FREMONT
MUTUAL
FUNDS, INC.
o International Small Cap Fund
March 1, 1998
Fremont
Funds [LOGO]
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TABLE OF CONTENTS
Item Page
Summary of Fees and Expenses.............................1
Financial Highlights.....................................2
The Advisor, The Sub-Advisor and the Fund................3
Investment Objective, Policies
and Risk Considerations.................................3
General Investment Policies..............................6
Investment Results......................................10
How to Invest...........................................10
Shareholder Account Services and Privileges.............11
How to Redeem Shares....................................11
Retirement Plans........................................12
Dividends, Distributions and Federal Income Taxation....13
Calculation of Net Asset Value
and Public Offering Price..............................14
Execution of Portfolio Transactions.....................15
General Information.....................................15
Telephone Numbers and Addresses.........................16
PROSPECTUS
FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this
Prospectus is offering shares in the FREMONT INTERNATIONAL SMALL CAP FUND (the
"Fund").
FREMONT INTERNATIONAL SMALL CAP FUND seeks to achieve long-term capital
appreciation by investing primarily in equity securities of small cap companies
domiciled outside the United States.
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.
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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) 2
Management Fee 1.50%
12b-1 Expenses None
Other Expenses after Reimbursement None
Total Fund Operating Expenses 1.50%
Example: You would pay the following total expens es 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
------ ------- ------- --------
$15 $47 $82 $179
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR
ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.
The purpose of the above table is to give you information and assistance in
understanding the various costs and expenses of the Fund that an investor may
bear directly or indirectly. Expenses include, but are not limited to, transfer
agent fees paid to Fremont Investment Advisors, Inc. The percentages expressing
annual fund operating expenses of the Fund are based on estimated expenses for
the current fiscal year.
See "The 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 1.5% of average net assets. However,
the Advisor is obligated to pay all of the Fund's other ordinary operating
expenses.
1
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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 10/31/94
Selected Per Share Data -------- -------- -------- --------
for one share outstanding during the period
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.15 $ 9.00 $ 9.86 $ 10.00
-------- -------- -------- --------
Income from Investment Operations
Net investment income (loss) .14 .14 .10 (.01)
Net realized and unrealized gain (loss) (1.58) 1.08 (.88) (.13)
-------- -------- -------- --------
Total investment operations (1.44) 1.22 (.78) (.14)
-------- -------- -------- --------
Less Distributions
From net investment income (.21) (.07) (.08) --
From net realized gains (.27) -- -- --
-------- -------- -------- --------
Total distributions (.48) (.07) (.08) --
-------- -------- -------- --------
Net asset value, end of period $ 8.23 $ 10.15 $ 9.00 $ 9.86
======== ======== ======== ========
Total Return -14.56% 13.69% 1 -7.96% 1 -1.40%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 8,534 $ 9,214 $ 4,245 $ 1,768
Ratio of net expenses to average net assets 2 1.50% 1.81% 2.06% 2.50%*
Ratio of gross expenses to average net assets 2 1.50% 2.50% 2.50% 2.50%*
Ratio of net investment income (loss) to average net assets 1.97% 1.61% 1.67% -0.28%*
Portfolio turnover rate 56% 74% 96% --
Average commission rate paid 3 $ .0005 $ .0003 -- --
</TABLE>
1 Total return would have been lower had the advisor not waived expenses.
2 Management fees were voluntarily waived from February 1, 1995 to October 31,
1996.
3 Disclosure not required for years prior to 1996.
* Annualized
2
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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
International Small 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 1.50% per annum of the Fund's average net
assets. Under this Agreement the Advisor has agreed to bear all of the Fund's
expenses, except extraordinary expenses (as designated by a majority of the
Investment Company's disinterested directors) and interest, brokerage
commissions and other transaction charges relating to the investing activities
of the Fund.
Acadian Asset Management, Inc. ("Acadian"), Two International Place, Boston,
Massachusetts, 02110, serves as Sub-Advisor to the Fund pursuant to a Portfolio
Management Agreement. Acadian is an international investment management firm and
currently manages approximately $3.9 billion in assets. Acadian is a
wholly-owned subsidiary of United Asset Management Corporation and provides
investment management services to corporations, pension and profit-sharing
plans, 401(k) and thrift plans, endowments, foundations and other institutions
and individuals. Dr. Gary L. Bergstrom, President of Acadian, oversees the
day-to-day investment decisions for the Fund and has done so since the Fund's
inception. Dr. Bergstrom founded Acadian's predecessor, Acadian Financial
Research, Inc., in 1977.
Until terminated, the Portfolio Management Agreement between the Investment
Company (with respect to the Fund), the Advisor and Acadian provides that
Acadian will manage the investment and reinvestment of the assets of the Fund
and continually review, supervise and administer the Fund's investments. Acadian
pays all expenses of its staff and their activities in connection with its
portfolio management activities. As compensation for its services, the Advisor
(not the Fund) pays Acadian a fee equal to .75% per annum of the first $50
million of the Fund's average net assets, .65% of the next $50 million of such
assets, .50% of the next $100 million of such assets and .40% of such assets in
excess of $200 million. The Portfolio Management Agreement with Acadian may be
terminated by the Advisor or the Investment Company upon 30 days' written
notice. The Advisor has day-to-day authority to increase or decrease the amount
of the Fund's assets under management by Acadian Asset Management.
Investment Company Administration Corporation (the "Sub-Administrator"),
pursuant to an administrative agreement with the Advisor, supervises the
administration of the Fund including, among other responsibilities, the
preparation and filing of documents required for compliance by the Fund with
applicable laws and regulations. Certain officers of the Investment Company may
be provided by the Sub-Administrator.
For additional information about the Advisor, 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.
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FREMONT MUTUAL FUNDS
The Fund seeks to achieve long-term capital appreciation by investing primarily
in small capitalization ("small cap") equity securities of issuers domiciled
outside the United States. The Fund selects its portfolio securities primarily
from among small cap companies in developed markets whose individual market
capitalizations would place them among the smallest 20% of market capitalization
in their respective markets. Developed markets will generally be defined as
those included in the Morgan Stanley Capital International Europe, Asia and Far
East (EAFE) Index. It is expected that the majority of the companies in which
the Fund invests will have a market capitalization of under $1 billion; however,
the Fund is likely to hold some companies with a market capitalization greater
than $1 billion. The Fund is designed for investors willing to accept the risks
entailed in investments in foreign securities of small companies and securities
denominated in various currencies. See "General Investment Policies -- Special
Considerations for International Investing."
Under normal market conditions, at least 65% of the total assets of the Fund
will be invested in small cap equity securities of issuers domiciled outside the
United States with a market capitalization of under $1 billion. The Fund will be
invested in a minimum of three countries excluding the United States. The Fund's
portfolio of equity securities will consist of common and preferred stock,
warrants and debt securities convertible into common stock. Included in this 65%
total, up to 5% of the Fund's assets may be invested in rights or warrants to
purchase equity securities. For defensive purposes, the Fund may temporarily
have less than 65% of its total assets invested in small cap equity issuers
domiciled outside the United States.
In addition to investing directly in equity securities, the Fund may invest in
instruments such as sponsored and unsponsored American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). See "General Investment
Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed
for use in the European securities markets.
International small cap companies are smaller sized companies that the Advisor
and Sub-Advisor believe often have a potential for earnings growth over time
that is above the growth rate of more established companies or are early in
their life cycles and have the potential to become major enterprises. In
addition, some smaller companies may be undervalued because they are not as
closely followed by security analysts or institutional investors. The Advisor
and Sub-Advisor believe that an investment in shares of the Fund provides an
opportunity for greater rewards but will involve more risk than an investment in
a fund which seeks capital appreciation from investment in common stocks of
larger, better-known companies.
Investing in small companies involves certain special risks. Small companies may
have limited product lines, markets, or financial resources, and their
managements may be dependent on a limited number of key individuals. The
securities of small companies may have limited market liquidity and may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general.
Emphasis is placed on identifying securities of companies believed to be
undervalued in the marketplace in relation to factors such as the company's
revenues, earnings, assets and long-term competitive positions which over time
will enhance the equity value of the company. In selecting portfolio
investments, a company's growth prospects will be considered, including the
potential for superior appreciation due to growth in earnings, relative
valuation of its securities, and any risks associated with such investment; the
industry in which the company operates, with a view to identification of
international developments within industries, international investment trends,
and social, economic or political factors affecting a particular industry; the
country in which the company is based, as well as historical and anticipated
foreign currency exchange rate fluctuations; and the feasibility of gaining
access to the securities market in a country and of implementing the necessary
custodial arrangements.
Investments will be made in those countries where the Advisor and Sub-Advisor
believe that economic and political factors, including currency movements, are
likely to produce above average long-term investment returns. There is no
limitation on the percentage of the Fund's assets that may be invested at any
one time in one or more countries. However, except during times that the Fund is
in a temporary defensive posture, the Fund will invest at least 65% of its total
assets in the securities of issuers domiciled in at least three different
non-U.S. countries.
The Fund may invest in equity securities of companies domiciled in emerging
markets. As used in this prospectus, international emerging markets are
countries categorized as emerging markets by the International Finance
Corporation, the World Bank's private sector division. Such countries currently
include but are not limited to Thailand, Indonesia, the Philippines, South
Korea, Taiwan and certain Latin American countries.
Such markets tend to be in less economically developed regions of the world.
General characteristics of emerging market countries also include lower degrees
of political stability, a high demand for capital investment, a high dependence
on export markets for their major industries, a need to develop basic economic
infrastructures and rapid economic growth. The Advisor believes that investments
in equity securities of companies in international emerging markets offer the
opportunity for significant long-term investment returns. However, these
investments involve certain risks, as discussed below in "Risk Factors and
Special Considerations for International Investing."
The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its assets invested in securities of companies domiciled in the
countries of Japan, the United Kingdom and/or Germany. These are among the
leading industrial economies outside the United States and the values of their
stock markets account for a significant portion of the value of international
markets.
4
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FREMONT MUTUAL FUNDS
Whenever in the judgment of the Advisor or Sub-Advisor market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in U.S. dollar-denominated or foreign currency-denominated
cash or in high quality debt securities with remaining maturities of one year or
less. During times that the Fund is investing defensively, the Fund will not be
pursuing its stated investment objective. For liquidity purposes, the Fund may
normally also invest up to 10% of its assets in U.S. dollar-denominated or
foreign currency-denominated cash or in high quality debt securities with
remaining maturities of one year or less. The Fund may also invest in
convertible debentures (convertible to equity securities) and preferred stocks
(which may or may not have a dividend yield). All preferred stocks and debt
securities, both foreign and domestic, in which the Fund invests must, at the
time of acquisition, be rated Aa or better by Moody's Investors Service, Inc.,
or AA or better by Standard & Poor's Ratings Group, or be of comparable quality
as determined by the Advisor or Sub-Advisor.
The Fund may enter into forward currency contracts and currency futures
contracts, and may purchase put and call options on currencies. See "General
Investment Policies-Forward Currency, Futures and Options Transactions.
Risk Factors and Special Considerations for International Investing. Investment
in securities of foreign entities and securities denominated in foreign
currencies involves risks typically not present to the same degree in domestic
investments. Likewise, investment in ADRs and EDRs presents similar risks, even
though the Fund will purchase, sell and be paid dividends on ADRs in U.S.
dollars. These risks include fluctuations in currency exchange rates, which are
affected by international balances of payments and other economic and financial
conditions; government intervention; speculation; and other factors. With
respect to certain foreign countries, there is the possibility of expropriation
or nationalization of assets, confiscatory taxation and political, social or
economic instability. The Fund may be required to pay foreign withholding or
other taxes on certain of its foreign investments, but investors may or may not
be able to deduct their pro rata shares of such taxes in computing their taxable
income, or take such shares as a credit against their U.S. income taxes. See
"Dividends, Distributions and Federal Income Taxation."
There may be less publicly available information about foreign issuers or
securities than about U.S. issuers or securities, and foreign issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. entities. With respect to unsponsored
ADRs, these programs cover securities of companies which are not required to
meet either the reporting or accounting standards of the United States. Many
foreign financial markets, while generally growing in volume, continue to have
substantially less volume than domestic markets, and securities of many foreign
companies are less liquid and their prices are more volatile than are securities
of comparable U.S. companies. Such markets may have longer settlement periods
than markets in the United States. In addition, brokerage commissions, custodial
services and other costs related to investment in foreign markets generally are
more expensive than in the United States, particularly with respect to emerging
markets. Such markets have different settlement and clearance procedures. In
certain markets, there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. The inability of the Fund to make intended securities
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Fund due to subsequent
declines in value of a portfolio security or, if the Fund had entered into a
contract to sell the security, could result in possible liability to the
purchaser. Settlement procedures in certain emerging markets also carry with
them a heightened risk of loss due to the failure of the broker or other service
provider to deliver cash or securities.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility, have less
liquidity and have settlement arrangements which are less efficient than in
developed markets. Furthermore, the economies of emerging market countries
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be adversely affected by trade barriers, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These emerging
market economies also have been and may continue to be adversely affected by
economic conditions in the countries with which they trade.
The value of the Fund's portfolio securities computed in U.S. dollars will vary
with increases and decreases in the exchange rate between the currencies in
which the Fund has invested and the U.S. dollar. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of the Fund's holdings of securities denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value and
net investment income and capital gains, if any, to be distributed in U.S.
dollars to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is influenced
by many factors, including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the price of oil, the pace of activity in the industrial countries,
including the United States, and other economic and financial conditions
affecting the world economy.
The Fund will not invest in a foreign currency or in securities denominated in a
foreign currency if such currency is not at the time of investment considered by
the Advisor or Sub-Advisor to be fully exchangeable into U.S. dollars without
legal restriction. The Fund may purchase securities that are issued by the
government or a corporation or financial institution of one nation but
denominated in the currency of another nation. To the extent that the Fund
invests in ADRs, the depository bank generally pays cash dividends in U.S.
dollars regardless of the currency in which such div-
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FREMONT MUTUAL FUNDS
idends 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 intends to invest in such
countries through the purchase of shares of investment companies organized under
the laws of such countries.
The Fund's interest and dividend income from foreign issuers may be subject to
non-U.S. withholding taxes. The Fund also may be subject to taxes on trading
profits in some countries. In addition, many of the countries in the Pacific
Basin have a transfer or stamp duties tax on certain securities transactions.
The imposition of these taxes will increase the cost to the Fund of investing in
any country imposing such taxes. For United States federal income tax purposes,
United States shareholders may be entitled to a credit or deduction to the
extent of any foreign income taxes paid by the Fund. See "Dividends,
Distributions and Federal Income Taxation."
GENERAL INVESTMENT POLICIES
Money Market Instruments. The Fund may invest in any of the following "money
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations and governments; U.S. Government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Fund's quality guidelines. The Fund also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.
At the time of purchase, short-term securities must be rated in the top rating
category by at least two nationally recognized statistical rating organizations
("NRSROs") or by a single NRSRO in the case of a security rated by only one
NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined
by the Advisor or the Sub-Advisor. Generally, high quality short-term securities
must be issued by an entity with an outstanding debt issue rated A or better by
an NRSRO, or an entity of comparable quality as determined by the Advisor or the
Sub-Advisor. Obligations of foreign banks, foreign corporations and foreign
branches of domestic banks must be payable in U.S. dollars. See Appendix A to
the Statement of Additional information for a description of rating categories.
U.S. Government Securities. The Fund may invest in U.S. Government securities,
which are obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Some U.S. Government securities, such as Treasury bills,
notes and bonds and Government National Mortgage Association ("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.
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 pur-
6
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FREMONT MUTUAL FUNDS
chase 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 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 prior to
initiating such an arrangement.
Repurchase Agreements. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a short period of time, often less than a week. The seller must maintain
with the Fund's custodian collateral equal to at least 100% of the repurchase
price, including accrued interest, as monitored daily by the Advisor and/or
Sub-Advisor. The Fund will not enter into a repurchase agreement with a maturity
of more than seven business days if, as a result, more than 15% of the value of
its net assets, would then be invested in such repurchase agreements. The Fund
will only enter into repurchase agreements where (1) the underlying securities
are issued or guaranteed by the U.S. Government, (2) the market value of the
underlying security, including accrued interest, will be at all times equal to
or in excess of the value of the repurchase agreement, and (3) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (1) a possible decline in the value of the
underlying security during the period in which the Fund seeks to enforce its
rights thereto; (2) possible 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 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 law, 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
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FREMONT MUTUAL FUNDS
restricted securities are liquid. The Board of Directors may adopt guidelines
and delegate to the Advisor or Sub-Advisor the daily function of determining and
monitoring liquidity of restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
Warrants Or Rights. Warrants or rights may be acquired by the Fund in connection
with other securities or separately and provide the Fund with the right to
purchase other securities of the issuer at a later date. It is the present
intention of the Fund to limit its investments in warrants or rights, valued at
the lower of cost or market, to no more than 5% of the value of its net assets.
Warrants or rights acquired by the Fund in units or attached to securities will
be deemed to be without value for purposes of this restriction.
Options And Futures Contracts. When the Fund is not fully invested, strategies
such as buying calls, writing puts, and buying futures may be used to increase
its exposure to price changes in stocks or debt securities. When the Advisor
and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such
as buying puts, writing calls, and selling futures may be used to reduce market
exposure. Because most stock index futures and options are based on broad stock
market indices, their performance tends to track the performance of common
stocks generally -- which may or may not correspond to the types of securities
in which the Fund invests. The Fund will maintain segregated accounts consisting
of cash, U.S. Government securities or other liquid securities (or, as permitted
by applicable regulations, enter into certain offsetting positions) to cover its
obligations under options and futures contracts to avoid leveraging.
In seeking appreciation or to reduce principal volatility, the Fund may also (1)
enter into futures contracts -- contracts for the future delivery of debt
securities, stock, stock index futures contracts with respect to the S&P 500
Index, small capitalization stock market indices or other similar broad-based
stock market indices, the initial margins of which are limited to 5% of the
Fund's assets; and (2) purchase put and call options on portfolio securities,
stock indices or stock index futures contracts -- the premiums of which are
limited to 5% of the Fund's assets.
The Fund may write put and call options. It will only do so, 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.
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 which 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
it is believed 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 currency the Advisor or Sub-Advisor expects to decline in the amount
approximating the value of some or all of the Fund's portfolio securities
denominated in that currency or related currencies that the Advisor and/or
Sub-Advisor feels demonstrate a correlation in exchange rate movements. The
practice of using correlated currencies is known as "cross-hedging." When the
Advisor and/or Sub-Advisor believes that the U.S. dollar may suffer a
substantial decline against a foreign currency or currencies, the Fund may enter
into a currency contract to buy a foreign currency for a fixed dollar amount. By
entering into such transactions, however,
8
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FREMONT MUTUAL FUNDS
the Fund may be required to forego the benefits of advantageous changes in
exchange rates. Currency contracts generally are traded over-the-counter, and
not on organized commodities or securities exchanges. As a result, such
contracts operate in a manner distinct from exchange-traded instruments, and
their use involves certain risks beyond those associated with transactions in
other futures contracts.
While 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
fluctuations in the prices of the Fund's portfolio securities. Purchasing
(selling) a currency forward limits the Fund's exposure to risk of loss from a
rise (decline) in the dollar value of the currency, but also limits its
potential for gain from a decline (rise) in the currencydollar 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 when
an 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
over-the-counter options, the options and the assets so set aside to cover such
options are considered illiquid assets and, together with other illiquid assets
and securities, will not exceed 15% of the net assets of the Fund. In addition,
premiums paid for currency options held by 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 over-the-counter market and on foreign exchanges.
Swap Agreements. The Fund may enter into interest rate, index and currency
exchange rate swap agreements for purposes of seeking 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 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 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 net assets of the Fund.
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 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
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FREMONT MUTUAL FUNDS
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 reinvestment 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 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, bank wire investments 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
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FREMONT MUTUAL FUNDS
reasonable transaction fee, or other selling charge, to their customers. In some
instances, all or a portion of the transaction fee may be paid by the Advisor.
To the extent these agents perform shareholder servicing activities for the
Fund, they may receive fees from the Fund or the Advisor for such services.
From time to time the Advisor may engage third parties as "finders" for the
purpose of soliciting potential investors. Such parties may be compensated by
the Advisor 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-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 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 investment
will automatically be processed through the Automatic Clearing House (ACH)
system. There is no fee for this option. If the privilege was not established at
the time the account was opened, the shareholder must complete the appropriate
form. The form is available on request.
Automatic Investment Plan. A shareholder may authorize a withdrawal to be made
automatically once or twice each month from a credit balance in the
shareholder's bank checking, savings, negotiable on withdrawal (NOW) or similar
account, with the proceeds to be used to purchase shares of the Fund. The
minimum initial investment is waived for accounts opened with the Automatic
Investment Plan. The amount of the monthly investment must be at least $50, and
is not otherwise subject to the $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 non-
11
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FREMONT MUTUAL FUNDS
payment (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 $10
per wire. This is subject to change by the Transfer Agent at any time, without
prior notification. See "Calculation of Net Asset Value and Public Offering
Price."
Redemption orders received in proper form by the Transfer Agent, 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), will be priced at the net
asset value determined on that day (with certain limited exceptions discussed in
the Statement of Additional Information). Otherwise, orders received by the
Transfer Agent will be entered at the next calculated net asset value.
Redemption proceeds can be sent by check, electronic transfer, or bank wire. An
electronic transfer can be processed only to bank checking and savings accounts.
Before requesting an electronic transfer, shareholders should confirm that their
financial institution can receive an electronic transfer. Currently, there is no
charge to shareholders for processing an electronic transfer.
Shareholders may have redemption proceeds sent by bank wire, electronic
transfer, or check to a designated bank account by providing in writing the
appropriate bank information to the Transfer Agent at the time of original
application. If the investor wishes to change the predesignated account, this
must be requested in writing with a signature guarantee (see "Signature
Guarantee" below).
Redemptions from retirement accounts require a written request, with a signature
guarantee, unless authorized under the Automatic Withdrawal Plan. Call the
Transfer Agent for specific instructions on redemptions.
For written redemption requests for an amount greater than $25,000, or a
redemption request that directs proceeds to a party other than the registered
account owner(s), all signatures must be guaranteed (see "Signature Guarantee.")
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 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 Plan at
any time, but not less than five days before a scheduled payment date. When an
exchange is made between Fremont Funds, shareholders must specify if they desire
the automatic withdrawal option to be transferred to a new account opened by the
exchange. As an account balance declines to the minimum permitted, the
shareholder must advise the Transfer Agent if the automatic withdrawal feature
is to be transferred to another account of the shareholder. Shareholders should
note that if there is an Automatic Withdrawal Plan established for an account
and the entire account is exchanged into another 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 guaran-
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FREMONT MUTUAL FUNDS
tor 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.
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 the transfer agent for 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 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 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 Sub-chapter 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 trades or businesses.
The Fund intends to distribute substantially all of its net investment income
once each year in September. The Fund intends to distribute substantially all of
its net realized capital gains, if any, at the end of the calendar year (on or
about December 15). Dividend and capital gains distributions, if any, may be
reinvested in additional shares at net asset value on the day of reinvestment,
or may be received in cash. All dividends and distributions are taxable to a
shareholder (except tax-exempt shareholders who have not borrowed to acquire
their shares) whether or not they are reinvested in shares of the Fund. Any
long-term 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
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FREMONT MUTUAL FUNDS
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.
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 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 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
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FREMONT MUTUAL FUNDS
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, orders received by the Transfer Agent 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 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 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.
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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
For more information on the Fremont Mutual Funds please call 800-548-4539 or
write to:
Fremont Mutual Funds
50 Beale Street, Suite 100
San Francisco, CA 94105
Advisor/Transfer Agent
Fremont Investment Advisors, Inc.
333 Market Street, Suite 2600
San Francisco, CA 94105
Sub-Transfer Agent
Mailing Address:
National Financial Data Services
P.O. Box 419343
Kansas City, MO 64141-6343
800-548-4539 (press 2)
Street Address:
National Financial Data Services
1004 Baltimore Avenue
Kansas City, MO 64105
Custodian
The Northern Trust Company
50 South Lasalle Street
Chicago, IL 60675
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
Auditors
Coopers & Lybrand, L.L.P.
333 Market Street
San Francisco, CA 94105
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Funds or the Advisor. This Prospectus does not constitute an
offer to sell or a solicitation of any offer to buy any of the secu rities
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.)
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.
P020-9803
