
criteria set forth for the Fund, or, if unrated, are in the Sub-Advisor's
opinion comparable in quality to corporate debt securities in which the Fund may
invest.
Securities which are rated BBB by S&P or Baa by Moody's are considered
investment grade, but may have speculative characteristics, and changes in
economic conditions may lead to a weakened capacity to make principal and
interest payments than is the case with higher-rated securities. The securities
rated below Baa by Moody's or BBB by S&P (sometimes referred to as "junk bonds")
in 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 creditworthiness and relative liquidity of the
secondary trading market). Because such lower-rated bonds have been found to 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. For further information, see the Statement of Additional
Information.
THE FREMONT GLOBAL FUND SEEKS TO MAXIMIZE TOTAL RETURN (INCLUDING INCOME AND
CAPITAL GAINS) WHILE REDUCING RISK. THE FUND ALLOCATES ASSETS SO AS TO
EMPHASIZE ASSETS WITH THE MOST FAVORABLE RETURN OUTLOOK.
GLOBAL FUND
The investment objective of the Fund is to seek to maximize total return
(including income and capital gains) while reducing risk. In seeking to achieve
this objective, the Fund intends to allocate assets and periodically review the
asset allocation to emphasize assets with the most favorable return outlook,
consistent with the Fund's objective of minimizing price volatility. The Fund
may invest in U.S. stocks, U.S. bonds, foreign stocks, foreign bonds, real
estate securities, precious metals and cash equivalents, and adjust the level of
investment maintained in each asset category in response to changing market
conditions. The allocation of assets will be determined by the Advisor based on
its evaluation of projections of risk, market conditions, asset value and
expected return. This evaluation process is described in more detail below.
The Fund seeks to provide a systematic, disciplined approach to reduce overall
portfolio risk through asset diversification and to weight the portfolio toward
asset categories which, at the time of evaluation, appear to have the best
expected return potential. The Fund is designed for investors who wish to
accept the risks entailed in investments in foreign securities and securities
denominated in various currencies. See "General Investment Policies - Special
Considerations for International Investing."
DESCRIPTION OF CLASSES OF ASSETS. Under normal circumstances, the Fund will
invest in securities of issuers located in at least three different countries,
including the United
14 FREMONT MUTUAL FUNDS
<PAGE>
States. 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 which are traded on a U.S. exchange or in the
Over-the-Counter (OTC) market. The Fund may also invest in stock index
futures contracts, options on index futures and options on stock indexes.
- - U.S. DOLLAR-DENOMINATED DEBT SECURITIES - The Fund may invest in the
following: obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; U.S. dollar-denominated corporate debt
securities of domestic or foreign issuers; mortgage and other asset-backed
securities; variable and floating rate debt securities; convertible bonds;
U.S. dollar-denominated obligations of a foreign government, or any of its
political subdivisions, authorities, agencies or instrumentalities or by
supranational organizations (such as the World Bank); and securities that
are eligible as short-term cash equivalents. The Fund will not invest more
than 5% of its net assets in variable and floating rate debt securities,
nor will the Fund invest more than 5% of its net assets in guaranteed
investment contracts. The Fund may invest in interest rate futures and
options on such futures. See "General Investment Policies" and the
Statement of Additional Information for further information regarding these
securities.
Most of the debt securities in which the Fund will invest are rated Baa or
better by Moody's, BBB or better by S&P, or, if unrated, determined to be
of comparable quality by the Advisor. Securities rated BBB or Baa are
considered investment grade, but may have speculative characteristics, and
changes in economic conditions may lead to a weakened capacity to make
principal and interest payments than is the case with higher-rated
securities. The Fund also may invest up to 10% of its assets in corporate
debt securities that are not investment grade but are rated Ba by Moody's
or BB by S&P. Securities rated below Baa by Moody's or BBB by S&P
(sometimes referred to as "junk bonds") 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). Because such lower-rated bonds have been
found to 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. For
further information, see the Statement of Additional Information.
- - 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 European Depository Receipts
("EDRs") representing shares of foreign companies. See "General Investment
Policies" for a discussion of ADRs. EDRs are similar to ADRs but are
designed for use in the European securities markets. 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 the outlook for the currencies
involved. Hedging may be undertaken through the purchase of currency
futures or otherwise. For a discussion of these transactions, see "Options
and Futures" and "Forward Currency, Futures and Options Transactions" in
the "General Investment Policies" section of this Prospectus.
- - FOREIGN BONDS - 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 Advisor will invest the assets in this class based on
the 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 the outlook for currency values.
For a discussion of the risk factors associated with foreign investing, see
"General Investment Policies -- Special Considerations for International
Investing."
- - REAL ESTATE SECURITIES - The Fund may invest in the equity securities of
publicly traded and private real estate investment trusts ("REITs") which
invest in real estate. A REIT is an entity which concentrates its assets
in investments related to equity real estate and/or interests in mortgages
on real estate. The shares of publicly traded REITs are traded on a
national securities exchange or in the OTC market. Shares of private REITs
are not publicly traded, and will be treated as illiquid securities. The
Fund will limit its investments in illiquid securities, including private
REITs, to 15% of its net assets.
- - PRECIOUS METALS AND COMMODITIES FUTURES - The Fund may hold gold, other
precious metals, or commodity futures positions and/or securities of
companies principally engaged in producing or distributing gold, precious
metals or commodities in the United States and/or in foreign countries.
Such companies are defined as those which 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 consistent with preservation of capital and liquidity.
OTHER CONSIDERATIONS WITH RESPECT TO THE FUND. The Advisor
FREMONT MUTUAL FUNDS 15
<PAGE>
will allocate investments among securities of particular issuers on the basis of
its views as to the best values then currently available in the marketplace.
Such values of the fixed income portion of the Fund's portfolio are a function
of yield, maturity, issue classification and quality characteristics, coupled
with expectations regarding the economy, movements in the general level and term
of interest rates, currency values, political developments, and variations of
the supply of funds available for investment. Under normal economic and market
conditions, the fixed-income portion of the Fund's portfolio will be invested
primarily in debt instruments with short to intermediate maturities (1 to 10
years to maturity). However, there are no restrictions on the maturity
composition of the Fund's portfolio. If market interest rates decline,
fixed-income securities generally appreciate in value. If the currency in which
a security is denominated appreciates against the U.S. dollar, the dollar value
of the security will increase. Conversely, a rise in interest rates or a
decline in the exchange rate of the currency would adversely affect the value of
the security expressed in dollars. In seeking to achieve the Fund's objective
of total return, the Advisor may increase the average maturity of the fixed
income portion of the Fund's portfolio in times of declining interest rates and
decrease such average maturity in times of rising interest rates. The Advisor
generally evaluates currencies on the basis of fundamental economic criteria
(e.g., relative inflation and interest rate levels and trends, growth rate
forecasts, balance of payments status and economic policies), as well as
technical and political data.
In seeking current income or to reduce principal volatility, the Fund may also
(1) enter into futures contracts, including contracts for the future delivery of
debt securities of the types described above, stock index futures contracts with
respect to the S&P 500 Index or other similar broad-based stock market indices
and commodities futures, the initial margins of which are limited to 5% of the
Fund's assets; and (2) purchase put and call options on portfolio securities,
indexes, commodities or futures contracts, the premiums of which are limited to
5% of the Fund's assets.
Further information concerning options and futures and their associated risks is
contained in "General Investment Policies -- Options and Futures Contracts" and
in the Statement of Additional Information.
The Fund may enter into forward currency contracts and currency futures
contracts, and may purchase put and call options on currencies. See "General
Investment Policies -- Forward Currency, Futures and Options Transactions." 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 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 country.
A portion of the Fund's assets may be invested in mortgage-related and other
asset-backed securities. See "General Investment Policies" for a discussion of
these securities.
The Fund may invest in convertible debentures (convertible to equity securities)
and preferred stocks (which may or may not have a dividend yield) using the same
quality and rating criteria noted above.
THE FREMONT GROWTH FUND SEEKS TO PROVIDE GROWTH OF CAPITAL OVER THE LONG TERM
INVESTING PRIMARILY IN U.S. COMMON STOCKS.
GROWTH FUND
The investment objective of the Growth Fund is to provide growth of capital over
the long term. Although not an objective of the Fund, income may accompany
growth of capital. The Fund invests primarily in a diversified portfolio of
common stocks.
Under normal conditions, at least 65% of the total assets of the Fund will be
invested in U.S. common stocks. In addition, the Fund may purchase securities
convertible into common and preferred stocks, and restricted securities.
Preferred stocks held by the Fund will have a rating of B or better.
The Fund may invest in common and preferred stocks of U.S. based companies which
are traded on a U.S. exchange or in the over-the-counter (OTC) market and may
invest in stock index futures contracts, options on index futures and options on
stock indexes.
The Fund may invest a portion of its assets in the equity securities of a
diversified group of small, emerging growth companies before they become
well-recognized as well as in the equity securities of larger companies which
offer improved growth possibilities because of rejuvenated management, changes
in product or some other development that might stimulate earnings growth. No
assurance can be given that any of these expectations will be met.
Because the Fund may invest in small, emerging growth companies before they
become well-recognized, investors should realize that the very nature of
investing in smaller companies involves greater risk than is customarily
associated with more established companies. Smaller companies often have
limited product lines, markets or financial resources, and may be dependent upon
one-person management. The securities of smaller companies may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger companies or the market averages in general. Because the
Fund invests in companies based on their intrinsic value, and because intrinsic
value may not be immediately recognized in the market, investors should consider
this Fund a long-term or value-oriented growth fund.
Although the Fund invests primarily in common stocks, for liquidity purposes it
will normally invest a portion of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. When
a temporary defensive posture in the market is appropriate in the Advisor's
opinion, the Fund may temporarily invest up to 100% of its assets in these
instruments. The Fund may also hold other types of securities from time to
time, including bonds.
16 FREMONT MUTUAL FUNDS
<PAGE>
The Fund may invest up to 35% of its total assets in stocks of foreign-based
companies denominated in foreign currencies and issues of American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs") representing shares
of foreign companies. See "General Investment Policies" for a discussion of
ADRs. EDRs are similar to ADRs but are designed for use in the European
securities markets. The Fund may invest in foreign stock index futures, options
on index futures and options on foreign stock indexes. The Advisor or the
Sub-Advisor may engage in foreign currency hedging for assets in specific
countries based on the outlook for the currencies involved. Hedging may be
undertaken through the use of currency futures or otherwise. For a discussion
of the risk factors associated with forward currency, futures and options
transactions, see "General Investment Policies -- Forward Currency, Futures and
Options Transactions" and the Statement of Additional Information.
When the Fund holds bonds, the Fund will be invested primarily in debt
instruments with short to intermediate maturities (1 to 10 years to maturity).
These bonds, including convertibles, will have a S&P or Moody's rating of A or
better. However, there are no restrictions on the maturity composition of the
Fund's portfolio. If market interest rates decline, fixed-income securities
generally appreciate in value. In seeking to achieve the Fund's objective of
growth of capital, the Advisor may increase the average maturity of the fixed
income portion of the Fund's portfolio in times of declining interest rates and
decrease such average maturity in times of rising interest rates.
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 the 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 the outlook for
currency values.
For a discussion of the risk factors associated with foreign investing, see
"General Investment Policies -- Risk Factors and Special Considerations for
International Investing."
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 consistent with preservation of capital
and liquidity.
The Advisor will allocate investments among the securities of particular issuers
on the basis of its views as to the best values then currently available in the
marketplace. Such values are a function of growth potential, relative valuation
yield, maturity, issue classification and quality characteristics, coupled with
expectations regarding the economy, movements in the general level of interest
rates, political developments, and variations of the supply of funds available
for investment.
INTERNATIONAL GROWTH FUND
THE FREMONT INTERNATIONAL GROWTH FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF
CAPITAL BY PRIMARILY INVESTING IN EQUITY SECURITIES OF ISSUERS DOMICILED OUTSIDE
THE UNITED STATES.
The Fund seeks to achieve long-term growth of capital by investing primarily in
equity securities of issuers domiciled outside the United States. The Fund is
designed for investors who wish to accept the risks entailed in investments in
foreign securities and securities denominated in various currencies. See
"General Investment Policies -- Risk Factors and Special Considerations for
International Investing."
Under normal market conditions, at least 90% of the Fund's assets will be
invested in equity securities of issuers domiciled outside the United States.
The Fund will be invested in a minimum of three countries excluding the United
States. The Fund's portfolio of equity securities consists of common and
preferred stock, warrants and debt securities convertible into common stock.
Included in this 90% total, up to 5% of the Fund's assets may be invested in
rights or warrants to purchase equity securities. For defensive purposes, the
Fund may temporarily have less than 90% of its assets invested in equity
securities domiciled outside the United States.
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies domiciled in
the countries of Japan, the United Kingdom and/or Germany. These are among the
leading industrial economies outside the United States and the values of their
stock markets account for a significant portion of the value of international
markets.
In addition to investing directly in equity securities, the Fund may invest in
instruments such as 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 markets.
THE FUND MAY INVEST UP TO 50% OF ITS TOTAL ASSETS IN EQUITY SECURITIES OF
SMALLER TO MEDIUM SIZED GROWTH COMPANIES IN BOTH DEVELOPED AND EMERGING
MARKETS.
The Fund may invest up to 50% of its total assets in equity securities of
smaller to medium sized growth companies in both developed and emerging world
markets. For the developed markets, such investments include equity securities
of companies with market capitalizations of over $200 million but less than $2
billion. However, market capitalizations of smaller to medium sized company
equity securities in emerging markets are significantly smaller and currently
range between $25 million and $200 million. Emerging growth companies are
small- and medium-sized companies that the Advisor believes often have a
potential for earnings growth over
FREMONT MUTUAL FUNDS 17
<PAGE>
time that is above the growth rate of more established companies or are early in
their life cycles and have the potential to become major enterprises.
As used in this Prospectus, international emerging markets are countries
categorized as emerging markets by the International Finance Corporation, the
World Bank's private sector division. Such countries currently include but are
not limited to Thailand, Indonesia, the Philippines, South Korea, Taiwan and
certain Latin American countries. Such markets tend to be in the less
economically developed regions of the world. General characteristics of
emerging market countries also include lower degrees of political stability, a
high demand for capital investment, a high dependence on export markets for
their major industries, a need to develop basic economic infrastructures and
rapid economic growth. The Advisor believes that investments in equity
securities of companies in international emerging markets offer the opportunity
for significant long-term investment returns. However, these investments
involve certain risks, as discussed below and in "General Investment Policies -
Risk Factors and Special Considerations for International Investing."
Investing in emerging growth companies involves certain special risks. Emerging
growth companies may have limited product lines, markets, or financial
resources, and their managements may be dependent on a limited number of key
individuals. The securities of emerging growth companies may have limited
market liquidity and may be subject to more abrupt or erratic market movements
than securities of larger, more established companies or the market averages in
general.
Whenever in the judgment of the Advisor market or economic conditions warrant,
the Fund may, for temporary defensive purposes, invest without limitation in
U.S. dollar-denominated or foreign currency denominated cash or in high-quality
debt securities with remaining maturities of one year or less. During times
that the Fund is investing defensively, the Fund will not be pursuing its stated
investment objective. For liquidity purposes, the Fund may normally also invest
up to 10% of its 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.
Emphasis is placed on identifying securities of companies believed to be
undervalued in the marketplace in relation to factors such as the company's
revenues, earnings, assets and long-term competitive positions which over time
will enhance the equity value of the company. The Fund will not concentrate its
investments in companies of a particular asset size, although, from time to
time, it may emphasize investments in companies within particular industries,
and will select its investments based on the characteristics of the particular
markets and economies of the countries in which it invests.
In selecting portfolio investments, a company's growth prospects will be
considered, including the potential for superior appreciation due to growth in
earnings, relative valuation of its securities, and any risks associated with
such investment; the industry in which the company operates, with a view to
identification of international developments within industries, international
investment trends, and social, economic or political factors affecting a
particular industry; the country in which the company is based, as well as
historical and anticipated foreign currency exchange rate fluctuations; and the
feasibility of gaining access to the securities market in a country and of
implementing the necessary custodial arrangements. The investment program of
the Fund has been developed in the belief that research-based investment in a
portfolio of equity securities of companies in a number of foreign countries
will give shareholders a chance to participate on an international basis in the
opportunities available in the growing foreign securities markets.
Investment will be made in those countries where the Advisor believes that
economic and political factors, including currency movements, are likely to
produce above average long-term investment returns. There is no limitation on
the percentage of the Fund's assets that may be invested at any one time in one
or more countries except that the Fund will normally be invested in at least
three countries outside the United States.
The Fund may enter into forward currency contracts and currency futures
contracts, and may purchase put and call options on currencies. See "General
Investment Policies -- Forward Currency, Futures and Options Transactions."
INTERNATIONAL SMALL CAP FUND
THE FREMONT INTERNATIONAL SMALL CAP FUND SEEKS TO ACHIEVE LONG-TERM CAPITAL
APPRECIATION BY PRIMARILY INVESTING IN SMALL CAP EQUITY SECURITIES OF ISSUERS
DOMICILED OUTSIDE THE UNITED STATES.
The Fund seeks to achieve long-term capital appreciation by investing primarily
in small capitalization ("small cap") equity securities of issuers domiciled
outside the United States. The Fund selects its portfolio securities primarily
from among small cap companies in developed markets whose individual market
capitalizations would place them among the smallest 20% of market capitalization
in their respective markets. Developed markets will generally be defined as
those included in the Morgan Stanley Capital International Europe, Asia and Far
East (EAFE) Index. It is expected that the majority of the companies in which
the Fund invests will have a market capitalization of under $1 billion; however,
the Fund is likely to hold some companies with a market capitalization greater
than $1 billion. The Fund is designed for investors willing to accept the risks
entailed in investments in foreign securities of small companies and securities
denominated in various currencies. See "General Investment Policies - Special
Considerations for International Investing."
Under normal market conditions, at least 65% of the total assets of the Fund
will be invested in small cap equity securities of issuers domiciled outside the
United States with a market capitalization of under $1 billion. The Fund will
be invested in a
18 FREMONT MUTUAL FUNDS
<PAGE>
minimum of three countries excluding the United States. The Fund's portfolio of
equity securities will consist of common and preferred stock, warrants and debt
securities convertible into common stock. Included in this 65% total, up to 5%
of the Fund's assets may be invested in rights or warrants to purchase equity
securities. For defensive purposes, the Fund may temporarily have less than 65%
of its total assets invested in small cap equity issuers domiciled outside the
United States.
In addition to investing directly in equity securities, the Fund may invest in
instruments such as 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 markets.
International small cap companies are smaller sized companies that the Advisor
and Sub-Advisor believe often have a potential for earnings growth over time
that is above the growth rate of more established companies or are early in
their life cycles and have the potential to become major enterprises. In
addition, some smaller companies may be undervalued because they are not as
closely followed by security analysts or institutional investors. 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.
Investing in small companies involves certain special risks. Small companies
may have limited product lines, markets, or financial resources, and their
managements may be dependent on a limited number of key individuals. The
securities of small companies may have limited market liquidity and may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general.
EMPHASIS IS PLACED ON IDENTIFYING SECURITIES OF COMPANIES BELIEVED TO BE
UNDERVALUED IN THE MARKETPLACE.
Emphasis is placed on identifying securities of companies believed to be
undervalued in the marketplace in relation to factors such as the company's
revenues, earnings, assets and long-term competitive positions which over time
will enhance the equity value of the company. In selecting portfolio
investments, a company's growth prospects will be considered, including the
potential for superior appreciation due to growth in earnings, relative
valuation of its securities, and any risks associated with such investment; the
industry in which the company operates, with a view to identification of
international developments within industries, international investment trends,
and social, economic or political factors affecting a particular industry; the
country in which the company is based, as well as historical and anticipated
foreign currency exchange rate fluctuations; and the feasibility of gaining
access to the securities market in a country and of implementing the necessary
custodial arrangements.
INVESTMENTS WILL BE MADE IN COUNTRIES THAT ARE BELIEVED LIKELY TO PRODUCE ABOVE
AVERAGE INVESTMENT RETURNS.
Investments will be made in those countries where the Advisor and Sub-Advisor
believe that economic and political factors, including currency movements, are
likely to produce above average long-term investment returns. There is no
limitation on the percentage of the Fund's assets that may be invested at any
one time in one or more countries. However, except during times that the Fund
is in a temporary defensive posture, the Fund will invest at least 65% of its
total assets in the securities of issuers domiciled in at least three different
non-U.S. countries.
The Fund may invest in equity securities of companies domiciled in emerging
markets. See the Emerging Markets Fund section of this prospectus for more
detailed information on emerging markets.
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies domiciled in the
countries of Japan, the United Kingdom and/or Germany. These are among the
leading industrial economies outside the United States and the values of their
stock markets account for a significant portion of the value of international
markets.
Whenever in the judgment of the Advisor or Sub-Advisor market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in U.S. dollar-denominated or foreign currency-denominated
cash or in high quality debt securities with remaining maturities of one year or
less. During times that the Fund is investing defensively, the Fund will not be
pursuing its stated investment objective. For liquidity purposes, the Fund may
normally also invest up to 10% of its 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. The Fund may also invest in
convertible debentures (convertible to equity securities) and preferred stocks
(which may or may not have a dividend yield). All preferred stocks and debt
securities, both foreign and domestic, in which the Fund invests must, at the
time of acquisition, be rated Aa or better by Moody's or AA or better by S&P, or
be of comparable quality as determined by the Advisor or Sub-Advisor.
The Fund may enter into forward currency contracts and currency futures
contracts, and may purchase put and call options on currencies. See "General
Investment Policies -- Forward Currency, Futures and Options Transactions."
FREMONT MUTUAL FUNDS 19
<PAGE>
EMERGING MARKETS FUND
THE FREMONT EMERGING MARKETS FUND SEEKS TO ACHIEVE LONG-TERM CAPITAL
APPRECIATION. THE FUND INVESTS IN EQUITY SECURITIES OF ISSUERS LOCATED IN
DEVELOPING COUNTRIES.
The Fund is a non-diversified mutual fund which seeks to achieve long-term
capital appreciation by investing primarily in equity securities of issuers
domiciled in countries with emerging or developing capital markets. Investments
in emerging or developing capital markets may exhibit substantially greater
price volatility than investments in developed markets.
Under normal market conditions, at least 65% of the total assets of the Fund
will be invested in equity securities of issuers in Emerging Markets (as defined
below). The Fund will not necessarily seek to diversify investments on a
geographical basis or on the basis of the level of economic development of any
particular country. However, the Fund will be invested in a minimum of three
countries defined as Emerging Markets. The Fund's portfolio of equity
securities will consist of common and preferred stock, warrants and debt
securities convertible into common stock. Included in this 65% total, up to 5%
of the Fund's assets may be invested in rights or warrants to purchase equity
securities. For defensive purposes, the Fund may temporarily have less than 65%
of its total assets invested in equity securities of issuers in Emerging
Markets.
In addition to investing directly in equity securities, the Fund may invest in
instruments such as sponsored and unsponsored 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 markets.
An issuer will be deemed to be in an Emerging Market if: (1) the principal
securities trading market for such issuer is in an Emerging Market; (2) 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, or has at least 50% of its total assets
situated in one or more Emerging Markets: or (3) such issuer is organized under
the laws of, and with a principal office in, an Emerging Market. Determinations
as to whether an issuer is an Emerging Markets issuer will be made by the Sub-
Advisor based on publicly available information and inquiries made to the
issuers.
As used in this Prospectus, an Emerging Market is any country except: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland,
United Kingdom and the United States.
Emerging Markets tend to be in the less economically developed regions of the
world. General characteristics of emerging market countries also include lower
degrees of political stability, a high demand for capital investment, a high
dependence on export markets for their major industries, a need to develop basic
economic infrastructures and rapid economic growth. The Advisor and Sub-Advisor
believe that investments in equity securities of issuers in Emerging Markets
offer the opportunity for significant long-term investment returns. However,
these investments involve not only the risks discussed below with respect to
foreign securities (see "General Investment Policies -- Risk Factors and Special
Considerations for International Investing"), but also other risks. Investments
in Emerging Markets may exhibit greater price volatility, have less liquidity
and have settlement arrangements which are less efficient than in developed
markets. Furthermore, the economies of countries with Emerging Markets generally
are heavily dependent upon international trade and, accordingly, have been and
may continue to be adversely affected by adjustments in currency values and
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 Fund may invest a portion of its assets in equity securities of smaller- to
medium-sized growth companies. Investing in small companies involves certain
special risks. Small companies may have limited product lines, markets, or
financial resources, and their managements may be dependent on a limited number
of key individuals. The securities of small companies may have limited market
liquidity and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general.
The governments in some Emerging Markets have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The Advisor and Sub-Advisor believe that
privatizations may offer opportunities for significant capital appreciation, and
intend to invest assets of the Fund in privatizations in appropriate
circumstances. In certain Emerging Markets, the ability of foreign entities
such as the Fund to participate in privatizations may be limited by local law
and/or the terms on which the Fund may be permitted to participate may be less
advantageous than those afforded local investors. There can be no assurance
that governments in Emerging Markets will continue to sell companies currently
owned or controlled by them or that privatization programs will be successful.
Because the Fund is non-diversified, it may invest a larger percentage of its
assets in individual issuers than a diversified fund. In this regard, the Fund
is not subject to the general limitation that it not invest more than 5% of its
total assets in the securities of any one issuer. To the extent the Fund makes
investments in excess of 5% of its assets in a particular issuer, its exposure
to credit and market risks associated with that issuer is increased.
The Fund may invest in debt securities of both governmental and corporate
issuers in Emerging Markets which are rated Baa or higher by Moody's or BBB or
higher by S&P or, if unrated,
20 FREMONT MUTUAL FUNDS
<PAGE>
determined by the Sub-Advisor to be of comparable quality. Securities which are
rated BBB by S&P or Baa by Moody's are considered investment grade, but may have
speculative characteristics, and changes in economic conditions may lead to a
weakened capacity to make principal and interest payments than is the case with
higher rated securities. For further information, see the Statement of
Additional Information.
Debt securities are susceptible to market fluctuations resulting from changes in
interest rates. 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 be expected to decline.
Capital appreciation in debt securities in which the Fund invests may arise as a
result of favorable changes in relative foreign exchange rates, in relative
interest rate levels and/or in the creditworthiness of issuers. The receipt of
income from debt securities owned by the Fund is incidental to the Fund's
objective of long-term capital appreciation.
Whenever in the judgment of the Advisor or Sub-Advisor market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in U.S. dollar denominated or foreign currency-denominated
cash-equivalent investments or in high quality debt securities with maturities
of one year or less. During times that the Fund is investing defensively, the
Fund will not be pursuing its stated investment objective. For liquidity
purposes, the Fund may normally also invest up to 10% of its assets in U.S.
dollar-denominated or foreign currency-denominated cash-equivalent investments
or in high quality debt securities with maturities of one year or less.
In seeking to protect against the effect of adverse changes in the financial
markets in which the Fund invests, or against currency exchange rate changes
that are adverse to the present or prospective positions of the Fund, the Fund
may use forward currency contracts, options on securities, options on indices,
options on currencies, and futures contracts and options on futures contracts on
securities and currencies. These instruments are often referred to as
"derivatives," which may be defined as financial instruments whose performance
is derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities). There can be no assurance that
the Fund's risk management policies will succeed. These techniques are described
below and are further detailed in the Statement of Additional Information.
U.S. MICRO-CAP FUND
THE FREMONT U.S. MICRO-CAP FUND SEEKS TO ACHIEVE LONG-TERM CAPITAL APPRECIATION
BY PRIMARILY INVESTING IN A DIVERSIFIED PORTFOLIO OF COMMON U.S. STOCKS.
The Fund seeks to achieve long-term capital appreciation by investing primarily
in a diversified portfolio of common stocks and securities convertible into
common stock. Under normal market conditions, at least 65% of the total assets
of the Fund will be invested in equity securities of U.S. micro-cap companies
(described below). These securities will trade on a U.S. exchange or in the OTC
market. However, up to 25% of the Fund's total assets, at the time of purchase,
may be invested in securities of micro-cap companies domiciled outside the
United States, including sponsored and unsponsored American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). 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.
UP TO 25% OF THE FUND'S TOTAL ASSETS MAY BE INVESTED IN SECURITIES OF SMALL
COMPANIES DOMICILED OUTSIDE THE UNITED STATES.
The Fund generally selects its portfolio securities among micro-cap companies,
which the Fund defines as companies whose individual market capitalizations
would place them in the smallest 10% of market capitalization of companies in
the United States as measured by the Wilshire 5000 Index. Currently, these
companies have a market capitalization of about $425 million or less. Under
normal market conditions, the weighted average capitalization of the portfolio
will be less than the market capitalization of the largest company in the bottom
5% of the market value of all U.S. equities as measured by the Wilshire 5000
Index (currently about $200 million).
Many micro-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 micro-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 micro-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. This is due to greater opportunities
for superior returns from companies with small stock market capitalizations
which are not as well-known to the general public. These shares may have less
investor following,
FREMONT MUTUAL FUNDS 21
<PAGE>
and, therefore, may provide opportunities for investment gains due to the
inefficiencies in this sector of the marketplace.
THE FUND SEEKS TO INVEST IN THOSE COMPANIES WHICH ARE IN THE EARLY STAGES OF
AN EMERGING GROWTH CYCLE.
The Fund seeks to invest in those companies which are in the early stages of an
emerging growth cycle, where the Advisor and Sub-Advisor believe earnings will
grow faster than both inflation and the economy in general and where it believes
such growth has not yet been fully reflected in the market price of these
stocks. In seeking investments, the Advisor and Sub-Advisor will give weight to
companies possessing a variety of characteristics including quality of
management, companies which have gone public in recent years, an entrepreneurial
management team, a narrow product line focus, or established companies where the
growth potential has been significantly enhanced by new product developments,
new market opportunities, mergers or divestitures, or new management. 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 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 Sub-Advisor market or economic
conditions 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 non-convertible bonds and preferred stocks, in an amount not exceeding
5% of its net assets. Preferred stocks and bonds will be rated at the time of
purchase in the top two categories of Moody's (Aaa or Aa) or S&P (AAA or AA) or
be of comparable quality as determined by the Advisor or Sub-Advisor.
GENERAL INVESTMENT POLICIES
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 a Fund's quality guidelines. The Funds also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
SHORT-TERM SECURITIES MUST BE RATED "TIER 1" QUALITY.
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 a 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. Each of the Funds 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; others, such as those of the Federal Home Loan Mortgage Corporation
("FHLMC"), are supported by the right of the issuer to borrow from the Treasury;
others, such as 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 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. Each 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).
Each Fund (except for the Bond Fund) will not purchase securities the value of
which is greater than 5% of its net assets on a when-issued basis. 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. The Funds 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 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
22 FREMONT MUTUAL FUNDS
<PAGE>
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.
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 varies with changes in the general level of interest
rates. The maturities of mortgage-related securities are variable and unknown
when issued because their maturities depend on pre-payment rates. Early
repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a Fund to a
lower rate of return upon reinvestment of principal. Also, 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 due to default, but the certificates are not backed by the full
faith and credit of the U.S. Government. As is the case with GNMA certificates,
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 invest also 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 all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the securities'
FREMONT MUTUAL FUNDS 23
<PAGE>
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to recoup fully its
initial investment in these securities even if the security is rated AAA or Aaa,
and could even lose its entire investment. 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. As a result, 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% of a
Fund's net assets.
Other asset-backed securities (unrelated to mortgage loans) have been offered to
investors, such as Certificates for Automobile Receivables-SM- ("CARS-SM-") and
interests in pools of credit card receivables. CARS-SM- represent undivided
fractional interests in a trust whose assets consist of a pool of motor vehicle
retail installment sales contracts and security interests in the vehicles
securing the contracts. CARS-SM- will be deemed to be illiquid securities and
subject to the limitation on investments in illiquid securities. Certificates
representing pools of credit card receivables have similar characteristics to
CARS-SM- although the underlying loans are unsecured.
As new types of mortgage-related securities and other asset-backed securities
are developed and offered to investors, the Advisor or Sub-Advisor will,
consistent with a Fund's investment objective, policies and quality standards,
and subject to the review and approval of the Investment Company's Board of
Directors, consider making investments in such new types of securities.
The Funds may invest only in high quality mortgage-related (or other
asset-backed) securities either (i) issued by U.S. Government sponsored
corporations or (ii) rated in one of the three highest categories by Moody's or
S&P, or, if not rated, of equivalent investment quality as determined by the
Advisor or Sub-Advisor. The Advisor or Sub-Advisor will monitor continuously
the ratings of securities held by a Fund and the creditworthiness of their
issuers. An investment-grade rating will not protect a Fund from loss due to
factors such as a change in market interest rate levels or other particular
financial market change that affects the value of or return due on an
instrument.
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
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 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
a 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. The
Funds, 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, each 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.
REPURCHASE AGREEMENTS. As part of its cash reserve position, each Fund may
enter into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer or
a bank that is a member of the Federal Reserve System. At that time, the bank
or securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a 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. A 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 (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, a 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
24 FREMONT MUTUAL FUNDS
<PAGE>
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. Each Fund (except for the Money Market 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, 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 Funds' 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.
EACH FUND MAY LEND UP TO ONE-THIRD OF ITS SECURITIES ONLY IF COVERED BY
COLLATERAL EQUAL TO 100% OF THE VALUE OF SECURITIES BORROWED.
LOANS 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 Funds' 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. A 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. Each Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and 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, 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 cost, earnings or net asset value would decline faster
than otherwise would be the case.
RESTRICTED SECURITIES. Each 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, a Fund will not
invest more than 15% of its assets (or 10% with respect to the Money Market
Fund) 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 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 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.
OPTIONS AND FUTURES CONTRACTS. (Except for the Money Market Fund.) When a 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 indexes, 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 Funds invest. Each 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, a 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.
A 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 Funds will set aside cash, cash equivalents, or liquid
FREMONT MUTUAL FUNDS 25
<PAGE>
securities, or hold a covered position against any potential delivery or payment
obligations under any outstanding option or futures contracts.
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 a Fund's
return. A 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 a Fund's income due
to the use of hedging, the possible reduction in value of both the securities
hedged and the hedging instrument, and 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 -- the inability to effect closing transactions at
favorable prices and the 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 Additional Information.
FORWARD CURRENCY, FUTURES AND OPTIONS TRANSACTIONS. Except for the Money Market
Fund, the Funds may enter into forward currency contracts and currency futures
contracts and may purchase put or call options on currencies (each such
arrangement sometimes referred to as a "currency contract"). Forward contracts
typically will involve the purchase or sale of a foreign currency against the
dollar. These techniques are designed primarily to hedge against future changes
in currency prices which might adversely affect the value of a Fund's portfolio
securities. A Fund may attempt to accomplish objectives similar to those
involved in its use of forward currency contracts by purchasing put or call
options on currencies or currency futures. For a more detailed description of
such arrangements, see the Statement of Additional Information.
A Fund may enter into currency contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. For example,
when the Advisor and/or Sub-Advisor anticipates making a purchase or sale of a
security, the Fund may enter into a currency contract in order to set the rate
(either relative to the U.S. dollar or another currency) at which a currency
exchange transaction related to the purchase or sale will be made. Further,
when it is believed that a particular currency may decline compared to the U.S.
dollar or another currency, a Fund may enter into a currency contract to sell
the currency the Advisor or Sub-Advisor expects to decline in the amount
approximating the value of some or all of the Fund's portfolio securities
denominated in that currency or related currencies that the Advisor and/or
Sub-Advisor feels demonstrate a correlation in exchange rate movements. The
practice of using correlated currencies is known as "cross-hedging." When the
Advisor and/or Sub-Advisor believes that the U.S. dollar may suffer a
substantial decline against a foreign currency or currencies, a Fund may enter
into a currency contract to buy a foreign currency for a fixed dollar amount.
By entering into such transactions, however, the Fund may be required to forego
the benefits of advantageous changes in exchange rates. Currency contracts
generally are traded over-the-counter, and not on organized commodities or
securities exchanges. As a result, such contracts operate in a manner distinct
from exchange-traded instruments, and their use involves certain risks beyond
those associated with transactions in other futures contracts.
While a Fund enters into forward currency contracts and purchases currency
options or currency futures to reduce the risks of fluctuations in exchange
rates, these contracts cannot eliminate all such risks and do not eliminate
fluctuations in the prices of the Fund's portfolio securities. Purchasing
(selling) a currency forward limits the Fund's exposure to risk of loss from a
rise (decline) in the dollar value of the currency, but also limits its
potential for gain from a decline (rise) in the currency's dollar value. While
purchasing options can protect the Fund against certain exchange rate
fluctuations, a Fund is subject to the loss of its entire premium payment where
the option is allowed to expire without exercise.
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. To the extent a Fund enters into
over-the-counter options, the options and the assets so set aside to cover such
options are considered illiquid assets and, together with other illiquid assets
and securities, will not exceed 15% of the net assets of the Fund. In addition,
premiums paid for currency options held by a Fund may not exceed 5% of the
Fund's net assets.
Although a Fund will enter into currency contracts solely for hedging purposes,
their use does involve certain risks. For example, there can be no assurance
that a liquid secondary market will exist for any currency contract purchased or
sold, and a Fund may be required to maintain a position until exercise or
expiration, which could result in losses.
Currency contracts may be entered into on United States exchanges regulated by
the Securities and Exchange Commission or the Commodity Futures Trading
Commission as well as in the over-the-counter market and on foreign exchanges.
SWAP AGREEMENTS. (Except for the Money Market Fund.) The Funds may enter into
interest rate, index and currency
26 FREMONT MUTUAL FUNDS
<PAGE>
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 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; 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; 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. Whether a Fund's use of swap agreements
will be successful in furthering its investment objective will depend on the
Advisor's or Sub-Advisor's ability to predict correctly whether certain types of
investments are likely to produce greater returns than other investments.
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. Swap agreements having
a term of greater than seven days are considered illiquid assets and a Fund's
obligations under such agreements, together with other illiquid assets and
securities, will not exceed 15% of the net assets of the Fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS FOR INTERNATIONAL INVESTING. (Except
for the 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. Likewise, investment in
ADRs and EDRs presents similar risks, even though the Funds will purchase, sell
and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations
in currency exchange rates, which are affected by international balances of
payments and other economic and 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. A 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 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 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, 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
FREMONT MUTUAL FUNDS 27
<PAGE>
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 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 or a corporation or financial institution of one nation but
denominated in the currency of another nation. To the extent that a Fund
invests in ADRs, the depository bank generally pays cash dividends in U.S.
dollars regardless of the currency in which such dividends originally are paid
by the issuer of the underlying security.
The operating expense ratio of a Fund 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 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 intend to invest
in such countries through the purchase of shares of investment companies
organized under the laws of such countries.
A Fund's interest and dividend income from foreign issuers may be subject to
non-U.S. withholding taxes. A Fund also may be subject to taxes on trading
profits in some countries. In addition, many of the countries in the Pacific
Basin have a transfer or stamp duties tax on certain securities transactions.
The imposition of these taxes will increase the cost to the Funds of investing
in any country imposing such taxes. For United States federal income tax
purposes, United States shareholders may be entitled to a credit or deduction to
the extent of any foreign income taxes paid by the Funds. See "Dividends,
Distributions and Federal Income Taxation."
AMERICAN DEPOSITORY RECEIPTS. (Except for the Money Market Fund.) 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 Funds will purchase, sell and
be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in
currency exchange rates, which are affected by international balances of
payments and other economic and financial conditions; government intervention;
speculation; and other factors. With respect to certain foreign countries,
there is the possibility of expropriation or nationalization of assets,
confiscatory taxation and political, social and economic instability. The Funds
may be required to pay foreign withholding or other taxes on certain of its
ADRs, but investors may or may not be able to deduct their pro rata shares of
such taxes in computing their taxable income, or take such shares as a credit
against their U.S. federal income tax. See "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.
EACH FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS CANNOT BE CHANGED WITHOUT
SHAREHOLDER APPROVAL.
INVESTMENT RESTRICTIONS. Each 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 a 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 each Fund's
investment objective cannot be changed without the approval of shareholders of
that 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
Each 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 an investment in a
Fund will fluctuate. With respect to each Fund, except the Money Market Fund,
the principal value of an investment will also fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. The
Money Market Fund attempts to
28 FREMONT MUTUAL FUNDS
<PAGE>
maintain a stable net asset value of $1.00 per share.
EACH FUND'S "TOTAL RETURN" WILL BE EXPRESSED IN PERIODS OF 1, 5 AND 10 YEARS,
AND FOR THE LIFE OF EACH FUND.
Each Fund except for the Money Market 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 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.
From time to time, each Fund may advertise its yield. The Funds' yields are
calculated according to methods that are standardized for all mutual funds.
Because yield calculation methods differ from the methods used for other
purposes, a Fund's yield may not equal its distribution rate, the income paid to
a shareholder's account, or the income reported in the Fund's financial
statements. With respect to the Money Market Fund, the yield refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). The Money Market Fund's net income
per share for such period (excluding realized gains and losses, if any) will be
divided by the Fund's constant net asset value of $1.00 and annualized on a
365-day basis. An effective yield quotation, taking into account the effects of
a shareholder's assumed reinvestment of income (compounding), may also be used.
With respect to the Funds other than the Money Market Fund, yield refers to the
income generated by an investment in a Fund over a 30-day period (which period
will be stated in the advertisement). This income is then "annualized." That
is, the amount of income generated by the investment during that period is
assumed to be generated each 30 days over a 365-day period and is shown as a
percentage of the investment.
A 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 a Fund's investment results with those published
for other investment companies, other investment vehicles and unmanaged indices.
The comparison of a Fund to an alternative investment should be made with
consideration of differences in features and expected performance. The Funds
may also be mentioned in newspapers, magazines, or other media from time to
time. The Funds assume no responsibility for the accuracy of such data. A
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 Funds will be included in the
Funds' annual report, which will be mailed to shareholders without charge upon
request.
THERE ARE NO SALES CHARGES ON INVESTMENTS OR REINVESTMENTS, AND THERE ARE NO
REDEMPTION FEES.
HOW TO INVEST
The shares of each 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 Funds. 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 Funds. A minimum initial investment of $2,000 is required
to open a shareholder account, except for retirement plans such as Individual
Retirement Accounts (IRAs). 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.")
THERE IS AN INITIAL INVESTMENT MINIMUM OF $2,000 PER ACCOUNT OR $1,000 FOR
RETIREMENT ACCOUNTS (IRAs, ETC.). THE INITIAL MINIMUM IS WAIVED FOR ACCOUNTS
OPENED WITH THE AUTOMATIC INVESTMENT PLAN.
Each subsequent investment in the Funds must be $100 or more except in the case
of retirement plans or Automatic Investment Plans. There 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 Fremont
Mutual Funds. Third party checks, credit cards, and cash will not be accepted.
FREMONT MUTUAL FUNDS 29
<PAGE>
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 a Fund may also be purchased through broker-dealers or other financial
intermediaries who have made appropriate arrangements with the Funds. 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 a 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 Funds 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 E. Camelback Road, Suite 261E, Phoenix,
Arizona 85018, is the principal underwriter for the Funds.
SHAREHOLDER ACCOUNT SERVICES
AND PRIVILEGES
STATEMENTS AND REPORTS
When a shareholder makes an initial investment in the Funds, 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 Money Market Fund and the Bond
Fund will receive monthly statements. Shareholders of the other Funds 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 Funds ends on October 31 of each year. The Investment
Company issues to its shareholders semi-annual and annual reports, which contain
a schedule of each 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 each Fund's
shareholders after the end of the calendar year on Form 1099-DIV.
SHAREHOLDERS RECEIVE AN ACCOUNT STATEMENT FOR EACH TRANSACTION IN THEIR ACCOUNT.
SHAREHOLDERS OF THE MONEY MARKET FUND AND THE BOND FUND RECEIVE MONTHLY
STATEMENTS. SHAREHOLDERS OF THE OTHER FUNDS RECEIVE STATEMENTS AS OF THE END OF
MARCH, JUNE, SEPTEMBER AND DECEMBER.
EXCHANGES BETWEEN FUNDS
Shares of one Fund may be exchanged for shares of another 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
the shareholder.
The Investment Company reserves the right to modify or eliminate the exchange
privilege upon 60 days' written notice to shareholders.
SHAREHOLDERS MAY EXCHANGE SHARES AMONG THE FREMONT FUNDS VIA TELEPHONE.
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 Funds. 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
30 FREMONT MUTUAL FUNDS
<PAGE>
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 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.
THE AUTOMATIC INVESTMENT PLAN PERMITS PURCHASES TO BE MADE ONCE OR TWICE EACH
MONTH; DEBITING THE SHAREHOLDER'S BANK ACCOUNT.
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 Funds. 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 date 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 Funds 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 than 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
FREMONT MUTUAL FUNDS 31
<PAGE>
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 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.
THE MONEY MARKET FUND AND THE BOND FUND OFFER FREE CHECKWRITING.
CHECK REDEMPTION PRIVILEGE
(Money Market Fund and Bond Fund only)
The Transfer Agent will, upon request, provide each shareholder of the Money
Market Fund and the Bond Fund (except for retirement accounts) with free checks
which may be made payable by shareholders to the order of anyone in any amount
of at least $250. The Funds will arrange for checks to be honored by State
Street Bank and Trust Company, Kansas City, Missouri (the "Bank") for this
purpose. The Bank has the right to refuse any check which does not conform
with its requirements. The shareholder will be subject to the Bank's rules and
regulations governing checking accounts. When such a check is presented to the
Transfer Agent for payment, the Transfer Agent, as the shareholder's agent,
will cause the Investment Company to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. Since it is not possible to predict the exact value of a shareholder's
account when a redemption check is cleared, shareholders may not close an
account with a check.
The Check Redemption Privilege enables the shareholder to continue receiving
dividends on those shares equaling the amount being redeemed by check until
such time as the check is presented to the Transfer Agent for payment. The
Check Redemption Privilege may be modified or terminated by the Investment
Company or the Transfer Agent upon three days' notice to shareholders.
THE AUTOMATIC WITHDRAWAL PLAN ALLOWS SHAREHOLDERS TO RECEIVE REGULAR MONTHLY
QUARTERLY, OR YEARLY PAYMENTS.
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. Systematic 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 Fremont 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
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 Funds 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
32 FREMONT MUTUAL FUNDS
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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 $200 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 applicable 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 Custodian 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 Funds may be purchased in connection with various tax-deferred
retirement plans. These include Individual 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
Each Fund has qualified, and intends to continue to qualify to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
(the "Code"). For any tax year in which a 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, among other things,
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.
Each Fund intends to distribute substantially all of its net investment income
according to the following schedule:
The Money Market Fund and the Bond Fund declare dividends daily and will
distribute net investment income monthly.
The Global Fund intends to distribute its net investment income four times a
year, at the end of March, June, September and on or about December 15. The
Fund will also distribute short-term capital gains, if any, in October.
Each of the Growth Fund, the International GrowthFund, the International Small
Cap Fund, the Emerging Markets Fund and the U.S. Micro-Cap Fund intend to
distribute substantially all of its net investment income once each year in
October.
EACH FUND INTENDS TO DISTRIBUTE SUBSTANTIALLY ALL NET INVESTMENT INCOME AND
NET REALIZED CAPITAL GAINS.
Each 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,
FREMONT MUTUAL FUNDS 33
<PAGE>
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 Global Fund, the
Growth Fund and the U.S. Micro-Cap 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.
SHAREHOLDERS MAY RECEIVE DIVIDENDS AND DISTRIBUTIONS IN CASH OR MAY HAVE THEM
AUTOMATICALLY REINVESTED AT NO CHARGE.
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 Funds and paid in January are taxable as if paid in
December. Each 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
Funds 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 Funds to withhold 31%
from any dividends and/or redemptions (including exchange 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 Funds 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 a Fund may give rise to
withholding and other taxes imposed by 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 a 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 a 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 Funds will report
annually to their 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 Funds.
PLAN OF DISTRIBUTION
(EMERGING MARKETS FUND ONLY)
The Emerging Markets Fund has adopted a plan of distribution (the "Plan") under
which the Fund may directly incur or reimburse the Advisor for certain
distribution-related expenses, including payments to securities dealers and
others, including the Underwriter, who are engaged in the sale of shares of the
Fund and who may be advising investors regarding the purchase, sale or
retention of Fund 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
34 FREMONT MUTUAL FUNDS
<PAGE>
promotional activities, including direct mail promotions and mass media
advertising; expenses of preparing, printing and distributing sales literature
and prospectuses and 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 any other expenses related to the distribution of the Fund's
shares.
The annual limitation for payment of expenses pursuant to the Plan is .25% of
the Emerging Markets Fund's average daily net assets. Unreimbursed
expenditures will not be carried over from year to year. In the event the Plan
is terminated by the Emerging Markets 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
Each 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.
SOME OF THE FUNDS' NET ASSET VALUES WILL BE PUBLISHED DAILY IN THE PRESS UNDER
MUTUAL FUND QUOTATIONS.
Each 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 (excluding banking
holidays, in the case of the Money Market Fund). The Funds' portfolios 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 a 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 a 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 each Fund will be determined
as of the close of the regular session of the New York Stock Exchange. The
shares of each 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.
AMORTIZED COST METHOD OF VALUATION -- MONEY MARKET FUND ONLY
The Money Market Fund attempts to maintain a stable net asset value of $1.00
per share by valuing its assets on the basis of amortized cost. This involves
initially valuing a portfolio instrument at its cost 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.
Although the Money Market Fund attempts to maintain a stable net asset value of
$1.00 per share, there can be no assurance that a stable net asset value will
be maintained.
As is generally the case with other money market funds, on any day that the
Money Market Fund experiences a decline in net asset value below $1.00 per
share, the Fund may offset any such amount against the shareholder dividends
accrued during the month. Alternatively, to maintain the net asset value of its
shares at $1.00, the Money Market Fund may redeem or declare a dividend of
shares. Any such action would not change a shareholder's pro rata share of net
assets, but would reflect the increase or decrease in the value of the
shareholder's holdings which resulted from the change in net asset value.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for each Fund's portfolio securities transactions are placed by the
Advisor or Sub-Advisor, as applicable. The Advisor and Sub-Advisors strive to
obtain the best available prices in the Funds' portfolio transactions, taking
into account the costs and promptness of executions. Subject to this policy,
transactions may be directed to those broker-dealers who provide research,
statistical and other information to the Funds, the Advisor or the Sub-Advisors
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 Funds 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
FREMONT MUTUAL FUNDS 35
<PAGE>
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 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.
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 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 and the Portfolio Management Agreement with a Sub-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 Funds under applicable Securities and Exchange Commission regulations.
36 FREMONT MUTUAL FUNDS
<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
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.
FREMONT MUTUAL FUNDS 37
<PAGE>
FREMONT MUTUAL 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
P013-9710
