FREMONT
MUTUAL
FUNDS, INC.
o U.S. Micro-Cap Fund
March 1, 1998
Fremont
Funds [LOGO]
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TABLE OF CONTENTS
Item Page
Summary of Fees and Expenses.............................2
Financial Highlights.....................................3
The Advisor, The Sub-Advisor and the Fund................4
Investment Objective, Policies
and Risk Considerations.................................6
General Investment Policies..............................7
Investment Results......................................15
How to Invest...........................................16
Shareholder Account Services and Privileges.............17
How to Redeem Shares....................................19
Retirement Plans........................................22
Dividends, Distributions and Federal Income Taxation....22
Calculation of Net Asset Value
and Public Offering Price..............................24
Execution of Portfolio Transactions.....................25
General Information.....................................26
Telephone Numbers and Addresses.........................28
<PAGE>
PROSPECTUS
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this
Prospectus is offering shares in the FREMONT U.S. MICRO-CAP FUND (the "Fund").
FREMONT U.S. MICRO-CAP FUND seeks to achieve long-term capital appreciation by
investing primarily in equity securities of micro-cap companies domiciled within
the United States.
There can be no assurance that 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.
The date of this Prospectus is March 1, 1998.
FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION, CALL 800-548-4539.
1
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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 Fees 1 None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fee 2 1.88%
12b-1 Expenses None
Other Expenses None
Total Fund Operating Expenses 1.88%
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
------ ------- ------- --------
$19 $59 $102 $221
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR
ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.
The purpose of the above tables is to give you information and assistance in
understanding the various costs and expenses of the Fund that an investor may
bear directly or indirectly. The percentages expressing annual fund operating
expenses of the Fund are based on actual expenses incurred during the most
recent fiscal year.
See "The Advisor, the 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 Fund is obligated, under the terms of the management agreement, to pay
the Advisor an annual management fee of 2.5% of average net assets with
respect to the first $30 million, 2.0% with respect to the next $70 million
and 1.5% thereafter. However, the Advisor is obligated to pay all of the
Fund's other ordinary operating expenses. Absent waivers of management fees,
the management fee and total operating expenses would have been 1.90% for the
fiscal year ended October 31, 1997.
2
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FREMONT MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand, L.L.P.,
independent accountants, whose unqualified opinion 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
----------------------------------------- 6/30/94 to
1997 1996 1995 10/31/97
--------- --------- --------- ---------
Selected Per Share Data
for one share outstanding during the period
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.63 $ 14.34 $ 10.34 $ 10.00
--------- --------- --------- ---------
Income from Investment Operations
Net investment income (loss) (.10) (.04) (.05) .02
Net realized and unrealized gain 5.60 5.83 4.05 .34
--------- --------- --------- ---------
Total investment operations 5.50 5.79 4.00 .36
--------- --------- --------- ---------
Less Distributions
From net investment income -- -- -- (.02)
From net realized gains (2.44) (.50) -- --
--------- --------- --------- ---------
Total distributions (2.44) (.50) -- (.02)
--------- --------- --------- ---------
Net asset value, end of period $ 22.69 $ 19.63 $ 14.34 $ 10.34
========= ========= ========= =========
Total Return 28.80% 1 41.46% 1 38.68% 1 3.60%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 171,507 $ 102,481 $ 7,792 $ 2,052
Ratio of net expenses to average net assets 2 1.88% 1.96% 2.04% 2.50%*
Ratio of gross expenses to average net assets 2 1.90% 2.22% 2.50% 2.50%*
Ratio of net investment income (loss) to average net assets -.67% -.51% -.67% .68%*
Portfolio turnover rate 125% 81% 144% 44%
Average commission rate paid $ .0505 $ .0541 -- --
</TABLE>
1 Total return would have been lower had the advisor not waived expenses.
2 The Advisor is voluntarily limiting the advisory fee to a reduced rate of no
greater than 1.98% of average net assets.
* Annualized
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FREMONT MUTUAL FUNDS
THE ADVISOR, THE SUB-ADVISOR AND THE FUND
Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment
company which under this Prospectus is offering shares in the Fremont U.S.
Micro-Cap Fund. The Investment Company has other series offered with a different
prospectus, 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,
including the services provided by the Sub-Advisor.
The professional staff of the Advisor has offered professional investment
management services regarding asset allocation in connection with securities
portfolios to the Bechtel 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.
For additional information about the Advisor and the Sub-Advisor, see
"Investment Advisory and Other Services" in the Statement of Additional
Information.
Under the terms of the Advisory Agreement, the Fund pays the Advisor a fee,
computed daily and paid monthly, of 2.50% per annum of the Fund's average net
assets with respect to the first $30 million, 2.00% with respect to the next $70
million of such assets, and 1.50% of such assets in excess of $100 million.
Under this Agreement the Advisor has agreed to bear all of the Fund's expenses,
except extraordinary expenses (as designated by a majority of the Investment
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FREMONT MUTUAL FUNDS
Company's disinterested directors) and interest, brokerage commissions and other
transaction charges relating to the investing activities of the Fund.
Kern Capital Management LLC ("KCM"), 114 West 47th Street, Suite 1926, New York,
New York 10036, serves as Sub-Advisor for the Fund pursuant to a Portfolio
Management Agreement. The controlling economic and voting members of the
Sub-Advisor are Robert E. Kern, and the Advisor; consequently, the Advisor is an
affiliate of the Sub-Advisor. The portfolio management team for the Fund is
headed by portfolio manager Robert E. Kern. The senior investment managers are
Robert E. Kern, Judy R. Finger and David G. Kern.
o Bob Kern, Managing Member, President and Chief Executive Officer of KCM, has
over 30 years of investment management experience, was a Senior Vice
President of the Advisor from April 1997 to August 1997 and was employed by
Morgan Grenfell Asset Management, Inc. from 1986 through April 1997, where he
headed Morgan Grenfell's Smaller Capitalization Equities Team.
o David Kern, Managing Member and Executive Vice President of KCM, was Vice
President of the Advisor from May 1997 until September 1997. From January
1995 until April 1997, David was employed as portfolio manager, and from
February 1997 until April 1997 was employed as Vice President of Founders
Asset Management, Inc., a registered investment advisor located in Denver,
Colorado. David also served as Vice President and Assistant Portfolio Manager
for the Delaware Management Company of Philadelphia, Pennsylvania from
February 1990 until December 1994.
o Judy Finger, Member and Senior Vice President of KCM, was employed from June
1995 to August 1997 as Vice President and Assistant Portfolio Manager for the
Delaware Management Company of Philadelphia, Pennsylvania, and from June 1992
to June 1995 as a Senior Analyst at Fred Alger Management located in New
York.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the U.S. Micro-Cap Fund), the Advisor and KCM provides
that KCM will manage the investment and reinvestment of the assets of the Fund
and continually review, supervise, and administer the Fund's investments. KCM
pays all expenses of its staff and their activities in connection with its
portfolio management activities. As compensation for its services, the Advisor
(not the Fund) pays KCM a fee equal to 1.50% per annum of the first $30 million
of the Fund's average net assets, 1.00% of the next $70 million of such assets
and .75% of such assets in excess of $100 million. The Portfolio Management
Agreement with KCM may be terminated by the Advisor or the Investment Company
upon 30 days' written notice. The Advisor has day-to-day authority to increase
or decrease the amount of the Fund's assets under management by KCM.
Investment Company Administration Corporation (the "Sub-Administrator"),
pursuant to an administrative agreement with the Advisor, supervises the
administration of the Investment Company and the
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FREMONT MUTUAL FUNDS
Fund including, among other responsibilities, the preparation and filing of
documents required for compliance by the Fund with applicable laws and
regulations. Certain officers of the Investment Company may be provided by the
Sub-Administrator.
For additional information see "Investment Advisory and Other Services" in the
Statement of Additional Information
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The investment objective and policies of the Fund is 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. Accordingly, there is no assurance that the Fund will
achieve its investment objective.
The Fund seeks to achieve long-term capital appreciation by investing primarily
in a diversified portfolio of common stocks and securities convertible into
common stock. Under normal market conditions, at least 65% of the total assets
of the Fund will be invested in equity securities of U.S. micro-cap companies
(described below). These securities will typically trade on a U.S. exchange or
in the over-the-counter (OTC) market. However, up to 25% of the Fund's total
assets, at the time of purchase, may be invested in securities of micro-cap
companies domiciled outside the United States, including sponsored and
unsponsored American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs.
EDRs are similar to ADRs but are designed for use in the European securities
market. The Fund may also invest in stock index futures contracts, options on
index futures and options on portfolio securities and stock indices.
The Fund generally selects its portfolio securities among micro-cap companies,
which the Fund defines as companies whose individual market capitalizations
would place them in the smallest 10% of market capitalization of companies in
the United States as measured by the Wilshire 5000 Index. Currently, these
companies have a market capitalization of about $870 million or less. Under
normal market conditions, the weighted average capitalization of the portfolio
will be less than the market capitalization of the largest company in the bottom
5% of the market value of all U.S. equities as measured by the Wilshire 5000
Index (currently about $400 million).
Many micro-cap companies in which the Fund is likely to invest may be more
vulnerable than larger companies to adverse business or market developments, may
have limited product lines, markets or financial resources and may lack
management depth. In addition, many micro-cap companies are not well-known to
the investing public, do not have significant institutional ownership and are
followed by relatively few securities analysts, with the result that there may
tend to be less publicly available information concerning such companies
compared to what is available for larger capitalization securities. Finally, the
securities of micro-cap companies traded in the
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FREMONT MUTUAL FUNDS
OTC market may have fewer market makers, wider spreads between their quoted bid
and asked prices and lower trading volumes, resulting in comparatively greater
price volatility and less liquidity than the securities of companies that have
larger market capitalizations and/or that are traded on the New York or American
Stock Exchanges or the market averages in general. Thus, an investment in the
Fund may involve considerably more risk than an investment in an investment
company investing in the more liquid equity securities of companies traded on
the New York or American Stock Exchanges.
The Advisor and Sub-Advisor believe that an investment in shares of the Fund
provides an opportunity for greater rewards but may involve more risk than an
investment in a fund which seeks capital appreciation from investment in common
stocks of larger, better-known companies. This is due to, among other things,
the likelihood of greater opportunities for superior returns from companies with
small stock market capitalizations which are not as well-known to the general
public. These shares may have less investor following, and, therefore, may
provide opportunities for investment gains due to the inefficiencies in this
sector of the marketplace.
The Fund seeks to invest in those companies which are in the early stages of an
emerging growth cycle, where the Advisor and Sub-Advisor believe earnings will
grow faster than both inflation and the economy in general and where it believes
such growth has not yet been fully reflected in the market price of these
stocks. In seeking investments, the Advisor and Sub-Advisor will typically give
weight to companies possessing a variety of characteristics including quality of
management, companies which have gone public in recent years, an entrepreneurial
management team, a narrow product line focus, or established companies where the
growth potential has been significantly enhanced by new product developments,
new market opportunities, mergers or divestitures, or new management. The
investable universe provides what the Advisor and Sub-Advisor believe is a broad
range of stock selection opportunities.
Although the Fund invests primarily in common stocks and securities convertible
into common stock, for liquidity purposes it will normally invest a portion of
its assets in high quality debt securities and money market instruments with
remaining maturities of one year or less, including repurchase agreements.
Whenever in the judgment of the Advisor or Sub-Advisor market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in these instruments. During times that the Fund is investing
defensively, the Fund will not be pursuing its stated investment objective. The
Fund may also hold other types of securities from time to time, including
non-convertible bonds and preferred stocks, in an amount not exceeding 5% of its
net assets. Preferred stocks and bonds will be rated at the time of purchase in
the top two categories of Moody's Investor Service, Inc. (Aaa or Aa) or Standard
& Poor's Ratings Group, (AAA or AA) or be of comparable quality as determined by
the Advisor or Sub-Advisor.
GENERAL INVESTMENT POLICIES
Money Market Instruments. The Fund may invest in any of the following "money
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FREMONT MUTUAL FUNDS
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations and governments; U.S. Government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Fund's quality guidelines. The Fund also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
At the time of purchase, short-term securities must be rated in the top rating
category by at least two nationally recognized statistical rating organizations
("NRSROs") or by a single NRSRO in the case of a security rated by only one
NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined
by the Advisor or the Sub-Advisor. Generally, high quality short-term securities
must be issued by an entity with an outstanding debt issue rated A or better by
an NRSRO, or an entity of comparable quality as determined by the Advisor or the
Sub-Advisor. Obligations of foreign banks, foreign corporations and foreign
branches of domestic banks must be payable in U.S. dollars. See Appendix A to
the Statement of Additional information for a description of rating categories.
U.S. Government Securities. The Fund may invest in U.S. Government securities,
which are obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Some U.S. Government securities, such as Treasury bills,
notes and bonds and Government National Mortgage Association ("GNMA")
certificates, are supported by the full faith and credit of the United States;
others, such as those of the Federal Home Loan Mortgage Corporation ("FHLMC"),
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Federal National Mortgage Association ("FNMA"), are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government will provide financial
support to U.S. Government agencies or instrumentalities as described above in
the future, other than as set forth above, because it is not obligated to do so
by law.
When-Issued Securities and Firm Commitment Agreements. 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.
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FREMONT MUTUAL FUNDS
There is always a risk that the securities may not be delivered and that the
Fund may incur a loss or will have lost the opportunity to invest the amount set
aside for such transaction in the segregated asset account. Settlements in the
ordinary course of business, which may take substantially more than three
business days for non-U.S. securities, are not treated by the Fund as
when-issued or forward commitment transactions and, accordingly, are not subject
to the foregoing limitations, even though some of the risks described above may
be present in such transactions.
Shares of Investment Companies. The Fund may invest some portion of its assets
in shares of other no-load, open-end investment companies and closed-end
investment companies to the extent that such investment may facilitate achieving
the objective of the Fund or to the extent that they afford the primary or most
practical means of access to a particular market or markets or they represent
attractive investments in their own right. The percentage of Fund assets which
may be so invested is not limited, provided that the Fund and its affiliates do
not acquire more than 3% of the shares of any such investment company. The
provisions of the 1940 Act may also impose certain restrictions on redemption of
the Fund's shares in other investment companies. The Fund's purchase of shares
of investment companies may result in the payment by a shareholder of
duplicative management fees. The Advisor and/or Sub-Advisor will consider such
fees in determining whether to invest in other mutual funds. The Fund will
invest only in investment companies which do not charge a sales load; however,
the Fund may invest in such companies with distribution plans and fees, and may
pay customary brokerage commissions to buy and sell shares of closed-end
investment companies.
The return on the Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Fund's investment in a closed-end investment company may
require the payment of a premium above the net asset value of the investment
company's shares, and the market price of the investment company thereafter may
decline without any change in the value of the investment company's assets. The
Fund, however, will not invest in any investment company or trust unless it is
believed that the potential benefits of such investment are sufficient to
warrant the payment of any such premium.
As an exception to the above, the Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions and
policies as that of the Fund. The Fund will notify its shareholders prior to
initiating such an arrangement.
Repurchase Agreements. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a short period of time, often less than a week. The seller
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FREMONT MUTUAL FUNDS
must maintain with the Fund's custodian collateral equal to at least 100% of the
repurchase price, including accrued interest, as monitored daily by the Advisor
and/or Sub-Advisor. The Fund will not enter into a repurchase agreement with a
maturity of more than seven business days if, as a result, more than 15% of the
value of its net assets, would then be invested in such repurchase agreements.
The Fund will only enter into repurchase agreements where (1) the underlying
securities are issued or guaranteed by the U.S. Government, (2) the market value
of the underlying security, including accrued interest, will be at all times
equal to or in excess of the value of the repurchase agreement, and (3) payment
for the underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (1) a possible decline in the value of the
underlying security during the period in which the Fund seeks to enforce its
rights thereto; (2) possible reduced levels of income and lack of access to
income during this period; and (3) expenses of enforcing the Fund's rights.
Portfolio Turnover. The Fund expects to trade in securities for short-term gain
whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take
advantage of anomalies occurring in general market, economic or political
conditions.
Therefore, the Fund may have a higher portfolio turnover rate than that of some
other investment companies, but it is anticipated that the annual portfolio
turnover rate of the Fund will not exceed 200%. The portfolio turnover rate is
calculated by dividing the lesser of sales or purchases of long-term portfolio
securities by the Fund's average month-end long-term investments. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions and other costs that the Fund will bear
directly, and may result in the realization of net capital gains, which are
generally taxable whether or not distributed to shareholders.
Loans of Portfolio Securities. The Fund is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors in an
amount not exceeding 33 1/3% of its net assets. The borrower must maintain with
the Fund's custodian collateral consisting of cash, cash equivalents or U.S.
Government securities equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. The Fund will receive any interest or
dividends paid on the loaned securities and a fee or a portion of the interest
earned on the collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of, among other things, possible
delay in receiving additional collateral or in the recovery of the securities,
or possible loss of rights in the collateral should the borrower fail
financially. The lender also may bear the risk of capital loss on investment of
the cash collateral, which must be returned in full to the borrower when the
loan is terminated. Loans will be made only to firms deemed by the Advisor to be
of good standing and will not be made unless, in the judgment of the Advisor,
the consideration to be earned from such loans would
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FREMONT MUTUAL FUNDS
justify the associated risk.
Borrowing. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and 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
("restricted securities") under federal securities laws, but can be offered and
sold to "qualified institutional buyers." However, the Fund will not invest more
than 15% of its assets in illiquid investments, which includes repurchase
agreements and fixed time deposits maturing in more than seven days, and
securities that are not readily marketable and restricted securities, unless the
Board of Directors determines, based upon a continuing review of the trading
markets for the specific restricted security, that such restricted securities
are liquid. The Board of Directors may adopt guidelines and delegate to the
Advisor or Sub-Advisor the daily function of determining and monitoring
liquidity of restricted securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
Warrants or Rights. Warrants or rights may be acquired by the Fund in connection
with other securities or separately and provide the Fund with the right to
purchase other securities of the issuer at a later date. It is the present
intention of the Fund to limit its investments in warrants or rights, valued at
the lower of cost or market, to no more than 5% of the value of its net assets.
Warrants or rights acquired by the Fund in units or attached to securities will
be deemed to be without value for purposes of this restriction.
Options and Futures Contracts. When the Fund is not fully invested, strategies
such as buying calls, writing puts, and buying futures may be used to increase
its exposure to price changes in stocks or debt securities. When the Advisor
and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such
as buying puts, writing calls, and selling futures may be used to reduce market
exposure. Because most stock index futures and options are based on broad stock
market indices, their performance tends to track the performance of common
stocks generally -- which may or may not correspond to the types of securities
in which the Fund invests. The Fund will maintain segregated accounts consisting
of cash, U.S. Government securities or other liquid securities (or, as permitted
by applicable regulations, enter into certain offsetting positions) to cover its
obligations under options and futures contracts to avoid leveraging.
In seeking appreciation or to reduce principal volatility, the Fund may also (1)
enter into futures contracts -- contracts for the future delivery of debt
securities, stock, stock index futures contracts with respect to the S&P 500
Index, small capitalization stock market indices or other similar broad-based
stock market indices, the initial margins of which are limited to 5% of
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FREMONT MUTUAL FUNDS
the Fund's assets; and (2) purchase put and call options on portfolio
securities, stock indices or stock index futures contracts -- the premiums of
which are limited to 5% of the Fund's assets.
The Fund may write put and call options. It will only do so, however, by writing
covered put or call options, and the aggregate value of the securities
underlying put options, as of the date of sale of the options, will not exceed
50% of the net assets of the Fund.
The Fund will set aside cash, cash equivalents, or liquid securities, or hold a
covered position against any potential delivery or payment obligations under any
outstanding option or futures contracts.
Options and futures can be volatile investments. If the Advisor and/or
Sub-Advisor applies a hedge at an inappropriate time or evaluates market
conditions incorrectly, options and futures strategies may lower 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.
Risk Factors and Special Considerations for International Investing. Investment
in securities of foreign entities and securities denominated in foreign
currencies involves risks typically not present to the same degree in domestic
investments. Likewise, investment in ADRs and EDRs presents similar risks, even
though the Fund will purchase, sell and be paid dividends on ADRs in U.S.
dollars. These risks include, among other things, fluctuations in currency
exchange rates, which are affected by international balances of payments and
other economic and financial conditions; government intervention; and
speculation. With respect to certain foreign countries, there is the possibility
of expropriation or nationalization of assets, confiscatory taxation and
political, social or economic instability. The Fund may be required to pay
foreign withholding or other taxes on certain of its foreign investments, but
investors may or may not be able to deduct their pro rata shares of such taxes
in computing their taxable income, or take such shares
12
<PAGE>
FREMONT MUTUAL FUNDS
as a credit against their U.S. income taxes. See "Dividends, Distributions and
Federal Income Taxation."
There may be less publicly available information about foreign issuers or
securities than about U.S. issuers or securities, and foreign issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. entities. With respect to unsponsored
ADRs, these programs cover securities of companies which are not required to
meet either the reporting or accounting standards of the United States. Many
foreign financial markets, while generally growing in volume, continue to have
substantially less volume than domestic markets, and securities of many foreign
companies are less liquid and their prices are more volatile than are securities
of comparable U.S. companies. Certain foreign markets may have longer settlement
periods than markets in the United States. In addition, brokerage commissions,
custodial services and other costs related to investment in foreign markets
generally are more expensive than in the United States, particularly with
respect to emerging markets. Such markets have different settlement and
clearance procedures. In certain markets, there have been times when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to conduct such transactions. The inability of the Fund to make
intended securities purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to the Fund
due to subsequent declines in value of a portfolio security or, if the Fund had
entered into a contract to sell the security, in possible liability to the
purchaser. Settlement procedures in certain emerging markets also carry with
them a heightened risk of loss due to the failure of the broker or other service
provider to deliver cash or securities.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility, have less
liquidity and have settlement arrangements which are less efficient than in
developed markets. Furthermore, the economies of emerging market countries
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be adversely affected by trade barriers, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These emerging
market economies also have been and may continue to be adversely affected by
economic conditions in the countries with which they trade.
The value of the Fund's portfolio securities computed in U.S. dollars will vary
with increases and decreases in the exchange rate between the currencies in
which the Fund has invested and the U.S. dollar. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of the Fund's holdings of securities denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value and
net investment income and capital gains, if any, to be distributed in U.S.
dollars to shareholders by the Fund.
The rate of exchange between the U.S. dol-
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FREMONT MUTUAL FUNDS
lar and other currencies is influenced by many factors, including the supply and
demand for particular currencies, central bank efforts to support particular
currencies, the movement of interest rates, the price of oil, the pace of
activity in the industrial countries, including the United States, and other
economic and financial conditions affecting the world economy.
The Fund will not invest in a foreign currency or in securities denominated in a
foreign currency if such currency is not at the time of investment considered by
the Advisor or Sub-Advisor to be fully exchangeable into U.S. dollars without
legal restriction. The Fund may purchase securities that are issued by the
government or a corporation or financial institution of one nation but
denominated in the currency of another nation. To the extent that the Fund
invests in ADRs, the depository bank generally pays cash dividends in U.S.
dollars regardless of the currency in which such dividends originally are paid
by the issuer of the underlying security.
The operating expense ratio of the Fund when investing in foreign securities may
be higher than that of an investment company investing exclusively in U.S.
securities because certain expenses, such as custodial costs, may be higher.
Several of the countries in which the Fund may invest restrict, to varying
degrees, foreign investments in their securities markets. Governmental and
private restrictions take a variety of forms, including (i) limitation on the
amount of funds that may be invested into or repatriated from the country
(including limitations on repatriation of investment income and capital gains),
(ii) prohibitions or substantial restrictions on foreign investment in certain
industries or market sectors, such as defense, energy and transportation, (iii)
restrictions (whether contained in the charter of an individual company or
mandated by the government) on the percentage of securities of a single issuer
which may be owned by a foreign investor, (iv) limitations on the types of
securities which a foreign investor may purchase and (v) restrictions on a
foreign investor's right to invest in companies whose securities are not
publicly traded.
In some circumstances, these restrictions may limit or preclude investment in
certain countries. Therefore, the Fund 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."
American Depository Receipts. 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
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FREMONT MUTUAL FUNDS
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, among other things, fluctuations in currency exchange rates,
which are affected by international balances of payments and other economic and
financial conditions; government intervention; speculation; and other factors.
With respect to certain foreign countries, there is the possibility of
expropriation or nationalization of assets, confiscatory taxation and political,
social and economic instability. The Fund may be required to pay foreign
withholding or other taxes on certain of its ADRs, but investors may or may not
be able to deduct their pro rata shares of such taxes in computing their taxable
income, or take such shares as a credit against their U.S. federal income tax.
See "Dividends, Distributions and Federal Income Taxation." Unsponsored ADRs are
offered by companies which are not prepared to meet either the reporting or
accounting standards of the United States. While readily exchangeable with stock
in local markets, unsponsored ADRs may be less liquid than sponsored ADRs.
Additionally, there generally is less publicly available information with
respect to unsponsored ADRs.
Investment Restrictions. The Fund has certain fundamental policies that are
described in the Statement of Additional Information under "Investment
Restrictions." These investment restrictions include prohibitions against
borrowing money (except as described above) and against concentrating the Fund's
investments in issuers conducting their principal business activities in a
single industry (except that this limitation does not apply with respect to U.S.
Government securities). These investment restrictions and the Fund's investment
objective cannot be changed without the approval of shareholders of the Fund;
all other investment practices described in this Prospectus and in the Statement
of Additional Information, however, can be changed by the Board of Directors
without shareholder approval.
INVESTMENT RESULTS
The Fund may from time to time include information on its investment results
and/or comparisons of its investment results to various unmanaged indices or
results of other mutual funds or groups of mutual funds in advertisements, sales
literature or reports furnished to present or prospective shareholders.
All such figures are based on historical performance data and are not intended
to be indicative of future performance. The investment return and principal
value of an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The Fund may calculate performance on an average annual total return basis for
1-, 5-, and 10-year periods and over the life of the Fund, after such periods
have elapsed. Average annual total return will be computed by determining the
average annual compounded rate of return over the applicable period that would
equate the initial amount invested to the ending redeemable value of the
investment. Ending redeemable value includes dividends and capital gain
distributions, reinvested at net asset value at the reinvest-
15
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FREMONT MUTUAL FUNDS
ment date determined by the Board of Directors. The resulting percentages
indicate the positive or negative investment results that an investor would have
experienced, including reinvested dividends and capital gain distributions and
changes in share price during the period. The average annual compounded rate of
return over various periods may also be computed by utilizing ending redeemable
values as determined above.
The Fund's investment results will vary from time to time depending upon, among
other things, 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 those published for other investment companies,
other investment vehicles and unmanaged indices.
The comparison of the Fund to an alternative investment should be made with
consideration of differences in features and expected performance. The Fund may
also be mentioned in newspapers, magazines, or other media from time to time.
The Fund assumes no responsibility for the accuracy of such data. The Fund's
results also should be considered relative to the risks associated with its
investment objective and policies. See "Investment Results" in the Statement of
Additional Information.
Additional performance information regarding the Fund will be included in its
annual report, which will be mailed to shareholders without charge upon request.
HOW TO INVEST
Shares of the Fund may be purchased through the Transfer Agent by submitting
payment by check, bank wire or electronic (Automated Clearing House or "ACH")
transfer and, in the case of new accounts, a completed account application form.
There is no sales load or contingent deferred sales load charged to purchase
shares of the Fund. All orders for the purchase of shares are subject to
acceptance or rejection by the Board of Directors or the Advisor. Purchases of
shares are made at the current net asset value next determined after the
purchase order is received by the Transfer Agent or by a selling agent of the
Fund. A minimum initial investment of $2,000 is required to open a shareholder
account, except for retirement plans such as Individual Retirement Accounts
(IRAs) and Keogh Plans. Retirement plans are subject to a $1,000 minimum initial
investment. The minimum initial investment is waived for accounts opened with
the Automatic Investment Plan and may be waived in other instances at the sole
discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent
investment in the Fund must be $100 or more except in the case of retirement
plans or Automatic Investment Plans. There is a minimum continuing balance of
$1,500 required for non-retirement
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<PAGE>
FREMONT MUTUAL FUNDS
accounts (calculated on the basis of original investment value). 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. Bank wire instructions are also provided in the last section of
this Prospectus. All bank wire investments received before the close of trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be
credited the same day. Otherwise, Fund shares will be credited the next business
day. A bank wire investment is considered received when the Transfer Agent is
notified that the bank wire has been credited to its account.
Shares of the Fund may also be purchased through broker-dealers or other
financial intermediaries who have made appropriate arrangements with the Fund.
Such agents are responsible for ensuring that the account documentation is
complete and that timely payment is made for the Fund shares purchased for their
customers pursuant to such orders. These agents may charge a reasonable
transaction fee to their customers. In some instances, all or a portion of the
transaction fee, 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 cancelled due
to nonpayment (for example, a check returned for "insufficient funds"), the
person who placed the order will be subject to a $20 charge and 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 Funds Distributor, Inc., 4455 Camelback Road, Suite 261E, Phoenix,
Arizona, 85018, is the principal underwriter for the Fund.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
Statements and Reports. When a shareholder makes an initial investment in the
Fund, a shareholder account is opened in accordance with registration
instructions. Each time there is a transaction, such as an additional
investment, a dividend or other distribution, or a redemption, the shareholder
will receive from the Transfer Agent a confirmation statement showing the
current transaction in the account and the transaction date. Shareholders of the
Fund will receive statements as of the end of March, June, September and
December.
Shares are issued only in book-entry form (without certificates).
The fiscal year of the Fund ends on October 31 of each year. The Investment
Company issues to its shareholders semi-
17
<PAGE>
FREMONT MUTUAL FUNDS
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 are offered for sale in your state of residence at the time
of the exchange. It is required that (1) all shares in one Fund must be
exchanged or (2) the remaining balance must be at least $1,500. This minimum
balance requirement may be waived 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 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 of shares should be made for investment
purposes only. A pattern of frequent exchanges, purchases and sales can be
limited, at the discretion of the Board of Directors, by the Investment
Company's refusal to accept further purchase and exchange orders from the
shareholder.
The Investment Company reserves the right to modify or eliminate the exchange
privilege upon 60 days' written notice to shareholders.
Telephone Exchange Privilege. An investor may elect on the account application
to authorize exchanges by telephone. A shareholder may give instructions
regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate
the telephone exchange privilege should contact the Fund. This privilege will
not be added to an account without written instruction to do so from the
shareholder. Telephone requests received by the close of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), will be processed the same
day. During times of drastic economic or market conditions, the telephone
exchange privilege may be difficult to implement. The Transfer Agent will make
its best effort to accommodate shareholders when its telephone lines are used to
capacity. Under these circumstances, a shareholder should consider using
overnight mail to send a written exchange request.
See "Telephone Redemption Privilege" in the next section of this Prospectus.
Autobuy Privilege. The Autobuy privilege allows shareholders to purchase
subsequent shares by moving money directly from 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
18
<PAGE>
FREMONT MUTUAL FUNDS
investment will automatically be processed through the Automatic Clearing House
(ACH) system. There is no fee for this option. If the privilege was not
established at the time the account was opened, the shareholder must complete
the appropriate form. The form is available on request.
Automatic Investment Plan. A shareholder may authorize a withdrawal to be made
automatically once or twice each month from a credit balance in the
share-holder'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 $200 minimum for subsequent investments. There
is no obligation to make additional payments, and the plan may be terminated by
the shareholder at any time. Termination requests must be received in writing at
least 5 days prior to the regular draft date, or the drafts will not cease until
the next cycle. The Transfer Agent may impose a charge for this service,
although no such charge currently is contemplated. If a shareholder's order to
purchase shares is cancelled due to nonpayment (for example, "insufficient
funds"), the shareholder's account will be subject to a $20 charge and the
shareholder will be responsible for reimbursing the Fund for any loss incurred
by reason of such cancellation. A shareholder wishing to initiate the plan on a
new or existing account must fill out an Automatic Investment Plan form. The
form is available on request.
HOW TO REDEEM SHARES
Shares are redeemed at no charge (other than wire transfer fees, if any) at the
net asset value next determined after receipt by the Transfer Agent of proper
written redemption instructions. The current charge for a wire transfer is $8
per wire. This is subject to change by the Transfer Agent at any time, without
prior notification. See "Calculation of Net Asset Value and Public Offering
Price."
Redemption orders received in proper form by the Transfer Agent, or other Fund
agent authorized to accept orders, before the close of trading of the New York
Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net
asset value determined on that day (with certain limited exceptions discussed in
the Statement of Additional Information). Otherwise, Fund shares will be entered
at the next calculated net asset value.
Redemption proceeds can be sent by check, electronic transfer, or bank wire. An
electronic transfer can be processed only to bank checking and savings accounts.
Before requesting an electronic transfer, shareholders should confirm that their
financial institution can receive an electronic transfer. Currently, there is no
charge to shareholders for processing an electronic transfer.
Shareholders may have redemption proceeds sent by bank wire, electronic
transfer, or check to a designated bank account by providing in writing the
appropriate bank information to the Transfer Agent at the time of original
application. If the investor wishes to change the predesignated account, this
must be requested in writing with a signature guarantee (see
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<PAGE>
FREMONT MUTUAL FUNDS
"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, exchanges 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 Exchange (currently 4:00 p.m., Eastern Standard Time),
will be processed at the net asset value calculated that same day. During times
of drastic economic or market conditions, the telephone redemption privilege may
be difficult to implement. The Transfer Agent will make its best effort to
accommodate shareholders when its telephone lines are used to capacity. Under
these circumstances, a shareholder should consider using overnight mail to send
a written redemption request.
Neither the Investment Company, the Transfer Agent, nor their respective
affiliates, will be liable for complying with telephone instructions they
reasonably believe to be genuine or for any loss, damage, cost or expense in
acting on such telephone instructions. The affected shareholder(s) will bear the
risk of any such loss. The Investment Company, or the Transfer Agent, or both,
will employ reasonable procedures to determine that telephone instructions are
genuine. If the Investment Company and/or the Transfer Agent do not employ such
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 will be made on the
last business day of the month. Because a redemption constitutes a liquidation
of shares, the number of shares owned in the account will be reduced. Automatic
redemptions should not reduce the account below the minimum balance required
(currently $1,500). Shareholders may terminate the Automatic Withdrawal
20
<PAGE>
FREMONT MUTUAL FUNDS
Plan at any time, but not less than five days before a scheduled payment date.
When an exchange is made between Funds, shareholders must specify if they desire
the automatic withdrawal option to be transferred to a new account opened by the
exchange. As an account balance declines to the minimum permitted, the
shareholder must advise the Transfer Agent if the automatic withdrawal feature
is to be transferred to another account of the shareholder. Shareholders should
note that if there is an Automatic Withdrawal Plan established for an account
and the entire account is exchanged into another Fremont Fund, the automatic
withdrawal option must be renewed by written request to the Transfer Agent. A
shareholder wishing to initiate automatic redemptions must complete an Automatic
Withdrawal Plan form available from the Transfer Agent.
Signature Guarantee. To better protect the Fund and shareholders' accounts, a
signature guarantee is required for certain transactions. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in applicable
regulations. Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
Other Important Redemption Information. A request for redemption will not be
processed until all of the documentation described above has been received by
the Transfer Agent in proper form. A shareholder in doubt about what documents
are required should contact the Transfer Agent.
Payment in redemption of shares is normally made within three business days
after receipt by the Transfer Agent of a request in proper form, provided that
payment in redemption of shares purchased by check or draft will be effected
only after such check or draft has been collected. Although it is anticipated
that this process will be completed in less time, it may take up to 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 mandatorily the shares in a shareholder's
account (other than a retirement plan account) if the balance is reduced to less
than $1,500 in net asset value through redemptions or other action by the
shareholder. Notice will be given to the shareholder at least 30 days prior to
the date fixed for such redemption, during which time the shareholder may
increase its holdings to an aggregate amount of $1,500 or more (with a minimum
purchase of $100 or more.) This minimum balance may be waived at the sole
discre-
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<PAGE>
FREMONT MUTUAL FUNDS
tion 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 Funds and has engaged State
Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri,
64141, to serve as Transfer and Dividend Disbursing Agent and shareholder
service agent. State Street Bank and Trust Company has contracted with National
Financial Data Services to serve as shareholder servicing agent. A depository
account has been established at United Missouri Bank of Kansas City ("United
Missouri Bank") through which all payments for the funds will be processed.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with various tax-deferred
retirement plans. These include Individual Retirement Accounts (IRAs); SEP-IRAs;
SIMPLE IRAs; Roth IRAs; Qualified Retirement Plans for self-employed persons and
their employees; corporate pension and profit-sharing plans; and Section 403(b)
Plans, which are deferred compensation arrangements for employees of public
schools and certain charitable organizations. Forms for establishing IRAs,
SEP-IRAs, SIMPLE IRAs, Roth 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 has qualified, and intends to continue to qualify to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
(the "Code"). For any tax year in which the Fund so qualifies and meets certain
other distribution requirements, it will not incur a federal tax liability. Such
qualification under the Code requires a Fund to diversify its investments so
that, at the end of each fiscal quarter, (1) at least 50% of the market value of
the Fund's assets is represented by cash, U.S. government securities, securities
of other regulated investment companies, and other securities, limited, in
respect to any one issuer, to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (2) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. government securities or the securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar
22
<PAGE>
FREMONT MUTUAL FUNDS
trades or businesses.
The Fund intends to distribute all of its net investment income once each year
in October.
The Fund intends to distribute all of its net realized capital gains, if any, at
the end of the calendar year (on or about December 15). Dividend and capital
gains distributions, if any, may be reinvested in additional shares at net asset
value on the day of reinvestment, or may be received in cash. All dividends and
distributions are taxable to a shareholder (except tax-exempt shareholders who
have not borrowed to acquire their shares) whether or not they are reinvested in
shares of the Fund. Any long-term or mid-term capital gains 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. 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
o to receive the income dividends and short-term capital gains distributions in
cash and accept the long-term capital gains distributions in additional
shares; or
o to receive all distributions of income dividends and capital gains in cash.
Automatic reinvestments will be at net asset value on the day of reinvestment.
If no election is made by a shareholder, all dividends and capital gain
distributions will be automatically reinvested. These elections may be changed
by the shareholder at any time, but to be effective for a particular dividend or
capital gain distribution, the election must be received by the Transfer Agent
approximately 5 business days prior to the payment date to permit the change to
be entered into the shareholder account. The federal income tax status of
dividends and capital gains distributions is the same whether taken in cash or
reinvested in shares.
Dividends and capital gains generally are taxable to shareholders at the time
they are paid. However, dividends or capital gains declared in October, November
or December by the Fund and paid in January are taxable as if paid in December.
The Fund will provide to its shareholders federal tax information annually by
January 31, including information about dividends and distributions paid during
the year.
If a shareholder has not furnished a certified correct taxpayer identification
number (generally a Social Security number) and has not certified that
withholding does not apply, or if the Internal Revenue Service
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FREMONT MUTUAL FUNDS
has notified the Fund that the taxpayer identification number listed on the
account is incorrect according to their records or that the shareholder is
subject to backup withholding, federal law generally requires the Fund to
withhold 31% from any dividends and/or redemptions (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 paid to certain nonresident alien, non-U.S.
partnership and non-U.S. corporation shareholder accounts. Long-term capital
gains distributions may be subject to this withholding.
Dividends and interest from foreign issuers earned by the Fund may give rise to
withholding and other taxes imposed by 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 public offering price and
complete orders to purchase, exchange or redeem shares on a Monday through
Friday basis
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<PAGE>
FREMONT MUTUAL FUNDS
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 as determined 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 where 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 and public offering price of the Fund, to the extent that it
holds securities valued on foreign markets, may vary during periods when the New
York Stock Exchange is closed. As a result, the value of the Fund's portfolio
may be affected significantly by such trading on days when a shareholder has no
access to the Fund. For further information, see "How to Invest," "How to Redeem
Shares," and "Exchanges Between Funds" in this Prospectus, and "How to Invest"
and "Other Investment and Redemption Services" in the Statement of Additional
Information.
The net asset value and public offering price of the Fund will be determined as
of the close of the regular session of the New York Stock Exchange. The shares
of the Fund are offered at net asset value without a sales charge. Purchase,
redemption and exchange orders received in proper form by the Transfer Agent
before the close of trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time), will be priced at the net asset value next determined on that day
(with certain limited exceptions discussed in the Statement of Additional
Information). Otherwise, the 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 or Sub-Advisor, as applicable. The Advisor and Sub-Advisor strive to
obtain the best available prices in the Fund's portfolio transactions, taking
into account the costs and promptness of executions. Subject to this policy,
transactions may be directed to those broker-dealers who provide research,
statistical and other information to the Fund, the Advisor or the Sub-Advisor or
who provide assistance with respect to the distribution of Fund shares. There is
no agreement or commitment to place orders with any broker-dealer.
Debt securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. Government securities
issued by the United States and other countries and money market securities in
which the Fund may invest are generally traded in the OTC markets. In
underwritten offerings, securities usually
25
<PAGE>
FREMONT MUTUAL FUNDS
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, securities may be purchased directly from an issuer, in which case
no commissions or discounts are paid. Dealers may receive commissions on
futures, currency and options transactions. Commissions or discounts in foreign
securities exchanges or OTC markets typically are fixed and generally are higher
than those in U.S. securities exchanges or OTC markets. There is generally less
government supervision and regulation of foreign exchanges and brokers than in
the United States. Foreign security settlements may, in some instances, be
subject to delays and related administrative uncertainties.
Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor or the Sub-Advisor, or an affiliated
person of such person.
GENERAL INFORMATION
The Investment Company, organized as a Maryland corporation on July 13, 1988, is
a fully managed open-end investment company. Currently, the Investment Company
has authorized several series of capital stock with equal dividend and
liquidation rights within each series. Investment Company shares are entitled to
one vote per share (with proportional voting for fractional shares) and are
freely transferable. Shareholders have no preemptive or conversion rights.
Shares may be voted in the election of directors and on other matters submitted
to the vote of shareholders. As permitted by Maryland law, there normally will
be no annual meeting of shareholders in any year, except as required under the
1940 Act. The 1940 Act requires that a meeting be held within 60 days in the
event that less than a majority of the directors holding office has been elected
by shareholders. Directors shall continue to hold office until their successors
are elected and have qualified. Investment Company shares do not have cumulative
voting rights, which means that the holders of a majority of the shares voting
for the election of directors can elect all of the directors. Shareholders
holding 10% of the outstanding shares may call a meeting of shareholders for any
purpose, including that of removing any director. A director may be removed upon
a majority vote of the shareholders qualified to vote in the election. The 1940
Act requires the Investment Company to assist shareholders in calling such a
meeting.
On any matter submitted to a vote of shareholders, such matter shall be voted by
the Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval of the Advisory Agreement with the Advisor and the
Portfolio Management Agreement with the Sub-Advisor) except in matters where a
vote of all series in the aggregate is required by the 1940 Act or otherwise.
Pursuant to the Articles of Incorporation, the Investment Company may issue ten
billion shares. This amount may be increased or decreased from time to time in
the discretion of the Board of Directors. Each share of a series represents an
interest in that series only, has a par value of $0.0001 per share, represents
an equal
26
<PAGE>
FREMONT MUTUAL FUNDS
proportionate interest in that series with other shares of that series and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that series as may be declared at the discretion of the
Board of Directors. Shares of a series when issued are fully paid and are
non-assessable. The Board of Directors may, at its discretion, establish and
issue shares of additional series of the Investment Company.
Stephen D. Bechtel, Jr., and members of his family, including trusts for family
members, due to their shareholdings, may be considered controlling persons of
the Fund under applicable Securities and Exchange Commission regulations.
27
<PAGE>
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
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
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<PAGE>
Sub-Transfer Agent
Mailing Address:
National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
800-548-4539 (press 2)
Street Address:
National Financial Data Services
1004 Baltimore Avenue
Kansas City, MO 64105
Custodian
The Northern Trust Company
50 South Lasalle Street
Chicago, IL 60675
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
Auditors
Coopers & Lybrand, L.L.P.
333 Market Street
San Francisco, CA 94105
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Funds or the Advisor. This Prospectus does not constitute an
offer to sell or a solicitation of any offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
29
<PAGE>
Fremont
Funds [LOGO]
For general information: 800-548-4539 (press 1), or 816-435-1777 (outside U.S.)
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.
P021-9803
