FREMONT
MUTUAL
FUNDS, INC.
o Bond Fund
March 1, 1998, as amended July 7, 1998
Fremont
Funds [LOGO]
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TABLE OF CONTENTS
Item Page
Summary of Fees and Expenses.............................1
Financial Highlights.....................................2
The Advisor, Sub-Advisor and The Fund....................3
Investment Objectives, Policies and Risk Considerations..4
General Investment Policies..............................5
Investment Results......................................11
How to Invest...........................................12
Shareholder Account Services and Privileges.............12
How to Redeem Shares....................................13
Retirement Plans........................................15
Dividends, Distributions and Federal Income Taxation....15
Calculation of Net Asset Value..........................16
Execution of Portfolio Transactions.....................17
Other Risk Considerations (Year 2000 Issue).............17
General Information.....................................17
Telephone Numbers and Addresses.........................19
PROSPECTUS
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this
Prospectus is offering shares in the BOND FUND (the "Fund").
FREMONT BOND FUND seeks to maximize total return to the extent 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.
There can be no assurance that the Fund will achieve its investment objective.
The Fund is a diversified fund as defined by the Investment Company Act of 1940,
as amended (the "1940 Act").
Shares of the Fund are offered without a sales charge.
This Prospectus, which should be retained for future reference, sets forth
concisely the information an investor should know before investing. Should more
detailed information be desired, a Statement of Additional Information, which is
incorporated by reference into this Prospectus, is available without charge by
calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds,
Inc., 50 Beale Street, Suite 100, San Francisco, California 94105.
SHARES OF THE FUND 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, 1998, as amended July 7, 1998.
FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION, CALL 800-548-4539.
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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 Fee 1 None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets) 2
Management Fee 0.40%
12b-1 Expense None
Other Expenses After Reimbursement 0.21%
-----
Total Fund Operating Expenses 3 0.61%
Example: You would pay the following total expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$6 $20 $34 $77
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR
ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.
The table above is intended to give you information and assistance in
understanding the various costs and expenses of the Fund that an investor may
bear directly or indirectly. Other expenses include, but are not limited to,
administrative and transfer agent fees paid to Fremont Investment Advisors,
Inc., costs of custody, costs of legal and audit services, costs of registration
of fund shares under applicable laws, and costs of printing and distributing
reports to shareholders.
See "The Advisor, Sub-Advisor and the Fund."
1 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."
2 The Advisor has voluntarily waived 0.10% of the 0.15% administrative fee
beginning on March 1, 1998. Prior to March 1, 1998, the Advisor voluntarily
waived the administrative fee in its entirety. Absent such waiver, other
expenses and total fund operating expenses of the Bond Fund would have been
0.36% and 0.76%, respectively, for the fiscal year ended October 31, 1997.
3 The percentages expressing annual fund operating expenses of the Fund are
based on actual expenses incurred during the most recent fiscal year.
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FREMONT MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
The financial highlights of the Fund presented here and the pages following 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, 1997, is
included in the Fund's Annual Report. Further information about the Fund's
performance is contained in the Annual Report, which is included in the Fund's
Statement of Additional Information and which may be obtained without charge.
<TABLE>
<CAPTION>
Year Ended October 31 Period from
-------------------------------------------------- 4/30/93 to
Selected Per Share Data 1997 1996 1995 1994 10/31/93
for one share outstanding during the period -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.99 $ 10.13 $ 9.29 $ 10.27 $ 10.04
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment income .67 .67 .65 .53 .27
Net realized and unrealized gain (loss) .25 .11 .83 (.98) .24
-------- -------- -------- -------- --------
Total investment operations .92 .78 1.48 (.45) .51
-------- -------- -------- -------- --------
Less Distributions
From net investment income (.66) (.70) (.64) (.53) (.27)
From net realized gains (.02) (.22) -- -- (.01)
-------- -------- -------- -------- --------
Total distributions (.68) (.92) (.64) (.53) (.28)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.23 $ 9.99 $ 10.13 $ 9.29 $ 10.27
======== ======== ======== ======== ========
Total Return 1 9.54% 8.18% 16.49% -4.42% 5.15%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 90,302 $ 70,577 $ 86,343 $ 64,244 $ 11,738
Ratio of net expenses to average net assets 2 0.61% 0.68% 0.60% 0.66% 0.50%*
Ratio of gross expenses to average net assets 2 0.76% 0.83% 0.75% 1.04% 1.23%*
Ratio of net investment income to average net assets 6.40% 6.82% 6.69% 5.76% 5.35%*
Portfolio turnover rate 191% 154% 21% 205% 7%
</TABLE>
1 Total returns would have been lower had the Advisor not waived and/or
reimbursed expenses.
2 For the most recent period ended October 31, 1997, the Advisor has voluntarily
waived and/or reimbursed some of its fees. All fees waived in the past will
not be recouped in the future. The waivers are voluntary and may be changed in
the future. Ratios of expenses have been disclosed both before and after the
impact of these various waivers and/or reimbursements. The Advisor has
voluntarily waived 0.10% of the 0.15% administrative fee beginning on March 1,
1998. Prior to March 1, 1998, the Advisor voluntarily waived the
administrative fee in its entirety.
* Annualized
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FREMONT MUTUAL FUNDS
THE ADVISOR, SUB-ADVISOR AND THE FUND
Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment
company which under this Prospectus is offering shares in the Bond Fund (the
"Fund"). The Investment Company has other series offered under different
prospectuses, and the Board of Directors of the Investment Company is permitted
to create additional funds at any time. The Fund has its own investment
objective and policies and operates as a separate mutual fund.
The management of the business and affairs of the Investment Company is the
responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the
"Advisor") provides the Fund with investment management and administrative
services under an Investment Advisory and Administrative Agreement (the
"Advisory Agreement") with the Investment Company. The Advisory Agreement
provides that the Advisor shall furnish advice to the Fund with respect to its
investments and shall, to the extent authorized by the Board of Directors,
determine what securities shall be purchased or sold by the Fund. As described
more fully below, the Advisor has retained an investment management firm (the
"Sub-Advisor") to provide the Fund with portfolio management services. The
Advisor's Investment Committee oversees the portfolio management of the Fund.
The professional investment management 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
Fund. Prior to such engagement, any agreement with a sub-advisor must be
approved by the Board of Directors and, if required by law, by the shareholders
of the Fund. The Advisor may in its discretion manage all or a portion of the
Fund's portfolio directly with or without the use of a sub-advisor.
Under the terms of the Advisory Agreement, the Fund pays the Advisor an annual
fee, computed daily and paid monthly, of 0.40% of the Fund's average net assets.
The Advisory Agreement also provides that the Fund will pay to the Advisor an
annual administrative fee of 0.15% of average net assets. The Advisor is
currently waiving 0.10% of the 0.15% administrative fee with respect to the
Fund. In addition, the Fund pays its own operating expenses including, but not
limited to: taxes, if any; brokerage and commission expenses, if any; interest
charges on any borrowings; transfer agent, administrator, custodian, legal and
auditing fees; shareholder servicing fees including fees to third-party
servicing agents; fees and expenses of Directors who are not interested persons
of the Advisor or the Sub-Advisor; costs and expenses of accounting, bookkeeping
and recordkeeping required under the 1940 Act; insurance premiums; trade
association dues; fees and expenses of registering and maintaining registration
of shares under federal and applicable state securities laws; all costs
associated with shareholders' meetings and the preparation and dissemination of
proxy materials, except for meetings called solely for the benefit of the
Advisor or its affiliates; printing and mailing prospectuses, statements of
additional information and reports to shareholders; and other expenses relating
to the Fund's operations, plus any extraordinary and non-recurring expenses that
are not expressly assumed by the Advisor.
Pacific Investment Management Company ("PIMCO"), 840 Newport Center Drive, Suite
360, Newport Beach, California, 92660, serves as Sub-Advisor for the Fund
pursuant to a Portfolio Management Agreement. PIMCO is an investment counseling
firm founded in 1971, and as of March 31, 1998, had $127 billion in assets under
management. PIMCO is one of seven investment management subsidiaries of PIMCO
Advisors Holding L.P., the controlling partner. The ownership of PIMCO Advisors
Holdings L.P. is represented by the following approximate positions; 30% Pacific
Life, 30% management, 40% public. PIMCO is registered as an investment advisor
with the Securities and Exchange Commission ("SEC") 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,
Mr. Gross has been associated with PIMCO for 27 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 (with respect to the Fund)
between the Investment Company, the Advisor and the Sub-Advisor provides that
the Sub-Advisor will manage the investment and reinvestment of the assets of the
Fund and review and administer the Fund's investments. As compensation for its
services, the Advisor (not the Fund) pays the Sub-Advisor an annual fee equal to
0.25% of the Fund's assets managed by the Sub-Advisor. The Portfolio Management
Agreement with the Sub-Advisor may be terminated by the Advisor or the
Investment Company upon 30 days' written notice. The Advisor has day-to-day
authority to increase or decrease the amount of the Fund's assets managed by the
Sub-Advisor.
The Advisor will provide the Fund with direct portfolio management services to
the extent that the Sub-Advisor does not provide these services.
Investment Company Administration Corporation (the "Sub-Administrator"),
pursuant to an administrative agreement with the Advisor, supervises the
administration of the Fund. The Sub-Administrator's responsibilities include,
among other things, the preparation and filing of documents required for
compliance by the
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FREMONT MUTUAL FUNDS
Fund with applicable laws and regulations. Certain officers of the Investment
Company may be provided by the Sub-Administrator.
For additional information about the Advisor and the Sub-Advisor, see
"Investment Advisory and Other Services" in the Statement of Additional
Information.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of the Fund are stated below. The Fund is
intended for long-term investors, not for those who may wish to redeem their
shares after a short period of time.
All investments, including mutual funds, have risks and no investment is
suitable for all investors. Investors should consult with their financial and
other advisors concerning the suitability of this investment for their own
particular circumstances. There is no assurance that any fund will achieve its
investment objective.
The Bond Fund seeks to maximize 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. These
obligations may have fixed, variable or floating interest rates and, depending
upon the level of interest rates, the average maturity of these securities will
typically vary from five to fifteen 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
Investor Service ("Mood's"), BBB or better by Standard & Poor's Ratings Service
("S&P") or, if not rated by one of these Nationally Recognized Statistical
Ratings Organizations ("NRSROs"), has been determined by the Fund's Sub-Advisor,
to be of comparable quality. The Fund also may invest up to 10% of its total
assets in corporate debt securities that are not investment grade but are rated
B or higher by Moody's or S&P. Although long-term securities generally produce
higher income than short-term securities, long-term securities are more
susceptible to market fluctuations resulting from changes in interest rates.
Generally, when interest rates decline, the value of a portfolio invested at
higher yields can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested at lower yields can be generally expected to
decline. See "Corporate Debt Securities" below for more information on quality
ratings and risks involved with lower rated securities.
The Fund may invest in convertible debentures (which are convertible to equity
securities) and preferred stocks (which may or may not pay a dividend) using the
same quality and rating criteria noted above. The Fund may also invest in a
small percentage of assets in common stocks consistent with its investment
objectives.
In addition, the Fund may invest directly in foreign currency-denominated debt
securities which meet the credit quality guidelines set forth for U.S. holdings.
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 certain areas of the bond market (based on
quality, sector, coupon or maturity) that the Sub-Advisor believes are
relatively undervalued.
When the Sub-Advisor deems it advisable because of unusual economic or market
conditions, the Fund may invest all or a portion of its assets in cash or cash
equivalents, such as obligations of banks, commercial paper and short-term
obligations of U.S. or foreign issuers. The Fund may also employ certain active
currency and interest rate management techniques. These techniques may be used
both to hedge the foreign currency and interest rate risks associated with the
Fund's portfolio securities, and, in the case of certain techniques, to seek to
increase the total return of the Fund. Such active management techniques include
foreign currencies, options on securities, futures contracts, options on futures
contracts and currency, and swap agreements. See "General Investment Policies"
and the Statement of Additional Information for further information regarding
these securities and other instruments.
Fixed-income securities of the type held by the Fund generally appreciate in
value when market interest rates decline. Generally, 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 will generally result in a depreciation in
value or may adversely affect the value of the security expressed in dollars.
The Fund will not use futures and options contracts for the purpose of
leveraging its portfolio. The Fund will set aside cash, cash equivalents or high
quality debt securities or hold a covered position against any potential
delivery or payment obligations under any outstanding option or futures
contracts. Although these investment practices will be used primarily to enhance
total return or to minimize the fluctuation of principal, they do involve risks
which are different in some respects from the investment risks
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FREMONT MUTUAL FUNDS
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 ("OTC") options, the risk of default by the counter party; and
the dependence upon the Sub-Advisor's ability to correctly predict movements in
the direction of interest rates and securities prices. The Fund currently
intends to commit no more than 5% of its net assets to premiums when purchasing
options and to limit its writing of options so that the aggregate value of the
securities underlying such options, as of the date of sale of the options, will
not exceed 5% of the Fund's net assets. 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 by an NRSRO, have been
determined by the Sub-Advisor to be comparable in quality to corporate debt
securities in which the Fund may invest.
Securities which are rated BBB by S&P or Baa by Moody's are considered
investment grade but may have speculative characteristics. Changes in economic
conditions may lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than is the case with higher-rated
securities. The securities rated below Baa by Moody's or BBB by S&P (sometimes
referred to as "junk bonds"), which the Fund may invest to a limited extent,
will have speculative characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price volatility based upon
interest rate sensitivity, questionable credit worthiness and relative liquidity
of the secondary trading market. Because such lower-rated bonds have been found
to generally be more sensitive to adverse economic changes or individual
corporate developments and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could disrupt the market for such
bonds and adversely affect the value of outstanding bonds and the ability of
issuers to repay principal and interest. In addition, in a declining interest
rate market, issuers of lower-rated bonds may exercise redemption or call
provisions, which may force the Fund, to the extent it owns such securities, to
replace those securities with lower yielding securities. This could result in a
decreased return for investors. For further information, see the Statement of
Additional Information.
GENERAL INVESTMENT POLICIES
Money Market Instruments. The Fund may invest in any of the following "money
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations and governments; U.S. government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Fund's quality guidelines. The Fund also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
At the time of purchase, short-term securities must be rated in the top rating
category by at least two NRSROs or, in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or, if not rated by an
NRSRO, must be determined to be of comparable quality by the Advisor and/or
Sub-Advisor. Generally, high quality short-term securities must be issued by an
entity with an outstanding debt issue rated A or better by a NRSRO, or, if
unrated by an NRSRO, by an entity deemed to be of comparable quality by the
Advisor and/or Sub-Advisor, using guidelines approved by the Board of Directors.
Obligations of foreign banks, foreign corporations and foreign branches of
domestic banks must be payable in U.S. dollars. See Appendix A to the Statement
of Additional information for a description of rating categories.
U.S. Government Securities. The Fund may invest in U.S. government securities,
which are obligations of, or guaranteed by, the U.S. government, its agencies or
instrumentalities. Some U.S. government securities, such as Treasury bills,
notes and bonds and Government National Mortgage Association ("GNMA")
certificates, are supported by the full faith and credit of the United States;
those of the Federal Home Loan Mortgage Corporation ("FHLMC") are supported by
the right of the issuer to borrow from the Treasury; those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and those
of the Student Loan Marketing Association are supported only by the credit of
the instrumentality. The U.S. government is not obligated by law to provide
future financial support to the U.S. government agencies or instrumentalities
named above.
When-Issued Securities and Firm Commitment Agreements. The Fund may purchase
securities on a delayed delivery or "when-issued" basis and enter into firm
commitment agreements (transactions whereby the payment obligation and interest
rate are fixed at the time of the transaction, but the settlement is delayed).
The Fund will not purchase securities the value of which is greater than 5% of
its net assets on a when-issued basis. The Fund, as purchaser, assumes the risk
of any decline in value of the security beginning on the date of the agreement
or purchase, and no interest accrues to the Fund until it accepts delivery of
the security. The Fund will not use such transactions for leveraging purposes,
and accordingly will segregate cash, cash equivalents or liquid securities or
hold a covered position in an amount sufficient to meet its payment obligations
thereunder.
There is always a risk that the securities may not be delivered and that the
Fund may incur a loss or will have lost the opportunity to invest the amount set
aside for such transaction in the segregated asset account.
Settlements in the ordinary course of business,
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FREMONT MUTUAL FUNDS
which may take substantially more than three business days for non-U.S.
securities, are not treated by the Fund as when-issued or forward commitment
transactions and, accordingly, are not subject to the foregoing limitations,
even though some of the risks described above may be present in such
transactions.
Shares of Investment Companies. The Fund may invest some portion of its assets
in shares of other no-load, open-end investment companies and closed-end
investment companies to the extent that such investment may facilitate achieving
the objective of the Fund, or 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 that may be so
invested is not limited, provided that the Fund and its affiliates, in
aggregate, do not acquire more than 3% of the outstanding shares of any such
investment company. The provisions of the 1940 Act may also impose certain
restrictions on redemption of the Fund's shares in other investment companies.
The Fund's purchase of shares of investment companies may result in the payment
by a shareholder of duplicative management fees. The Advisor and/or Sub-Advisor
will consider such fees in determining whether to invest in other mutual funds.
The Fund will invest only in investment companies which do not charge a sales
load; however, the Fund may invest in such companies with distribution plans and
fees, and may pay customary brokerage commissions to buy and sell shares of
closed-end investment companies.
The return on the Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Fund's investment in a closed-end investment company may
require the payment of a premium above the net asset value of the investment
company's shares, and the market price of the investment company thereafter may
decline without any change in the value of the investment company's assets. The
Fund, however, will not invest in any investment company or trust unless the
Advisor and/or Sub-Advisor believe that the potential benefits of such
investment are sufficient to warrant the payment of any such premium.
As an exception to the above, the Fund does have the authority to invest all of
its assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions and
policies as that of the Fund. The Fund will notify its shareholders before
initiating such an arrangement.
Repurchase Agreements. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a period of less than one week. The seller must maintain with the Fund's
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. The Fund
will not enter into a repurchase agreement with a maturity of more than seven
business days if, as a result, more than 15% of the value of its net assets
would then be invested in such repurchase agreements. The Fund will only enter
into repurchase agreements where (i) the underlying securities are issued or
guaranteed by the U.S. government, (ii) the market value of the underlying
security, including accrued interest, will be at all times equal to or in excess
of the value of the repurchase agreement, and (iii) payment for the underlying
securities is made only upon physical delivery or evidence of book-entry
transfer to the account of the custodian or a bank acting as agent. In the event
of a bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including: (i) a possible decline in the value of the underlying
security during the period in which the Fund seeks to enforce its rights
thereto; (ii) possible subnormal levels of income and lack of access to income
during this period; and (iii) expenses of enforcing the Fund's rights.
Portfolio Turnover. The Fund may trade in securities for short-term gain
whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take
advantage of anomalies occurring in general market, economic or political
conditions. Therefore, the Fund may have a higher portfolio turnover rate than
that of some other investment companies, but it is anticipated that the annual
portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover
rate is calculated by dividing the lesser of sales or purchases of long-term
portfolio securities by the Fund's average month-end long-term investments. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads or brokerage commissions and other costs that the Fund
will bear directly, and may result in the realization of net capital gains,
which are generally taxable whether or not distributed to shareholders.
Loans of Portfolio Securities. The Fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors in an
amount not exceeding 33 1/3% of its net assets. The borrower must maintain with
the Fund's custodian collateral consisting of cash, cash equivalents or U.S.
government securities equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. The Fund will receive any interest or
dividends paid on the loaned securities and a fee or a portion of the interest
earned on the collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities, or possible loss of
rights in the collateral should the borrower fail financially. The lender also
may bear the risk of capital loss on investment of the cash collateral, which
must be returned in full to the borrower when the loan is terminated. Loans will
be made only to firms deemed by the Advisor and/or Sub-Advisor to be of good
standing and will not be made unless, in the judgment of the Advisor and/or
Sub-Advisor, the consideration to be earned from such loans would justify the
associated risk.
Borrowing. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or
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FREMONT MUTUAL FUNDS
emergency purposes and may enter into reverse repurchase agreements. If the
income and gains on securities purchased with the proceeds of borrowings or
reverse repurchase agreements exceed the cost of such borrowings or agreements,
the Fund's earnings or net asset value will increase faster than otherwise would
be the case; conversely, if the income and gains fail to exceed the cost,
earnings or net asset value would decline faster than otherwise would be the
case.
Restricted Securities. The Fund may purchase securities that are not registered
under federal securities laws ("restricted securities"), but can be offered and
sold to "qualified institutional buyers." However, the Fund will not invest more
than 15% of its assets in illiquid investments, which include repurchase
agreements and fixed time deposits maturing in more than seven days, and
securities that are not readily marketable. Restricted securities will be deemed
to be illiquid unless the Board of Directors determines, based upon a 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 and/or Sub-Advisor the daily function of determining and
monitoring liquidity of restricted securities. The Board, however, will retain
sufficient oversight and will be ultimately responsible for the determinations.
Warrants or Rights. Warrants or rights may be acquired by the Fund in connection
with other securities or separately and provide the Fund with the right to
purchase other securities of the issuer at a later date. It is the present
intention of the Fund to limit its investments in warrants or rights, valued at
the lower of cost or market, to no more than 5% of the value of its net assets.
Warrants or rights acquired by the Fund in units or attached to securities will
be deemed to be without value for purposes of this restriction.
Options and Futures Contracts. When the Fund is not fully invested, strategies
such as buying calls, writing puts, and buying futures may be used to increase
its exposure to price changes in stocks or debt securities. When the Advisor
and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such
as buying puts, writing calls and selling futures may be used to reduce market
exposure. Because most stock index futures and options are based on broad stock
market indices, their performance tends to track the performance of common
stocks, which may or may not correspond to the types of securities in which the
Fund invests. The Fund will maintain a segregated account 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 and to avoid leveraging.
In seeking appreciation or to reduce principal volatility, the Fund may also (i)
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 net assets; and (ii) 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 net assets.
The Fund may write put and call options. It will only do so by writing covered
put or call options, and the aggregate value of the securities underlying put
options, as of the date of sale of the options, will not exceed 5% of the Fund's
net assets.
Options and futures can be volatile investments. If the Advisor and/or
Sub-Advisor applies a hedge at an inappropriate time or evaluates market
conditions incorrectly, options and futures strategies may lower the Fund's
return. The Fund could also experience a loss if the prices of its options or
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
Although these investment practices will be used primarily to generate income or
to minimize the fluctuation of principal, they do involve risks which are
different in some respects from the investment risks associated with similar
funds which do not engage in such activities. These risks may include the
following: futures contracts no assurance that closing purchase transactions
will be available at favorable prices, possible reduction of the Fund's income
due to the use of hedging, 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.
Mortgage-Related And Other Asset-Backed Securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect, "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). The total return on
mortgage-related securities typically varies with changes in the general level
of interest rates. The maturities of mortgage-related securities are variable
and unknown when issued because their maturities depend on pre-payment rates.
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose the Fund to
a lower rate of return upon reinvestment of principal. In addition, if a
security subject to prepayment has been purchased at a premium, in the event of
prepay-
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FREMONT MUTUAL FUNDS
ment 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.
The 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.
The Fund may invest also in mortgage-related securities issued by the FNMA or by
the FHLMC. FNMA, a federally chartered and privately owned corporation, issues
pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
government. FHLMC, a corporate instrumentality of the U.S. government, issues
participation certificates which represent an interest in a pool of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but the certificates, as noted above, are not backed by
the full faith and credit of the U.S. government. As is the case with GNMA
securities, the actual maturity of and realized yield on particular FNMA and
FHLMC pass-through securities will vary based on the prepayment experience of
the underlying pool of mortgages.
The Fund may also invest in mortgage-related securities issued by financial
institutions, such as commercial banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or separate trusts or affiliates of such
institutions established to issue these securities).
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities.
Real Estate Mortgage Investment Conduits are CMO vehicles that qualify for
special tax treatment under the Internal Revenue Code and invest in mortgages
principally secured by interests in real property and other investments
permitted by the Internal Revenue Code.
Stripped Mortgage Securities are derivative multiclass mortgage securities
issued by agencies or instrumentalities of the U.S. government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Stripped Mortgage Securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
Stripped Mortgage Security will have one class receiving all of the interest
from the mortgage assets (the interest-only or "IO" class), while the other
class will receive the entire principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments and prepayments on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated AAA or Aaa,
and could even lose its investment entirely. Although Stripped Mortgage
Securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. Consequently, established trading markets have not yet
developed for certain Stripped Mortgage Securities. Investments in Stripped
Mortgage Securities for which there is no established market are considered
illiquid an together with other illiquid securities will not exceed 15% of the
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.
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FREMONT MUTUAL FUNDS
As new types of mortgage-related securities and other asset-backed securities
are developed and offered to investors, the Advisor and/or Sub-Advisor may
consider investments in such securities, provided they conform with the Fund's
investment objective, policies and quality-of-investment standards, and are
subject to the review and approval of the Investment Company's Board of
Directors.
The Fund may invest only in high quality mortgage-related (or other
asset-backed) securities either (i) issued by U.S. government sponsored
corporations or (ii) rated in one of the three highest categories by Moody's or
S&P or, if not rated, of equivalent investment quality as determined by the
Advisor and/or Sub-Advisor. The Advisor and/or Sub-Advisor will monitor the
ratings of securities held by the Fund and the creditworthiness of their
issuers. An investment-grade rating will not protect the Fund from loss due to
changes in market interest rate levels or other particular financial market
changes that affect the value of, or return due on, an investment.
Forward Currency, Futures and Options Transactions. The Fund 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 that might
adversely affect the value of the Fund's portfolio securities. The 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.
The 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
the Advisor and/or Sub-Advisor believes that a particular currency may decline
compared to the U.S. dollar or another currency, the Fund may enter into a
currency contract to sell the anticipated declining currency, approximating the
value of some or all of the Fund's portfolio securities denominated in that
currency or related currencies which the Advisor and/or Sub-Advisor believes
demonstrates a correlation in exchange rate movements. The practice of using
correlated currencies is known as "cross-hedging." When the Advisor and/or
Sub-Advisor believe that the U.S. dollar may suffer a substantial decline
against a foreign currency or currencies, the 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 will be
engaged in through private transactions with various counterparties, but may
also be traded OTC, or on organized commodities or securities exchanges.
Consequently, 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 the 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
price fluctuations 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 dollar value. While
purchasing options can protect the Fund against certain exchange rate
fluctuations, the 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, the 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 the Fund enters into OTC 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 Fund's net assets. In addition, premiums paid for currency
options held by the Fund may not exceed 5% of the Fund's net assets.
Although the 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 the 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 OTC market, on foreign exchanges, and through
private transactions.
Risk Factors and Special Considerations for International Investing. Investment
in securities of foreign entities and securities denominated in foreign
currencies involves risks typically not present to the same degree in domestic
investments.
There may be less publicly available information about foreign issuers or
securities than about U.S. issuers or securities, and foreign issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. entities. With respect to unsponsored
ADRs, these programs cover securities of companies that are not required to meet
either the reporting or accounting standards of the United States. Many foreign
financial markets, while generally growing in volume, continue to experience
substantially less volume than domestic markets, and securities of many foreign
companies are less liquid and their prices are more volatile than the securities
of comparable U.S. companies. In addition, brokerage commissions, custodial
services
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FREMONT MUTUAL FUNDS
and other costs related to investment in foreign markets (particularly emerging
markets) generally are more expensive than in the United States. Such foreign
markets also may have longer settlement periods than markets in the United
States as well as different settlement and clearance procedures. In certain
markets, there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended securities purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of a portfolio security or, if the Fund had entered into a contract to
sell the security, could result in possible liability to the purchaser.
Settlement procedures in certain emerging markets also carry with them a
heightened risk of loss due to the failure of the broker or other service
provider to deliver cash or securities.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility and risk of
principal, have less liquidity and have settlement arrangements which are less
efficient than in developed markets. Furthermore, the economies of emerging
market countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the countries with which they
trade. These emerging market economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
The value of the Fund's portfolio securities computed in U.S. dollars will vary
with increases and decreases in the exchange rate between the currencies in
which the Fund has invested and the U.S. dollar. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of the Fund's holdings of securities denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value and
net investment income and capital gains, if any, to be distributed in U.S.
dollars to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is influenced
by many factors, including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the price of oil, the pace of activity in the industrial countries,
including the United States, and other economic and financial conditions
affecting the world economy.
The Fund will not invest in a foreign currency or in securities denominated in a
foreign currency if such currency is not at the time of investment considered by
the Advisor and/or Sub-Advisor to be fully exchangeable into U.S. dollars
without legal restriction. The Fund may purchase securities that are issued by
the government, a corporation, or a financial institution of one nation but
denominated in the currency of another nation. To the extent that the Fund
invests in ADRs, the depository bank generally pays cash dividends in U.S.
dollars regardless of the currency in which such dividends originally are paid
by the issuer of the underlying security.
Several of the countries in which the Fund may invest restrict, to varying
degrees, foreign investments in their securities markets. Governmental and
private restrictions take a variety of forms, including (i) limitation on the
amount of funds that may be invested into or repatriated from the country
(including limitations on repatriation of investment income and capital gains),
(ii) prohibitions or substantial restrictions on foreign investment in certain
industries or market sectors, such as defense, energy and transportation, (iii)
restrictions (whether contained in the charter of an individual company or
mandated by the government) on the percentage of securities of a single issuer
which may be owned by a foreign investor, (iv) limitations on the types of
securities which a foreign investor may purchase and (v) restrictions on a
foreign investor's right to invest in companies whose securities are not
publicly traded. In some circumstances, these restrictions may limit or preclude
investment in certain countries. Therefore, the Fund may invest in such
countries through the purchase of shares of investment companies organized under
the laws of such countries.
The Fund's interest and dividend income from foreign issuers may be subject to
non-U.S. withholding taxes. The Fund also may be subject to taxes on trading
profits in some countries. In addition, many of the countries in the Pacific
Basin have a transfer or stamp duties tax on certain securities transactions.
The imposition of these taxes will increase the cost to the Fund of investing in
any country imposing such taxes. For United States federal income tax purposes,
United States shareholders may be entitled to a credit or deduction to the
extent of any foreign income taxes paid by the Fund. See "Dividends,
Distributions and Federal Income Taxation."
Swap Agreements. The Fund may enter into interest rate, index and currency
exchange rate swap agreements to seek 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 purchases a
cap and sells a floor in an attempt to protect itself
10
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FREMONT MUTUAL FUNDS
against interest rate movements exceeding minimum or maximum levels. Whether the
Fund's use of swap agreements will be successful in furthering its investment
objective will depend on the Advisor's and/or Sub-Advisor's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments.
The Fund's obligations under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of cash, U.S. government securities or 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 the Fund's
obligations under such agreements, together with other illiquid assets and
securities, will not exceed 15% of the Fund's net assets.
American Depository Receipts. ADRs are negotiable receipts issued by a United
States bank or trust to evidence ownership of securities in a foreign company
which have been deposited with such bank or trust's office or agent in a foreign
country. Investing in ADRs presents risks not present to the same degree as
investing in domestic securities even though the Fund will purchase, sell and be
paid dividends on ADRs in U.S. dollars. These risks include fluctuations in
currency exchange rates, which are affected by international balances of
payments and other economic and financial conditions; government intervention;
speculation; and other factors. With respect to certain foreign countries, there
is the possibility of expropriation or nationalization of assets, confiscatory
taxation and political, social and economic instability. The Fund may be
required to pay foreign withholding or other taxes on certain of its ADRs, but
investors may or may not be able to deduct their pro rata shares of such taxes
in computing their taxable income, or take such shares as a credit against their
U.S. federal income tax. See "Dividends, Distributions and Federal Income
Taxation." Unsponsored ADRs are offered by companies which are not prepared to
meet either the reporting or accounting standards of the United States. While
readily exchangeable with stock in local markets, unsponsored ADRs may be less
liquid than sponsored ADRs. Additionally, there generally is less publicly
available information with respect to unsponsored ADRs.
Investment Restrictions. The Fund has certain fundamental policies that are
described in the Statement of Additional Information under "Investment
Restrictions." These investment restrictions include prohibitions against
borrowing money (except as described above) and against concentrating the Fund's
investments in issuers conducting their principal business activities in a
single industry (except that this limitation does not apply with respect to U.S.
government securities). These investment restrictions and the Fund's investment
objective cannot be changed without the approval of shareholders of 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
The Fund may from time to time include information on its investment results
and/or comparisons of its investment results to various unmanaged indices or
results of other mutual funds or groups of mutual funds in advertisements, sales
literature, or reports furnished to present or prospective shareholders. The
Fund may also be mentioned in newspapers, magazines, or other media from time to
time. All reported figures are based on historical performance data and are not
intended to be indicative of future performance. The investment return on and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The Fund may calculate performance on an average annual total return basis for
1-, 5-, and 10-year periods and over the life of the Fund, after such periods
have elapsed. Average annual total return will be computed by determining the
average annual compounded rate of return over the applicable period that would
equate the initial amount invested to the ending redeemable value of the
investment. Ending redeemable value includes dividends and capital gain
distributions, reinvested at net asset value on the reinvestment date determined
by the Board of Directors. The resulting percentages indicate the positive or
negative investment results that an investor would have experienced from
reinvested income dividends and capital gain distributions and changes in share
price during the period. The average annual compounded rate of return over
various periods may also be computed by utilizing ending redeemable values as
determined above.
From time to time, the Fund may advertise its yield. The Fund's yield is
calculated according to methods that are standardized for all mutual funds.
Because yield calculation methods differ from the methods used for other
purposes, the 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. An effective yield quotation, taking into account the effects of a
shareholder's assumed reinvestment of income (compounded), may also be used.
Yield refers to the income generated by an investment in the 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.
The Fund's investment results will vary from time to time depending upon
economic conditions, market conditions, the composition of the Fund's portfolio,
and operating expenses of the Fund, so that any investment results reported by
the Fund should not be considered representative of what an investment in the
Fund may earn in any future period. When utilized, total return for the
unmanaged indices described in the Statement of Additional Information will be
calculated assuming reinvestment of dividends and interest, but will not reflect
any deductions for recurring expenses such as advisory fees, brokerage costs, or
administrative expenses. These factors and possible differences in calculation
methods should be considered when comparing the Fund's investment results with
11
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FREMONT MUTUAL FUNDS
those published for other investment companies, other investment vehicles, and
unmanaged indices. The comparison of the Fund to an alternative investment
should be made with consideration of differences in features and expected
performance. The Fund assumes no responsibility for the accuracy of such data.
The Fund's results also should be considered relative to the risks associated
with the Fund's investment objective and policies. See "Investment Results" in
the Statement of Additional Information.
Additional performance information regarding the Fund will be included in its
annual report, which will be mailed to shareholders without charge.
HOW TO INVEST
The shares of the Fund may be purchased through the Transfer Agent or other Fund
agent authorized to accept orders by submitting payment by check, bank wire, or
electronic transfer (Automated Clearing House or "ACH") and, in the case of new
accounts, a completed account application form. There is no sales load or
contingent deferred sales load charged to purchase shares of the Fund. All
orders for the purchase of shares are subject to acceptance or rejection by the
Board of Directors or the Advisor. Purchases of shares are made at the net asset
value next determined after the purchase order is received by the Transfer Agent
or other selling agent of the Fund. A minimum initial investment of $2,000 is
required to open a shareholder account, except for retirement plans such as
Individual Retirement Accounts ("IRAs"). Retirement plans are subject to a
$1,000 minimum initial investment. The minimum initial investment is waived for
accounts opened with the Automatic Investment Plan and may be waived in other
instances at the sole discretion of the Advisor. (See "Automatic Investment
Plan.")
Each subsequent investment in the Fund must be $100 or more except in the case
of retirement plans or Automatic Investment Plans. There 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 at the
sole discretion of the Advisor. 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. All investment checks are subject to a
10-day holding period.
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 the close of trading on
the New York Stock Exchange (currently 4:00 p.m., Eastern time; however,
extraordinary circumstances and market volatility may cause it to close
earlier), will be credited the same day. Otherwise, bank wire investments
received will be credited the next business day. A bank wire investment is
considered received when the Transfer Agent is notified that the bank wire has
been credited to its account.
Shares of the Fund may also be purchased through broker-dealers or other
financial intermediaries who have made appropriate arrangements with the Fund.
Such agents are responsible for ensuring that the account documentation is
complete and that timely payment is made for the Fund shares purchased for their
customers pursuant to such orders. These agents may charge a reasonable
transaction fee, or other selling charge, to their customers. In some instances,
all or a portion of the transaction fee or other selling charge may be paid by
the Advisor. To the extent these agents perform shareholder servicing activities
for the Fund, they may receive fees from the Fund or the Advisor for such
services.
From time to time the Advisor may engage third parties as "finders" for the
purpose of soliciting potential investors. Such parties may be compensated by
the Advisor for such activities.
As a condition of this offering, if an order to purchase shares is canceled due
to nonpayment (for example, a check returned for "insufficient funds"), the
person who placed the order must reimburse the Fund for any loss incurred by
reason of such cancellation. For more information, see "Other Investment and
Redemption Services" in the Statement of Additional Information.
First Fund Distributors, Inc., 4455 Camelback Road, Suite 261E, Phoenix,
Arizona, 85018, is the principal underwriter for the Fund.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
Statements and Reports. When a shareholder makes an initial investment in the
Fund, a shareholder account is opened in accordance with registration
instructions. Each time there is a transaction, such as an additional
investment, a dividend or other distribution, or a redemption, the shareholder
will receive from the Transfer Agent, or other selling agent of the Fund, a
confirmation statement showing the current transaction in the account and the
transaction date. Shareholders of the Fund will receive quarterly statements
with account information as of the end of March, June, September, and December.
Shares are issued only in book-entry form (without certificates).
The fiscal year of the Fund ends on October 31 of each year. The Investment
Company issues to its shareholders semi-annual and annual reports, which contain
a schedule of the Fund's portfolio securities and financial statements. Annual
reports will include audited financial statements. The federal income tax status
of shareholder distributions also will be reported to the Fund's shareholders
after the end of the calendar year on Form 1099-DIV.
Exchanges Between Funds. Shares of one Fremont Fund may be exchanged for shares
of another Fremont Fund at their respective net asset values, provided that the
account registration remains identical. Exchanges may only be made for shares of
a Fremont Fund that is offered for sale in your state of residence at the time
of the exchange. It is required that (i) all shares in one Fund must be
exchanged or (ii) the remaining balance must be at least $1,500. This minimum
balance requirement may be waived at the sole discretion of the Advisor. 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
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FREMONT MUTUAL FUNDS
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 Fund, can be limited by the Investment Company's
refusal to accept further purchase and exchange orders from a shareholder.
The Investment Company reserves the right to modify or eliminate the exchange
privilege upon 60 days' written notice to shareholders.
Telephone Exchange Privilege. An investor may elect on the account application
to authorize exchanges by telephone. This allows a shareholder to 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 the close of trading on the
New York Stock Exchange (currently 4:00 p.m., Eastern time, however,
extraordinary circumstances and market volatility may cause it to close earlier)
will be processed the same day. During times of drastic economic or market
conditions, the telephone exchange privilege may be difficult to implement. The
Transfer Agent will make its best effort to accommodate shareholders when its
telephone lines are used to capacity. Under these circumstances, a shareholder
should consider using overnight mail to send a written exchange request.
See "Telephone Redemption Privilege" in the next section of this Prospectus.
Autobuy Privilege. The Autobuy privilege allows shareholders to purchase
subsequent shares by investing money directly from their checking account to a
Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not
be added to an account without written authorization from the shareholder. The
Autobuy privilege will be automatically added to an account when the shareholder
chooses any type of ACH privilege. 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 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 available on request.
Automatic Investment Plan. A shareholder may authorize a withdrawal to be made
automatically once or twice each month from a credit balance in the
shareholder's bank checking, savings, negotiable on withdrawal (NOW), or similar
account, with the proceeds to be used to purchase shares of the Fund. The
minimum initial investment is waived for accounts opened with the Automatic
Investment Plan. The amount of the monthly investment must be at least $50, and
is not otherwise subject to the $100 minimum for subsequent investments. If the
purchase 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
canceled due to nonpayment (for example, "insufficient funds"), the shareholder
will be responsible for reimbursing the Fund for any loss incurred by reason of
such cancellation. A shareholder wishing to initiate the plan on a new or
existing account must fill out an Automatic Investment Plan form, available on
request
Check Redemption Privilege. The Transfer Agent will, upon request, provide each
shareholder of the 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 Fund 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.
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.
Redemption orders received in proper form by the Transfer Agent or other Fund
agent authorized to accept orders before the close of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time, however, extraordinary
circumstances and market volatility may cause it to close earlier) will be
priced at the net asset
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<PAGE>
FREMONT MUTUAL FUNDS
value determined on that day (with certain limited exceptions discussed in the
Statement of Additional Information). Otherwise, Fund shares will be redeemed at
the price determined as of the close of trading on the New York Stock Exchange
on the next business day.
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 the close of trading
on the New York Stock Exchanged (currently 4:00 p.m., Eastern time, however,
extraordinary circumstances and market volatility may cause it to close earlier)
will be processed at the net asset value calculated that same day. During times
of drastic economic or market conditions, the telephone redemption privilege may
be difficult to implement. The Transfer Agent will make its best effort to
accommodate shareholders when its telephone lines are used to capacity. Under
these circumstances, a shareholder should consider using overnight mail to send
a written redemption request.
Neither the Investment Company, the Transfer Agent, nor their respective
affiliates will be liable for complying with telephone instructions they
reasonably believe to be genuine or for any loss, damage, cost, or expense in
acting on such telephone instructions. The affected shareholder(s) will bear the
risk of any such loss. The Investment Company, 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.
Automatic Withdrawal Plan. A shareholder may request redemptions of a specified
dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis.
Currently, there is no charge for this service. Redemptions by check will be
made on the 15th and/or the last business day of the month. Redemptions made by
electronic transfer will be made on any date the shareholder chooses.
Shareholders may also request automatic exchanges and transfers of a specified
dollar amount. Exchanges and transfers will be made on any date the shareholder
chooses. Because a redemption constitutes a liquidation of shares, the number of
shares owned in the account will be reduced. Automatic redemptions should not
reduce the account below the minimum balance required. 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 with written notification received no later than five days before a
scheduled payment date. When an exchange is made between Funds, shareholders
must specify if they desire the automatic withdrawal option to be transferred to
a new account opened by the exchange. As an account balance declines to the
minimum permitted, the shareholder must advise the Transfer Agent if the
automatic withdrawal feature is to be transferred to another account of the
shareholder. Shareholders should note that if there is an Automatic Withdrawal
Plan established for an account and the entire account is exchanged into another
Fremont Fund, the automatic withdrawal option must be renewed by the shareholder
to the Transfer Agent. A shareholder wishing to initiate automatic redemptions
must complete an Automatic Withdrawal Plan form available from the Transfer
Agent.
Signature Guarantee. To better protect the Fund and shareholders' accounts, a
signature guarantee is required for certain transactions. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in applicable
regulations. Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies, and savings associations. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
Other Important Redemption Information. A request for redemption will not be
processed until all of the documentation described above has been received by
the Transfer Agent in proper form. A shareholder in doubt about what documents
are required should contact the Transfer Agent.
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FREMONT MUTUAL FUNDS
Payment in redemption of shares is normally made within three business days
after receipt by the Transfer Agent of a request in proper form, provided that
payment in redemption of shares purchased by check or draft will be effected
only after such check or draft has been collected. Although it is anticipated
that this process will be completed in less time, it may take up to 10 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 the shares in a shareholder's account
(other than a retirement plan account) if the balance is reduced to less than
$1,500 in net asset value through redemptions or other action by the
shareholder. Notice will be given to the shareholder at least 30 days prior to
the date fixed for such redemption, during which time the shareholder may
increase its holdings to an aggregate amount of $1,500 or more (with a minimum
purchase of $100 or more.) This minimum balance may be waived at the sole
discretion of the Advisor.
Redemption in Kind. The Investment Company reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Fund and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made in
securities, a shareholder may incur transaction expenses in converting these
securities into cash.
Transfer Agent. The Advisor is transfer agent to the Fund and has engaged State
Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri,
64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder
service agent. 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 Fund will be processed.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with various tax-deferred
retirement plans. These include IRAs, SEP-IRAs; ROTH 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, ROTH IRAs;
SIMPLE IRAs, and Qualified Retirement Plans are available through the Investment
Company, as are forms for corporate Pension and Profit-Sharing plans. Please
contact the Investment Company for more information about establishing these
accounts. In accordance with industry practice, there may be an annual account
charge for participation in these plans. Information regarding these charges is
available from the Investment Company.
Retirement plan participants may receive additional services related to their
plan at no extra cost to any shareholder.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION
The Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). For any tax
year in which the Fund so qualifies and meets certain distribution requirements,
it will not incur a federal tax liability. Such qualification under the Code
requires the Fund, among other things, to diversify its investments so that, at
the end of each fiscal quarter, (i) 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 (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. government securities or the securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
The Fund declares dividends daily and will distribute net investment income
monthly.
The Fund intends to distribute substantially all of its long term net realized
capital gains, if any, at the end of the calendar year (on or about December
15). Dividend and capital gain distributions, if any, may be reinvested in
additional shares at net asset value on the day of reinvestment, or may be
received in cash. All dividends and distributions are taxable to a shareholder
(except tax-exempt shareholders who have not borrowed to acquire their shares)
whether or not they are reinvested in shares of the Fund. Any long-term or
mid-term capital gain distributions are taxable to shareholders as long-term or
mid-term capital gains, respectively, regardless of how long shareholders have
held Fund shares. The maximum capital gains rate for individuals is 28% with
respect to assets held for more than 12 months, but not more than 18 months, and
20% with respect to assets held more than 18 months. The maximum capital gains
rate for corporate shareholders is the same as the maximum tax rate for ordinary
income. Distributions of short-term capital gains will be subject to the tax as
ordinary income. Corporate investors may be entitled to the "dividends received"
deduction on all or a portion of the dividends paid by the Fund. Availability of
the "dividends received" deduction is subject to certain holding period and debt
financing limitations.
Shareholders may elect:
o to have all dividends and capital gain distributions automatically reinvested
in additional shares; or
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FREMONT MUTUAL FUNDS
o to receive income dividends and short-term capital gain distributions in cash
and accept long term capital gain distributions in additional shares; or
o to receive all distributions of income dividend and capital gain in cash; or
o to invest all dividend and capital gain distributions in another Fremont Fund
owned through an identically registered account.
Automatic reinvestments will be at net asset value on the day of reinvestment.
If no election is made by a shareholder, all dividends and capital gain
distributions will be automatically reinvested. These elections may be changed
by the shareholder at any time but, to be effective for a particular dividend or
capital gain distribution, the election must be received by the Transfer Agent
approximately 5 business days prior to the payment date to permit the change to
be entered into the shareholder account. The federal income tax status of
dividends and capital gain distributions is the same whether taken in cash or
reinvested in shares.
Dividends and capital gains generally are taxable to shareholders at the time
they are paid. However, dividends or capital gains declared in October,
November, or December by the Fund and paid in January are taxable as if paid in
December. The Fund will provide to its shareholders federal tax information
annually by January 31, including information about dividends and distributions
paid during the year.
If a shareholder has not furnished a certified correct taxpayer identification
number (generally a Social Security number) and has not certified that
withholding does not apply, or if the Internal Revenue Service has notified the
Fund that the taxpayer identification number listed on the account is incorrect
according to their records or that the shareholder is subject to backup
withholding, federal law generally requires the Fund to withhold 31% from any
dividends and/or redemption proceeds (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 Fund to withhold 30%, or the applicable tax treaty rate, from
ordinary dividends (which includes short-term capital gains) paid to certain
nonresident alien, non-U.S. partnership, and non-U.S. corporation shareholder
accounts. Long-term capital gains distributions may also be subject to this
withholding.
Dividends and interest from foreign issuers earned by the Fund may give rise to
withholding and other taxes imposed by foreign countries, generally at rates
from 10% to 40%. Tax conventions between certain countries and the United States
may reduce or eliminate these taxes. Foreign countries generally do not impose
taxes on capital gains with respect to investments by non-resident investors.
Except as indicated below, to the extent that the Fund does pay foreign
withholding or other foreign taxes on certain of its investments, investors will
not be able to deduct their pro rata shares of such taxes in computing their
taxable income nor be able to take their shares of such taxes as a credit
against U.S. income taxes.
If more than 50% of the value of the Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, the Fund may elect to
"pass through" to its shareholders the amount of foreign taxes paid. If this
election is made, the shareholders of the Fund will be required to include in
their federal income tax returns as gross income their respective pro rata
portions of foreign taxes paid by the Fund, to treat such amounts as foreign
taxes paid by them, and to deduct such respective pro rata portions in computing
their taxable incomes, or, alternatively, to use them as foreign tax credits,
(subject to certain limitations) against their U.S. income taxes. The Fund will
report annually to its shareholders the amount per share of such withholding, if
any. The foregoing is a brief discussion of certain federal income tax
considerations. Please see "Taxes Mutual Funds" in the Statement of Additional
Information for further information regarding the tax implications of an
investment in the Fund.
CALCULATION OF NET ASSET VALUE
The Fund's net asset value per share is computed by dividing the value of the
securities held by the Fund, plus any cash or other assets (including interest
accrued and dividends declared but not yet received) minus all liabilities
(including accrued expenses), by the total number of shares outstanding at such
time. There is no sales charge in connection with purchases or redemptions of
Fund shares.
The Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares on a Monday through Friday basis when the New York
Stock Exchange is open. Investments, including options, are stated at value
based on recorded closing sales on a national securities exchange or, in the
absence of a recorded sale, at the mean between the last reported bid and asked
prices, or at fair value pursuant to procedures approved by the Board of
Directors. Short-term notes and similar securities are included in investments
at amortized cost, which approximates value. Securities which are primarily
traded on foreign exchanges are generally valued at the preceding closing values
of such securities on their respective exchanges, or the most recent price
available when no closing value is available. The Fund's portfolio may include
securities which trade primarily on non-U.S. exchanges or otherwise in non-U.S.
markets. Because of time zone differences, the prices of these securities, as
used for net asset value calculations, may be established substantially in
advance of the close of the New York Stock Exchange. Foreign securities may also
trade on days when the New York Stock Exchange is closed (such as a Saturday).
The net asset value of the Fund, to the extent that it holds securities valued
on foreign markets, may vary during periods when the New York Stock Exchange is
closed. As a result, the value of the Fund's portfolio may be affected
significantly by such trading on days when a shareholder has no access to the
Fund. For further information, see "How to Invest," "How to Redeem Shares," and
"Exchanges
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FREMONT MUTUAL FUNDS
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 of the Fund will be determined as of the close of the
regular session of the New York Stock Exchange. The shares of the Fund are
offered at net asset value without a sales charge. Purchase, redemption and
exchange orders received in proper form by the Transfer Agent or other Fund
agent authorized to accept orders before the close of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time, however, extraordinary
circumstances and market volatility may cause it to close earlier), will be
priced at the net asset value next determined on that day (with certain limited
exceptions discussed in the Statement of Additional Information). Otherwise,
orders received by the Transfer Agent or other Fund agent authorized to accept
orders will be entered at the next calculated net asset value.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the Fund's portfolio securities transactions are placed by the
Advisor and/or Sub-Advisor. The Advisor and/or Sub-Advisor strives to obtain the
best available prices in the Fund's portfolio transactions, taking into account
the costs and promptness of executions. Subject to this policy, transactions may
be directed to those broker-dealers who provide research, statistical, and other
information to the Fund, the Advisor and/or Sub-Advisor, or who provide
assistance with respect to the distribution of Fund shares. There is no
agreement or commitment to place orders with any broker-dealer.
Debt securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. Government securities
issued by the United States and other countries and money market securities in
which the Fund may invest are generally traded in the OTC markets. In
underwritten offerings, securities usually are purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. Dealers may receive commissions on futures, currency, and options
transactions. Commissions or discounts in foreign securities exchanges or OTC
markets typically are fixed and generally are higher than those in U.S.
securities exchanges or OTC markets. There is generally less government
supervision and regulation of foreign exchanges and brokers than in the United
States. Foreign security settlements may, in some instances, be subject to
delays and related administrative uncertainties.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor, or an affiliated person of such person.
OTHER RISK CONSIDERATIONS (YEAR 2000 ISSUE)
Like other mutual funds and financial and business organizations around the
world, the Fund could be adversely affected if the computer systems used by it,
the Advisor and other service providers and entities with computer systems that
are linked to Fund records do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 issue." The Fund and Advisor are taking steps that are reasonably
designed to address the Year 2000 issue with respect to the computer systems
they use and to obtain satisfactory assurances that comparable steps are being
taken by each of the Fund's service providers. Should the Fund's due diligence
uncover any serious problems with such a firm's Year 2000 preparedness, the Fund
and the Advisor will seek to take appropriate action in an effort to protect the
interest of the Fund.
GENERAL INFORMATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed open-end investment company. Currently, the Investment Company
has authorized several series of capital stock with equal dividend and
liquidation rights within each series. Investment Company shares are entitled to
one vote per share (with proportional voting for fractional shares) and are
freely transferable. Shareholders have no preemptive or conversion rights.
Shares may be voted in the election of directors and on other matters submitted
to the vote of shareholders. As permitted by Maryland law, there normally will
be no annual meeting of shareholders in any year, except as required under the
1940 Act. The 1940 Act requires that a meeting be held within 60 days in the
event that less than a majority of the directors holding office has been elected
by shareholders. Directors shall continue to hold office until their successors
are elected and have qualified. Investment Company shares do not have cumulative
voting rights, which means that the holders of a majority of the shares voting
for the election of directors can elect all of the directors. Shareholders
holding 10% of the outstanding shares may call a meeting of shareholders for any
purpose, including that of removing any director. A director may be removed upon
a majority vote of the shareholders qualified to vote in the election. The 1940
Act requires the Investment Company to assist shareholders in calling such a
meeting.
On any matter submitted to a vote of shareholders, such matter shall be voted by
the Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval of the Advisory Agreement with the Advisor) except
in matters where a vote of all series in the aggregate is required by the 1940
Act or otherwise.
Pursuant to the Articles of Incorporation, the Investment Company may issue ten
billion shares. This amount may be increased or decreased from time to time in
the discretion of the Board of Directors. Each share of a series represents an
interest in that series only, has a par value of $0.0001 per share, represents
an equal proportionate interest in that series with other shares of that
17
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FREMONT MUTUAL FUNDS
series, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to that series as may be declared at the
discretion of the Board of Directors. Shares of a series when issued are fully
paid and are non-assessable. The Board of Directors may, at its discretion,
establish and issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Fund under applicable Securities and Exchange Commission regulations.
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FREMONT MUTUAL FUNDS
TELEPHONE NUMBERS AND ADDRESSES
To make an initial purchase:
1. By mail:
Fremont Mutual Funds, Inc.
c/o National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
Street address:
1004 Baltimore Avenue
Kansas City, MO 64105
2. By wire:
Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account
number and detailed instructions.
To make a subsequent purchase:
Include shareholder name and account number. Use the same instructions for
initial purchase.
To redeem shares:
1. By mail: same instructions as above for purchase by mail. Redemptions greater
than $25,000 or payments to a party or address other than registered on the
account require a signature guarantee. See "Signature Guarantees."
2. By telephone: 800-548-4539
Requires prior selection of telephone redemption option.
For further copies of this Prospectus, the Statement of Additional Information,
and details of automatic investment, retirement and automatic withdrawal plans,
please contact:
Fremont Mutual Funds, Inc.
50 Beale Street, Suite 100
San Francisco, CA 94105
800-548-4539
Fremont Mutual Funds, Inc.
Fremont Money Market Fund
Fremont Bond Fund
Fremont California Intermediate Tax-Free Fund
Fremont Global Fund
Fremont Growth Fund
Fremont International Growth Fund
Fremont U.S. Small Cap Fund
Fremont International Small Cap Fund
Fremont Emerging Markets Fund
Fremont U.S. Micro-Cap Fund
Fremont Real Estate Securities Fund
Fremont Select Fund
Fremont Institutional U.S. Micro-Cap Fund
For more information on the Fremont Mutual Funds, please call 800-548-4539 or
write to:
Fremont Mutual Funds
50 Beale Street, Suite 100
San Francisco, CA 94105
Advisor/Transfer Agent
Fremont Investment Advisors, Inc.
333 Market Street, Suite 2600
San Francisco, CA 94105
Sub-Transfer Agent
Mailing Address:
National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
800-548-4539 (press 2)
Street Address:
National Financial Data Services
1004 Baltimore Avenue
Kansas City, MO 64105
Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, MO 64105
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 AND/OR SUB-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.
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Fremont
Funds [LOGO]
For general information: 800-548-4539 (press 1), or 816-435-1777 (outside U.S.)
Please visit our website at: www.fremontfunds.com
50 Beale Street, Suite 100, San Francisco, CA 94105 o 888-502-3253
3000 Post Oak Blvd., Suite 100, Houston, TX 77056 o 800-735-2705
9801 Washingtonian Blvd., Suite 105, Gaithersburg, MD 20878 o 888-373-6684
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
Copyright 1998 Fremont Mutual Funds, Inc. All rights reserved.
P020-9807
