FREMONT MUTUAL FUNDS INC, 497, 2000-08-15

FREMONT MUTUAL FUNDS INC
497, 2000-08-15

Previous: BIOGAN INTERNATIONAL INC, 8-K, EX-99.1, 2000-08-15

Next: ARTEMIS INVESTMENT MANAGEMENT LLC, 13F-HR, 2000-08-15

FREMONT MUTUAL FUNDS, INC.

FREMONT GLOBAL FUND
FREMONT INTERNATIONAL GROWTH FUND
FREMONT EMERGING MARKETS FUND
FREMONT GROWTH FUND
FREMONT U.S. SMALL CAP FUND
FREMONT U.S. MICRO-CAP FUND
FREMONT REAL ESTATE SECURITIES FUND
FREMONT BOND FUND
FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
FREMONT MONEY MARKET FUND

TOLL-FREE: 800-548-4539

PART B

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information concerning Fremont Mutual Funds, Inc.
(the "Investment Company") is not a prospectus. This Statement of Additional
Information supplements the Prospectuses for the above-named series of the
Investment Company, each dated February 10, 2000 and should be read in
conjunction with the Prospectus. Copies of the Prospectus are available without
charge by calling the Investment Company at the phone number printed above.

This Statement of Additional Information is dated February 10, 2000, as amended
August 15, 2000.

<PAGE>

TABLE OF CONTENTS

PAGE
----

THE CORPORATION................................................................5
INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS.......................6
Fremont Global Fund........................................................6
Fremont International Growth Fund..........................................8
Fremont Emerging Markets Fund..............................................8
Fremont Growth Fund........................................................9
Fremont U.S. Small Cap Fund...............................................10
Fremont U.S. Micro-Cap Fund...............................................10
Fremont Real Estate Securities Fund.......................................11
Fremont Bond Fund.........................................................12
Fremont California Intermediate Tax-Free Fund.............................13
Fremont Money Market Fund.................................................14
GENERAL INVESTMENT POLICIES...................................................15
Diversification...........................................................15
Money Market Instruments..................................................15
U.S. Government Securities................................................16
Repurchase Agreements.....................................................16
Reverse Repurchase Agreements and Leverage................................16
Floating Rate and Variable Rate Obligations and Participation Interests...17
Swap Agreements...........................................................17
Bond Arbitrage Strategies.................................................19
When-Issued Securities and Firm Commitment Agreements.....................19
Commercial Bank Obligations...............................................20
Temporary Defensive Posture...............................................20
Borrowing.................................................................20
Lending of Portfolio Securities...........................................21
Portfolio Turnover........................................................21
Shares of Investment Companies............................................21
Illiquid and Restricted Securities........................................22
Warrants or Rights........................................................23
Municipal Securities......................................................23
Municipal Notes...........................................................24
Commercial Paper..........................................................24
Mortgage-Related And Other Asset-Backed Securities........................24
Writing Covered Call Options..............................................27
Writing Covered Put Options...............................................29
Purchasing Put Options....................................................29
Purchasing Call Options...................................................30
Description of Futures Contracts..........................................31

2
<PAGE>

Futures Contracts Generally...............................................32
Options on Interest Rate and/or Currency Futures Contracts, and with
Respect to the Fremont Global Fund, Gold Futures Contracts.............34
Forward Currency and Options Transactions.................................35
Risk Factors and Special Considerations for International Investing.......36
Depository Receipts.......................................................38
Particular Risk Factors Relating to California Municipal Securities
(Fremont California Intermediate Tax-Free Fund)........................38
Guaranteed Investment Contracts (Fremont Global Fund).....................42
Corporate Debt Securities (Fremont Global Fund and Fremont Bond Fund).....43
Reduction in Bond Rating (Fremont Global Fund and Fremont Bond Fund)......43
Concentration (Fremont Real Estate Securities Fund).......................44
The Euro: Single European Currency........................................44
INVESTMENT RESTRICTIONS.......................................................44
INVESTMENT COMPANY DIRECTORS AND OFFICERS.....................................47
INVESTMENT ADVISORY AND OTHER SERVICES........................................50
PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH FUND,
REAL ESTATE SECURTIES FUND AND EMERGING MARKETS FUND ONLY).................56
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................58
HOW TO INVEST.................................................................60
OTHER INVESTMENT AND REDEMPTION SERVICES......................................63
TAXES - MUTUAL FUNDS..........................................................64
ADDITIONAL INFORMATION........................................................68
INVESTMENT RESULTS............................................................74

3
<PAGE>

THE CORPORATION

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, as noted on the cover page, with
equal dividend and liquidation rights within each series (each a "Fund" and
collectively, the "Funds"). 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 Investment
Company Act of 1940, as amended (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.

The management of the business and affairs of the Investment Company is the
responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the
"Advisor") provides each Fund with investment management and administrative
services under an Investment Advisory and Administrative Agreement (the
"Advisory Agreement") with the Investment Company. The Advisory Agreement
provides that the Advisor shall furnish advice to 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. The Advisor's
Investment Committee oversees the portfolio management of each Fund.

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. 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 the Advisor's clients.

In addition to directly managing some of the Funds, the Advisor has hired
investment management firms (referred to as "sub-advisors") to manage the
portfolios of certain funds. 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 a 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

4
<PAGE>

discretion manage all or a portion of a Fund's portfolio directly with or
without the use of a sub-advisor.

On any matter submitted to a vote of shareholders, such matter shall be voted by
a Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval of the Advisory Agreement with the Advisor) except
in matters where a vote of all of the Funds 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 Fund represents an
interest in that Fund only, has a par value of $0.0001 per share, represents an
equal proportionate interest in that Fund with other shares of that Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as may be declared at the discretion of the Board
of Directors. Shares of a Fund 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
certain funds under applicable Securities and Exchange Commission regulations.

INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS

A broad range of objectives and policies is offered because the Fremont Mutual
Funds are intended to offer investment alternatives for a broad range of
investors who are expected to have a wide and varying range of investment
objectives. All of the Funds (except the Money Market Fund) are intended for
long-term investors, not for those who may wish to redeem their shares after a
short period of time. The descriptions below are intended to supplement the
material in the Prospectus.

FREMONT GLOBAL FUND
-------------------

The Fund may invest in U.S. stocks, U.S. bonds, foreign stocks, foreign bonds,
real estate securities, precious metals and cash equivalents. The Fund may
adjust the level of investment maintained in each asset category in response to
changing market conditions. The Advisor will allocate the assets of the Fund
among the following categories of assets:

U.S. Stocks --The Fund may invest in common and preferred stocks of
U.S.-based companies traded on a U.S. exchange or in the over-the-counter
("OTC") market. The Fund may also invest in stock index futures contracts,
options on index futures and options on stock indexes.

U.S. Dollar-Denominated Debt Securities--The Fund may invest in the
following: obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; U.S. dollar-denominated corporate debt
securities of domestic or foreign issuers; mortgage and other asset-backed
securities; variable and floating rate debt securities; convertible bonds;
U.S. dollar-denominated obligations of a foreign government, or any of its
political subdivisions, authorities, agencies or instrumentalities or by
supranational organizations (such as the World Bank); and

5
<PAGE>

securities that are eligible as short-term cash equivalents. The Fund will
not invest more than 15% of its net assets in variable and floating rate
debt securities (not including adjustable rate mortgages), nor will the
Fund invest more than 5% of its net assets in guaranteed investment
contracts. The Fund may invest in interest rate futures and options on such
futures. The Fund also may invest up to 10% of its net assets in corporate
debt securities having a rating of Ba by Moody's Investors Services
("Moody's"), BB by Standard & Poor's Ratings Group ("S&P"), or an
equivalent rating by another Nationally Recognized Statisitical Rating
Organization ("NRSRO")(sometimes referred to as "junk bonds") which will
have speculative characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price volatility based
upon interest rate sensitivity, questionable creditworthiness and relative
liquidity of the secondary trading market. See Appendix A for a description
of rating categories.

Foreign Stocks--The Fund may purchase stock of foreign-based companies,
including securities denominated in foreign currencies and issues of
American Depository Receipts ("ADRs") and Global Depository Receipts
("GDRs") representing shares of foreign companies. The Fund may invest in
foreign stock index futures, options on index futures and options on
foreign stock indexes. The Advisor may engage in foreign currency in
specific countries based on the Advisor's outlook for the currencies being
considered. Hedging may be undertaken through the purchase of currency
futures or otherwise. Cross currency hedging against price movements caused
by exchange rate fluctuations is permitted by entering into forward foreign
currency contracts between currencies other than the U.S. dollar. The
Fund's success in these transactions will depend principally on the ability
of the Advisor and/or Sub-Advisor to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.

Foreign Bonds--The Fund may invest in non-U.S. dollar denominated bonds,
notes and bills of foreign governments, their agencies and corporations
that the Advisor believes are of a quality comparable to the U.S.
dollar-denominated debt securities described above. The Advisor will invest
the assets in this class based on its outlook for interest rates and
currency trends in a particular country. The Advisor may engage in foreign
currency hedging and/or management from time to time based on its outlook
for currency values.

Real Estate Securities--The Fund may invest in the equity securities of
publicly traded and private Real Estate Investment Trusts ("REITs"). A REIT
is an entity that concentrates its assets in investments related to equity
real estate and/or interests in mortgages on real estate. The shares of
publicly traded REITs are traded on a national securities exchange or in
the OTC market. Shares of private REITs are not publicly traded, and will
be treated as illiquid securities. The Fund will limit its investments in
illiquid securities, including private REITs, to 15% of its net assets.

Precious Metals and Commodities Futures--The Fund may hold gold, other
precious metals, or commodity futures positions and/or securities of
companies principally engaged in producing or distributing gold, precious
metals or commodities in the United States and/or in foreign countries.
Such companies are defined as those that

6
<PAGE>

generate a substantial portion of their gross income or net profits from
gold, precious metals, or commodities activities and/or have a substantial
portion of their assets productively engaged in these activities. The Fund
may purchase and sell futures and options contracts on commodities.

The Fund will maintain the remainder of its assets in cash or cash equivalents.
The objective of the cash equivalent portfolio is to maximize current income to
the extent that is consistent with the preservation of capital and liquidity.

FREMONT INTERNATIONAL GROWTH FUND
---------------------------------

The Fund's portfolio of equity securities consists of common and preferred
stock, warrants and debt securities convertible into common stock. The Advisor
and/or Sub-Advisor generally will invest 90% of the Fund's total assets in
equity issuers domiciled outside of the U.S., of which up to 5% of the Fund's
net assets may be invested in rights or warrants to purchase equity securities.
For defensive purposes, the Fund may temporarily have less than 90% of its total
assets invested in equity securities domiciled outside the United States.

The Fund's management anticipates that, from time to time, the Fund may have
more than 25% of its total assets invested in securities of companies domiciled
in the countries of Japan, the United Kingdom and/or Germany. These are among
the leading industrial economies outside the United States and the values of
their stock markets account for a significant portion of the value of
international markets.

In addition to investing directly in equity securities, the Fund may invest in
various American, Global and International Depository Arrangements, including
but not limited to sponsored and unsponsored ADRs, GDRs, International
Depository Receipts, American Depository Shares, Global Depository Shares and
International Depository Shares. The Fund may also invest in securities of
issuers located in emerging market countries.

For liquidity purposes, the Fund normally may also invest up to 10% of its total
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.

FREMONT EMERGING MARKETS FUND
-----------------------------

The Fund's portfolio of equity securities will typically consist of common and
preferred stock, warrants and debt securities convertible into common stock. The
Advisor and/or Sub-Advisor generally will invest at least 65% of the Fund's
total assets in equity securities of issuers domiciled in emerging or developing
countries, of which up to 5% of the Fund's net assets may be invested in rights
or warrants to purchase equity securities. For defensive purposes, the Fund may
temporarily have less than 65% of its total assets invested in equity securities
of issuers in emerging markets. In addition to investing directly in equity
securities, the Fund may invest in instruments such as sponsored and unsponsored
ADRs and GDRs.

An issuer will be deemed to be in an emerging market if: (i) the principal
securities trading market for such issuer is in an emerging market country; (ii)
such issuer derives at least 50% of its revenues or earnings, either alone or on
a consolidated basis, from goods

7
<PAGE>

produced or sold, investments made or services performed in an emerging market
country, or has at least 50% of its total assets situated in one or more
emerging markets countries; or (iii) such issuer is organized under the laws of,
and with a principal office in, an emerging market country. Determinations as to
whether an issuer is an emerging markets issuer will be made by the Advisor
and/or Sub- Advisor based on publicly available information and inquiries made
to the issuers.

The Fund may invest in debt securities of both governmental and corporate
issuers in emerging markets which, at the time of purchase, have a rating of Baa
or higher by Moody's, BBB or higher by S&P, an equivalent rating by another
NRSRO, or, if unrated by an NRSRO, have been determined by the Advisor and/or
Sub-Advisor to be of comparable quality. See Appendix A for a description of
rating categories.

For liquidity purposes, the Fund may invest up to 10% of its total assets in
U.S. dollar-denominated or foreign currency-denominated cash-equivalent
investments or in high quality debt securities with maturities of one year or
less.

In seeking to protect against the effect of adverse changes in the financial
markets in which the Fund invests, or against currency exchange rate changes
that are adverse to the present or prospective positions of the Fund, the Fund
may use furrency contracts, options on securities, options on indices, options
on currencies, and futures contracts and options on futures contracts on
securities and currencies. These techniques are detailed in "General Investment
Policies."

FREMONT GROWTH FUND
-------------------

Although the Fund invests primarily in common stocks, for liquidity purposes it
will normally invest a portion of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. The
Fund may invest up to 35% of its total assets in stocks of foreign-based
companies denominated in foreign currencies and issues of ADRs and GDRs
representing shares of foreign companies. The Fund may invest in foreign stock
index futures, options on index futures and options on foreign stock indexes.
The Advisor may engage in foreign currency hedging for assets in specific
countries based on its outlook for the currencies involved. Hedging may be
undertaken through the use of currency futures or otherwise.

If the Fund holds bonds, such bonds will primarily be debt instruments with
short to intermediate maturities (which are defined as debt instruments with 1
to 10 years to maturity). These bonds, including convertibles, will, at the time
of purchase, have a rating of A or better by either Moody's or S&P, an
equivalent rating by another NRSRO, or if unrated by an NRSRO, have been
determined by the Advisor to be comparable in quality. However, there are no
restrictions on the maturity composition of the Fund's portfolio. See Appendix A
for a description of rating categories.

The Fund may invest in non-U.S. dollar denominated bonds, notes and bills of
foreign governments, their agencies and corporations of a quality comparable to
the U.S. dollar-denominated debt securities described above. The dollar-weighted
average maturity of the Fund's foreign bonds may range from 2 to 8 years. The
Advisor will invest the assets in this class based on its outlook for interest
rates and currency trends in a particular

8
<PAGE>

country. The Advisor may engage in foreign currency hedging from time to time
based on its outlook for currency values.

The Fund will maintain the remainder of its assets in cash or cash equivalents
and other fixed income securities. Cash and cash equivalents will be denominated
in U.S. dollars. The objective of the cash equivalent portfolio is to maximize
current income to the extent that is consistent with the preservation of capital
and liquidity.

FREMONT U.S. SMALL CAP FUND
---------------------------

Under normal conditions, at least 65% of the Fund's total assets will be
invested in common stocks of small, rapidly growing U.S. companies. These
companies would have a market capitalization that would place them in the
smallest 15% of market capitalizations of U.S. exchange listed companies,
measured at the time of purchase. As the value of the total market
capitalization changes, the smallest 15% cap size may also change. Up to 25% of
the Fund's total assets, at the time of the initial purchase, may be invested in
securities of companies domiclied outside the United States, including sponsored
and unsponsored ADRs and GDRs. The Fund may also invest in stock index futures
contracts, options on index futures, and options on portfolio securities and
stock indices. See "General Investment Policies" for a discussion of these
investment practices.

For liquidity purposes, the Fund will normally invest a portion of its assets in
high quality debt securities and money market instruments with remaining
maturities of one year or less, including repurchase agreements. The Fund may
also hold other types of securities from time to time, including convertible and
non-convertible bonds and preferred stocks, when the Advisor and/or Sub-Advisor
believes that these investments offer opportunities for capital appreciation.
Preferred stocks and bonds will, at the time of purchase, have a rating of Baa
or higher by Moody's, BBB or higher by S&P, an equivalent rating by another
NRSRO, or, if unrated by an NRSRO, have been determined by the Advisor and/or
Sub-Advisor to be of comparable quality. Such securities are considered
investment grade, but may have speculative characteristics. Changes in economic
conditions may lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than is the case with higher-rated
securities. See Appendix A for a description of rating categories.

FREMONT U.S. MICRO-CAP FUND
---------------------------

Under normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities of U.S. micro-cap companies. These companies would
have a market capitalization that would place them in the smallest 5% of market
capitalizations of U.S. exchange listed companies, measured at the time of the
initial purchase. As the value of the total market capitalziation changes, the
smallest 5% cap size many also change. Up to 25% of the Fund's total assets, at
the time of purchase, may be invested in securities of micro-cap companies
domiciled outside the United States, including sponsored and unsponsored ADRs
and GDRs. The Fund may also invest in stock index futures contracts, options on
index futures and options on portfolio securities and stock indices. See
"General Investment Policies" for a discussion of these investment practices.

9
<PAGE>

FREMONT REAL ESTATE SECURITIES FUND
-----------------------------------

For purposes of the Fund's investment policies, a company is in the real estate
industry if it derives at least 50% of its revenues from the ownership,
construction, financing, management or sale of commercial, industrial, or
residential real estate or if it has at least 50% of its assets in such types of
real estate. Companies in the real estate industry may include: real estate
investment trusts ("REITs"), real estate operating companies, companies
operating businesses which own a substantial amount of real estate such as
hotels and assisted living facilities, and development companies.

REITs pool investors' funds for investment primarily in income producing real
estate or real estate related loans or interests. A REIT is not taxed on income
distributed to shareholders if it complies with several requirements relating to
its organization, ownership, assets, and income and a requirement that it
distribute to its shareholders at least 95% of its taxable income (other than
net capital gains) for each taxable year.

The Fund will not invest in real estate directly, but only in securities issued
by real estate companies. However, the Fund may be subject to risks similar to
those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy of concentration in these
securities of companies in the real estate industry. These risks include
declines in the value of real estate, risks related to general and local
economic conditions, dependency on management skill, increases in interest
rates, possible lack of availability of mortgage funds, overbuilding, extended
vacancies of properties, increased competition, increases in property taxes and
operating expenses, changes in zoning laws, losses due to costs resulting from
the clean-up of environmental problems, casualty or condemnation losses,
limitations on rents, changes in neighborhood values and the appeal of
properties to tenants.

Rising interest rates may cause investors in REITs to demand a higher annual
yield from future distributions, which may in turn decrease market prices for
equity securities issued by REITs. Rising interest rates also generally increase
the costs of obtaining financing, which could cause the value of the Fund's
investments to decline. During periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors elect to prepay, and such
prepayment may diminish the yield on securities issued by such mortgage REITs.
In addition, mortgage REITs may be affected by the borrowers' ability to repay
when due the debt extended by the REIT, and equity REITs may be affected by the
tenants' ability to pay rent.

10
<PAGE>

The Fund may also hold other types of securities from time to time, including
convertible and non-convertible bonds and preferred stocks, when the Advisor and
Sub-Advisor believe that these investments offer opportunities for capital
appreciation. The Fund will invest in preferred stocks and bonds which, at the
time of purchase, have a rating of Baa or better by Moody's, BBB or better by
S&P, an equivalent rating by another NRSRO, or, if not rated by an NRSRO, have
been determined by the Advisor and/or Sub-Advisor to be of comparable quality.
Such bonds and preferred stocks are considered investment grade but may have
speculative characteristics. Changes in the economy or other circumstances may
lead to a weakened capacity of the issuers of such securities to make principal
and interest payments or to pay the preferred stock obligations than would occur
with bonds and preferred stocks in higher categories. See Appendix A for a
description of rating categories.

FREMONT BOND FUND
-----------------

The Fund will invest primarily in securities which, at the time of purchase,
have a rating of Aa or better by Moody's, AA or better by S&P, an equivalent
rating by another NRSRO, or, if not rated by an NRSRO, have been determined by
the Advisor and/or Sub-Advisor, to be of comparable quality. The Fund also may
invest up to 10% of its net assets in corporate debt securities that are not
investment grade but are rated B or higher by Moody's or S&P, or have a
comparable rating by another NRSRO. See Appendix A for a description of rating
categories. Although long-term securities generally produce higher income than
short-term securities, long-term securities are more susceptible to market
fluctuations resulting from changes in interest rates. Generally, when interest
rates decline, the value of a portfolio invested at higher yields can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
invested at lower yields can generally be expected to decline. See "Corporate
Debt Securities" for more information on quality ratings and risks involved with
lower rated securities.

The Fund may invest in convertible debentures (which are convertible to equity
securities) and preferred stocks (which may or may not pay a dividend) using the
same quality and rating criteria noted above. The Fund may also invest in a
small percentage of assets in common stocks consistent with its investment
objectives. In addition, the Fund may invest directly in foreign
currency-denominated debt securities which meet the credit quality guidelines
set forth for U.S. holdings. Under normal market conditions, at least 60% of the
Fund's total assets will be invested in securities of U.S. issuers and at least
80% of the Fund's total assets, adjusted to reflect the Fund's net exposure
after giving effect to currency transactions and positions, will be denominated
in U.S. dollars. The Fund may not invest more than 25% of its total assets in
the securities of issuers domiciled in a single country other than the United
States.

When the Sub-Advisor deems it advisable because of unusual economic or market
conditions, the Fund may invest all or a portion of its assets in cash or cash
equivalents, such as obligations of banks, commercial paper and short-term
obligations of U.S. or foreign issuers. The Fund may also employ certain active
currency and interest rate management techniques. These techniques may be used
both to hedge the foreign currency and interest rate risks associated with the
Fund's portfolio securities, and, in the case of certain techniques, to seek to
increase the total return of the Fund. Such active

11
<PAGE>

management techniques include foreign currencies, options on securities, futures
contracts, options on futures contracts and currency, and swap agreements.

The Fund will not use futures and options contracts for the purpose of
leveraging its portfolio. The Fund will set aside cash, cash equivalents or high
quality debt securities or hold a covered position against any potential
delivery or payment obligations under any outstanding option or futures
contracts. Although these investment practices will be used primarily to enhance
total return or to minimize the fluctuation of principal, they do involve risks
which are different in some respects from the investment risks associated with
similar funds which do not engage in such activities. These risks may include
the following: the imperfect correlation between the prices of options and
futures contracts and movement in the price of securities being hedged; the
possible absence of a liquid secondary market; in the case of OTC options, the
risk of default by the counter party; and the dependence upon the Sub-Advisor's
ability to correctly predict movements in the direction of interest rates and
securities prices. The Fund currently intends to commit no more than 5% of its
net assets to premiums when purchasing options and to limit its writing of
options so that the aggregate value of the securities underlying such options,
as of the date of sale of the options, will not exceed 5% of the Fund's net
assets.

FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND
---------------------------------------------

The Fund may invest in open-end and closed-end investment companies which invest
in securities whose income is exempt from federal income tax and California
personal income tax. It is the current intention of the Fund to limit its
investments in such investment companies to not more than 5% of its net assets.
Income received from these investments is exempt from federal, but not
California tax.

The term "municipal securities" as used in this document means obligations
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities. The term "California municipal securities" as used herein
refers to obligations that are issued by or on behalf of the State of California
and its political subdivisions. An opinion as to the tax-exempt status of the
interest paid on a municipal security is rendered to the issuer by the issuer's
bond counsel at the time of the issuance of the security.

The Fund invests primarily in California municipal securities which generally
have 3 to 20 years remaining to maturity at the time of acquisition. The
dollar-weighted average portfolio maturity is expected to range from 3 to 10
years. The Fund restricts its municipal securities investments to those within
or of a quality comparable to the four highest rating classifications of Moody's
or S&P. Municipal bonds and notes and tax-exempt commercial paper would have, at
the date of purchase by the Fund, Moody's ratings of Aaa, Aa, A or Baa; MIG
1/VMIG1or MIG2/VMIG2; P-1; or S&P's ratings of AAA, AA, A, or BBB; SP-1+, SP-1
or SP-2;A-1+ or A-1, respectively. See Appendix A for a description of these
ratings.

Securities ratings are the opinions of the rating agencies issuing them and are
not absolute standards of quality. Because of the cost of ratings, certain
issuers do not obtain a rating for each issue. The Fund may purchase unrated
municipal securities which the Advisor and/or Sub-Advisor determines to have a
credit quality comparable to that required for investment by the Fund. As a
matter of operating policy, not more than 25% of the

12
<PAGE>

Fund's total investments (other than those guaranteed by the U.S. Government or
any of its agencies or instrumentalities) may be unrated securities. Such
percentage shall apply only at the time of acquisition of a security. To the
extent that unrated municipal securities may be less liquid, there may be
somewhat greater market risk incurred in purchasing them than in purchasing
comparable rated securities. Any unrated securities deemed to be not readily
marketable by the Board of Directors will be included in the calculation of the
limitation of 15% of net assets which may be invested in illiquid securities and
other assets.

As a fundamental policy (i.e., the policy will not be changed without a majority
vote of its shareholders) the Fund will, under normal circumstances, invest up
to 100%, and not less than 80%, of its net assets in California municipal
securities, the interest on which is exempt from federal income tax and
California personal income tax and are not subject to the alternative minimum
tax. The Fund reserves the right to invest up to 20% of its net assets in
taxable U.S. Treasury securities which are secured by the "full faith and
credit" pledge of the U.S. Government, and in municipal securities of other
states which, although exempt from federal income taxes, are not exempt from
California income taxes. For temporary defensive purposes the Fund may invest in
excess of 20% of its net assets in these securities.

FREMONT MONEY MARKET FUND
-------------------------

The Fund seeks to maintain a constant net asset value of $1.00 per share by
valuing its securities using the amortized cost method. To do so, it must invest
only in readily marketable short-term securities with remaining maturities of
not more than 397 days (in accordance with federal securities regulations) which
are of high quality and present minimal credit risks as determined by the
Advisor, using guidelines approved by the Board of Directors. The portfolio must
maintain a dollar-weighted average maturity of not more than 90 days, and at
least 25% of the Fund's assets will have a maturity of not more than 90 days.

The Fund will invest in short-term securities which, at the time of purchase,
are considered to be "First Tier" securities, defined as: (i) rated in the top
rating category by at least two NRSROs, or (ii) in the case of a security rated
by only one NRSRO, rated in the top rating category of that NRSRO, or (iii) if
unrated by an NRSRO, have been determined to be of comparable quality by the
Advisor, using guidelines approved by the Board of Directors.

The Fund may invest no more than 5% of its total assets in the securities of any
one issuer, other than U.S. Government securities, except in times of unexpected
shareholder redemptions or purchases. In such circumstances, the Fund may invest
temporarily in the securities of any one issuer in excess of 5%, but not to
exceed 25%, of the Fund's total assets for up to three business days after the
purchase to allow the Fund to manage its portfolio liquidity. The Fund will not
invest more than 10% of its net assets in time deposits with a maturity of
greater than seven days. The Fund may make loans of its portfolio securities and
enter into repurchase agreements as described below, except that such repurchase
agreements with a maturity of greater than seven days and other securities

13
<PAGE>

and assets that are not readily marketable shall not exceed 10% of the value of
the Fund's net assets.

GENERAL INVESTMENT POLICIES

DIVERSIFICATION
---------------

Each Fund, except for the Fremont Real Estate Securities Fund, the Fremont
Emerging Markets Fund, and the Fremont California Intermediate Tax-Free Fund,
intends to operate as a diversified management investment company, as defined in
the Investment Company Act of 1940 (the "1940 Act"). A "diversified" investment
company means a company which meets the following requirements: At least 75% of
the value of the company's total assets is represented by cash and cash items
(including receivables), foreign & U.S. debt issued by domestic or foreign
governments and government agencies, securities of other investment companies,
and other securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
total assets of such management company and to not more than 10% of the
outstanding voting securities of such issuer.

The Fremont Real Estate Securities Fund, the Fremont Emerging Markets Fund, and
the Fremont California Intermediate Tax-Free Fund are non-diversified funds and
are not subject to the foregoing requirements.

MONEY MARKET INSTRUMENTS
------------------------

The Funds may invest in any of the following money market instruments:
certificates of deposit, time deposits, commercial paper, bankers' acceptances
and Eurodollar certificates of deposit; U.S. dollar-denominated money market
instruments of foreign financial institutions, corporations and governments;
U.S. government and agency securities; money market mutual funds; and other debt
securities which are not specifically named but which meet the Funds' quality
guidelines. The Funds also may enter into repurchase agreements as described
below and may purchase variable and floating rate debt securities.

At the time of purchase, short-term securities must be rated in the top rating
category by at least two NRSROs or, in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or, if not rated by an
NRSRO, must be determined to be of comparable quality by the Advisor and/or
Sub-Advisor, using guidelines approved by the Board of Directors. 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 and/or Sub-Advisor, using guidelines
approved by the Board of Directors. Obligations of foreign banks, foreign
corporations and foreign branches of domestic banks must be payable in U.S.
dollars. See Appendix A for a description of rating categories.

14
<PAGE>

U.S. GOVERNMENT SECURITIES
--------------------------

Each Fund may invest in U.S. government securities, which are securities issued
or guaranteed as to principal or interest by the United States, or by a person
controlled or supervised by and acting as an instrumentality of the Government
of the United States pursuant to authority granted by the Congress of the United
States. Some U.S. government securities, such as Treasury bills, notes and bonds
and Government National Mortgage Association ("GNMA") certificates, are
supported by the full faith and credit of the United States; those of the
Federal Home Loan Mortgage Corporation ("FHLMC") are supported by the right of
the issuer to borrow from the Treasury; those of the Federal National Mortgage
Association ("FNMA") are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations; and those of the Student Loan
Marketing Association are supported only by the credit of the instrumentality.
The U.S. government is not obligated by law to provide future financial support
to the U.S. government agencies or instrumentalities named above.

REPURCHASE AGREEMENTS
---------------------

As part of its cash reserve position, each Fund may enter into repurchase
agreements through which the Fund acquires a security (the "underlying
security") from the seller, a well-established securities dealer, or a bank that
is a member of the Federal Reserve System. At that time, the bank or securities
dealer agrees to repurchase the underlying security at the same price, plus a
specified amount of interest at a later date, generally for a period of less
than one week. The seller must maintain, with the Fund's custodian, collateral
equal to at least 100% of the repurchase price, including accrued interest, as
monitored daily by the Advisor and/or Sub-Advisor. The Fund will not enter into
a repurchase agreement with a maturity of more than seven business days if, as a
result, more than 15% (or 10% in the case of the Money Market Fund) of the value
of its net assets would then be invested in such repurchase agreements. A Fund
will only enter into repurchase agreements where (i) the underlying securities
are issued or guaranteed by the U.S. government, (ii) the market value of the
underlying security, including accrued interest, will be at all times equal to
or in excess of the value of the repurchase agreement; and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, a Fund could experience both delays in liquidating the underlying
securities and losses, including: (i) a possible decline in the value of the
underlying security during the period in which the Fund seeks to enforce its
rights thereto; (ii) possible subnormal levels of income and lack of access to
income during this period; and (iii) expenses of enforcing the Fund's rights.

REVERSE REPURCHASE AGREEMENTS AND LEVERAGE
------------------------------------------

The Funds may enter into reverse repurchase agreements which involve the sale of
a security by a Fund and its agreement to repurchase the security at a specified
time and price. The Fund involved will maintain in a segregated account, with
its custodian, cash, cash equivalents, or liquid securities in an amount
sufficient to cover its obligations under reverse repurchase agreements with
broker-dealers (but not with banks). Under the 1940 Act, reverse repurchase
agreements are considered borrowings by a Fund; accordingly,

15
<PAGE>

each Fund will limit its investments in these transactions, together with any
other borrowings, to no more than one-third of its total assets. The use of
reverse repurchase agreements by a Fund creates leverage which increases the
Fund's investment risk. If the income and gains on securities purchased with the
proceeds of these transactions exceed the cost, a Fund's earnings or net asset
value will increase faster than otherwise would be the case; conversely, if the
income and gains fail to exceed the costs, earnings or net asset value would
decline faster than otherwise would be the case. If the 300% asset coverage
required by the 1940 Act should decline as a result of market fluctuation or
other reasons, a Fund may be required to sell some of its portfolio securities
within three days to reduce the borrowings (including reverse repurchase
agreements) and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
The Funds intend to enter into reverse repurchase agreements only if the income
from the investment of the proceeds is greater than the expense of the
transaction, because the proceeds are invested for a period no longer than the
term of the reverse repurchase agreement.

FLOATING RATE AND VARIABLE RATE OBLIGATIONS AND PARTICIPATION INTERESTS
-----------------------------------------------------------------------

The Funds may purchase floating rate and variable rate obligations, including
participation interests therein. Floating rate or variable rate obligations
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate at a major commercial bank) or is
reset on a regular basis by a bank or investment banking firm to a market rate.
At specified times, the owner can demand payment of the obligation at par plus
accrued interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external interest
rate. Frequently, banks provide letters of credit or other credit support or
liquidity arrangements to secure these obligations. The quality of the
underlying creditor or of the bank, as the case may be, must meet the minimum
credit quality standards, as determined by the Advisor or Sub-Advisor,
prescribed for the Funds by the Board of Directors with respect to
counterparties in repurchase agreements and similar transactions.

The Funds may invest in participation interests purchased from banks in floating
rate or variable rate obligations owned by banks. A participation interest gives
a Fund an undivided interest in the obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the obligation,
and provides a demand repayment feature. Each participation is backed by an
irrevocable letter of credit or guarantee of a bank (which may be the bank
issuing the participation interest or another bank). The bank letter of credit
or guarantee must meet the prescribed investment quality standards for the
Funds. A Fund has the right to sell the participation instrument back to the
issuing bank or draw on the letter of credit on demand for all or any part of
the Fund's participation interest in the underlying obligation, plus accrued
interest.

SWAP AGREEMENTS
---------------

The Funds (except the Money Market Fund) may enter into interest rate, credit,
index, and currency exchange rate swap agreements for purposes of attempting to
obtain a particular desired return at a lower cost to the Fund than if the Fund
had invested directly in an

16
<PAGE>

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 particular 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, or "cap";
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, or "floor"; and interest rate collars, under which, a party
sells a cap and purchases a floor or vice versa in an attempt to protect itself
against interest rate movements exceeding minimum or maximum levels.

The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). A Fund's obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or high-grade debt
obligations, to avoid any potential leveraging of the Fund's portfolio. A Fund
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 5%
of the Fund's net assets.

Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Advisor's or the Sub-Advisor's ability
to predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements will be
considered to be illiquid and a Fund's obligations under such agreements,
together with other illiquid assets and securities, will not exceed 15% of the
Fund's net assets. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Advisor or Sub-Advisor will
cause a Fund to enter into swap agreements only with counterparties that would
be eligible for consideration as repurchase agreement counterparties under a
Fund's repurchase agreement guidelines. A Fund's obligations under a swap
agreement will be accrued daily (offset against amounts owed to the Fund) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by the maintenance of a segregated account consisting of cash, U.S. government
securities or other liquid securities to avoid any potential leveraging of the
Fund's portfolio. Certain restrictions imposed on the Funds by

17
<PAGE>

the Internal Revenue Code may limit the Funds' ability to use swap agreements.
The swaps market is largely unregulated. It is possible that developments in the
swaps market, including potential government regulation, could adversely affect
a Fund's ability to terminate existing swap agreements or to realize amounts to
be received under such agreements.

BOND ARBITRAGE STRATEGIES
-------------------------

The Global Fund may enter into short sales of government and quasi-government
bonds. This strategy will be used to take advantage of perceived mispricings
(i.e., unjustified price differences) between various bond markets without
taking on interest rate risk. For example, the yield differential between
conventional U.S. Treasury Bonds and similar duration U.S. Treasury
Inflation-Indexed Bonds typically indicates investors' expectations of inflation
rates in the future. An arbitrage opportunity exists if the Advisor determines
that investors' expectations of future inflation are unrealistically high or
low. For example, if the Advisor believes that the price of U.S. Treasury
Inflation-Indexed Bonds has been bid down too low because of investors'
unrealistically low expectations concerning future inflation, the Advisor may
enter into a short sale of conventional U.S. Treasury Bonds and take a
corresponding "long" position on U.S. Treasury Inflation-Indexed Bonds. If
investors' expectations later correct their differential, the price of U.S.
Treasury Bonds as compared to Inflation-Indexed Bonds will decrease and the Fund
will be able to close out its short position profitably. The Global Fund would
thus be able to exploit the mispricing due to unrealistic inflation expectations
without taking on any unwanted interest rate risk. Other similar arbitrage
opportunities exist with other types of bonds, such as mispricings due to credit
or liquidity spread misperceptions and European union interest rate convergence
trades. As in any short selling arrangement, the Global Fund is required to
fully collateralize the short side of any such arbitrage on a daily
marked-to-market basis (i.e., the Fund will be required to maintain collateral
equal to cost of closing out the short position, adjusted for market movements
each day) and may have to maintain additional assets with the securities broker
or dealer through whom the short position has been established. The cost of
establishing these types of arbitrages is relatively small; nevertheless, if the
arbitrage opportunity does not develop as expected, the Global Fund would be
disadvantaged by the amount of any cost involved to put the arbitrage in place
and subsequently close it out. Such arbitrages will be limited to government and
quasi-government bonds with highly liquid markets to control exposure on the
short side, and will never in the aggregate involve more than 5% of the Fund's
net assets.

WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS
-----------------------------------------------------

A 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). A Fund will not purchase securities the value of which
is greater than 5% of its net assets on a when-issued or firm commitment basis,
except that this limitation does not apply to the Fremont Bond Fund or the
Fremont Global Fund. A Fund, as purchaser, assumes the risk of any decline in
value of the security beginning on the date of the agreement or purchase, and no
interest accrues to the Fund until it accepts delivery of the security. A Fund
will not use such transactions for leveraging purposes, and accordingly, will
segregate cash, cash

18
<PAGE>

equivalents, or liquid securities in an amount sufficient to meet its payment
obligations thereunder. There is always a risk that the securities may not be
delivered and that a Fund may incur a loss or will have lost the opportunity to
invest the amount set aside for such transaction in the segregated asset
account. Settlements in the ordinary course of business, which may take
substantially more than three business days for non-U.S. securities, are not
treated by the Funds as when-issued or forward commitment transactions and,
accordingly, are not subject to the foregoing limitations, even though some of
the risks described above may be present in such transactions. Although these
transactions will not be entered into for leveraging purposes, to the extent a
Fund's aggregate commitments under these transactions exceed its holdings of
cash and securities that do not fluctuate in value (such as short-term money
market instruments), the Fund temporarily will be in a leveraged position (i.e.,
it will have an amount greater than its net assets subject to market risk).
Should market values of a Fund's portfolio securities decline while the Fund is
in a leveraged position, greater depreciation of its net assets would likely
occur than were it not in such a position. As the Fund's aggregate commitments
under these transactions increase, the opportunity for leverage similarly
increases. A Fund will not borrow money to settle these transactions and,
therefore, will liquidate other portfolio securities in advance of settlement if
necessary to generate additional cash to meet its obligations thereunder.

COMMERCIAL BANK OBLIGATIONS
---------------------------

For the purposes of each Fund's investment policies with respect to bank
obligations, obligations of foreign branches of U.S. banks and of foreign banks
may be general obligations of the parent bank in addition to the issuing bank,
or may be limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general, investments in
the obligations of foreign branches of U.S. banks, and of foreign banks may
subject the Funds to investment risks that are different in some respects from
those of investments in obligations of domestic issuers. Although a Fund will
typically acquire obligations issued and supported by the credit of U.S. or
foreign banks having total assets at the time of purchase in excess of $1
billion, this $1 billion figure is not a fundamental investment policy or
restriction of any Fund. For the purposes of calculating the $1 billion figure,
the assets of a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.

TEMPORARY DEFENSIVE POSTURE
---------------------------

Whenever, in the judgment of the Advisor and/or Sub-Advisor, market or economic
conditions warrant, each Fund may, for temporary defensive purposes, invest
without limitation in U.S. dollar-denominated or foreign currency denominated
cash-equivalent instruments or in high-quality debt securities with remaining
maturities of one year or less. Of course, during times that the Funds are
investing defensively, the Funds will not be able to pursue their stated
investment objective.

BORROWING
---------

Each Fund may borrow from banks an amount not exceeding 30% of the value of its
total assets for temporary or emergency purposes and may enter into reverse
repurchase agreements. If the income and gains on securities purchased with the
proceeds of

19
<PAGE>

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.

LENDING OF PORTFOLIO SECURITIES
-------------------------------

Each Fund is authorized to make loans of its portfolio securities to
broker-dealers or to other institutional investors in an amount not exceeding 33
1/3% of its net assets. The borrower must maintain with the Fund's custodian
collateral consisting of cash, cash equivalents or U.S. Government securities
equal to at least 100% of the value of the borrowed securities, plus any accrued
interest. The Fund will receive any interest or dividends paid on the loaned
securities and a fee or a portion of the interest earned on the collateral. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities, or possible loss of rights in the collateral should
the borrower fail financially. The lender also may bear the risk of capital loss
on investment of the cash collateral, which must be returned in full to the
borrower when the loan is terminated. Loans will be made only to firms deemed by
the Advisor and/or Sub-Advisor to be of good standing and will not be made
unless, in the judgment of the Advisor and/or Sub-Advisor, the consideration to
be earned from such loans would justify the associated risk.

PORTFOLIO TURNOVER
------------------

Each Fund (except for the Fremont Money Market Fund) may trade in securities for
short-term gain whenever deemed advisable by the Advisor and/or Sub-Advisor in
order to take advantage of anomalies occurring in general market, economic or
political conditions. Therefore, each Fund may have a higher portfolio turnover
rate than that of some other investment companies, but it is anticipated that
the annual portfolio turnover rate of each Fund will not exceed 200%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of long-term portfolio securities by the 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 Funds will bear directly, and may result in the realization
of net capital gains, which are generally taxable whether or not distributed to
shareholders.

SHARES OF INVESTMENT COMPANIES
------------------------------

Each Fund may invest some portion of its assets in shares of other no-load,
open-end investment companies and closed-end investment companies to the extent
that they may facilitate achieving the investment objectives of the Funds or to
the extent that they afford the principal or most practical means of access to a
particular market or markets or they represent attractive investments in their
own right. The percentage of Fund assets which may be so invested is not
limited, provided that a Fund and its affiliates do not acquire more than 3% of
the shares of any such investment company. The provisions of the 1940 Act may
also impose certain restrictions on redemption of the Fund's shares in other
investment companies. A Fund's purchase of shares of investment companies may
result in the payment by a shareholder of duplicative management fees. The
Advisor and/or Sub-Advisor will consider such fees in determining whether to
invest in other mutual funds.

20
<PAGE>

The Funds will invest only in investment companies which do not charge a sales
load; however, the Funds may invest in such companies with distribution plans
and fees, and may pay customary brokerage commissions to buy and sell shares of
closed-end investment companies.

The return on a Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. A Fund's investment in a closed-end investment company may
require the payment of a premium above the net asset value of the investment
company's shares, and the market price of the investment company thereafter may
decline without any change in the value of the investment company's assets. A
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, a Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions, and
policies as that of the Fund. A Fund will notify its shareholders prior to
initiating such an arrangement.

ILLIQUID AND RESTRICTED SECURITIES
----------------------------------

Each Fund (other than the Fremont Money Market Fund) may invest up to 15% of its
net assets in all forms of "illiquid securities." The Fremont Money Market Fund
may invest up to 10% of its net assets in "illiquid securities." An investment
is generally deemed to be "illiquid" if it cannot be disposed of within seven
days in the ordinary course of business at approximately the amount at which
such securities are valued by the Fund.

"Restricted" securities are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"), but can be offered and sold to "qualified institutional
buyers" pursuant to Rule 144A under the 1933 Act. Additionally, the Advisor and
the Funds believe that a similar market exists for commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act. The
Funds may invest without limitation in these forms of restricted securities if
such securities are determined by the Advisor or Sub-Advisor to be liquid in
accordance with standards established by the Investment Company's Board of
Directors. Under these standards, the Advisor or Sub-Advisor must consider (a)
the frequency of trades and quotes for the security, (b) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, (c) any dealer undertaking to make a market in the security, and (d)
the nature of the security and the nature of the marketplace trades (for
example, the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The Board, however, will retain
sufficient oversight and will be ultimately responsible for the determinations.

It is not possible to predict with accuracy how the markets for certain
restricted securities will develop. Investing in restricted securities could
have the effect of increasing the level of a Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.

21
<PAGE>

WARRANTS OR RIGHTS
------------------

Warrants or rights may be acquired by a Fund in connection with other securities
or separately and provide the Fund with the right to purchase other securities
of the issuer at a later date. It is the present intention of each Fund to limit
its investments in warrants or rights, valued at the lower of cost or market, to
no more than 5% of the value of its net assets. Warrants or rights acquired by
the Funds in units or attached to securities will be deemed to be without value
for purposes of this restriction.

MUNICIPAL SECURITIES
--------------------

Municipal securities are issued by or on behalf of states, territories, and
possessions of the United States and the District of Columbia and by their
political subdivisions, agencies, and instrumentalities. The interest on these
obligations is generally not includable in gross income of most investors for
federal income tax purposes. Issuers of municipal obligations do not usually
seek assurances from governmental taxing authorities with respect to the
tax-free nature of the interest payable on such obligations. Rather, issuers
seek opinions of bond counsel as to such tax status. See "Special Tax
Considerations".

Municipal issuers of securities are not usually subject to the securities
registration and public reporting requirements of the Securities and Exchange
Commission and state securities regulators. As a result, the amount of
information available about the financial condition of an issuer of municipal
obligations may not be as extensive as that which is made available by
corporations whose securities are publicly traded. The two principal
classifications of municipal securities are general obligation securities and
limited obligation (or revenue) securities. There are, in addition, a variety of
hybrid and special types of municipal obligations as well as numerous
differences in the financial backing for the payment of municipal obligations
(including general fund obligation leases described below), both within and
between the two principal classifications. Long-term municipal securities are
typically referred to as "bonds" and short-term municipal securities are
typically called "notes."

Payments due on general obligation bonds are secured by the issuer's pledge of
its full faith and credit including, if available, its taxing power. Issuers of
general obligation bonds include states, counties, cities, towns and various
regional or special districts. The proceeds of these obligations are used to
fund a wide range of public facilities such as the construction or improvement
of schools, roads and sewer systems.

The principal source of payment for a limited obligation bond or revenue bond is
generally the net revenue derived from particular facilities financed with such
bonds. In some cases, the proceeds of a special tax or other revenue source may
be committed by law for use to repay particular revenue bonds. For example,
revenue bonds have been issued to lend the proceeds to a private entity for the
acquisition or construction of facilities with a public purpose such as
hospitals and housing. The loan payments by the private entity provide the
special revenue source from which the obligations are to be repaid.

22
<PAGE>

MUNICIPAL NOTES
---------------

Municipal notes generally are used to provide short-term capital funding for
municipal issuers and generally have maturities of one year or less. Municipal
notes of municipal issuers include tax anticipation notes, revenue anticipation
notes and bond anticipation notes:

TAX ANTICIPATION NOTES are issued to raise working capital on a short-term
basis. Generally, these notes are issued in anticipation of various
seasonal tax revenues being paid to the issuer, such as property, income,
sales, use and business taxes, and are payable from these specific future
taxes.

REVENUE ANTICIPATION NOTES are issued in anticipation of the receipt of
non-tax revenue, such as federal revenues or grants.

BOND ANTICIPATION NOTES are issued to provide interim financing until
long-term financing can be arranged. In most cases, long-term bonds are
issued to provide the money for the repayment of these notes.

COMMERCIAL PAPER
----------------

Issues of municipal commercial paper typically represent short-term, unsecured,
negotiable promissory notes. Agencies of state and local governments issue these
obligations in addition to or in lieu of notes to finance seasonal working
capital needs or to provide interim construction financing and are paid from
revenues of the issuer or are refinanced with long-term debt. In most cases,
municipal commercial paper is backed by letters of credit, lending agreements,
note repurchase agreements or other credit facility agreements offered by banks
or other institutions.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
--------------------------------------------------

Mortgage pass-through securities are securities representing interests in
"pools" of mortgages in which payments of both interest and principal on the
securities are made monthly, in effect, "passing through" monthly payments made
by the individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities). The
total return on mortgage-related securities typically varies with changes in the
general level of interest rates. The maturities of mortgage- related securities
are variable and unknown when issued because their maturities depend on
pre-payment rates. Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a lower rate of return upon reinvestment of
principal. In addition, if a security subject to prepayment has been purchased
at a premium, in the event of prepayment the value of the premium would be lost.
Mortgage prepayments generally increase with falling interest rates and decrease
with rising interest rates. Like other fixed-income securities, when interest
rates rise, the value of a mortgage-related security generally will decline;
however, when interest rates are declining, the value of mortgage-related
securities with prepayment features may not increase as much as that of other
fixed income securities.

23
<PAGE>

A Fund may invest in GNMA certificates, which are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Because both interest and principal payments (including prepayments)
on the underlying mortgage loans are passed through to the holder of the
certificate, GNMA certificates are called "pass-through" securities.

Although most mortgage loans in the pool will have stated maturities of up to 30
years, the actual average life or effective maturity of the GNMA certificates
will be substantially less because the mortgages are subject to normal
amortization of principal and may be repaid prior to maturity. Prepayment rates
may vary widely over time among pools and typically are affected by the
relationship between the interest rates on the underlying loans and the current
rates on new home loans. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of the
GNMA certificates. Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
GNMA certificates. Accordingly, it is not possible to predict accurately the
average life of a particular pool. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of principal at current
market rates, GNMA certificates can be less effective than typical bonds of
similar maturities at "locking in" yields during periods of declining interest
rates. GNMA certificates may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.

A Fund may invest also in mortgage-related securities issued by the FNMA or by
the FHLMC. FNMA, a federally chartered and privately owned corporation, issues
pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
Government. FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but the certificates, as noted above, are not backed by
the full faith and credit of the U.S. Government. As is the case with GNMA
securities, the actual maturity of and realized yield on particular FNMA and
FHLMC pass-through securities will vary based on the prepayment experience of
the underlying pool of mortgages.

A Fund may also invest in mortgage-related securities issued by financial
institutions, such as commercial banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or separate trusts or affiliates of such
institutions established to issue these securities).

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities.

24
<PAGE>

REAL ESTATE MORTGAGE INVESTMENT CONDUITS are CMO vehicles that qualify for
special tax treatment under the Internal Revenue Code and invest in
mortgages principally secured by interests in real property and other
investments permitted by the Internal Revenue Code.

STRIPPED MORTGAGE SECURITIES are derivative multiclass mortgage securities
issued by agencies or instrumentalities of the United States Government, or
by private originators of, or investors in, mortgage loans, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Stripped Mortgage
Securities are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of Stripped Mortgage Security will have one
class receiving all of the interest from the mortgage assets (the
interest-only or "IO" class), while the other class will receive the entire
principal (the principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal payments and
prepayments on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities'
yield to maturity. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, a Fund may fail to fully recoup
its initial investment in these securities even if the security is rated
AAA or Aaa, and could even lose its investment entirely. Although Stripped
Mortgage Securities are purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. Consequently, established
trading markets have not yet developed for certain Stripped Mortgage
Securities. Investments in Stripped Mortgage Securities for which there is
no established market are considered illiquid and together with other
illiquid securities will not exceed 15% (10% for the Money Market Fund) of
a Fund's net assets.

OTHER ASSET-BACKED SECURITIES (unrelated to mortgage loans) have been
offered to investors, such as Certificates for Automobile Receivables-SM-
("CARS-SM") and interests in pools of credit card receivables. CARS-SM
represent undivided fractional interests in a trust whose assets consist of
a pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. CARS-SM will be deemed to
be illiquid securities and subject to the limitation on investments in
illiquid securities. Certificates representing pools of credit card
receivables have similar characteristics to CARS-SM although the underlying
loans are unsecured.

As new types of mortgage-related securities and other asset-backed securities
are developed and offered to investors, the Advisor and/or Sub-Advisor may
consider investments in such securities, provided they conform with the Fund's
investment objectives, policies and quality-of-investment standards, and are
subject to the review and approval of the Investment Company's Board of
Directors.

The Funds may invest only in mortgage-related (or other asset-backed) securities
either (i) issued by U.S. government sponsored corporations or (ii) having a
rating of A or higher by Moody's or S&P, an equivalent rating by another NRSRO,
or, if not rated by an NRSRO,

25
<PAGE>

have been determined to be of equivalent investment quality by the Advisor
and/or Sub-Advisor. The Advisor and/or Sub-Advisor will monitor the ratings of
securities held by a Fund and the creditworthiness of their issuers. An
investment-grade rating will not protect the Fund from loss due to changes in
market interest rate levels or other particular financial market changes that
affect the value of, or return due on, an investment.

WRITING COVERED CALL OPTIONS
----------------------------

The Funds (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market Fund) may write (sell) "covered" call options and purchase
options to close out options previously written by the Funds. The purpose of
writing covered call options is to generate additional premium income for the
Funds. This premium income will serve to enhance the Funds' total returns and
will reduce the effect of any price decline of the security or currency involved
in the option. Covered call options will generally be written on securities and
currencies which, in the opinion of the Advisor and/or Sub-Advisor, are not
expected to make any major price moves in the near future but which, over the
long term, are deemed to be attractive investments for the Funds. The aggregate
value of the securities underlying call options, as of the date of the sale of
options, will not exceed 5% of the Fund's net assets.

A call option gives the holder (buyer) the "right to purchase" a security or
currency at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by purchasing an
option identical to that previously sold. To secure his or her obligation to
deliver the underlying security or currency in the case of a call option, a
writer is required to deposit in escrow the underlying security or currency or
other assets in accordance with the rules of the Options Clearing Corporation.
The Funds will write only covered call options. This means that each Fund will
only write a call option on a security, index, or currency which that Fund
already, effectively, owns or has the right to acquire without additional cost.

Portfolio securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with each
Fund's investment objectives. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which no Fund will do),
but capable of enhancing a Fund's total return. When writing a covered call
option, a Fund, in return for the premium, gives up the opportunity for profit
from a price increase in the underlying security or currency above the exercise
price, but conversely limits the risk of loss should the price of the security
or currency decline. Unlike one who owns securities or currencies not subject to
an option, a Fund has no control over when it may be required to sell the
underlying securities or currencies, since it may be assigned an exercise notice
at any time prior to the expiration of its obligation as a writer. If a call
option which the Fund involved has written expires, that Fund will realize a
gain in the amount of the premium; however, such gain may be offset by a decline
in the market value of the underlying security or currency during the option
period. If the call

26
<PAGE>

option is exercised, the Fund involved will realize a gain or loss from the sale
of the underlying security or currency. The Fund will identify assets for the
purpose of segregation to cover the call. No Fund will consider a security or
currency covered by a call to be "pledged" as that term is used in its policy
which limits the pledging or mortgaging of its assets.

The premium received is the market value of an option. The premium a Fund
receives from writing a call option reflects, among other things, the current
market price of the underlying security or currency, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security or currency, and the length of the option period. Once the
decision to write a call option has been made, the Advisor or Sub-Advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by a Fund for writing covered call options will be
recorded as a liability in that Fund's statement of assets and liabilities. This
liability will be adjusted daily to the option's current market value, which
will be the latest sales price at the time at which the net asset value per
share of that Fund is computed (close of the regular trading session of the New
York Stock Exchange), or, in the absence of such sale, the latest asked price.
The liability will be extinguished upon expiration of the option, the purchase
of an identical option in a closing transaction, or delivery of the underlying
security or currency upon the exercise of the option.

Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security or currency with either a different
exercise price or expiration date or both. If a Fund desires to sell a
particular security or currency from its portfolio on which it has written a
call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security or currency. There is, of course, no
assurance that the Fund involved will be able to effect such closing
transactions at a favorable price. If a Fund cannot enter into such a
transaction, it may be required to hold a security or currency that it might
otherwise have sold, in which case it would continue to be at market risk with
respect to the security or currency. The Fund involved will pay transaction
costs in connection with the purchasing of options to close out previously
written options. Such transaction costs are normally higher than those
applicable to purchases and sales of portfolio securities.

Call options written by the Funds will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, a Fund may
purchase an underlying security or currency for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering such
security or currency from its portfolio. In such cases, additional costs will be
incurred.

A Fund will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from the
writing of the option.

27
<PAGE>

Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security or currency, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security or currency owned by the
Fund involved.

WRITING COVERED PUT OPTIONS
---------------------------

The Funds (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market Fund) may write covered put options. With a put option, the
purchaser of the option has the right to sell, and the writer (seller) may have
the obligation to buy, the underlying security or currency at the exercise price
during the option period. So long as the writer is short the put options, the
writer may be assigned an exercise notice by the broker-dealer through whom such
option was sold, requiring the writer to make payment of the exercise price
against delivery of the underlying security or currency. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options.

The Funds may write put options only on a covered basis, which means that a Fund
would maintain in a segregated account cash and liquid securities in an amount
not less than the exercise price at all times while the put option is
outstanding. (The rules of the Clearing Corporation currently require that such
assets be deposited in escrow to secure payment of the exercise price.) A Fund
would generally write covered put options in circumstances where the Advisor or
Sub-Advisor wishes to purchase the underlying security or currency for that
Fund's portfolio at a price lower than the current market price of the security
or currency. In such event, the Fund would write a put option at an exercise
price which, reduced by the premium received on the option, reflects the lower
price it is willing to pay. Since a Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received. Additionally, the Funds may simultaneously write a put
option and purchase a call option with the same strike price and expiration
date.

PURCHASING PUT OPTIONS
----------------------

The Funds (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market Fund) may purchase put options. As the holder of a put
option, a Fund has the right to sell the underlying security or currency at the
exercise price at any time during the option period. Such Fund may enter into
closing sale transactions with respect to such options, exercise them, or permit
them to expire. A Fund may purchase put options for defensive purposes in order
to protect against an anticipated decline in the value of its securities or
currencies. An example of such use of put options is provided below.

The Funds may purchase a put option on an underlying security or currency (a
"protective put") owned as a defensive technique in order to protect against an
anticipated decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option when a Fund, as
the holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a put

28
<PAGE>

option may be purchased in order to protect unrealized appreciation of a
security or currency where the Advisor or Sub-Advisor deems it desirable to
continue to hold the security or currency because of tax considerations. The
premium paid for the put option and any transaction costs would reduce any
capital gain otherwise available for distribution when the security or currency
is eventually sold.

The Funds may also purchase put options at a time when a Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, a Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund involved will lose its entire investment in the put
option. In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.

A Fund will commit no more than 5% of its net assets to premiums when purchasing
put options. The premium paid by such Fund when purchasing a put option will be
recorded as an asset in that Fund's statement of assets and liabilities. This
asset will be adjusted daily to the option's current market value, which will be
the latest sale price at the time at which that Fund's net asset value per share
is computed (close of trading on the New York Stock Exchange), or, in the
absence of such sale, the latest bid price. The asset will be extinguished upon
expiration of the option, the selling (writing) of an identical option in a
closing transaction, or the delivery of the underlying security or currency upon
the exercise of the option.

PURCHASING CALL OPTIONS
-----------------------

The Funds (except the Fremont California Intermediate Tax-Free Fund and the
Fremont Money Market Fund) may purchase call options. As the holder of a call
option, a Fund has the right to purchase the underlying security or currency at
the exercise price at any time during the option period. Each Fund may enter
into closing sale transactions with respect to such options, exercise them, or
permit them to expire. A Fund may purchase call options for the purpose of
increasing its current return or avoiding tax consequences which could reduce
its current return. A Fund may also purchase call options in order to acquire or
obtain exposure to the underlying securities or currencies. Examples of such
uses of call options are provided below.

Call options may be purchased by a Fund for the purpose of acquiring the
underlying securities or currencies for its portfolio. Utilized in this fashion,
the purchase of call options enables the Fund involved to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to such Fund in purchasing a large block of
securities that would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying security or
currency itself, the Fund involved is partially protected from any unexpected
decline in the market price of the

29
<PAGE>

underlying security or currency and in such event could allow the call option to
expire, incurring a loss only to the extent of the premium paid for the option.

Each Fund will commit no more than 5% of its net assets to premiums when
purchasing call options. A Fund may also purchase call options on underlying
securities or currencies it owns in order to protect unrealized gains on call
options previously written by it. A call option would be purchased for this
purpose where tax considerations make it inadvisable to realize such gains
through a closing purchase transaction. Call options may also be purchased at
times to avoid realizing losses that would result in a reduction of such Fund's
current return. For example, where a Fund has written a call option on an
underlying security or currency having a current market value below the price at
which such security or currency was purchased by that Fund, an increase in the
market price could result in the exercise of the call option written by that
Fund and the realization of a loss on the underlying security or currency with
the same exercise price and expiration date as the option previously written.
Additionally, a Fund may simultaneously write a put option and purchase a call
option with the same strike price and expiration date.

DESCRIPTION OF FUTURES CONTRACTS
--------------------------------

A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place.
Brokerage fees are incurred when a Futures Contract is bought or sold and margin
deposits must be maintained.

Although Futures Contracts typically require future delivery of and payment for
financial instruments or currencies, the Futures Contracts are usually closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
financial instrument or currency and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Fund involved realizes
a gain; if it is more, that Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund involved realizes
a gain; if it is less, that Fund realizes a loss. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, that Fund will continue to be required to
maintain the margin deposits on the Contract.

As an example of an offsetting transaction in which the financial instrument or
currency is not delivered, the contractual obligations arising from the sale of
one Contract of September Treasury Bills on an exchange may be fulfilled at any
time before delivery of the Contract is required (e.g., on a specified date in
September, the "delivery month") by the purchase of one Contract of September
Treasury Bills on the same exchange. In such instance the difference between the
price at which the Futures Contract was sold and the price paid for the
offsetting purchase, after allowance for transaction costs, represents the
profit or loss to the Fund involved.

The Funds may enter into interest rate, S&P Index (or other major market index),
or currency Futures Contracts to obtain market exposure, increase liquidity,
hedge dividend

30
<PAGE>

accruals and as a hedge against changes in prevailing levels of stock values,
interest rates, or currency exchange rates in order to establish more definitely
the effective return on securities or currencies held or intended to be acquired
by such Fund. A Fund's hedging may include sales of Futures as an offset against
the effect of expected increases in currency exchange rates, purchases of such
Futures as an offset against the effect of expected declines in currency
exchange rates, and purchases of Futures in anticipation of purchasing
underlying index stocks prior to the availability of sufficient assets to
purchase such stocks or to offset potential increases in the prices of such
stocks. When selling options or Futures Contracts, a Fund will segregate cash
and liquid securities to cover any related liability.

The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal Futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission. Futures are also traded in various overseas markets.

Although techniques other than sales and purchases of Futures Contracts could be
used to reduce a Fund's exposure to currency exchange rate fluctuations, a Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
through using Futures Contracts.

A Fund will not enter into a Futures Contract if, as a result thereof, more than
5% of the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to "margin" (down payment) deposits on
such Futures Contracts.

A Stock Index contract such as the S&P 500 Stock Index Contract, for example, is
an agreement to take or make delivery at a specified future date of an amount of
cash equal to $500 multiplied by the difference between the value of the Stock
Index at purchase and at the close of the last trading day of the contract. In
order to close long positions in the Stock Index contracts prior to their
settlement date, the Fund will enter into offsetting sales of Stock Index
contracts.

Using Stock Index contracts in anticipation of market transactions involves
certain risks. Although a Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for the contracts at any particular
time. In addition, the price of Stock Index contracts may not correlate
perfectly with the movement in the Stock Index due to certain market
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the Stock Index
and movements in the price of Stock Index contracts, a correct forecast of
general market trends may not result in a successful anticipatory hedging
transaction.

FUTURES CONTRACTS GENERALLY
---------------------------

Persons who trade in futures contracts may be broadly classified as "hedgers"
and "speculators." Hedgers whose business activity involves investment or other
commitments

31
<PAGE>

in debt securities, equity securities, or other obligations, such as the Funds,
use the futures markets primarily to offset unfavorable changes in value that
may occur because of fluctuations in the value of the securities and obligations
held or expected to be acquired by them or fluctuations in the value of the
currency in which the securities or obligations are denominated. Debtors and
other obligors may also hedge the interest cost of their obligations. The
speculator, like the hedger, generally expects neither to deliver nor to receive
the financial instrument underlying the futures contract, but, unlike the
hedger, hopes to profit from fluctuations in prevailing interest rates,
securities prices, or currency exchange rates.

A public market exists in futures contracts covering foreign financial
instruments such as U.K. Pound and Japanese Yen, among others. Additional
futures contracts may be established from time to time as various exchanges and
existing futures contract markets may be terminated or altered as to their terms
or methods of operation.

A Fund's futures transactions will be entered into for hedging purposes; that
is, futures contracts will be sold to protect against a decline in the price of
securities or currencies that such Fund owns, or futures contracts will be
purchased to protect that Fund against an increase in the price of securities or
currencies it has a fixed commitment to purchase. A Fund may also use futures to
obtain market exposure, increase liquidity and hedge dividend accruals.

"Margin" with respect to futures and futures contracts is the amount of funds
that must be deposited by the Fund with a broker in order to initiate futures
trading and to maintain a Fund's open positions in futures contracts. A margin
deposit ("initial margin") is intended to assure such Fund's performance of the
futures contract. The margin required for a particular futures contract is set
by the exchange on which the futures contract is traded, and may be
significantly modified from time to time by the exchange during the term of the
futures contract. Futures contracts are customarily purchased and sold on
margins that may range upward from less than 5% of the value of the futures
contract being traded.

If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin deposit ("margin
variation"). However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to that Fund. In computing daily
net asset values, that Fund will mark to market the current value of its open
futures contracts. The Fund involved will earn interest income on its margin
deposits.

The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates, which in turn are
affected by fiscal and monetary policies and national and international
political and economic events.

At best, the correlation between changes in prices of futures contracts and of
the securities or currencies being hedged can be only an approximation. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for futures and for securities or
currencies, including technical influences in futures trading;

32
<PAGE>

and differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available for trading,
with respect to interest rate levels, maturities, and creditworthiness of
issuers. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends.

Because of the low margin deposits required, trading of futures contracts
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss or gain to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract. However, a Fund would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that such Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund involved segregates and commits to back the futures contract
with short to medium term debt instruments and/or cash securities equal in value
to the current value of the underlying instrument less the margin deposit.

Most futures exchanges in the United States limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.

OPTIONS ON INTEREST RATE AND/OR CURRENCY FUTURES CONTRACTS, AND WITH RESPECT TO
--------------------------------------------------------------------------------
THE FREMONT GLOBAL FUND, GOLD FUTURES CONTRACTS
-----------------------------------------------

Options on Futures Contracts are similar to options on fixed income or equity
securities or options on currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase or sell the
Futures Contract, at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account which
represents the amount by which the market price of the Futures Contract, at
exercise, exceeds (in the case of a

33
<PAGE>

call) or is less than (in the case of a put) the exercise price of the option on
the Futures Contract. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in cash
equal to the difference on the expiration date between the exercise price of the
option and the closing level of the securities or currencies upon which the
Futures Contracts are based. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.

As an alternative to purchasing call and put options on Futures, the Funds may
purchase call and put options on the underlying securities or currencies, or
with respect to the Global Fund, on gold or other commodities. Such options
would be used in a manner identical to the use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by a Fund or to reduce or
eliminate the hedge position then currently held by that Fund, the Fund involved
may seek to close out an option position by selling an option covering the same
securities or contract and having the same exercise price and expiration date.

FORWARD CURRENCY AND OPTIONS TRANSACTIONS
-----------------------------------------

A forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Funds may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting contract. A Fund
typically engages in forward currency transactions in anticipation of, or to
protect itself against, fluctuations in exchange rates. A Fund might sell a
particular currency forward, for example, when it wanted to hold bonds
denominated in that currency but anticipated, and sought to be protected
against, a decline in the currency against the U.S. dollar. Similarly, a Fund
might purchase a currency forward to "lock in" the dollar price of securities
denominated in that currency which it anticipated purchasing. To avoid leverage
in connection with forward currency transactions, a Fund will set aside with its
custodian, cash, cash equivalents or liquid securities, or hold a covered
position against any potential delivery or payment obligations under any
outstanding contracts.

A put option gives a Fund, as purchaser, the right (but not the obligation) to
sell a specified amount of currency at the exercise price until the expiration
of the option. A call option gives a Fund, as purchaser, the right (but not the
obligation) to purchase a specified amount of currency at the exercise price
until its expiration. A Fund might purchase a currency put option, for example,
to protect itself during the contract period against a decline in the dollar
value of a currency in which it holds or anticipates holding securities. If the
currency's value should decline against the dollar, the loss in currency value
should be offset, in whole or in part, by an increase in the value of the put.

If the value of the currency instead should rise against the dollar, any gain to
a Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which a
Fund anticipates purchasing securities.

Currency options may be either listed on an exchange or traded over-the-counter
(OTC). Listed options are third-party contracts (i.e., performance of the
obligations of the

34
<PAGE>

purchaser and seller is guaranteed by the exchange or clearing corporation), and
have standardized strike prices and expiration dates. OTC options are two-party
contracts with negotiated strike prices and expiration dates. The Funds will not
purchase an OTC option unless they believe that daily valuation for such option
is readily obtainable. In addition, premiums paid for currency options held by a
Fund may not exceed 5% of the Fund's net assets.

RISK FACTORS AND SPECIAL CONSIDERATIONS FOR INTERNATIONAL INVESTING
-------------------------------------------------------------------

(Except for the Fremont California Intermediate Tax-Free Fund and the Fremont
Money Market Fund.) Investment in securities of foreign entities and securities
denominated in foreign currencies involves risks typically not present to the
same degree in domestic investments.

There may be less publicly available information about foreign issuers or
securities than about U.S. issuers or securities, and foreign issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. entities. With respect to unsponsored
ADRs, these programs cover securities of companies that are not required to meet
either the reporting or accounting standards of the United States. Many foreign
financial markets, while generally growing in volume, continue to experience
substantially less volume than domestic markets, and securities of many foreign
companies are less liquid and their prices are more volatile than the securities
of comparable U.S. companies. In addition, brokerage commissions, custodial
services and other costs related to investment in foreign markets (particularly
emerging markets) generally are more expensive than in the United States. Such
foreign markets also may have longer settlement periods than markets in the
United States as well as different settlement and clearance procedures. In
certain markets, there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. The inability of a Fund to make intended securities purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to a Fund due to subsequent declines in
value of a portfolio security or, if a Fund had entered into a contract to sell
the security, could result in possible liability to the purchaser. Settlement
procedures in certain emerging markets also carry with them a heightened risk of
loss due to the failure of the broker or other service provider to deliver cash
or securities.

The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility and risk of
principal, have less liquidity and have settlement arrangements which are less
efficient than in developed markets. Furthermore, the economies of emerging
market countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the countries with which they
trade. These emerging market economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.

35
<PAGE>

The value of a Fund's portfolio securities computed in U.S. dollars will vary
with increases and decreases in the exchange rate between the currencies in
which the Fund has invested and the U.S. dollar. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of a Fund's holdings of securities denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value and
net investment income and capital gains, if any, to be distributed in U.S.
dollars to shareholders by the Fund.

The rate of exchange between the U.S. dollar and other currencies is influenced
by many factors, including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the price of oil, the pace of activity in the industrial countries,
including the United States, and other economic and financial conditions
affecting the world economy.

The Funds will not invest in a foreign currency or in securities denominated in
a foreign currency if such currency is not at the time of investment considered
by the Advisor and/or Sub-Advisor to be fully exchangeable into U.S. dollars
without legal restriction. The Funds may purchase securities that are issued by
the government, a corporation, or a financial institution of one nation but
denominated in the currency of another nation. To the extent that a Fund invests
in ADRs, the depository bank generally pays cash dividends in U.S. dollars
regardless of the currency in which such dividends originally are paid by the
issuer of the underlying security.

Several of the countries in which the Funds may invest restrict, to varying
degrees, foreign investments in their securities markets. Governmental and
private restrictions take a variety of forms, including (i) limitation on the
amount of funds that may be invested into or repatriated from the country
(including limitations on repatriation of investment income and capital gains),
(ii) prohibitions or substantial restrictions on foreign investment in certain
industries or market sectors, such as defense, energy and transportation, (iii)
restrictions (whether contained in the charter of an individual company or
mandated by the government) on the percentage of securities of a single issuer
which may be owned by a foreign investor, (iv) limitations on the types of
securities which a foreign investor may purchase and (v) restrictions on a
foreign investor's right to invest in companies whose securities are not
publicly traded. In some circumstances, these restrictions may limit or preclude
investment in certain countries. Therefore, the Funds may invest in such
countries through the purchase of shares of investment companies organized under
the laws of such countries.

A Fund's interest and dividend income from foreign issuers may be subject to
non-U.S. withholding taxes. A Fund also may be subject to taxes on trading
profits in some countries. In addition, many of the countries in the Pacific
Basin have a transfer or stamp duties tax on certain securities transactions.
The imposition of these taxes will increase the cost to the Funds of investing
in any country imposing such taxes. For United States federal income tax
purposes, United States shareholders may be entitled to a credit or deduction to
the extent of any foreign income taxes paid by the Funds. See "Dividends,
Distributions and Federal Income Taxation."

36
<PAGE>

DEPOSITORY RECEIPTS
-------------------

(Except for the Money Market Fund.) Global Depository Receipts ("GDRs") are
negotiable certificates held in the bank of one country representing a specific
number of shares of a stock traded on an exchange of another country. 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 GDRs and ADRs presents risks not present to the same
degree as investing in domestic securities even though the Funds will purchase,
sell and be paid dividends on GDRs and ADRs in U.S. dollars. These risks include
fluctuations in currency exchange rates, which are affected by international
balances of payments and other economic and financial conditions; government
intervention; speculation; and other factors. With respect to certain foreign
countries, there is the possibility of expropriation or nationalization of
assets, confiscatory taxation and political, social and economic instability.
The Funds may be required to pay foreign withholding or other taxes on certain
of its GDRs or 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 "Taxes - Mutual Funds."
Unsponsored GDRs and 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 GDRs and ADRs may
be less liquid than sponsored GDRs and ADRs. Additionally, there generally is
less publicly available information with respect to unsponsored GDRs and ADRs.

PARTICULAR RISK FACTORS RELATING TO CALIFORNIA MUNICIPAL SECURITIES (FREMONT
--------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE FUND)
--------------------------------------

This Fund is a state-specific municipal fund that invests substantially all of
its assets in municipal securities issued by or on behalf of one state, the
State of California, or California's counties, municipalities, authorities or
other subdivisions.

A fund that invests primarily in securities issued by a single state and its
political subdivisions entails a greater level of risk than a fund that is
diversified across numerous states and their municipal entities. The ability of
the State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political and other conditions
within the State; and the underlying fiscal condition of the State and its
municipalities. In recent years, the State of California has derived a
significant portion of its revenues from personal income and sales taxes.
Because the amount collected from these taxes is sensitive to economic
conditions, the State's revenues have been volatile. In addition, a number of
political developments, voter initiatives, state constitutional amendments and
legislative actions in California in recent years have subjected the State
government to spending obligations and limitations and have constrained the
fiscal condition of local governments by subjecting them to annual appropriation
limits, by reducing and limiting the future growth of property taxes, and by
limiting the ability of local governments to impose special taxes without
two-thirds voter approval. In response to the fiscal constraints on local
governments, the State legislature

37
<PAGE>

in the past has provided varying levels of aid to local governments from the
State general fund and other sources. Consequently, the budgets of California
counties and other local governments have been significantly affected by State
budget decisions beyond their control and have been subject to revenue
volatility which reflects that of the State. Whether legislation will be enacted
in the future to either reduce or increase the redistribution of State revenues
to local governments, or to make them less dependent on State budget decisions,
cannot be predicted.

From mid-1990 to late 1993, California suffered the worst recession in the State
since the 1930s. The recession reduced State revenues while its health and
welfare costs were increasing. Consequently, the State had a lengthy period of
budget imbalance. During the recession, the State legislature eliminated
significant components of its aid to local governments. With the end of the
recession, the State's financial condition has improved, with a combination of
better than expected revenues, slowdown in growth of social welfare programs,
and continued spending restraint. The accumulated budget deficit from the
recession years has been eliminated and no deficit borrowing has occurred at the
end of the last several fiscal years. The State has also increased aid to local
governments and reduced certain mandates for local services.

It is not possible to predict the future impact of the voter initiatives, State
constitutional amendments, legislation or economic considerations described
above, or of such initiatives, amendments or legislation that may be enacted in
the future, on the long-term ability of the State of California or California
municipal issuers to pay interest or repay principal on their obligations. There
is no assurance that any California issuer will make full or timely payments of
principal or interest or remain solvent. For example, in December 1994, Orange
County filed for bankruptcy. Los Angeles County, the nation's largest county,
has also experienced financial difficulty and its financial condition will
continue to be affected by the large number of County residents who are
dependent on government services and by a structural deficit in its health
department. In addition, the State and local governments are party to numerous
legal proceedings, many of which normally occur in governmental operations, and
are or may become involved in other legal proceedings that, if decided against
the State or a local government, might require significant future expenditures
by, or impair the revenues of, the State or such local government.

Certain of the State's significant industries, such as high technology, are
sensitive to economic disruptions in their export markets and the State's rate
of economic growth, therefore, could be adversely affected by any such
disruption. A significant downturn in U.S. stock market prices could adversely
affect California's economy by reducing household spending and business
investment, particularly in the important high technology sector. Moreover, a
large and increasing share of the State's General Fund revenue in the form of
income and capital gains taxes is directly related to, and would be adversely
affected by a significant downturn in the performance of, the stock markets.

Certain tax exempt securities in which the Fund may invest may be obligations
payable solely from the revenues of specific institutions, or may be secured by
specific properties, which are subject to provisions of California law that
could adversely affect the holders of such obligations. For example, the
revenues of California health care institutions may be

38
<PAGE>

adversely affected by state laws, and California law limits the remedies of a
creditor secured by a mortgage or deed of trust on real property. Debt
obligations payable solely from revenues of health care institutions may also be
insured by the State but no guarantee exists that adequate reserve funds will be
appropriated by the State legislature for such insurance.

California is subject to seismic risks and it is impossible to predict the time,
magnitude or location of a major earthquake or its effect on the California
economy. In January 1994, a major earthquake struck Los Angeles, causing
significant damage to structures and facilities in a four county area. The
possibility exists that another such earthquake could cause a major dislocation
of the California economy and significantly affect State and local government
budgets.

GUARANTEED INVESTMENT CONTRACTS (FREMONT GLOBAL FUND)
-----------------------------------------------------

The Global Fund may enter into agreements known as guaranteed investment
contracts ("GICs") with banks and insurance companies. GICs provide to the Fund
a fixed rate of return for a fixed period of time, similar to any fixed income
security. While there is no ready market for selling GICs and they typically are
not assignable, the Fund will only invest in GICs if the financial institution
permits a withdrawal of the principal (together with accrued interest) after the
Fund gives seven days' notice. Like any fixed income security, if market
interest rates at the time of such withdrawal have increased from the guaranteed
rate, the Fund would be required to pay a premium or penalty upon such
withdrawal. If market rates declined, the Fund would receive a premium on
withdrawal. Since GICs are considered illiquid, the Fund will not invest more
than 15% of its net assets in GICs and other illiquid assets.

CORPORATE DEBT SECURITIES (FREMONT GLOBAL FUND AND FREMONT BOND FUND)
---------------------------------------------------------------------

A Fund's investments in dollar-denominated and non-dollar-denominated corporate
debt securities of domestic or foreign issuers are limited to corporate debt
securities (corporate bonds, debentures, notes and other similar corporate debt
instruments) which, at the time of purchase, meet the minimum ratings criteria
set forth for the Fund, or, if unrated by an NRSRO, have been determined by the
Advisor and/or Sub-Advisor to be comparable in quality to corporate debt
securities in which the Fund may invest.

Securities which are rated BBB by S&P, Baa by Moody's, or an equivalent rating
by another NRSRO are considered investment grade but may have speculative
characteristics. Changes in economic conditions may lead to a weakened capacity
of the issuers of such securities to make principal and interest payments than
is the case with higher-rated securities. The securities rated below Baa by
Moody's, BBB by S&P, or equivalent by another NRSRO (sometimes referred to as
"junk bonds"), which the Fund may invest to a limited extent, will have
speculative characteristics, including the possibility of default or bankruptcy
of the issuers of such securities, market price volatility based upon interest
rate sensitivity, questionable credit worthiness and relative liquidity of the
secondary trading market. Because such lower-rated bonds have been found to
generally be more sensitive to adverse economic changes or individual corporate
developments and

39
<PAGE>

less sensitive to interest rate changes than higher-rated investments, an
economic downturn could disrupt the market for such bonds and adversely affect
the value of outstanding bonds and the ability of issuers to repay principal and
interest. In addition, in a declining interest rate market, issuers of
lower-rated bonds may exercise redemption or call provisions, which may force
the Fund, to the extent it owns such securities, to replace those securities
with lower yielding securities. This could result in a decreased return for
investors

REDUCTION IN BOND RATING (FREMONT GLOBAL FUND AND FREMONT BOND FUND)
--------------------------------------------------------------------

The Global Fund and the Bond Fund may each invest up to 10% of its net assets in
debt securities rated below BBB or Baa, by S&P and Moody's, respectively, but
not lower than B by either (or the equivalent ratings by another NRSRO). In the
event that the rating for any security held by the Funds drops below the minimum
acceptable rating applicable to that Fund, the Fund's Advisor and/or Sub-Advisor
will determine whether the Fund should continue to hold such an obligation in
its portfolio. Bonds rated below BBB or Baa, or equivalents thereof, are
commonly known as "junk bonds." These bonds are subject to greater fluctuations
in value and risk of loss of income and principal due to default by the issuer
than are higher rated bonds. The market values of junk bonds tend to reflect
short-term corporate, economic, and market developments and investor perceptions
of the issuer's credit quality to a greater extent than higher rated bonds. In
addition, it may be more difficult to dispose of, or to determine the value of,
junk bonds. See Appendix A for a complete description of the bond ratings.

CONCENTRATION (FREMONT REAL ESTATE SECURITIES FUND)
---------------------------------------------------

The Real Estate Securities Fund will concentrate its investments in real estate
investment trusts ("REITs"). As a result, an economic, political or other change
affecting one REIT also may affect other REITs. This could increase market risk
and the potential for fluctuations in the net asset value of the Fund's shares.

THE EURO: SINGLE EUROPEAN CURRENCY
----------------------------------

On January 1, 1999, the European Union introduced a single European currency
called the "euro." The first group of countries to convert their currencies to
the euro includes Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain. The introduction of the euro
has occurred but the following uncertainties will continue to exist for some
time:

o Whether the payment, valuation and operational systems of banks and
financial institutions can operate reliably.
o The applicable conversion rate for contracts stated in the national
currency of an EU member.
o The ability of clearing and settlement systems to process transactions
reliably.
o The effects of the euro on European financial and commercial markets.
o The effect of new legislation and regulations to address euro-related
issues.
o The effects of additional countries joining the union.

40
<PAGE>

These and other factors (including political and economic risks) could cause
market disruptions and affect the value of those Funds that invest in companies
conducting business in Europe. We understand that our key service providers have
taken steps to address euro-related issues, but there can be no assurance that
these efforts are sufficient.

INVESTMENT RESTRICTIONS

Each Fund has adopted the following fundamental investment policies and
restrictions in addition to the policies and restrictions discussed in its
prospectus. With respect to each Fund, the policies and restrictions listed
below cannot be changed without approval by the holders of a "majority of the
outstanding voting securities" of that Fund (which is defined in the 1940 Act to
mean the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). These restrictions provide that no Fund may:

1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same
industry, except that this limitation shall not apply to securities
issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies or instrumentalities, to tax exempt
securities issued by state governments or political subdivisions
thereof, or to investments by the Money Market Fund in securities of
domestic banks, of foreign branches of domestic banks where the
domestic bank is unconditionally liable for the security, and domestic
branches of foreign banks subject to the same regulation of domestic
banks, or to investments by the Real Estate Securities Fund in real
estate investment trusts. See "Investment Objective, Policies, And
Risk Considerations."

2. Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Funds may invest
in securities secured by real estate, or issued by companies which
invest in real estate or interests therein, including real estate
investment trusts, and may purchase and sell currencies (including
forward currency exchange contracts), gold, bullion, futures
contracts, and related options generally as described in the
Prospectus and Statement of Additional Information.

3. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933.

4. Make loans, except that a Fund may purchase debt securities, enter
into repurchase agreements, and make loans of portfolio securities
amounting to not more than 33 1/3% of its net assets calculated at the
time of the securities lending.

41
<PAGE>

5. Borrow money, except from banks for temporary or emergency purposes
not in excess of 30% of the value of the Fund's total assets. A Fund
will not purchase securities while such borrowings are outstanding.

6. Change its status as either a diversified or a non-diversified
investment company.

7. Issue senior securities, except as permitted under the 1940 Act and as
described in the Prospectus and this Statement of Additional
Information, and except that the Investment Company and the Funds may
issue shares of common stock in multiple series or classes.

8. Notwithstanding any other fundamental investment restriction or
policy, each Fund may 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
Fund.

Other current investment policies of the Funds, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. A Fund may not:

9. Invest in companies for the purpose of exercising control or
management.

10. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in
connection with any permissible borrowing.

11. Invest in interests in oil, gas, or other mineral exploration or
development programs or leases.

12. Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three
years continuous operation.

13. Purchase securities on margin, provided that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities, except that the Fund may make margin deposits
in connection with futures contracts.

14. Enter into a futures contract if, as a result thereof, more than 5% of
the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to margin on such futures
contract.

15. Acquire securities or assets for which there is no readily available
market or which are illiquid, if, immediately after and as a result of
the acquisition, the value of such securities would exceed, in the
aggregate, 15% of that Fund's net assets, except that the value of
such securities may not exceed 10% of the Money Market Fund's net
assets.

16. (Except Fremont Global Fund) Make short sales of securities or
maintain a short position, except that a Fund may sell short "against
the box."

42
<PAGE>

17. Invest in securities of an issuer if the investment would cause a Fund
to own more than 10% of any class of securities of any one issuer.

18. Acquire more than 3% of the outstanding voting securities of any one
investment company.

Certain market strategies and market definitions applicable to the Funds - such
as the market capitalization ranges for the U. S. Small Cap and U.S. Micro Cap
Funds - may be adjusted from time to time to reflect changing market
circumstances subject to review and approval by the Funds' Board of Directors.

43
<PAGE>

INVESTMENT COMPANY DIRECTORS AND OFFICERS

The Bylaws of Fremont Mutual Funds, Inc. (the "Investment Company"), the
Maryland investment company of which the Fund is a series, authorize a Board of
Directors of between three and 15 persons, as fixed by the Board of Directors. A
majority of directors may fill vacancies caused by the resignation or death of a
director, or the expansion of the Board of Directors. Any director may be
removed by vote of the holders of a majority of all outstanding shares of the
Investment Company qualified to vote at the meeting.

<TABLE>
<CAPTION>
DATE OF PRINCIPAL OCCUPATIONS AND BUSINESS
NAME AND ADDRESS BIRTH POSITIONS HELD EXPERIENCE FOR PAST FIVE YEARS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David L. Redo(1)(2)(4) 9-1-37 Chairman and Director, President, CEO, CIO and Director,
Fremont Investment, Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor Managing Director, Fremont Group, LLC
San Francisco, CA 94105 and Fremont Investors, Inc.;

Director, Sequoia Ventures, Sit/Kim
International Investment Associates, Kern
Capital Management LLC and J.P.
Morgan Securities Asia.

Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present, Managing Director,
Fremont Investment Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor 10/77 - 7/96, Senior Vice President
San Francisco, CA 94105 Business Development, Benham Management.

Richard E. Holmes(3) 5-14-43 Director Vice President and Director, BelMar
P.O. Box 479 Advisors, Inc. (marketing firm)
Sanibel, FL 33957

Donald C. Luchessa(3) 2-18-30 Director Principal, DCL Advisory
DCL Advisory (marketer for investment
4105 Shelter Bay Avenue advisors).
Mill Valley, CA 94941

David L. Egan(3) 5-1-34 Director President, Fairfield Capital
Fairfield Capital Associates, Inc. Associates, Inc. Founding
1640 Sylvaner Partner of China Epicure, LLC
St. Helena, CA 94574 and Palisades Trading Company, LLC

Kimun Lee 6-17-46 Director Principal of Resources
Resources Consolidated Consolidated (a consulting and
235 Montgomery Street, Ste 968 investment banking service
San Francisco, CA 94104 group).

Christine D. Timmerman 6-29-46 Director Financial Consultant
71 DeBell Drive
Atherton, CA 94027

Albert W. Kirschbaum(4) 8-17-38 Senior Vice President Managing Director, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Peter F. Landini(4) 5-10-51 Executive Vice President, Managing Director, Treasurer,
Fremont Investment Advisors, Inc. and Treasurer and COO, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 1/94 - 7/98,
San Francisco, CA 94105 Director, J.P. Morgan Securities, Asia

Norman Gee 3-29-50 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

44
<PAGE>

Alexandra W. Kinchen(4) 4-25-45 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Andrew L. Pang(4) 4-15-49 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

W. Kent (Ken) Copa 10-19-46 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Debra McNeill 12-5-58 Vice President 3/97 - Present, Vice President,
Fremont Investment Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor 1/96 - 12/96 Securities Broker, First
San Francisco, CA 94105 Guarantor Securities; 7/90 - 12/95
Portfolio Manager, Bidwell & Riddle
Investment Advisory.

Tina Thomas 8-7-49 Vice President, Secretary, and 6/96 -Present Vice President,
Fremont Investment Advisors, Inc. Chief Compliance Officer Secretary, and Chief Compliance
333 Market Street, 26th Floor Officer, Fremont Investment Advisors,
San Francisco, CA 94105 Inc., 9/88 - 5/96 Chief Compliance
Officer and Vice President, Bailard, Biehl
& Kaiser, Inc.(BB&K); Treasurer, BB&K
International Fund Group, Inc. and BB&K
Fund Group; Principal, BB&K Fund
Services, Inc.

Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Allyn Hughes 6-12-60 Vice President 4/93 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Jack Gee 9-12-59 Vice President and 10/97 - Present, Vice President
Fremont Investment Advisors, Inc. Controller and CFO, Fremont Investment
333 Market Street, 26th Floor Advisors, Inc.; 11/95-10/97, CFO
San Francisco, CA 94105 and Treasurer, Sife, Inc.; 6/91-6/95,
Controller, Concord General Corp

Conor Sheridan 7-5-69 Vice President 10/94 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
</TABLE>

(1) Director who is an "interested person" of the Company due to his
affiliation with the Company's investment manager.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee and the Contracts Committee.
(4) Member of the Fremont Investment Committee.

During the fiscal year ended October 31, 1999, Richard E. Holmes and David L.
Egan each received $16,000, and Donald C. Luchessa and Kimun Lee each received
$12,000, for serving as directors of the Investment Company.

As of January 12, 2000, the officers and directors as a group owned in the
aggregate beneficially or of record less than 1% of the outstanding shares of
the Investment Company.

45
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

MANAGEMENT AGREEMENT. The Advisor, in addition to providing investment
management services, furnishes the services and pays the compensation and travel
expenses of persons who perform the executive, administrative, clerical, and
bookkeeping functions of the Investment Company, provides suitable office space,
necessary small office equipment and utilities, and general purpose accounting
forms, supplies, and postage used at the offices of the Investment Company.

The Advisor is responsible to pay transfer agency fees when such entities are
engaged in connection with share holdings in the Funds acquired by certain
retirement plans.

Each Fund (except the Fremont U.S. Micro-Cap Fund) will pay all of its own
expenses not assumed by the Advisor, including, but not limited to, the
following: custodian, stock transfer, and dividend disbursing fees and expenses;
taxes and insurance; expenses of the issuance and redemption of shares of the
Fund (including stock certificates, registration or qualification fees and
expenses); legal and auditing expenses; and the costs of stationery and forms
prepared exclusively for the Fund.

With respect to the Fremont U.S. Micro-Cap Fund, the Advisor has agreed to bear
all of the Fund's ordinary operating expenses in return for receiving a monthly
fee of 2.5% per annum of the Fund's average daily net assets with respect to the
first $30 million, 2.0% with respect to the next $70 million, and 1.5%
thereafter.

Each Fund will bear all expenses relating to interest, brokerage commissions,
other transaction charges relative to investing activities of the Fund, and
extraordinary expenses (including for example, litigation expenses, if any).

The allocation of general Investment Company expenses among the Funds is made on
a basis that the directors deem fair and equitable, which may be based on the
relative net assets of each Fund or the nature of the services performed and
relative applicability to each Fund.

For the International Growth Fund, the U.S. Small Cap Fund, the Emerging Markets
Fund, the California Intermediate Tax-Free Fund and the Real Estate Securities
Fund, to the extent management fees are waived and/or other expenses are
reimbursed by the Advisor, a Fund may reimburse the Advisor for any reductions
in the Fund's expenses during the three years following that reduction if such
reimbursement is requested by the Advisor, if such reimbursement can be achieved
within the foregoing expense limit, and if the Board of Directors approves the
reimbursement at the time of the request as not inconsistent with the best
interest of the Fund.

The Investment Advisory and Administration Agreement (the "Advisory Agreement")
with respect to each Fund may be renewed annually, provided that any such
renewal has been specifically approved by (i) the Board of Directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of a Fund, and (ii) the vote of a majority of directors who are not
parties to the Advisory Agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person, at a meeting called for

46
<PAGE>

the purpose of voting on such approval. The Advisory Agreement also provides
that either party thereto has the right with respect to any Fund to terminate it
without penalty upon sixty (60) days' written notice to the other party, and
that the Advisory Agreement terminates automatically in the event of its
assignment (as defined in the 1940 Act).

The following table depicts the advisory fees (net of voluntary waivers) paid by
the Funds to the Advisor for the fiscal years ended October 31, 1999, 1998 and
1997:

FISCAL YEAR ENDED OCTOBER 31,
(IN `000'S)
---------------------------------
1999 1998 1997
---- ---- ----
Money Market Fund $1,534 $1,129 $ 837
Bond Fun Bond Fund 823 542 303
Real Estate Securities Fund 327 114 --
Global Fund 3,927 4,050 3,850
Growth Fund 745 819 604
International Growth Fund 453 469 618
U.S. Small Cap Fund 151 64 5
Emerging Markets Fund 93 135 17
U.S. Micro-Cap Fund 3,638 2,861 3,050
CA Tax-Free Fund 238 197 183

47
<PAGE>

The Advisory Agreements with respect to the International Growth Fund, the U.S.
Small Cap Fund, the Money Market Fund, the Bond Fund, the Global Fund, the
Growth Fund, the Emerging Markets Fund, and the California Intermediate Tax-Free
Fund, also provide for the payment of an administrative fee to the Advisor at an
annual rate of 0.15% of average net assets. The following table depicts the
administrative fee (net of voluntary waivers) paid by the Funds to the Advisor
for the fiscal years ended October 31, 1999, 1998 and 1997:

FISCAL YEAR ENDED OCTOBER 31,
(IN `000'S)
---------------------------------
1999 1998 1997
---- ---- ----
Money Market Fund $ 756 Waived Waived
Bond Fund 171 $ 50 Waived
Real Estate Securities Fund N/A N/A N/A
Global Fund 982 1,012 $ 962
Growth Fund 223 246 181
International Growth Fund 68 43 N/A
U.S. Small Cap Fund 23 10 1
Emerging Markets Fund 14 20 3
U.S. Micro-Cap Fund N/A N/A N/A
Ca Tax Free Fund 61 3 3

The Funds' Board of Directors approved an Operating Expense Agreement which
contractually obligates the Advisor to limit the expenses of certain funds (as a
percentage of average net assets) until March 1, 2001 as follows: International
Growth Fund 1.50%; International Small Cap Fund 1.50%; Emerging Markets Fund
1.50%; U.S. Micro Cap Fund 1.98%; U.S. Small Cap Fund 1.50%; Real Estate
Securities Fund 1.50%; and the California Intermediate Tax-Free Fund 0.49%.
Also, under the Operating Expense Agreement, the Advisor is obligated to waive
0.05% of the 0.15% administrative fee for the Bond Fund until March 1, 2001.

The Advisor's employees may engage in personal securities transactions. However,
the Investment Company and the Advisor have adopted a Code of Ethics for the
purpose of establishing standards of conduct for the Advisor's employees with
respect to such transactions. The Code of Ethics includes some broad
prohibitions against fraudulent conduct, and also includes specific rules,
restrictions, and reporting obligations with respect to personal securities
transactions of the Advisor's employees. Generally, each employee is required to
obtain prior approval from the Advisor's compliance officer in order to purchase
or sell a security for the employee's own account. Purchases or sales of
securities which are not eligible for purchase or sale by the Funds or any other
client of the Advisor are exempted from the prior approval requirement, as are
certain other transactions which the Advisor believes present no potential
conflict of interest. The Advisor's employees are also required to file with the
Advisor quarterly reports of their personal securities transactions.

48
<PAGE>

THE SUB-ADVISORS

The Advisory Agreements authorize the Advisor, at its option and at its sole
expense, to appoint a Sub-Advisor, which may assume all or a portion of the
responsibilities and obligations of the Advisor pursuant to the Advisory
Agreement as shall be delegated to the Sub-Advisor. Any appointment of a
Sub-Advisor and assumption of responsibilities and obligations of the Advisor by
such Sub-Advisor is subject to approval by the Board of Directors and, as
required by law, the shareholders of the affected Fund.

Pursuant to this authority, the following table summarizes the Sub-Advisor:

--------------------------------------------------------------------------------
FUND SUB-ADVISOR(S)
--------------------------------------------------------------------------------
Global Fund Pacific Investment Management Company
Mellon Capital Management
Kern Capital Management LLC+
Sit Investment Associates, Inc.++
Capital Guardian Trust Company
--------------------------------------------------------------------------------
Bond Fund Pacific Investment Management Company
--------------------------------------------------------------------------------
Real Estate Securities Fund Kensington Investment Group
--------------------------------------------------------------------------------
International Growth Fund Capital Guardian Trust Company
--------------------------------------------------------------------------------
U.S. Small Cap Fund Kern Capital Management LLC+
--------------------------------------------------------------------------------
Emerging Markets Fund CMG First State (Hong Kong) LLC
--------------------------------------------------------------------------------
U.S. Micro-Cap Fund Kern Capital Management LLC+
--------------------------------------------------------------------------------
California Intermediate Tax-Free Fund Rayner Associates, Inc.
--------------------------------------------------------------------------------

The current portfolio management agreements between the Advisor and the
above-named Sub-Advisors (the "Portfolio Management Agreements") provide that
the Sub-Advisors agree to manage the investment of the Fund's assets, subject to
the applicable provisions of the Investment Company's Articles of Incorporation,
Bylaws and current registration statement (including, but not limited to, the
investment objective, policies, and restrictions delineated in the Funds'
current Prospectus and Statement of Additional Information), as interpreted from
time to time by the Board of Directors.

-------------------------------
+ Kern Capital Management LLC is partially owned by the Advisor.
++ An executive officer of the Advisor is a member of the Board of Directors
of the subadvisor's subsidiary company. The executive officer has no
control relationship with the subadvisor and is not involved with its
management or affairs.

49
<PAGE>

For their services under the Portfolio Management Agreements, the Advisor (not
the Funds) has agreed to pay the Sub-Advisors an annual fee equal to the
percentages set forth below of the value of the applicable Fund's average net
assets allocated to the Sub-Advisor, payable monthly:

Global Fund 0.30% to Pacific Investment Company
To Mellon Capital Management:
0.50% on the first $100 million
0.40% on the next $100 million
0.30% on the next $100 million
0.20% on the assets in excess of $300 million
0.50 % to Kern Capital Management LLC
0.45% to Sit Investment Associates, Inc.
To Capital Guardian Trust Company:
0.750% on the first $25 million
0.600% on the next $25 million
0.425% on the next $200 million
0.375% on assets in excess of $250 million

Bond Fund 0.25% to Pacific Investment Management Company

Real Estate Securities Fund 0.50% to Kensington Investment Group

International Growth Fund Capital Guardian Trust Company
0.750% on the first $25 million
0.600% on the next $25 million
0.425% on the next $200 million
0.375% on assets in excess of $250 million

U.S. Small Cap Fund 0.65% to Kern Capital Management LLC

Emerging Markets Fund 0.50% to CMG First State (Hong Kong) LLC

U.S. Micro-Cap Fund to Kern Capital Management LLC:
1.50% on the first $30 million
1.00% on the next $70 million
0.75% on assets in excess of $100 million

California Intermediate 0.20% to Rayner Associates, Inc.
Tax-Free Fund

For the fiscal year ended October 31, 1999, Pacific Investment Management
Company, Kern Capital Management LLC, CMG First State (Hong Kong) LLC, Capital
Guardian Trust Company, Kensington Investment Group, Rayner Associates, Inc.,
Mellon Capital Management Corporation, and Sit Investment Associates, Inc.
received from the Advisor (not the Funds) subadvisory fees (net of voluntary fee
waivers) of $552,194, $2,064,670,

50
<PAGE>

$43,159, $307,020, $163,477, $133,834, $136,369 and $4,969, respectively. For
the fiscal year ended October 31, 1998, Pacific Investment Management Company,
Kern Capital Management LLC, Nicholas-Applegate Capital Management (HK) LLC,
Capital Guardian Trust Company, Kensington Investment Group, and Rayner
Associates, Inc. received from the Advisor (not the Funds) subadvisory fees (net
of voluntary fee waivers) of $340,135, $1,504,604, $67,334, $194,551, $57,002
and $32,815, respectively. For the fiscal year ended October 31, 1997, Pacific
Investment Management Company, Kern Capital Management LLC and
Nicholas-Applegate Capital Management received from the Advisor (not the Funds)
subadvisory fees (net of voluntary fee waivers) of $189,286, $359,873, and
$15,038, respectively.

The Portfolio Management Agreement for each Fund continues in effect from year
to year only as long as such continuance is specifically approved at least
annually by (i) the Board of Directors of the Investment Company or by the vote
of a majority of the outstanding voting shares of the Fund, and (ii) by the vote
of a majority of the directors of the Investment Company who are not parties to
the Agreement or interested persons of the Advisor or the Sub-Advisor or the
Investment Company. Each Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of the Investment Company or
by the vote of a majority of the outstanding voting shares of the Fund, or by
the Sub-Advisor or the Advisor, upon 30 days' written notice to the other party.
Additionally, each Agreement automatically terminates in the event of its
assignment.

PRINCIPAL UNDERWRITER. The Fund's principal underwriter is First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018
(the "Distributor"). The Distributor is engaged on a non-exclusive basis to
assist in the distribution of shares in various jurisdictions. The Distributor
receives compensation from the Advisor and is not paid either directly or
indirectly by the Investment Company. The Distributor will receive compensation
of $50,000 from the Advisor with respect to the fiscal year ended October 31,
1999 for services as Distributor.

TRANSFER AGENT. The Advisor has engaged State Street Bank and Trust Company, c/o
NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as the Transfer
and Dividend Disbursing Agent and shareholder service agent. The Transfer Agent
is not involved in determining investment policies of the Fund or its portfolio
securities transactions. Its services do not protect shareholders against
possible depreciation of their assets. The fees of State Street Bank and Trust
Company are paid by the Fund and thus borne by the Fund's shareholders. State
Street Bank and Trust Company has contracted with National Financial Data
Services to serve as shareholder servicing agent. A depository account has been
established at United Missouri Bank of Kansas City through which all payments
for the funds will be processed.

The Funds may compensate other third party service providers who act as a
shareholder servicing agent or who perform shareholder servicing normally
performed by the Funds.

51
<PAGE>

prepare and coordinate reports and other materials supplied to the Directors;
prepare and/or supervise the preparation and filing of securities filings,
prospectuses, statements of additional information, marketing materials; prepare
all required filings necessary to maintain the Funds' notice filings to sell
shares in all states where the Funds currently do, or intends to do, business;
and perform such additional services as may be agreed upon by the Advisor and
the Sub-Administrator. For its services, the Advisor (not the Fund) pays the
Sub-Administrator an annual fee equal to .02% of the first $1 billion of each
Fund's average daily net assets, 0.015% thereafter, subject to a minimum annual
fee of $20,000. In addition, the Sub-Administrator will prepare periodic
financial reports, shareholder reports and other regulatory reports or filings
required for the Funds; coordinate the preparation, printing and mailing of
materials required to be sent to shareholders; and perform such additional
services as may be agreed upon by the Advisor and the Sub-Administrator. For
these additional services, the Advisor (not the Fund) will pay the
Sub-Administrator an annual fee of $100,000 for the years 2000, 2001, and 2002.
After the year 2002, the Sub-Administrator will receive from the Advisor (not
the Fund) an annual fee, calculated on each Fund's average daily net assets,
equal to 0.005% of the first $2 billion and 0.0025% thereafter.

PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, INTERNATIONAL GROWTH FUND, REAL
ESTATE SECURTIES FUND AND EMERGING MARKETS FUND ONLY)

As stated in the Prospectus, the above referenced Funds have adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act which
permits the Funds to compensate the Advisor for expenses incurred in the
distribution and promotion of each Fund's shares, including, but not limited to,
the printing of prospectuses, statements of additional information, and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing, and sales expenses, and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms that have executed a distribution or service
agreement with the Underwriter. The Plan expressly permits payments in any
fiscal year up to a maximum of 0.25% of the average daily net assets of the
Funds. It is possible that the Advisor could receive compensation under the Plan
that exceeds the Advisor's costs and related distribution expenses, thus
resulting in a profit to the Advisor.

Agreements implementing the Plan (the "Implementation Agreements") are in
writing and have been approved by the Board of Directors. All payments made
pursuant to the Plan are made in accordance with written agreements and are
reviewed by the Board of Directors at least quarterly.

The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Investment Company's
Board of Directors and by a vote of the Directors who are not interested persons
of the Investment Company and have no direct or indirect financial interest in
the Plan or any Implementation Agreement (the "Independent Directors") at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time by a vote of a majority of the Independent Directors or
by a vote of the holders of a majority of the outstanding shares of

52
<PAGE>

each Fund. In the event the Plan is terminated in accordance with its terms, the
Funds will not be required to make any payments for expenses incurred by the
Advisor after the termination date. Each Implementation Agreement terminates
automatically in the event of its assignment and may be terminated at any time
by a vote of a majority of the Independent Directors or by a vote of the holders
of a majority of the outstanding shares of each Fund on not more than 60 days'
written notice to any other party to the Implementation Agreement. The Plan may
not be amended to increase materially the amount to be spent for distribution
without shareholder approval. All material amendments to the Plan must be
approved by a vote of the Investment Company's Board of Directors and by a vote
of the Independent Directors.

In approving the Plan, the Directors determined, in the exercise of their
business judgment and in light of their fiduciary duties as Directors, that
there is a reasonable likelihood that the Plan will benefit the Funds and its
shareholders. The Board of Directors believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Funds, which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification, and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Directors make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, the costs to and expenses incurred by the
Advisor pursuant to the Plan and the purposes underlying such cash and
expenditures must be reported quarterly to the Board of Directors for its
review. In addition, the selection and nomination of those Directors who are not
interested persons of the Investment Company are committed to the discretion of
the Independent Directors during such period.

Pursuant to the Plan, the Funds may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling, or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Investment Company believes that the Glass-Steagall Act should not preclude a
bank from providing such services. However, state securities laws on this issue
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law. If a bank were prohibited from continuing to perform all or a part of
such services, management of the Investment Company believes that there would be
no material impact on the Funds or their shareholders. Banks may charge their
customers fees for offering these services to the extent permitted by regulatory
authorities, and the overall return to those shareholders availing themselves of
the bank services will be lower than to those shareholders who do not. The Funds
may from time to time purchase securities issued by banks which provide such
services; however, in selecting investments for the Funds, no preference will be
shown for such securities.

53
<PAGE>

EXECUTION OF PORTFOLIO TRANSACTIONS

There are occasions in which portfolio transactions for a Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Advisor or Sub-Advisor, including other series of
the Investment Company. Although such concurrent authorizations potentially
could be either advantageous or disadvantageous to a Fund, they will be effected
only when the Advisor or Sub-Advisor believes that to do so will be in the best
interest of such Fund. When such concurrent authorizations occur, the objective
will be to allocate the executions in a manner which is deemed equitable to the
accounts involved, including the other series of the Investment Company.

The Bond Fund, the Global Fund, the Growth Fund, the International Growth Fund,
the Emerging Markets Fund, and the U.S. Micro-Cap Fund contemplate purchasing
foreign equity and/or fixed-income securities in over-the-counter markets or
stock exchanges located in the countries in which the respective principal
offices of the issuers of the various securities are located, if that is the
best available market. Fixed commissions on foreign stock transactions and
transaction costs with respect to foreign fixed-income securities are generally
higher than negotiated commissions on United States transactions, although these
Funds will endeavor to achieve the best net results on their portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the United States. Foreign security
settlements may in some instances be subject to delays and related
administrative uncertainties.

Foreign equity securities may be held by the Global Fund, the Growth Fund, the
International Growth Fund, the Emerging Markets Fund, and the U.S. Micro-Cap
Fund in the form of American Depository Receipts ("ADRs") or similar
instruments. ADRs may be listed on stock exchanges or traded in the
over-the-counter markets in the United States. ADRs, like other securities
traded in the United States, will be subject to negotiated commission rates. The
government securities issued by the United States and other countries and money
market securities in which a Fund may invest are generally traded in the
over-the-counter markets.

No brokerage commissions have been paid by the Money Market Fund and the
California Intermediate Tax-Free Fund during the last three fiscal years. The
aggregate dollar amount of brokerage commissions paid by the other Funds during
the last three years are as follows:

FISCAL YEAR ENDED OCTOBER 31,
----------------------------------------
1999 1998 1997
---- ---- ----
Bond Fund $ 36,775 $ 17,551 $ 6,238
Global Fund 1,077,244 1,197,193 998,130
Real Estate Securities Fund 399,275 317,331 --
Growth Fund 199,202 296,782 143,250

54
<PAGE>

International Growth Fund 114,053 169,064 327,835
U.S. Small Cap Fund 66,077 27,821 3,034
Emerging Markets Fund 81,401 117,643 136,653
U.S. Micro-Cap Fund 621,905 453,287 298,178

Subject to the requirement of seeking the best available prices and executions,
the Advisor or Sub-Advisor may, in circumstances in which two or more
broker-dealers are in a position to offer comparable prices and executions, give
preference to broker-dealers who have provided investment research, statistical,
and other related services to the Advisor or Sub-Advisor for the benefit of a
Fund and/or other accounts served by the Advisor or Sub-Advisor. Such
preferences would only be afforded to a broker-dealer if the Advisor determines
that the amount of the commission is reasonable in relation to the value of the
brokerage and research services provided by that broker-dealer and only to a
broker-dealer acting as agent and not as principal. The Advisor is of the
opinion that, while such information is useful in varying degrees, it is of
indeterminable value and does not reduce the expenses of the Advisor in managing
each Fund's portfolio.

Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Funds may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor, or a Sub-Advisor, or an affiliated
person of such person. It is presently anticipated that certain affiliates of
the Sub-Advisor(s) will effect brokerage transactions of the Funds in certain
markets and receive compensation for such services.

As of October 31, 1999, the Money Market Fund owned securities of the Investment
Company's regular brokers or dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: Merrill Lynch & Co., Inc.
$7,998,814, For Motor Credit Corp $9,927,453, State Street Bank $44,406 and J.P.
Morgan & Co., Inc. $24,478,159 . As of October 31, 1999, the Bond Fund owned
securities of the Investment Company's regular brokers or dealers or their
parents (as defined in Rule 10b-1 promulgated under the 1940 Act) as follows:
Morgan Stanley Mortgage Trust $747,929, Associates Corp $4,827,250, Bear Stearns
& Co., Inc. $500,596, Ford Motor Credit Corp $9,938,548, Goldman Sachs Group
$9,996,798, Lehman Brothers Holdings, Inc. $1,889,864 and State Street Bank
$861,472. As of October 31, 1999, the Global Fund owned securities of the
Investment Company's regular brokers or dealers or their parents (as defined in
Rule 10b-1 promulgated under the 1940 Act) as follows: Ford Motor Company
$2,935,813, Ford Motor Credit Corp $8,679,555, Deutsche Bank AG $635,047,
Prudential Corp. PLC $429,856, J.P. Morgan & Co. $1,177,875, Morgan Stanley,
Dean Witter & Co. $1,423,031, Deutsche Bank Finance $199,580, Lehman Brothers
Holdings Inc. $3,014,640, Merrill Lynch & Co., Inc. $9,989,146 and State Street
Bank $13,216,239. As of October 31, 1999, the Growth Fund owned securities of
the Investment Company's regular brokers or dealers or their parents (as defined
in Rule 10b-1 promulgated under the 1940 Act) as follows: Ford Motor Company
$4,077,213, Morgan Stanley, Dean Witter & Co. $1,731,906, J.P. Morgan & Co.,
Inc. $1,047,000 and State Street Bank $541,939. As of October 31, 1999, the U.S.
Micro-Cap Fund owned securities of the Investment Company's regular brokers or
dealers or their parents (as defined in Rule 10b-1

55
<PAGE>

promulgated under the 1940 Act) as follows: Merrill Lynch & Co., Inc.
$11,994,680 and State Street Bank $13,603. As of October 31, 1999, the
International Growth Fund owned securities of the Investment Company's regular
brokers or dealers or their parents (as defined in Rule 10b-1 promulgated under
the 1940 Act) as follows: Deutsche Bank AG $238,929 and State Street Bank
$6,912,608. As of October 31, 1999, the Real Estate Securities Fund owned
securities of the Investment Company's regular brokers or dealers or their
parents (as defined in Rule 10b-1 promulgated under the 1940 Act) as follows:
State Street Bank $3,019,455. As of October 31, 1999, the U.S. Small Cap Fund
owned securities of the Investment Company's regular brokers or dealers or their
parents (as defined in Rule 10b-1 promulgated under the 1940 Act) as follows:
State Street Bank $4,513,744. As of October 31, 1999, the Emerging Markets Fund
owned securities of the Investment Company's regular brokers or dealers or their
parents (as defined in Rule 10b-1 promulgated under the 1940 Act) as follows:
State Street Bank $629,185.

HOW TO INVEST

PRICE OF SHARES. The price to be paid by an investor for shares of a Fund, the
public offering price, is based on the net asset value per share which is
calculated once daily as of the close of trading (currently 4:00 p.m., Eastern
time) each day the New York Stock Exchange is open as set forth below. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: (i) New Year's Day, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas Day; and
(ii) the preceding Friday when any one of those holidays falls on a Saturday or
the subsequent Monday when any one of those holidays falls on a Sunday. The
Money Market Fund will also observe additional federal holidays that are not
observed by the New York Stock Exchange: Columbus Day, and Veterans Day.

Each Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). The Bond Fund's, the
Global Fund's, the Growth Fund's, the International Growth Fund's, the U.S.
Small Cap Fund's, the Emerging Market Fund's, and the U.S. Micro-Cap Fund's
portfolio securities may from time to time be listed on foreign stock exchanges
or otherwise traded on foreign markets which may trade on other days (such as
Saturday). As a result, the net asset value of these Funds may be significantly
affected by such trading on days when a shareholder has no access to the Funds.
See also in the Prospectus at "General Investment Policies - Special
Considerations in International Investing," "Calculation of Net Asset Value and
Public Offering Price," "How to Invest," "How to Redeem Shares," and
"Shareholder Account Services and Privileges - Exchanges Between Funds."

FREMONT BOND FUND, FREMONT REAL ESTATE SECURITIES FUND, FREMONT GLOBAL FUND,
FREMONT GROWTH FUND, FREMONT INTERNATIONAL GROWTH FUND, FREMONT U.S. SMALL CAP
FUND, FREMONT EMERGING MARKETS FUND, AND FREMONT U.S. MICRO-CAP FUND:

1. Fixed-income obligations with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid
and asked prices for

56
<PAGE>

such securities or, if such prices are not available, at prices for
securities of comparable maturity, quality, and type. However, in
circumstances where the Advisor deems it appropriate to do so, prices
obtained for the day of valuation from a bond pricing service will be
used. The Funds amortize to maturity all securities with 60 days or
less remaining to maturity based on their cost to the Funds if
acquired within 60 days of maturity or, if already held by a Fund on
the 60th day, based on the value determined on the 61st day. Options
on currencies purchased by the Funds are valued at their last bid
price in the case of listed options or at the average of the last bid
prices obtained from dealers in the case of OTC options. Where market
quotations are not readily available, securities are valued at fair
value pursuant to methods approved by the Board of Directors.

2. Equity securities, including ADRs, which are traded on stock
exchanges, are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last
available mean price. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as the
primary market. Securities traded in the over-the-counter market are
valued at the last available bid price in the over-the-counter market
prior to the time of valuation. Securities and assets for which market
quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors.

3. Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the
close of the business day in New York. In addition, European or Far
Eastern securities trading may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Funds' net asset value is
not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of securities
held by these Funds used in such calculation. Events affecting the
values of portfolio securities that occur between the time their
prices are determined and the close of the New York Stock Exchange
will not be reflected in these Funds' calculation of net asset value
unless the Board of Directors deems that the particular event would
materially affect net asset value, in which case an adjustment will be
made.

4. With respect to the Global Fund, gold bullion and bullion-type coins
are valued at the closing price of gold on the New York Commodity
Exchange.

5. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market
rate as determined by the Advisor and/or Sub-Advisor.

57
<PAGE>

6. Each Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure
is obtained.

7. The net assets so obtained are then divided by the total number of
shares outstanding (excluding treasury shares), and the result,
rounded to the nearest cent, is the net asset value per share.

FREMONT MONEY MARKET FUND:

The Money Market Fund uses its best efforts to maintain a constant per share
price of $1.00.

The portfolio instruments of the Money Market Fund are valued on the basis of
amortized cost. This involves valuing an instrument at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value, as determined by amortized cost,
is higher or lower than the price the Money Market Fund would receive if it sold
the instrument.

The valuation of the Money Market Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of a per share net asset value at
$1.00 are permitted by Rule 2a-7 adopted by the Securities and Exchange
Commission. Under this rule, the Money Market Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less as allowed by
regulations under the 1940 Act, and invest only in securities determined by the
Board of Directors to be of high quality with minimal credit risks. In
accordance with this rule, the Board of Directors has established procedures
designed to stabilize, to the extent reasonably practicable, the Money Market
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the portfolio holdings by the Board of
Directors at such intervals as it may deem appropriate, to determine whether the
net asset value of the Money Market Fund calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost. The rule also provides that a deviation between the Money Market
Fund's net asset value based upon available market quotations or market
equivalents and $1.00 per share net asset value based on amortized cost
exceeding $0.005 per share must be examined by the Board of Directors. In the
event the Board of Directors determines that the deviation may result in
material dilution or is otherwise unfair to investors or existing shareholders,
the Board of Directors must cause the Money Market Fund to take such corrective
action as it regards as necessary and appropriate, including: selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends or paying distributions from
capital or capital gains; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations.

In the event that a security meeting the Money Market Fund's quality
requirements is acquired and subsequently is assigned a rating below "First
Tier" by one or more of the rating organizations, the Board of Directors must
assess promptly whether the security presents minimal credit risks and direct
the Money Market Fund to take such action as the

58
<PAGE>

Board of Directors determines is in the best interest of the Money Market Fund
and its shareholders. This responsibility cannot be delegated to the Advisor.
However, this assessment by the Board of Directors is not required if the
security is disposed of (by sale or otherwise) or matures within five Business
Days of the time the Advisor learns of the lower rating. However, in such a case
the Board of Directors must be notified thereafter.

In the event that a security acquired by the Money Market Fund either defaults
(other than an immaterial default unrelated to the issuer's financial
condition), or is determined no longer to present minimal credit risks, the
Money Market Fund must dispose of the security (by sale or otherwise) as soon as
practicable unless the Board of Directors finds that this would not be in the
Money Market Fund's best interest.

FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND:

Portfolio securities with original or remaining maturities in excess of 60 days
are valued at the mean of representative quoted bid and asked prices for such
securities or, if such prices are not available, at the equivalent value of
securities of comparable maturity, quality and type. However, in circumstances
where the Advisor and/or Sub-Advisor deems it appropriate to do so, prices
obtained for the day of valuation from a bond pricing service will be used. The
Fund amortizes to maturity all securities with 60 days or less remaining to
maturity based on their cost to the Fund if acquired within 60 days of maturity
or, if already held by the Fund on the 60th day, based on the value determined
on the 61st day.

The Fund deems the maturities of variable or floating rate instruments, or
instruments which the Fund has the right to sell at par to the issuer or dealer,
to be the time remaining until the next interest rate adjustment date or until
they can be resold or redeemed at par.

Where market quotations are not readily available, the Fund values securities
(including restricted securities which are subject to limitations as to their
sale) at fair value as determined in good faith by or under the direction of the
Board of Directors.

The fair value of any other assets is added to the value of securities, as
described above to arrive at total assets. The Fund's liabilities, including
proper accruals of taxes and other expense items, are deducted from total assets
and a net asset figure is obtained. The net assets so obtained are then divided
by the total number of shares outstanding (excluding treasury shares), and the
result, rounded to the nearest cent, is the net asset value per share.

OTHER INVESTMENT AND REDEMPTION SERVICES

THE OPEN ACCOUNT. When an investor makes an initial investment in a Fund, a
shareholder account is opened in accordance with the investor's registration
instructions. Each time there is a transaction in a shareholder account, such as
an additional investment, redemption, or distribution (dividend or capital
gain), the shareholder will

59
<PAGE>

receive from the Transfer Agent a confirmation statement showing the current
transaction in the shareholder account, along with a summary of the status of
the account as of the transaction date.

PAYMENT AND TERMS OF OFFERING. Payment of shares purchased should accompany the
purchase order, or funds should be wired to the Transfer Agent as described in
the Prospectus. Payment, other than by wire transfer, must be made by check or
money order drawn on a U.S. bank. Checks or money orders must be payable in U.S.
dollars and be made payable to Fremont Mutual Funds. Third party checks, credit
cards and cash will not be accepted.

As a condition of this offering, if an order to purchase shares is cancelled due
to nonpayment (for example, because of a check returned for "not sufficient
funds"), the person who made the order will be responsible for reimbursing the
Advisor for any loss incurred by reason of such cancellation. If such purchaser
is a shareholder, that Fund shall have the authority as agent of the shareholder
to redeem shares in the shareholder's account for the then-current net asset
value per share to reimburse that Fund for the loss incurred. Such loss shall be
the difference between the net asset value of that Fund on the date of purchase
and the net asset value on the date of cancellation of the purchase. Investors
whose purchase orders have been cancelled due to nonpayment may be prohibited
from placing future orders.

Each Fund reserves the right at any time to waive or increase the minimum
requirements applicable to initial or subsequent investments with respect to any
person or class of persons. An order to purchase shares is not binding on a Fund
until it has been confirmed in writing by the Transfer Agent (or other
arrangements made with the Fund, in the case of orders utilizing wire transfer
of funds) and payment has been received. To protect existing shareholders, each
Fund reserves the right to reject any offer for a purchase of shares by any
individual.

REDEMPTION IN KIND. Each Fund may elect to redeem shares in assets other than
cash but must pay in cash (if so requested) all redemptions with respect to any
shareholder during any 90-day period in an amount equal to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of a Fund at the beginning of such
period.

SUSPENSION OF REDEMPTION PRIVILEGES. Any Fund may suspend redemption privileges
or postpone the date of payment for more than seven calendar days after the
redemption order is received during any period (1) when the New York Stock
Exchange is closed other than customary weekend and holiday closings, or trading
on the Exchange is restricted as determined by the SEC, (2) when an emergency
exists, as defined by the SEC, which makes it not reasonably practicable for the
Investment Company to dispose of securities owned by it or to fairly determine
the value of its assets, or (3) as the SEC may otherwise permit.

TAXES - MUTUAL FUNDS

60
<PAGE>

STATUS AS A "REGULATED INVESTMENT COMPANY." Each Fund will be treated under the
Internal Revenue Code of 1986, as amended (the "Code") as a separate entity, and
each Fund has elected and intends to continue to qualify to be treated as a
separate "regulated investment company" under Subchapter M. To qualify for the
tax treatment afforded a regulated investment company under the Code, a Fund
must annually distribute at least 90% of the sum of its investment company
taxable income (generally net investment income and certain short-term capital
gains), its tax-exempt interest income (if any) and net capital gains, and meet
certain diversification of assets and other requirements of the Code. If a Fund
qualifies for such tax treatment, it will not be subject to federal income tax
on the part of its investment company taxable income and its net capital gain
which it distributes to shareholders. To meet the requirements of the Code, a
Fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of securities or currencies; and (b) diversify its holdings so that,
at the end of each fiscal quarter, (i) at least 50% of the market value of the
Fund's total assets is represented by cash, U.S. Government securities,
securities of other regulated investment companies, and other securities,
limited, in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total 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 a Fund controls and which are engaged in the same or similar trades or
businesses. Income and gain from investing in gold or other commodities will not
qualify in meeting the 90% gross income test.

Even though a Fund qualifies as a "regulated investment company," it may be
subject to certain federal excise taxes unless that Fund meets certain
additional distribution requirements. Under the Code, a nondeductible excise tax
of 4% is imposed on the excess of a regulated investment company's "required
distribution" for the calendar year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-year
period ending on October 31 of such year, and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by a Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
a Fund pays income tax for the year. Each Fund intends to meet these
distribution requirements to avoid the excise tax liability.

If for any taxable year a Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.

SPECIAL TAX CONSIDERATIONS FOR THE FREMONT REAL ESTATE SECURITIES FUND. The Fund
may invest in REITs that hold residual interests in real estate mortgage
investment conduits ("REMICs"). Under Treasury regulations that have not yet
been issued, but which

61
<PAGE>

may apply retroactively, a portion of the Fund's income from a REIT that is
attributable to the REITs residual interest in a REMIC (referred to in the Code
as an "excess inclusion") will be subject to federal income tax in all events.
These regulations are also expected to provide that excess inclusion income of a
regulated investment company, such as the Fund, will be allocated to
shareholders of the regulated investment company in proportion to the dividends
received by such shareholders, with the same consequences as if the shareholders
held the related REMIC residual interest directly. In general, excess inclusion
income allocated to shareholders (i) cannot be offset by net operating losses
(subject to a limited exception for certain thrift institutions), (ii) will
constitute unrelated business taxable income to entities (including a qualified
pension plan, an individual retirement account, a 401(k) plan or other
tax-exempt entity) subject to tax on unrelated business income, thereby
potentially requiring such an entity that is allocated excess inclusion income,
and otherwise might not be required to file a tax return, to file a tax return
and pay tax on such income, and (iii) in the case of a foreign shareholder, will
not qualify for any reduction in U.S. federal withholding tax. In addition, if
at any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations.

Even though the Fund has elected and intends to continue to qualify as a
"regulated investment company," it may be subject to certain federal excise
taxes unless the Fund meets certain additional distribution requirements. Under
the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
over the "distributed amount" for such calendar year. The term "required
distribution" means the sum of (i) 98% of ordinary income (generally net
investment income) for the calendar year, (ii) 98% of capital gain net income
(both long-term and short-term) for the one-year period ending on October 31 of
such year, and (iii) the sum of any untaxed, undistributed net investment income
and net capital gains of the regulated investment company for prior periods. The
term "distributed amount" generally means the sum of (i) amounts actually
distributed by the Fund from its current year's ordinary income and capital gain
net income and (ii) any amount on which the Fund pays income tax for the year.
The Fund intends to meet these distribution requirements to avoid the excise tax
liability. It is possible that the Fund will not receive cash distributions from
the real estate investment trusts ("REITs") in which it invests in sufficient
time to allow the Fund to satisfy its won distribution requirements using these
REIT distributions. Accordingly, the Fund might be required to generate cash to
make its own distributions, which may cause the Fund to sell securities at a
time not otherwise advantageous to do so, or to borrow money to fund a
distribution.

If for any taxable year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.

62
<PAGE>

DISTRIBUTIONS OF NET INVESTMENT INCOME. Dividends from net investment income
(including net short-term capital gains) are taxable as ordinary income.
Shareholders will be taxed for federal income tax purposes on dividends from a
Fund in the same manner whether such dividends are received as shares or in
cash. If a Fund does not receive any dividend income from U.S. corporations,
dividends from that Fund will not be eligible for the dividends received
deduction allowed to corporations. To the extent that dividends received by a
Fund would qualify for the dividends received deduction available to
corporations, the Fund must designate in a written notice to shareholders the
amount of the Fund's dividends that would be eligible for this treatment

NET CAPITAL GAINS. Any distributions designated as being made from a Fund's net
capital gains will be taxable as long-term capital regardless of the holding
period of the shareholders of that Fund's shares. . The maximum federal capital
gains rate for individuals is 20% with respect to capital assets held more than
12 months. The maximum capital gains for corporate shareholders is the same as
the maximum tax rate for ordinary income.

Capital loss carryforwards result when a Fund has net capital losses during a
tax year. These are carried over to subsequent years and may reduce
distributions of realized gains in those years. Unused capital loss
carryforwards expire in eight years. Until such capital loss carryforwards are
offset or expire, it is unlikely that the Board of Directors will authorize a
distribution of any net realized gains.

NON-U.S. SHAREHOLDERS. Under the Code, distributions of net investment income by
a Fund to a shareholder who, as to the U.S., is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign shareholder") will be subject to U.S. tax
withholding (at a 30% or lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected" with
a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.

OTHER INFORMATION. The amount of any realized gain or loss on closing out a
futures contract such as a forward commitment for the purchase or sale of
foreign currency will generally result in a realized capital gain or loss for
tax purposes. Under Section 1256of the Code, futures contracts held by a Fund at
the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Sixty percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain, or loss from any actual sales will
be treated as long-term capital gain or loss, and the remainder will be treated
as short-term capital gain or loss. Section 988 of the Code may also apply to
currency transactions. Under Section 988 of the Code, each foreign currency gain
or loss is generally computed separately and treated as ordinary income or loss.
In the case of overlap between Sections 1256 and 988 of the Code, special
provisions determine the character and timing

63
<PAGE>

of any income, gain, or loss. The Funds will attempt to monitor transactions
under Section 988 of the Code to avoid an adverse tax impact. See also
"Investment Objectives, Policies, and Risk Considerations" in this Statement of
Additional Information.

Any loss realized on redemption or exchange of a Fund's shares will be
disallowed to the extent shares are reacquired within the 61 day period
beginning 30 days before and ending 30 days after the shares are redeemed or
exchanged.

Under the Code, a Fund's taxable income for each year will be computed without
regard to any net foreign currency loss attributable to transactions after
October 31, and any such net foreign currency loss will be treated as arising on
the first day of the following taxable year. A Fund may be required to pay
withholding and other taxes imposed by foreign countries generally at rates from
10% to 40% which would reduce such Fund's investment income. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is not anticipated that shareholders (except with respect to the
Global Fund, the International Growth Fund, and the Emerging Markets Fund) will
be entitled to a foreign tax credit or deduction for such foreign taxes.

With respect to the Global Fund, the International Growth Fund, or the Emerging
Markets Fund, so long as it (i) qualifies for treatment as a regulated
investment company, (ii) is liable for foreign income taxes, and (iii) more than
50% of its total assets at the close of its taxable year consist of stock or
securities of foreign corporations, it may elect to "pass through" to its
shareholders the amount of such foreign taxes paid. If this election is made,
information with respect to the amount of the foreign income taxes that are
allocated to the applicable Fund's shareholders will be provided to them and any
shareholder subject to tax on dividends will be required (i) to include in
ordinary gross income (in addition to the amount of the taxable dividends
actually received) its proportionate share of the foreign taxes paid that are
attributable to such dividends, and (ii) either deduct its proportionate share
of foreign taxes in computing its taxable income or to claim that amount as a
foreign tax credit (subject to applicable limitations) against U.S. income
taxes.

In order to qualify for the dividends received deduction, a corporate
shareholder must hold the Fund's shares paying the dividends, upon which a
dividend received deduction would be based, for at least 46 days during the
90-day period that begins 45 days before the stock becomes ex-divided with
respect to the dividend without protection from risk of loss. Similar
requirements apply to the Fund with respect to each qualifying dividend the Fund
receives. Shareholders are advised to consult their tax advisor regarding
application of these rules to their particular circumstances.

The foregoing is a general abbreviated summary of present United States federal
income taxes on dividends and distributions by each Fund. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state, and local taxes applicable to dividends and
distributions received.

ADDITIONAL INFORMATION

CUSTODIAN. State Street Bank & Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, acts as Custodian for the Investment Company's assets, and as
such safekeeps

64
<PAGE>

the Funds' portfolio securities, collects all income and other payments with
respect thereto, disburses funds at the Investment Company's request, and
maintains records in connection with its duties.

INDEPENDENT AUDITORS; FINANCIAL STATEMENTS. The Investment Company's independent
auditor is PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105. PricewaterhouseCoopers LLP will conduct an annual audit of
each Fund, assist in the preparation of each Fund's federal and state income tax
returns, and consult with the Investment Company as to matters of accounting,
regulatory filings, and federal and state income taxation. The financial
statements of the Funds as of October 31, 1998 incorporated herein by reference
are audited. Such financial statements are included herein in reliance on the
opinion of PricewaterhouseCoopers LLP given on the authority of said firm as
experts in auditing and accounting.

LEGAL OPINIONS. The validity of the shares of common stock offered hereby will
be passed upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street,
San Francisco, California 94104. In addition to acting as counsel to the
Investment Company, Paul, Hastings, Janofsky & Walker LLP has acted and may
continue to act as counsel to the Advisor and its affiliates in various matters.

USE OF NAME. The Advisor has granted the Investment Company the right to use the
"Fremont" name and has reserved the rights to withdraw its consent to the use of
such name by the Investment Company at any time, or to grant the use of such
name to any other company, and the Investment Company has granted the Advisor,
under certain conditions, the use of any other name it might assume in the
future, with respect to any other investment company sponsored by the Advisor.

SHAREHOLDER VOTING RIGHTS. The Investment Company currently issues shares in 11
series and may establish additional classes or series of shares in the future.
When more than one class or series of shares is outstanding, shares of all
classes and series will vote together for a single set of directors, and on
other matters affecting the entire Investment Company, with each share entitled
to a single vote. On matters affecting only one class or series, only the
shareholders of that class or series shall be entitled to vote. On matters
relating to more than one class or series but affecting the classes and series
differently, separate votes by class and series are required. Shareholders
holding 10% of the shares of the Investment Company may call a special meeting
of shareholders.

LIABILITY OF DIRECTORS AND OFFICERS. The Articles of Incorporation of the
Investment Company provide that, subject to the provisions of the 1940 Act, to
the fullest extent permitted under Maryland law, no officer or director of the
Investment Company may be held personally liable to the Investment Company or
its shareholders.

CERTAIN SHAREHOLDERS. To the best knowledge of the Funds, shareholders owning 5%
or more of the outstanding shares of the Funds as of record are set forth below:

SHAREHOLDER % HELD AS OF
FUND NAME & ADDRESS JANUARY 12, 2000
---- -------------- ----------------
Money Market Fund Bechtel Mast Trust for Qualifed Employees 53%

65
<PAGE>

100 Plaza One
Mailstop 3048
Jersey City, NJ 07311

Bond Fund Bechtel Mast Trust for Qualifed Employees 48%
100 Plaza One
Mailstop 3048
Jersey City, NJ 07311

Charles Schwab & Co., Inc. 12%
101 Montgomery Street
San Francisco, CA 94104-4122

Real Estate Charles Schwab & Co., Inc. 54%
Securities Fund 101 Montgomery Street
San Francisco, CA 94104-4122

National Financial Services Corp 14%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003

National Investor Services Corp 8%
55 Water Street
New York, NY 10041-0098

66
<PAGE>

Global Fund Bechtel Mast Trust for Qualifed Employees 51%
100 Plaza One
Mailstop 3048
Jersey City, NJ 07311

Growth Fund BF Fund Limited 15%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239

Fremont Sequoia Holding LP 7%
50 Fremont, Suite 3700
San Francisco, CA 94105-2230

International Growth BF Fund Limited 22%
Fund 50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239

Stephen D. Bechtel Jr. Trust 11%
P.O. Box 193809
San Francisco, CA 94119-3809

Charles Schwab & Co., Inc. 10%
101 Montgomery Street
San Francisco, CA 94104-4122

U.S. Small Cap Fund Charles Schwab & Co., Inc. 28%
101 Montgomery Street
San Francisco, CA 94104-4122

Fremont Sequoia Holding LP 19%
50 Fremont, Suite 3700
San Francisco, CA 94105-2230

National Financial Services Corp 8%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003

Enele Co. FBO Omni 6%
601 SW 2nd Ave., #1800
Portland, OR 97204-3154

Emerging Markets Fremont Investment Advisors, Inc. 15%
Fund 333 Market Street, Ste. 2600
San Francisco, Ca 94105-2127

Charles Schwab & Co., Inc. 13%
101 Montgomery Street
San Francisco, CA 94104-4122

Wells Fargo Bank 9%
Fremont Excess Benefit Plan
P.O. Box 9800
Calabasas, CA 91372-0800

67
<PAGE>

Fremont Investors, Inc. 6%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239

Fremont Group 6%
50 Fremont Street, Ste. 3600
San Francisco, CA 94105-2239

U.S. Micro-Cap Fund Charles Schwab & Co., Inc. 48%
101 Montgomery Street
San Francisco, CA 94104-4122

National Financial Services Corp 17%
FBO Sal Vella
200 Liberty Street
New York, NY 10281-1003

National Investor Services Corp 7%
55 Water Street
New York, NY 10041-0098

California BF Fund Limited 42%
Intermediate 50 Fremont Street, Ste. 3600
Tax-Free Fund San Francisco, CA 94105-2239

Charles Schwab & Co., Inc. 13%
101 Montgomery Street
San Francisco, CA 94104-4122

Willis S. Slusser and Marion B. Slusser 8%
200 Deer Valley Road, #1D
San Rafael, CA 94903-5513

OTHER INVESTMENT INFORMATION. The Advisor directs the management of over
$billion of assets and internally manages over $billion of assets for retirement
plans, foundations, private portfolios, and mutual funds. The Advisor's
philosophy is to apply a long-term approach to investing that balances risk and
return potential.

The Global Fund's investment objectives are similar to the objectives of Bechtel
Trust & Thrift Plan, Fund A. The Bond Fund's investment objectives are the same
as the objectives of Bechtel Trust & Thrift Plan, Fund B. The Money Market
Fund's investment objectives are the same as the objectives of Bechtel Trust &
Thrift Plan, Fund C.

Historical annual returns of various market indices may be used to represent the
returns of various asset classes as follows:

(1) U.S. Stocks: Standard & Poor's 500 Index;

(2) Foreign Stocks: Morgan Stanley Europe, Australasia and Far East (EAFE)
Index;

68
<PAGE>

(3) Intermediate U.S. Bonds: Lehman Brothers Intermediate
Government/Corporate Bond Index;

(4) Foreign Bonds: Salomon Brothers Non-U.S. Dollar Bond Index;

(5) Money Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate:
1987-1998 IBC First Tier Money Market Fund Average; and

(6) The National Association of Real Estate Investment Trusts' (NAREIT)
Equity REIT Index.

The total returns for the above indices for the years 1980 through 1999 are as
follows (source: Fremont Investment Advisors, Inc.):

Money
Foreign Intermediate Foreign Market
U.S. Stocks Stocks U.S. Bonds Bonds Securities NAREIT
----------- ------ ---------- ----- ---------- ------
1980 32.4% 24.4% 6.4% 14.2% 11.8% 28.02%
1981 -5.0% -1.0% 10.5% -4.6% 16.1% 8.58%
1982 21.3% -0.9% 26.1% 11.9% 10.7% 31.64%
1983 22.3% 24.6% 8.6% 4.4% 8.6% 25.47%
1984 6.3% 7.9% 14.4% -1.9% 10.0% 14.82%
1985 31.8% 56.7% 18.1% 35.0% 7.5% 5.92%
1986 18.7% 70.0% 13.1% 31.4% 5.9% 19.18%
1987 5.1% 24.9% 3.7% 35.2% 6.0% -10.67%
1988 16.8% 28.8% 6.7% 2.4% 6.9% 11.36%
1989 31.4% 11.1% 12.8% -3.4% 8.5% -1.81%
1990 -3.2% -23.0% 9.2% 15.3% 7.5% -17.35%
1991 30.6% 12.9% 14.6% 16.2% 5.5% 35.68%
1992 7.7% -11.5% 7.2% 4.8% 3.3% 12.18%
1993 10.0% 33.3% 8.8% 15.1% 2.6% 18.55%
1994 1.3% 8.1% -1.9% 6.0% 3.6% 0.81%
1995 37.5% 11.2% 15.3% 19.6% 5.3% 18.31%
1996 23.0% 6.1% 4.1% 4.5% 4.8% 35.75%
1997 33.4% 1.8% 7.9% -4.3% 5.0% 29.14%
1998 28.6% 20.0% 9.5% 11.5% 4.9% -18.8%
1999 21.0% 27.0% -2.2% -5.1% 4.5% -6.48%

The Bond Fund, the Real Estate Securities Fund, the Global Fund, the Growth
Fund, the International Growth Fund, the U.S. Small Cap Fund, the Emerging
Markets Fund, and the U.S. Micro-Cap Fund are best suited as long-term
investments. While they offer higher potential total returns than certificates
of deposit or money market funds (including the Money Market Fund), they involve
added return volatility or risk. The prospective investor must weigh this
potential for higher return against the associated higher risk.

69
<PAGE>

INVESTMENT RESULTS

The Investment Company may from time to time include information on the
investment results (yield or total return) of a Fund in advertisements or in
reports furnished to current or prospective shareholders.

Current yield for the Money Market Fund will be calculated based on the net
change, exclusive of capital changes, over a seven-day period, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent. As of October 31,
1998, the seven-day current yield for the Money Market Fund was 5.15%.

Effective Yield (or 7-day compound yield) for the Money Market Fund will be
calculated based on the net change, exclusive of capital changes, over a
seven-day period, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and then dividing the
difference by the value of the account, at the beginning of the base period to
obtain this base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to (365/7), and subtracting 1 from
the result, according to the following formula:

365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) -1].

The resulting yield figure is carried to at least the nearest hundredth of one
percent. As of October 31, 1998, the effective yield for the Money Market Fund
was 5.28%.

With respect to the Bond Fund, the Global Fund, the Growth Fund, the
International Growth Fund, the Emerging Markets Fund, and the U.S. Micro-Cap
Fund, the average annual rate of return ("T") for a given period is computed by
using the redeemable value at the end of the period ("ERV") of a hypothetical
initial investment of $10,000 ("P") over the period in years ("n") according to
the following formula as required by the SEC:

n
P(1+T) = ERV

The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the Board of
Directors; and (2) a complete redemption at the end of any period illustrated.
Each Fund will calculate total return for one, five, and ten-year periods after
such a period has elapsed, and may calculate total returns for other periods as
well. In addition, each Fund will provide lifetime average annual total return
figures.

70
<PAGE>

The average annual total returns of the Funds for the periods ended October 31,
1999 are as follows:

--------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- ---------
--------------------------------------------------------------------------------
Money Market Fund 4.89% 5.38% 5.45%
--------------------------------------------------------------------------------
Bond Fund 0.01% 8.78% 6.76%
--------------------------------------------------------------------------------
Real Estate Securities Fund -0.07% -- -10.76%
--------------------------------------------------------------------------------
Global Fund 17.37% 12.01% 10.41%
--------------------------------------------------------------------------------
Growth Fund 24.24% 21.93% 17.27%
--------------------------------------------------------------------------------
International Growth Fund 38.70% 8.43% 7.83%
--------------------------------------------------------------------------------
U.S. Small Cap Fund 84.60% -- 26.64%
--------------------------------------------------------------------------------
Emerging Markets Fund 36.16% -- -2.25%
--------------------------------------------------------------------------------
U.S. Micro-Cap Fund 110.46% 32.42% 30.96%
--------------------------------------------------------------------------------
California Intermediate Tax-Free Fund -0.68% 6.04% 5.99%
--------------------------------------------------------------------------------

The Bond Fund and California Intermediate Tax-Free Fund may each quote its
yield, which is computed by dividing the net investment income per share earned
during a 30-day period by the maximum offering price per share on the last day
of the period, according to the following formula:

6
YIELD = 2[((a - b)/cd + 1) - 1]

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period

The Bond Fund's 30-day yield as of October 31, 1998 was 6.03%. The California
Intermediate Tax-Free Fund's 30-day yield as of October 31, 1998 was 3.55%.

Each Fund's investment results will vary from time to time depending upon market
conditions, the composition of a Fund's portfolio and operating expenses of a
Fund, so that current or past yield or total return should not be considered
representations of what an investment in a Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing a Fund's investment
results with those published for other investment companies and other investment
vehicles. A Fund's results also should be considered relative to the risks
associated with such Fund's investment objective and policies.

The Investment Company may from time to time compare the investment results of a
Fund with, or refer to, the following:

(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate

71
<PAGE>

of return on principal, but no opportunity for capital growth. During
certain periods, the maximum rates paid on some savings deposits were
fixed by law.

(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other
goods and services that people buy for day-to-day living).

(3) Statistics reported by Lipper Analytical Services, Inc., which ranks
mutual funds by overall performance, investment objectives, and
assets.

(4) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
large publicly traded U.S. common stocks.

(5) Dow Jones Industrial Average.

(6) CNBC/Financial News Composite Index.

(7) Russell 1000 Index, which reflects the common stock price changes of
the 1,000 largest publicly traded U.S. companies by market
capitalization.

(8) Russell 3000 Index, which reflects the common stock price changes of
the 3,000 largest publicly traded U.S. companies by market
capitalization.

(9) Wilshire 5000 Index, which reflects the investment return of the
approximately 5,000 publicly traded securities for which daily pricing
is available, weighted by market capitalization, excluding income.

(10) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and
mortgage-backed fixed income securities.

(11) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.

(12) Morgan Stanley Europe, Australasia and Far East (EAFE) Index, which is
composed of foreign stocks.

(13) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.

(14) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.

(15) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed-income securities.

(16) Lehman Brothers Government/Corporate Intermediate Bond Index, which is
a widely used index composed of investment quality U.S. government and
corporate fixed income securities with maturities between one and ten
years.

72
<PAGE>

(17) Salomon Brothers World Government Bond Index, which is a widely used
index composed of U.S. and non-U.S. government fixed income securities
of the major countries of the World.

(18) 90-day U.S. Treasury Bills Index, which is a measure of the
performance of constant maturity 90-day U.S. Treasury Bills.

(19) IBC First Tier Money Fund Average, which is an average of the 30-day
yield of approximately 250 major domestic money market funds.

(20) Salomon Brothers Non-U.S. World Government Bond Index, which is the
World Government Bond index excluding its U.S. market component.

(21) Salomon Brothers Non-Dollar Bond Index, which is composed of foreign
corporate and government fixed income securities.

(22) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.

(23) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.

(24) The World Bank Publication of Trends in Developing Countries ("TIDE"),
which provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks
at global and regional economic trends and their implications for the
developing economies.

(25) Datastream and Worldscope, which is an on-line database retrieval
service for information including but not limited to international
financial and economic data.

(26) International Financial Statistics, which is produced by the
International Monetary Fund.

(27) Various publications and annual reports such as the World Development
Report, produced by the World Bank and its affiliates.

(28) Various publications from the International Bank for Reconstruction
and Development/The World Bank.

(29) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch IBCA, Inc. and Standard
Poor's Ratings Group.

(30) Various publications from the Organization for Economic Cooperation
and Development.

(31) Bechtel Trust & Thrift Plan, Fund A (Global Multi-Asset Fund), Fund B
(Bond Fund), Fund C (Money Market Fund), and Fund D (U.S. Stock
Fund).*

* Bechtel Trust & Thrift Plan performance results include reinvestment of
dividends, interest, and other income, and are net of investment management
fees. Results for Fund A, Fund B, and Fund D were in part achieved through
the efforts of investment managers selected by Fremont Investment Advisors
or its predecessor organizations.

73
<PAGE>

Indices prepared by the research departments of such financial organizations as
the Sub-Advisor of the Funds; J.P. Morgan; Lehman Brothers; S.G. Warburg;
Jardine Fleming; the Asian Development Bank; Bloomberg, L.P.; Morningstar, Inc;
Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith, Inc.; Morgan
Stanley; Bear Stearns & Co., Inc.; and Ibbottson Associates of Chicago, Illinois
("Ibbotson") may be used, as well as information provided by the Federal Reserve
and the respective central banks of various countries.

The Investment Company may use performance rankings and ratings reported
periodically in national financial publications such as, but not limited to,
MONEY MAGAZINE, FORBES, THE WALL STREET JOURNAL, INVESTOR'S BUSINESS DAILY,
FORTUNE, SMART MONEY, BUSINESS WEEK, and BARRON'S.

The Advisor believes the Funds are an appropriate investment for long-term
investment goals including, but not limited to, funding retirement, paying for
education, or purchasing a house. The Funds do not represent a complete
investment program, and investors should consider the Funds as appropriate for a
portion of their overall investment portfolio with regard to their long-term
investment goals.

The Advisor believes that a growing number of consumer products, including, but
not limited to, home appliances, automobiles, and clothing, purchased by
Americans are manufactured abroad. The Advisor believes that investing globally
in the companies that produce products for U.S. consumers can help U.S.
investors seek protection of the value of their assets against the potentially
increasing costs of foreign manufactured goods. Of course, there can be no
assurance that there will be any correlation between global investing and the
costs of such foreign goods unless there is a corresponding change in value of
the U.S. dollar to foreign currencies. From time to time, the Investment Company
may refer to or advertise the names of such companies although there can be no
assurance that the Funds may own the securities of these companies.

From time to time, the Investment Company may refer to the number of
shareholders in a Fund or the aggregate number of shareholders in all Fremont
Mutual Funds or the dollar amount of Fund assets under management or rankings by
DALBAR Savings, Inc. in advertising materials.

A Fund may compare its performance to that of other compilations or indices of
comparable quality to those listed above which may be developed and made
available in the future. The Funds may be compared in advertising to
Certificates of Deposit (CDs), the Bank Rate Monitor National Index, an average
of the quoted rates for 100 leading banks and thrifts in ten U.S. cities chosen
to represent the ten largest Consumer Metropolitan statistical areas, or other
investments issued by banks. The Funds differ from bank investments in several
respects. The Funds may offer greater liquidity or higher potential returns than
CDs; but unlike CDs, the Funds will have a fluctuating share price and return
and are not FDIC insured.

A Fund's performance may be compared to the performance of other mutual funds in
general, or to the performance of particular types of mutual funds. These
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. (Lipper), an independent service which monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of total
return, assuming reinvestment of distributions,

74
<PAGE>

but does not take sales charges or redemption fees into consideration, and is
prepared without regard to tax consequences. In addition to the mutual fund
rankings, a Fund's performance may be compared to mutual fund performance
indices prepared by Lipper.

The Investment Company may provide information designed to help individuals
understand their investment goals and explore various financial strategies. For
example, the Investment Company may describe general principles of investing,
such as asset allocation, diversification, and risk tolerance.

Ibbottson provides historical returns of capital markets in the United States,
including common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the CPI), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices.

The Investment Company may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not correspond directly to those of the Funds. The
Funds may also compare performance to that of other compilations or indices that
may be developed and made available in the future.

In advertising materials, the Advisor may reference or discuss its products and
services, which may include retirement investing, the effects of dollar-cost
averaging, and saving for college or a home. In addition, the Advisor may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques.

A Fund may discuss its NASDAQ symbol, CUSIP number, and its current portfolio
management team.

From time to time, a Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, the Funds may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. In addition, the Funds may quote financial
or business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques. Rankings that compare the
performance of Fremont Mutual Funds to one another in appropriate categories
over specific periods of time may also be quoted in advertising.

The Funds may quote various measures of volatility and benchmark correlation
such as beta, standard deviation, and R2 in advertising. In addition, the Funds
may compare these measures to those of other funds. Measures of volatility seek
to compare a Fund's historical share price fluctuations or total returns
compared to those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data.

The Funds may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar

75
<PAGE>

amount in a Fund at periodic intervals, thereby purchasing fewer shares when
prices are high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the investor's
average cost per share can be lower than if a fixed number of shares are
purchased at the same intervals. In evaluating such a plan, investors should
consider their ability to continue purchasing shares through periods of low
price levels.

The Funds may be available for purchase through retirement plans of other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $10,000 investment earning
a taxable return of 10% annually would have an after-tax value of $17,976 after
ten years, assuming tax was deducted from the return each year at a 39.6% rate.
An equivalent tax-deferred investment would have an after-tax value of $19,626
after ten years, assuming tax was deducted at a 39.6% rate from the deferred
earnings at the end of the ten-year period.

A Fund may describe in its sales material and advertisements how an investor may
invest in the Fund through various retirement accounts and plans that offer
deferral of income taxes on investment earnings and may also enable an investor
to make pre-tax contributions. Because of their advantages, these retirement
accounts and plans may produce returns superior to comparable non-retirement
investments. The Funds may also discuss these accounts and plans which include
the following:

INDIVIDUAL RETIREMENT ACCOUNTS (IRAs): Any individual who receives earned income
from employment (including self-employment) can contribute up to $2,000 each
year to an IRA (or 100% of compensation, whichever is less). Married couples
with a non-working spouse or a spouse not covered by an employers plan can make
a completely deductible IRA contribution for that spouse as long as their
combined adjusted gross income does not exceed $150,000. Some individuals may be
able to take an income tax deduction for the contribution. Regular contributions
may not be made for the year after you become 70 1/2, or thereafter.

ROLLOVER IRAs: Individuals who receive distributions from qualified retirement
plans (other than required distributions) and who wish to keep their savings
growing tax-deferred can rollover (or make a direct transfer of) their
distribution to a Rollover IRA. These accounts can also receive rollovers or
transfers from an existing IRA.

SEP-IRAs and SIMPLE IRAs: Simplified employee pension (SEP) plans and SIMPLE
plans provide employers and self-employed individuals (and any eligible
employees) with benefits similar to Keogh-type plans or 401(k) plans, but with
fewer administrative requirements and therefore lower annual administration
expenses.

ROTH IRA: The Roth IRA allows investment of after-tax dollars in a retirement
account that provides tax-free growth. Funds can be withdrawn without federal
income tax or penalty after the account has been open for five years and the age
of 59 1/2 has been attained.

PROFIT SHARING (INCLUDING 401(k) AND MONEY PURCHASE PENSION PLANS): Corporations
can sponsor these qualified defined contribution plans for their employees. A
401(k) plan, a type of profit sharing plan, additionally permits the eligible,
participating employees to make pre-tax salary reduction contributions to the
plan (up to certain limitations).

76
<PAGE>

The Advisor may from time to time in its sales methods and advertising discuss
the risks inherent in investing. The major types of investment risk are market
risk, industry risk, credit risk, interest rate risk, and inflation risk. Risk
represents the possibility that you may lose some or all of your investment over
a period of time. A basic tenet of investing is the greater the potential
reward, the greater the risk.

From time to time, the Funds and the Advisor will quote certain information
including, but not limited to, data regarding: individual countries, regions,
world stock exchanges, and economic and demographic statistics from sources the
Advisor deems reliable, including, but not limited to, the economic and
financial data of such financial organizations as:

1) Stock market capitalization: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.

2) Stock market trading volume: Morgan Stanley Capital International World
Indices, and International Finance Corporation.

3) The number of listed companies: International Finance Corporation, Salomon
Brothers, Inc., and S.G. Warburg.

4) Wage rates: U.S. Department of Labor Statistics and Morgan Stanley Capital
International World Indices.

5) International industry performance: Morgan Stanley Capital International
World Indices, Wilshire Associates, and Salomon Brothers, Inc.

6) Stock market performance: Morgan Stanley Capital International World
Indices, International Finance Corporation, and Datastream.

7) The Consumer Price Index and inflation rate: The World Bank, Datastream,
and International Finance Corporation.

8) Gross Domestic Product (GDP): Datastream and The World Bank.

9) GDP growth rate: International Finance Corporation, The World Bank, and
Datastream.

10) Population: The World Bank, Datastream, and United Nations.

11) Average annual growth rate (%) of population: The World Bank, Datastream,
and United Nations.

12) Age distribution within populations: Organization for Economic Cooperation
and Development and United Nations.

13) Total exports and imports by year: International Finance Corporation, The
World Bank, and Datastream.

14) Top three companies by country, industry, or market: International Finance
Corporation, Salomon Brothers, Inc., and S.G. Warburg.

15) Foreign direct investments to developing countries: The World Bank and
Datastream.

77
<PAGE>

16) Supply, consumption, demand, and growth in demand of certain products,
services, and industries, including, but not limited to, electricity,
water, transportation, construction materials, natural resources,
technology, other basic infrastructure, financial services, health care
services and supplies, consumer products and services, and
telecommunications equipment and services (sources of such information may
include, but would not be limited to, The World Bank, OECD, IMF, Bloomberg,
and Datastream).

17) Standard deviation and performance returns for U.S. and non-U.S. equity and
bond markets: Morgan Stanley Capital International.

18) Political and economic structure of countries: Economist Intelligence Unit.

19) Government and corporate bonds - credit ratings, yield to maturity and
performance returns: Salomon Brothers, Inc.

20) Dividend for U.S. and non-U.S. companies: Bloomberg.

In advertising and sales materials, the Advisor or a Sub-Advisor may make
reference to or discuss its products, services, and accomplishments. Such
accomplishments do not provide any assurance that the Fremont Mutual Funds'
investment objectives will be achieved.

78
<PAGE>

FREMONT MUTUAL FUNDS, INC.

FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND

TOLL-FREE: 800-548-4539

PART B

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information concerning Fremont Mutual Funds, Inc.
(the "Investment Company") is not a prospectus. This Statement of Additional
Information supplements the Prospectus for the Fremont Institutional U.S.
Micro-Cap Fund (the "Fund") dated February 10, 2000 and should be read in
conjunction with the Prospectus. Copies of the Prospectus are available without
charge by calling the Investment Company at the phone number printed above.

The date of this Statement of Additional Information is February 10, 2000,
amended August 15, 2000.

<PAGE>

TABLE OF CONTENTS

PAGE

The Corporation.............................................................. 3
Investment Objective, Policies, And Risk
Considerations............................................................. 4
Investment Restrictions...................................................... 19
Investment Company Directors And Officers.................................... 21
Investment Advisory And Other Services....................................... 23
Execution Of Portfolio Transactions.......................................... 25
How To Invest................................................................ 26
Other Investment And Redemption Services..................................... 28
Taxes - Mutual Funds......................................................... 29
Additional Information....................................................... 32
Investment Results........................................................... 34
Appendix A: Description Of Ratings........................................... 42

2
<PAGE>

THE CORPORATION

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. This Statement of Additional Information
pertains to the Fremont Institutional U.S. Micro-Cap Fund (the "Fund").
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 Investment Company Act of
1940, as amended (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.

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. The Advisor's
Investment Committee oversees the portfolio management of the Fund.

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 the
Advisor's 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.

On any matter submitted to a vote of shareholders, such matter shall be voted by
the Fund's shareholders separately when the matter affects the specific interest
of the Fund (such as approval of the Advisory Agreement with the Advisor) except
in matters where a vote of all series in the aggregate is required by the 1940
Act or otherwise.

3
<PAGE>

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 at
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.

INVESTMENT OBJECTIVE, POLICIES, AND RISK CONSIDERATIONS

The descriptions below are intended to supplement the material in the
Prospectus.

Under normal market conditions, at least 65% of the total assets of the Fund
will be invested in equity securities of U.S. micro-cap companies (described
below). These companies would have a market capitalization that would place them
in the smallest 5% of market capitalization measured at the time of purchase. As
the value of the total market capitalziation changes, the smallest 5% cap size
many also change. Up to 25% of the Fund's total assets, at the time of purchase,
may be invested in securities of micro-cap companies domiciled outside the
United States, including sponsored and unsponsored American Depository Receipts
("ADRs") and Global Depository Receipts ("GDRs"). The Fund may also invest in
stock index futures contracts, options on index futures and options on portfolio
securities and stock indices.

Although the Fund invests primarily in common stocks and securities convertible
into common stock, for liquidity purposes it will normally invest a portion of
its assets in high quality debt securities and money market instruments with
remaining maturities of one year or less, including repurchase agreements.
Whenever, in the judgment of the Advisor or the Sub-Advisor, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limitation in these instruments. Of course, during times that the Fund
is investing defensively, the Fund will not be able to pursue its stated
investment objective. The Fund may also hold other types of securities from time
to time, including non-convertible bonds and preferred stocks, in an amount not
exceeding 5% of its net assets. Preferred stocks and bonds will be, at the time
of purchase, (i) rated in the top two categories of Moody's Investor Service,
Inc. (Aaa or Aa) or Standard & Poor's Ratings Group, (AAA or AA), or (ii) have a
comparable rating by another Nationally Recognized Statistical Rating
Organization ("NRSRO), or (iii) be of comparable quality as determined by the
Advisor and/or Sub-Advisor.

GENERAL INVESTMENT POLICIES

DIVERSIFICATION. The Fund intends to operate as a "diversified" management
investment company, as defined in the 1940 Act. A "diversified" investment
company means a company which meets the following requirements: At least 75% of
the value of the Fund's total assets is represented by cash and cash items
(including receivables), "Government Securities" (as defined below), securities
of other investment companies, and other securities for the purposes of this
calculation limited in respect of any one issuer to an amount not greater in
value than

4
<PAGE>

5% of the value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer. "Government Securities" means
securities issued or guaranteed as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an
instrumentality of the Government of the United States pursuant to authority
granted by the Congress of the United States.

MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following "money
market" instruments: certificates of deposit, time deposits, commercial paper,
bankers' acceptances and Eurodollar certificates of deposit; U.S.
dollar-denominated money market instruments of foreign financial institutions,
corporations and governments; U.S. government and agency securities; money
market mutual funds; and other debt securities which are not specifically named
but which meet the Fund's quality guidelines. The Fund also may enter into
repurchase agreements as described below and may purchase variable and floating
rate debt securities.

At the time of purchase, short-term securities must be rated in the top rating
category by at least two NRSROs or, in the case of a security rated by only one
NRSRO, rated in the top rating category of that NRSRO, or if not rated by an
NRSRO, must be determined to be of comparable quality by the Advisor and/or
Sub-Advisor. Generally, high quality short-term securities must be issued by an
entity with an outstanding debt issue rated A or better by an NRSRO, or an
entity of comparable quality as determined by the Advisor and/or Sub-Advisor,
using guidelines approved by the Board of Directors. Obligations of foreign
banks, foreign corporations and foreign branches of domestic banks must be
payable in U.S. dollars. See Appendix A to the Statement of Additional
information for a description of rating categories.

U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. government securities,
which are obligations of, or guaranteed by, the U.S. government, its agencies or
instrumentalities. Some U.S. government securities, such as Treasury bills,
notes and bonds and Government National Mortgage Association ("GNMA")
certificates, are supported by the full faith and credit of the United States;
those of the Federal Home Loan Mortgage Corporation ("FHLMC") are supported by
the right of the issuer to borrow from the Treasury; those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and those
of the Student Loan Marketing Association are supported only by the credit of
the instrumentality. The U.S. government is not obligated by law to provide
future financial support to the U.S. government agencies or instrumentalities
named above.

REPURCHASE AGREEMENTS. As part of its cash reserve position, the Fund may enter
into repurchase agreements through which the Fund acquires a security (the
"underlying security") from the seller, a well-established securities dealer, or
a bank that is a member of the Federal Reserve System. At that time, the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus a specified amount of interest. Repurchase agreements are generally
for a period of less than one week. The seller must maintain with the Fund's
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. The Fund
will not enter into a repurchase agreement with a maturity of more than seven
business days if, as a result, more than 15% of the value of its net assets
would then be invested in such repurchase agreements. The Fund will only enter
into repurchase agreements where (i) the underlying securities are issued or
guaranteed by the U.S. government, (ii) the market value of the underlying
security, including accrued interest, will be at all times equal to or in excess
of the value of the

5
<PAGE>

repurchase agreement, and (iii) payment for the underlying securities is made
only upon physical delivery or evidence of book-entry transfer to the account of
the custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses, including: (i) a
possible decline in the value of the underlying security during the period in
which the Fund seeks to enforce its rights thereto; (ii) possible subnormal
levels of income and lack of access to income during this period; and (iii)
expenses of enforcing the Fund's rights.

REVERSE REPURCHASE AGREEMENTS AND LEVERAGE. The Fund may enter into reverse
repurchase agreements which involve the sale of a security by the Fund and its
agreement to repurchase the security at a specified time and price. The Fund
will maintain in a segregated account with its custodian cash, cash equivalents,
or liquid securities in an amount sufficient to cover its obligations under
reverse repurchase agreements with broker-dealers (but not with banks). Under
the 1940 Act, reverse repurchase agreements are considered borrowings by the
Fund; accordingly, the Fund will limit its investments in these transactions,
together with any other borrowings, to no more than one-third of its total
assets. The use of reverse repurchase agreements by the Fund creates leverage
which increases the Fund's investment risk. If the income and gains on
securities purchased with the proceeds of these transactions exceed the cost,
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 costs,
earnings or net asset value would decline faster than otherwise would be the
case. If the 300% asset coverage required by the 1940 Act should decline as a
result of market fluctuation or other reasons, the Fund may be required to sell
some of its portfolio securities within three days to reduce the borrowings
(including reverse repurchase agreements) and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint to sell
securities at that time. The Fund intends to enter into reverse repurchase
agreements only if the income from the investment of the proceeds is greater
than the expense of the transaction, because the proceeds are invested for a
period no longer than the term of the reverse repurchase agreement.

FLOATING RATE AND VARIABLE RATE OBLIGATIONS AND PARTICIPATION INTERESTS. The
Fund may purchase floating rate and variable rate obligations, including
participation interests therein. Floating rate or variable rate obligations
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate at a major commercial bank) or is
reset on a regular basis by a bank or investment banking firm to a market rate.
At specified times, the owner can demand payment of the obligation at par plus
accrued interest. Variable rate obligations provide for a specified periodic
adjustment in the interest rate, while floating rate obligations have an
interest rate which changes whenever there is a change in the external interest
rate. Frequently, banks provide letters of credit or other credit support or
liquidity arrangements to secure these obligations. The quality of the
underlying creditor or of the bank, as the case may be, must meet the minimum
credit quality standards, as determined by the Advisor and/or Sub-Advisor,
prescribed for the Fund by the Board of Directors with respect to counterparties
in repurchase agreements and similar transactions.

The Fund may invest in participation interests purchased from banks in floating
rate or variable rate obligations owned by banks. A participation interest gives
the Fund an undivided interest in the obligation in the proportion that the
Fund's participation interest bears to the total

6
<PAGE>

principal amount of the obligation, and provides a demand repayment feature.
Each participation is backed by an irrevocable letter of credit or guarantee of
a bank (which may be the bank issuing the participation interest or another
bank). The bank letter of credit or guarantee must meet the prescribed
investment quality standards for the Fund. The Fund has the right to sell the
participation instrument back to the issuing bank or draw on the letter of
credit on demand for all or any part of the Fund's participation interest in the
underlying obligation, plus accrued interest.

SWAP AGREEMENTS. The Fund may enter into interest rate, index, and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular 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,
or "cap"; 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, or "floor"; and interest rate collars, under which a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding minimum or maximum levels.

The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). 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 high-grade debt
obligations, to avoid any potential leveraging of the Fund's portfolio. The Fund
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 5%
of the Fund's net assets.

Whether the Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Advisor's and/or Sub-Advisor's ability
to predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements will be
considered as illiquid. Moreover, the Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Advisor and/or Sub-Advisor will
cause the Fund to enter into swap agreements only with counterparties that would
be eligible for

7
<PAGE>

consideration as repurchase agreement counterparties under the Fund's repurchase
agreement guidelines. Certain restrictions imposed on the Fund by the Internal
Revenue Code may limit the Fund's ability to use swap agreements. The swaps
market is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect the
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.

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 or firm commitment 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 in an amount sufficient to meet its payment obligations
thereunder. There is always a risk that the securities may not be delivered and
that a Fund may incur a loss or will have lost the opportunity to invest the
amount set aside for such transaction in the segregated asset account.
Settlements in the ordinary course of business, which may take substantially
more than three business days for non-U.S. securities, are not treated by the
Funds as when-issued or forward commitment transactions and, accordingly, are
not subject to the foregoing limitations, even though some of the risks
described above may be present in such transactions. Although these transactions
will not be entered into for leveraging purposes, to the extent the Fund's
aggregate commitments under these transactions exceed its holdings of cash and
securities that do not fluctuate in value (such as short-term money market
instruments), the Fund temporarily will be in a leveraged position (i.e., it
will have an amount greater than its net assets subject to market risk). Should
market values of the Fund's portfolio securities decline while the Fund is in a
leveraged position, greater depreciation of its net assets would likely occur
than were it not in such a position. As the Fund's aggregate commitments under
these transactions increase, the opportunity for leverage similarly increases.
The Fund will not borrow money to settle these transactions and, therefore, will
liquidate other portfolio securities in advance of settlement if necessary to
generate additional cash to meet its obligations thereunder.

COMMERCIAL BANK OBLIGATIONS. For the purposes of the Fund's investment policies
with respect to bank obligations, obligations of foreign branches of U.S. banks
and of foreign banks may be general obligations of the parent bank in addition
to the issuing bank, or may be limited by the terms of a specific obligation and
by government regulation. As with investment in non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks, and of foreign
banks may subject the Fund to investment risks that are different in some
respects from those of investments in obligations of domestic issuers. Although
the Fund will typically acquire obligations issued and supported by the credit
of U.S. or foreign banks having total assets at the time of purchase in excess
of $1 billion, this $1 billion figure is not a fundamental investment policy or
restriction of the Fund. For the purposes of calculating the $1 billion figure,
the assets of a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.

8
<PAGE>

TEMPORARY DEFENSIVE POSTURE. When a temporary defensive posture in the market is
appropriate in the Advisor's and/or Sub-Advisor's opinion, the Fund may
temporarily invest up to 100% of its assets in high quality, short-term debt
securities and money market instruments, including repurchase agreements. The
Fund may also hold other types of securities from time to time, including bonds.

BORROWING. The Fund may borrow from banks an amount not exceeding 30% of the
value of its total assets for temporary or emergency purposes and may enter into
reverse repurchase agreements. If the income and gains on securities purchased
with the proceeds of borrowings or reverse repurchase agreements exceed the cost
of such borrowings or agreements, the Fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the cost, earnings or net asset value would decline faster
than otherwise would be the case.

LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing additional income,
the Fund may make secured loans of portfolio securities amounting to not more
than 33-1/3% of its net assets. Securities loans are made to broker-dealers or
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent marked to market on a daily basis. The collateral received
will consist of cash, short-term U.S. Government securities, bank letters of
credit, or such other collateral as may be permitted under the Fund's investment
program and by regulatory agencies and approved by the Board of Directors. While
the securities are being lent, the Fund will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Fund has a right to call each loan and obtain the securities on five business
days' notice. The Fund will not have the right to vote equity securities while
they are being lent, but it will call a loan in anticipation of any vote in
which it seeks to participate.

PORTFOLIO TURNOVER. The Fund may trade in securities for short-term gain
whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take
advantage of anomalies occurring in general market, economic or political
conditions. Therefore, the Fund may have a higher portfolio turnover rate than
that of some other investment companies, but it is anticipated that the annual
portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover
rate is calculated by dividing the lesser of sales or purchases of long-term
portfolio securities by the Fund's average month-end long-term investments. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads or brokerage commissions and other costs that the Fund
will bear directly, and may result in the realization of net capital gains,
which are generally taxable whether or not distributed to shareholders.

SHARES OF INVESTMENT COMPANIES. The Fund may invest some portion of its assets
in shares of other no-load, open-end investment companies and closed-end
investment companies to the extent that they may facilitate achieving the
objective of the Fund or to the extent that they afford the principal or most
practical means of access to a particular market or markets or they represent
attractive investments in their own right. The percentage of Fund assets which
may be so invested is not limited, provided that the Fund and its affiliates do
not acquire more than 3% of the shares of any such investment company. The
provisions of the 1940 Act may also impose certain restrictions on redemption of
the Fund's shares in other investment companies. The Fund's purchase of shares
of investment companies may result in the payment by a shareholder of
duplicative management fees. The Advisor and/or Sub-Advisor will consider such
fees in determining whether

9
<PAGE>

to invest in other mutual funds. The Fund will invest only in investment
companies which do not charge a sales load; however, the Fund may invest in such
companies with distribution plans and fees, and may pay customary brokerage
commissions to buy and sell shares of closed-end investment companies.

The return on the Fund's investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Fund's investment in a closed-end investment company may
require the payment of a premium above the net asset value of the investment
company's shares, and the market price of the investment company thereafter may
decline without any change in the value of the investment company's assets. The
Fund, however, will not invest in any investment company or trust unless the
potential benefits of such investment are sufficient to warrant the payment of
any such premium.

As an exception to the above, the Fund has the authority to invest all of its
assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions, and
policies as that of the Fund. The Fund will notify its shareholders prior to
initiating such an arrangement.

ILLIQUID AND RESITRICTED SECURITIES. The Fund may invest up to 15% of its net
assets in all forms of "illiquid securities."

An investment is generally deemed to be "illiquid" if it cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which such securities are valued by the Fund. "Restricted" securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933 (the "1933 Act"). However, a
market exists for certain restricted securities (for example, securities
qualifying for resale to certain "qualified institutional buyers" pursuant to
Rule 144A under the 1933 Act). Additionally, the Advisor, the Sub-Advisor and
the Fund believe that a similar market exists for commercial paper issued
pursuant to the private placement exemption of Section 4(2) of the 1933 Act. The
Fund may invest without limitation in these forms of restricted securities if
such securities are determined by the Advisor to be liquid in accordance with
standards established by the Investment Company's Board of Directors. Under
these standards, the Advisor must consider (a) the frequency of trades and
quotes for the security, (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (c) any dealer
undertaking to make a market in the security, and (d) the nature of the security
and the nature of the marketplace trades (for example, the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The Board, however, will retain sufficient oversight and will be
ultimately responsible for the determination.

It is not possible to predict with accuracy how the markets for certain
restricted securities will develop. Investing in restricted securities could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.

REDUCTION IN BOND RATING. In the event that the rating for any security held by
the Fund drops below the minimum acceptable rating applicable to the Fund, the
Advisor will determine whether the Fund should continue to hold such an
obligation in its portfolio. Bonds rated below BBB or Baa are commonly known as
"junk bonds." These bonds are subject to greater fluctuations in value and risk
of loss of income and principal due to default by the issuer than

10
<PAGE>

are higher rated bonds. The market values of junk bonds tend to reflect
short-term corporate, economic, and market developments and investor perceptions
of the issuer's credit quality to a greater extent than higher rated bonds. In
addition, it may be more difficult to dispose of, or to determine the value of,
junk bonds. See Appendix A for a complete description of the bond ratings.

WRITING COVERED CALL OPTIONS. The Fund may write (sell) "covered" call options
and purchase options to close out options previously written by the Fund. The
purpose of writing covered call options is to generate additional premium income
for the Fund. This premium income will serve to enhance the Fund's total return
and will reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities and currencies which, in the opinion of the Advisor, are not expected
to make any major price moves in the near future but which, over the long term,
are deemed to be attractive investments for the Fund.

A call option gives the holder (buyer) the "right to purchase" a security or
currency at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him or her to deliver
the underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by purchasing an
option identical to that previously sold. To secure his or her obligation to
deliver the underlying security or currency in the case of a call option, a
writer is required to deposit in escrow the underlying security or currency or
other assets in accordance with the rules of the Options Clearing Corporation.
The Fund will write only covered call options. This means that the Fund will
only write a call option on a security, index, or currency which the Fund
already effectively owns or has the right to acquire without additional cost.

Portfolio securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with the
Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely limits the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Fund has no control over when it may be required to
sell the underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency. The Fund will
identify assets for the purpose of segregation to cover the call. The Fund will
consider a security or currency covered by a call to be "pledged" as that term
is used in its policy which limits the pledging or mortgaging of its assets.

11
<PAGE>

The premium received is the market value of an option. The premium the Fund
receives from writing a call option reflects, among other things, the current
market price of the underlying security or currency, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security or currency, and the length of the option period. Once the
decision to write a call option has been made, the Advisor and/or Sub-Advisor,
in determining whether a particular call option should be written on a
particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by the Fund for writing covered call
options will be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sales price at the time at which the net
asset value per share of the Fund is computed (close of the regular trading
session of the New York Stock Exchange), or, in the absence of such sale, the
latest asked price. The liability will be extinguished upon expiration of the
option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.

Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to sell
a particular security or currency from its portfolio on which it has written a
call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security or currency. There is, of course, no
assurance that the Fund will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security or currency that it might otherwise have sold, in
which case it would continue to be at market risk with respect to the security
or currency. The Fund will pay transaction costs in connection with the
purchasing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.

Call options written by the Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, the Fund
may purchase an underlying security or currency for delivery in accordance with
an exercise notice of a call option assigned to it, rather than delivering such
security or currency from its portfolio. In such cases, additional costs will be
incurred.

The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security
or currency, any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the underlying security or
currency owned by the Fund.

WRITING COVERED PUT OPTIONS. The Fund may write covered put options. With a put
option, the purchaser of the option has the right to sell, and the writer
(seller) may have the obligation to buy, the underlying security or currency at
the exercise price during the option period. So

12
<PAGE>

long as the writer is short the put options, the writer may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the writer to make payment of the exercise price against delivery of
the underlying security or currency. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options.

The Fund may write put options only on a covered basis, which means that the
Fund would maintain in a segregated account cash and liquid securities in an
amount not less than the exercise price at all times while the put option is
outstanding. (The rules of the Options Clearing Corporation currently require
that such assets be deposited in escrow to secure payment of the exercise
price.) The Fund would generally write covered put options in circumstances
where the Advisor and/or Sub-Advisors wishes to purchase the underlying security
or currency for the Fund's portfolio at a price lower than the current market
price of the security or currency. In such event the Fund would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Fund would also
receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received.

PURCHASING PUT OPTIONS. The Fund may purchase put options. As the holder of a
put option, the Fund has the right to sell the underlying security or currency
at the exercise price at any time during the option period. The Fund may enter
into closing sale transactions with respect to such options, exercise them, or
permit them to expire. The Fund may purchase put options for defensive purposes
in order to protect against an anticipated decline in the value of its
securities or currencies. An example of such use of put options is provided
below.

The Fund may purchase a put option on an underlying security or currency (a
"protective put") owned as a defensive technique in order to protect against an
anticipated decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a put option
may be purchased in order to protect unrealized appreciation of a security or
currency where the Advisor and/or Sub-Advisor deems it desirable to continue to
hold the security or currency because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security or currency is eventually
sold.

The Fund may also purchase put options at a time when the Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.

13
<PAGE>

The Fund will commit no more than 5% of its assets to premiums when purchasing
put options. The premium paid by the Fund when purchasing a put option will be
recorded as an asset in the Fund's statement of assets and liabilities. This
asset will be adjusted daily to the option's current market value, which will be
the latest sale price at the time at which the Fund's net asset value per share
is computed (close of trading on the New York Stock Exchange), or, in the
absence of such sale, the latest bid price. The asset will be extinguished upon
expiration of the option, the selling (writing) of an identical option in a
closing transaction, or the delivery of the underlying security or currency upon
the exercise of the option.

PURCHASING CALL OPTIONS. The Fund may purchase call options. As the holder of a
call option, the Fund has the right to purchase the underlying security or
currency at the exercise price at any time during the option period. The Fund
may enter into closing sale transactions with respect to such options, exercise
them, or permit them to expire. The Fund may purchase call options for the
purpose of increasing its current return or avoiding tax consequences which
could reduce its current return. The Fund may also purchase call options in
order to acquire the underlying securities or currencies. Examples of such uses
of call options are provided below.

Call options may be purchased by the Fund for the purpose of acquiring the
underlying securities or currencies for its portfolio. Utilized in this fashion,
the purchase of call options enables the Fund involved to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to the Fund in purchasing a large block of
securities that would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying security or
currency itself, the Fund is partially protected from any unexpected decline in
the market price of the underlying security or currency and in such event could
allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.

The Fund will commit no more than 5% of its assets to premiums when purchasing
call options. The Fund may also purchase call options on underlying securities
or currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses that would result in a reduction of the Fund's current
return. For example, where the Fund has written a call option on an underlying
security or currency having a current market value below the price at which such
security or currency was purchased by the Fund, an increase in the market price
could result in the exercise of the call option written by the Fund and the
realization of a loss on the underlying security or currency with the same
exercise price and expiration date as the option previously written.

DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for the future
sale by one party and purchase by another party of a specified amount of a
specific financial instrument (security or currency) for a specified price at a
designated date, time, and place. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be maintained.

Although futures contracts typically require future delivery of and payment for
financial instruments or currencies, the futures contracts are usually closed
out before the delivery date.

14
<PAGE>

Closing out an open futures contract sale or purchase is effected by entering
into an offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the identical type of financial instrument or currency and
the same delivery date. If the offsetting purchase price is less than the
original sale price, the Fund realizes a gain; if it is more, the Fund realizes
a loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if it is less, the Fund realizes a
loss. The transaction costs must also be included in these calculations. There
can be no assurance, however, that the Fund will be able to enter into an
offsetting transaction with respect to a particular futures contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the future Contract.

As an example of an offsetting transaction in which the financial instrument or
currency is not delivered, the contractual obligations arising from the sale of
one Contract of September Treasury Bills on an exchange may be fulfilled at any
time before delivery of the Contract is required (e.g., on a specified date in
September, the "delivery month") by the purchase of one Contract of September
Treasury Bills on the same exchange. In such instance the difference between the
price at which the futures contract was sold and the price paid for the
offsetting purchase, after allowance for transaction costs, represents the
profit or loss to the Fund.

The Fund may enter into interest rate, S&P Index (or other major market index),
or currency futures contracts as a hedge against changes in prevailing levels of
stock values, interest rates, or currency exchange rates in order to establish
more definitely the effective return on securities or currencies held or
intended to be acquired by the Fund. The Fund's hedging may include sales of
Futures as an offset against the effect of expected increases in currency
exchange rates, purchases of such Futures as an offset against the effect of
expected declines in currency exchange rates, and purchases of Futures in
anticipation of purchasing underlying index stocks prior to the availability of
sufficient assets to purchase such stocks or to offset potential increases in
the prices of such stocks. When selling options or futures contracts, the Fund
will segregate cash and liquid securities to cover any related liability.

The Fund will not enter into futures contracts for speculation and will only
enter into futures contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal Futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission. Futures are also traded in various overseas markets.

Although techniques other than sales and purchases of futures contracts could be
used to reduce the Fund's exposure to currency exchange rate fluctuations, the
Fund may be able to hedge its exposure more effectively and perhaps at a lower
cost through using futures contracts.

The Fund will not enter into a futures contract if, as a result thereof, more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to "margin" (down payment)
deposits on such futures contracts.

15
<PAGE>

contracts prior to their settlement date, the Fund will enter into offsetting
sales of Stock Index contracts.

Using Stock Index contracts in anticipation of market transactions involves
certain risks. Although the Fund may intend to purchase or sell Stock Index
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for the contracts at any particular
time. In addition, the price of Stock Index contracts may not correlate
perfectly with the movement in the Stock Index due to certain market
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the Stock Index
and movements in the price of Stock Index contracts, a correct forecast of
general market trends may not result in a successful anticipatory hedging
transaction.

FUTURES CONTRACTS GENERALLY. Persons who trade in futures contracts may be
broadly classified as "hedgers" and "speculators." Hedgers, such as the Fund,
whose business activity involves investment or other commitments in debt
securities, equity securities, or other obligations, use the Futures markets
primarily to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities and obligations held or expected to
be acquired by them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates, securities prices, or currency
exchange rates.

The Fund's Futures transactions will be entered into for traditional hedging
purposes; that is, futures contracts will be sold to protect against a decline
in the price of securities or currencies that the Fund owns, or futures
contracts will be purchased to protect the Fund against an increase in the price
of securities or currencies it has a fixed commitment to purchase.

"Margin" with respect to Futures and futures contracts is the amount of funds
that must be deposited by the Fund with a broker in order to initiate Futures
trading and to maintain the Fund's open positions in futures contracts. A margin
deposit ("initial margin") is intended to assure the Fund's performance of the
futures contract. The margin required for a particular futures contract is set
by the exchange on which the Contract is traded, and may be significantly
modified from time to time by the exchange during the term of the Contract.
futures contracts are customarily purchased and sold on margins that may range
upward from less than 5% of the value of the futures contract being traded.

16
<PAGE>

net asset values, the Fund will mark to market the current value of its open
futures contracts. The Fund expects to earn interest income on its margin
deposits.

At best, the correlation between changes in prices of futures contracts and of
the securities or currencies being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances such as: variations in
speculative market demand for Futures and for securities or currencies,
including technical influences in Futures trading; and differences between the
financial instruments being hedged and the instruments underlying the standard
futures contracts available for trading, with respect to interest rate levels,
maturities, and creditworthiness of issuers. A decision of whether, when, and
how to hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or interest
rate trends.

Because of the low margin deposits required, trading of futures contracts
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss or gain to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund segregates and commits to back the futures contract with
money market instruments equal in value to the current value of the underlying
instrument less the margin deposit.

Most futures exchanges in the United States limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some Futures traders to substantial losses.

OPTIONS ON INTEREST RATE AND/OR CURRENCY FUTURES CONTRACTS. Options on futures
contracts are similar to options on fixed income or equity securities or options
on currencies, except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), rather than to purchase or sell the futures contract, at a
specified

17
<PAGE>

exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the Futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's Futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option on
the futures contract. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in cash
equal to the difference on the expiration date between the exercise price of the
option and the closing level of the securities or currencies upon which the
futures contracts are based. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.

As an alternative to purchasing call and put options on Futures, the Fund may
purchase call and put options on the underlying securities or currencies. Such
options would be used in a manner identical to the use of options on futures
contracts. To reduce or eliminate the leverage then employed by the Fund or to
reduce or eliminate the hedge position then currently held by the Fund, the Fund
may seek to close out an option position by selling an option covering the same
securities or contract and having the same exercise price and expiration date.

FORWARD CURRENCY AND OPTIONS TRANSACTIONS. A forward currency contract is an
obligation to purchase or sell a currency against another currency at a future
date and price as agreed upon by the parties. The Fund may either accept or make
delivery of the currency at the maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. The Fund typically engages in forward currency transactions
in anticipation of, or to protect itself against, fluctuations in exchange
rates. The Fund might sell a particular currency forward, for example, when it
wanted to hold bonds denominated in that currency but anticipated, and sought to
be protected against, a decline in the currency against the U.S. dollar.
Similarly, the Fund might purchase a currency forward to "lock in" the dollar
price of securities denominated in that currency which it anticipated
purchasing.

A put option gives the Fund, as purchaser, the right (but not the obligation) to
sell a specified amount of currency at the exercise price until the expiration
of the option. A call option gives the Fund, as purchaser, the right (but not
the obligation) to purchase a specified amount of currency at the exercise price
until its expiration. The Fund might purchase a currency put option, for
example, to protect itself during the contract period against a decline in the
dollar value of a currency in which it holds or anticipates holding securities.
If the currency's value should decline against the dollar, the loss in currency
value should be offset, in whole or in part, by an increase in the value of the
put.

If the value of the currency instead should rise against the dollar, any gain to
the Fund would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which
the Fund anticipates purchasing securities.

Currency options may be either listed on an exchange or traded over-the-counter
(OTC). Listed options are third-party contracts (i.e., performance of the
obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The Fund will not purchase an OTC option unless the Advisor and/or
Sub-Advisor believes that daily valuation for such option is readily obtainable.

18
<PAGE>

INVESTMENT RESTRICTIONS

The Fund has adopted the following fundamental investment policies and
restrictions in addition to the policies and restrictions discussed in its
prospectus. The policies and restrictions listed below cannot be changed without
approval by the holders of a "majority of the outstanding voting securities" of
the Fund (which is defined in the 1940 Act to mean the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares). These
restrictions provide that the Fund may not:

2. Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Fund may invest in
securities secured by real estate, or issued by companies which invest
in real estate or interests therein, including real estate investment
trusts, and may purchase and sell currencies (including forward
currency exchange contracts), gold, bullion, futures contracts, and
related options generally as described in the Prospectus and Statement
of Additional Information.

4. Make loans, except that the Fund may purchase debt securities, enter
into repurchase agreements, and make loans of portfolio securities
amounting to not more than 33 1/3% of its net assets calculated at the
time of the securities lending.

5. Borrow money, except from banks for temporary or emergency purposes
not in excess of 30% of the value of the Fund's total assets. The Fund
will not purchase securities while such borrowings are outstanding.

6. Change its status as a diversified investment company.

7. Issue senior securities, except as permitted under the 1940 Act, and
except that the Investment Company and the Fund may issue shares of
common stock in multiple series or classes.

8. Notwithstanding any other fundamental investment restriction or
policy, the Fund may 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 the
Fund.

Other current investment policies of the Fund, which are not fundamental and
which may be changed by action of the Board of Directors without shareholder
approval, are as follows. The Fund may not:

19
<PAGE>

9. Invest in companies for the purpose of exercising control or
management.

10. Mortgage, pledge or hypothecate any of its assets, provided that this
restriction shall not apply to the transfer of securities in
connection with any permissible borrowing.

11. Invest in interests in oil, gas, or other mineral exploration or
development programs or leases.

12. Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three
years continuous operation.

16. Make short sales of securities or maintain a short position, except
that the Fund may sell short "against the box."

17. Invest in securities of an issuer if the investment would cause the
Fund to own more than 10% of any class of securities of any one
issuer.

18. Acquire more than 3% of the outstanding voting securities of any one
investment company.

Certain market strategies and market definitions applicable to the Fund - such
as the market capitalization ranges - may be adjusted from time to time to
reflect changing market circumstances subject to review and approval by the
Fund's Board of Directors.

20
<PAGE>

INVESTMENT COMPANY DIRECTORS AND OFFICERS

The Bylaws of Fremont Mutual Funds, Inc. (the "Investment Company"), the
Maryland investment company of which the Fund is a series, authorize a Board of
Directors of between three and 15 persons, as fixed by the Board of Directors. A
majority of directors may fill vacancies caused by the resignation or death of a
director or the expansion of the Board of Directors. Any director may be removed
by vote of the holders of a majority of all outstanding shares of the Investment
Company qualified to vote at the meeting.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DATE OF AND BUSINESS EXPERIENCE
NAME AND ADDRESS BIRTH POSITIONS HELD FOR PAST FIVE YEARS

<S> <C> <C> <C>
David L. Redo(1)(2)(4) 9-1-37 Chairman and Director President, CEO, CIO and Director,
Fremont Investment, Advisors, Inc. Fremont Investment Advisors, Inc.;
333 Market Street, 26th Floor Managing Director, Fremont Group
San Francisco, CA 94105 L.L.C. and Fremont Investors, Inc.;
Director, Sequoia Ventures, Sit/Kim
International Investment Associates,
and J.P. Morgan Securities Asia.

Michael H. Kosich(1)(2) 3-30-40 President and Director 7/96 - Present, Managing Director,
Fremont Investment Advisors, Inc. Fremont Investment Advisors, Inc.
333 Market Street, 26th Floor 10/77 - 7/96 Senior Vice President
San Francisco, CA 94105 President Business Development
Benham Management

Richard E. Holmes(3) 5-14-43 Director Vice President and Director,
P.O. Box 479 BelMar Advisors, Inc.
Sanibel, FL 33957 (marketing firm).

Donald C. Luchessa(3) 2-18-30 Director Principal, DCL Advisory
DCL Advisory (marketer for investment
4105 Shelter Bay Avenue advisors).
Mill Valley, CA 94941

David L. Egan(3) 5-1-34 Director President, Fairfield Capital
Fairfield Capital Associates, Inc. Associates, Inc.
1640 Sylvaner Founding Partner of China Epicure, LLC
St. Helena, CA 94574 and Palisades Trading Company, LLC

Kimun Lee 6-17-46 Director Principal of Resources Consolidated (a
Resources Consolidated consulting and investment banking service
235 Montgomery Street, Ste 968 group).
San Francisco, CA 94104

Christine D. Timmerman 6-29-46 Director Financial Consultant
71 DeBell Drive
Atherton, CA 94027

Albert W. Kirschbaum(4) 8-17-38 Senior Vice President Managing Director, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Peter F. Landini(4) 5-10-51 Executive Vice President, Managing Director, Treasurer & COO,
Fremont Investment Advisors, Inc. and Treasurer Fremont Investment Advisors, Inc.
333 Market Street, 26th Floor 1/94 - 7/98, Director, J.P. Morgan
San Francisco, CA 94105 Securities, Asia

Norman Gee 3-29-50 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

21
<PAGE>

Alexandra W. Kinchen(4) 4-25-45 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Andrew L. Pang(4) 4-15-49 Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

W. Kent (Ken) Copa 10-19-46 Vice President Vice President, Fremont Investment
Fremont Investment Advisors, Inc. Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Tina Thomas 8-7-49 Vice President, 6/96 - Present Vice President,
Fremont Investment Advisors, Inc. Secretary, and Secretary Chief Compliance Officer
333 Market Street, 26th Floor and Chief Compliance Fremont Investment Advisors, Inc.
San Francisco, CA 94105 Officer, 9/88 - 5/96 Chief Compliance Officer
and Vice President, Bailard, Biehl
& Kaiser Inc.(BB&K); Treasurer, BB&K
International Fund Group, Inc.
and BB&K Fund Group; Principal,
BB&K Fund Services, Inc.

Richard G. Thomas 1-7-57 Senior Vice President Vice President, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Allyn Hughes 6-12-60 Vice President 4/93 - Present, Fremont
Fremont Investment Advisors, Inc. Investment Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105

Jack Gee 9-12-59 Vice President and 10/97 - Present, Vice President and
Fremont Investment Advisors, Inc. Controller CFO, Fremont Investment Advisors,
333 Market Street, 26th Floor Inc.; 11/95-10/97, CFO and Treasurer,
San Francisco, CA 94105 Sife, Inc.;6/91-6/95, Controller, Concord
General Corp.

Conor Sheridan 7-5-69 Vice President 10/94 - Present, Fremont Investment
Fremont Investment Advisors, Inc. Advisors, Inc.
333 Market Street, 26th Floor
San Francisco, CA 94105
</TABLE>

During the fiscal year ended October 31, 1999, Richard E. Holmes and David L.
Egan each received $16,000, and Donald C. Luchessa and Kimun Lee each received
$12,000 for serving as directors of the Investment Company.

As of January 12, 2000, the officers and directors as a group owned in the
aggregate beneficially or of record less than 1% of the outstanding shares of
the Investment Company.

22
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

The Advisor is responsible to pay sub-transfer agency fees when such entities
are engaged in connection with share holdings in the Fund acquired by certain
retirement plans.

For its services under the Investment Advisory and Administration Agreement (the
"Advisory Agreement"), the Advisor is paid a monthly fee at the annual rate of
1.15% of the Fund's average net assets. The Fund will pay all of its own
expenses not assumed by the Advisor, including, but not limited to, the
following: custodian, stock transfer, and dividend disbursing fees and expenses;
taxes and insurance; expenses of the issuance and redemption of shares of the
Fund (including stock certificates, registration or qualification fees and
expenses); legal and auditing expenses; and the costs of stationery and forms
prepared exclusively for the Fund.

The allocation of general Investment Company expenses among its series is made
on a basis that the Directors deem fair and equitable, which may be based on the
relative net assets of each series or the nature of the services performed and
relative applicability to each series.

As noted in the Prospectus, the Advisor has agreed to reduce some or all of its
fees under the Advisory Agreement if necessary to keep total operating expenses,
expressed on an annualized basis, at or below the rate of 1.25% of the Fund's
average net assets. Any reductions made by the Advisor in its fees are subject
to reimbursement by the Fund within the following three years provided the Fund
is able to effect such reimbursement and remain in compliance with the foregoing
expense limitation. In considering approval of the Fund's Advisory Agreement,
the Board of Directors specifically considered and approved the provision which
permits the Advisor to seek reimbursement of any reduction made to its fees
within the three-year period. The Advisor's ability to request reimbursement is
subject to various conditions. First, any reimbursement is subject to the Fund's
ability to effect such reimbursement and remain in compliance with the 1.25%
limitation on annual operating expenses. Second, the Advisor must specifically
request the reimbursement from the Board of Directors. Third, the Board of
Directors must approve such reimbursement as appropriate and not inconsistent
with the best interests of the Fund and the shareholders at the time such
reimbursement is requested. Because of these substantial contingencies, the
potential reimbursements will be accounted for as contingent liabilities that
are not recordable on the balance sheet of the Fund until collection is
probable; but the full amount of the potential liability will appear in a
footnote to the Fund's financial statements. At such time as it appears probable
that the Fund is able to effect such reimbursement, that the Advisor intends to
seek such reimbursement and that the Board of Directors has or is likely to
approve the payment of such reimbursement, the amount of the reimbursement will
be accrued as an expense of the Fund for that current period.

The Advisory Agreement with respect to the Fund may be renewed annually,
provided that any such renewal has been specifically approved by (i) the Board
of Directors, or by the vote of a

23
<PAGE>

majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, and (ii) the vote of a majority of directors who are not parties to
the Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person, at a meeting called for the purpose of voting on
such approval. The Advisory Agreement also provides that either party thereto
has the right with respect to the Fund to terminate it without penalty upon
sixty (60) days' written notice to the other party, and that the Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act). As of October 31, 1999, the Fund paid $741,582 to the Advisor and
as of October 31, 1998, the Fund paid $570,933 to the Advisor.

The Advisor's employees may engage in personal securities transactions. However,
the Investment Company and the Advisor have adopted a Code of Ethics for the
purpose of establishing standards of conduct for the Advisor's employees with
respect to such transactions. The Code of Ethics includes some broad
prohibitions against fraudulent conduct, and also includes specific rules,
restrictions, and reporting obligations with respect to personal securities
transactions of the Advisor's employees. Generally, each employee is required to
obtain prior approval of the Advisor's compliance officer in order to purchase
or sell a security for the employee's own account. Purchases or sales of
securities which are not eligible for purchase or sale by the Fund or any other
client of the Advisor are exempted from the prior approval requirement, as are
certain other transactions which the Advisor believes present no potential
conflict of interest. The Advisor's employees are also required to file with the
Advisor quarterly reports of their personal securities transactions.

THE SUB-ADVISOR. The Advisory Agreement authorizes the Advisor, at its option
and at its sole expense, to appoint a Sub-Advisor, which may assume all or a
portion of the responsibilities and obligations of the Advisor pursuant to the
Advisory Agreement as shall be delegated to the Sub-Advisor. Any appointment of
a Sub-Advisor and assumption of responsibilities and obligations of the Advisor
by such Sub-Advisor is subject to approval by the Board of Directors and, if
required by the law, the shareholders of the Fund. Pursuant to this authority,
Kern Capital Management LLC ("the Sub-Advisor") serves as the Fund's
Sub-Advisor. The Sub-Advisor is partially owned by the Advisor. The Sub-Advisor
will be overseen by the members of the Fremont Investment Committee. See
"Investment Company Directors and Officers."

The Portfolio Management Agreement between the Advisor and the Sub-Advisor (the
"Portfolio Management Agreement") provides that the Sub-Advisor agrees to manage
the investment of the Fund's assets, subject to the applicable provisions of the
Investment Company's Articles of Incorporation, Bylaws and current registration
statements (including, but not limited to, the investment objective, policies,
and restrictions delineated in the Fund's current Prospectus and Statement of
Additional Information), as interpreted from time to time by the Board of
Directors.

For its services under the Portfolio Management Agreement, the Advisor has
agreed to pay the Sub-Advisor a monthly fee equal to the annual rate of 0.75% of
the Fund's average net assets. For the fiscal year ended October 31, 1999, Kern
Capital Management LLC received from the Advisor (not the Fund) subadvisory fees
of $486,063. For the fiscal year ended October 31, 1998, Kern Capital Management
LLC received from the Advisor (not the Fund) subadvisory fees of $372,340.

The Portfolio Management Agreement for the Fund continues in effect from year to
year only as long as such continuance is specifically approved at least annually
by (i) the Board of Directors

24
<PAGE>

of the Investment Company or by a vote of a majority of the outstanding voting
shares of the Fund, and (ii) by the vote of a majority of the directors of the
Investment Company who are not parties to the Agreement or interested persons of
the Advisor or the Sub-Advisor or the Investment Company. The Agreement may be
terminated at any time without the payment of any penalty, by the Board of
Directors of the Investment Company or by the vote of a majority of the
outstanding voting shares of the Fund, or by the Sub-Advisor or the Advisor,
upon 30 days' written notice to the other party. Additionally, the Agreement
automatically terminates in the event of its assignment.

TRANSFER AGENT. The Advisor has engaged State Street Bank and Trust Company, c/o
NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Transfer and
Dividend Disbursing Agent and shareholder service agent. The Transfer Agent is
not involved in determining investment policies of the Fund or its portfolio
securities transactions. Its services do not protect shareholders against
possible depreciation of their assets. The fees of State Street Bank and Trust
Company are paid by the Fund and thus borne by the Fund's shareholders. State
Street Bank and Trust Company has contracted with National Financial Data
Services to serve as shareholder servicing agent. A depository account has been
established at United Missouri Bank of Kansas City through which all payments
for the funds will be processed.

The Fund may compensate third-party service providers who act as a shareholder
servicing agent or who perform shareholder servicing normally performed by the
Fund.

ADMINISTRATOR. The Advisor has retained Investment Company Administration,
L.L.C. (the "Sub-Administrator"), with offices at 2020 East Financial Way, Suite
100, Glendora, California 91741. The Administration Agreement provides that the
Sub-Administrator will prepare and coordinate reports and other materials
supplied to the Directors; prepare and/or supervise the preparation and filing
of securities filings, prospectuses, statements of additional information,
marketing materials; prepare all required filings necessary to maintain the
Funds' notice filings to sell shares in all states where the Funds currently do,
or intends to do, business; and perform such additional services as may be
agreed upon by the Advisor and the Sub-Administrator. For its services, the
Advisor (not the Fund) pays the Sub-Administrator an annual fee equal to .02% of
the first $1 billion of each Fund's average daily net assets, 0.015% thereafter,
subject to a minimum annual fee of $20,000. In addition, the Sub-Administrator
will prepare periodic financial reports, shareholder reports and other
regulatory reports or filings required for the Funds; coordinate the
preparation, printing and mailing of materials required to be sent to
shareholders; and perform such additional services as may be agreed upon by the
Advisor and the Sub-Administrator. For these additional services, the Advisor
(not the Fund) will pay the Sub-Administrator an annual fee of $100,000 for the
years 2000, 2001, and 2002. After the year 2002, the Sub-Administrator will
receive from the Advisor (not the Fund) an annual fee, calculated on each Fund's
average daily net assets, equal to 0.005% of the first $2 billion and 0.0025%
thereafter.

EXECUTION OF PORTFOLIO TRANSACTIONS

25
<PAGE>

There are occasions in which portfolio transactions for the Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Advisor and/or Sub-Advisor including other series
of the Investment Company. Although such concurrent authorizations potentially
could be either advantageous or disadvantageous to the Fund, they will be
effected only when the Advisor and/or Sub-Advisor believes that to do so will be
in the best interest of the Fund. When such concurrent authorizations occur, the
objective will be to allocate the executions in a manner which is deemed
equitable to the accounts involved, including the Fund and the other series of
the Investment Company.

The Fund contemplates purchasing foreign equity and/or fixed-income securities
in over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Fixed commissions on foreign
stock transactions and transaction costs with respect to foreign fixed-income
securities are generally higher than negotiated commissions on United States
transactions, although the Fund will endeavor to achieve the best net results on
its portfolio transactions. There is generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign security settlements may in some instances be subject to delays and
related administrative uncertainties.

Foreign equity securities may be held by the Fund in the form of American
Depository Receipts ("ADRs") or similar instruments. ADRs may be listed on stock
exchanges or traded in the over-the-counter markets in the United States. ADRs,
like other securities traded in the United States, will be subject to negotiated
commission rates. The 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 over-the-counter markets.

The aggregate dollar amount of brokerage commissions paid by the Fund for the
fiscal years ended October 31, 1997, October 31, 1998, and October 31, 1999, is
$22,796, $156,765, and $202,686 respectively. The Fund began operations on
August 6, 1997.

Subject to the requirement of seeking the best available prices and executions,
the Advisor and/or Sub-Advisor may, in circumstances in which two or more
broker-dealers are in a position to offer comparable prices and executions, give
preference to broker-dealers who have provided investment research, statistical,
and other related services to the Advisor and/or Sub-Advisor for the benefit of
the Fund and/or other accounts served by the Advisor and/or Sub-Advisor. Such
preferences would only be afforded to a broker-dealer if the Advisor and/or
Sub-Advisor determines that the amount of the commission is reasonable in
relation to the value of the brokerage and research services provided by that
broker-dealer and only to a broker-dealer acting as agent and not as principal.
The Advisor and/or Sub-Advisor is of the opinion that, while such information is
useful in varying degrees, it is of indeterminable value and does not reduce the
expenses of the Advisor and/or Sub-Advisor in managing the Fund's portfolio.

Subject to the requirements of the 1940 Act and procedures adopted by the Board
of Directors, the Fund may execute portfolio transactions through any broker or
dealer and pay brokerage commissions to a broker which is an affiliated person
of the Investment Company, the Advisor, or an affiliated person of such person.
As of October 31, 1999, the Fund owned securities of the Investment Company's
regular brokers or dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: Merrill Lynch & Co., Inc $3,998,818
and State Street Bank $487,707.

26
<PAGE>

HOW TO INVEST

PRICE OF SHARES. The price to be paid by an investor for shares of the Fund, the
public offering price, is based on the net asset value per share which is
calculated once daily as of the close of trading (currently 4:00 p.m., Eastern
time) each day the New York Stock Exchange is open as set forth below. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: (i) New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas Day; and
(ii) the preceding Friday when any one of those holidays falls on a Saturday or
the subsequent Monday when any one of those holidays falls on a Sunday.

The Fund will calculate its net asset value and complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). The Fund's portfolio
securities may from time to time be listed on foreign stock exchanges or
otherwise traded on foreign markets which may trade on other days (such as
Saturday). As a result, the net asset value of the Fund may be significantly
affected by such trading on days when a shareholder has no access to the Fund.
See also in the Prospectus at "General Investment Policies - Special
Considerations in International Investing," "Calculation of Net Asset Value and
Public Offering Price," "How to Invest," "How to Redeem Shares," and
"Shareholder Account Services and Privileges - Exchanges Between Funds."

1. Fixed-income obligations with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid
and asked prices for such securities or, if such prices are not
available, at prices for securities of comparable maturity, quality,
and type. However, in circumstances where the Advisor deems it
appropriate to do so, prices obtained for the day of valuation from a
bond pricing service will be used. The Fund amortizes to maturity all
securities with 60 days or less remaining to maturity based on their
cost to the Fund if acquired within 60 days of maturity or, if already
held by the Fund on the 60th day, based on the value determined on the
61st day. Options on currencies purchased by the Fund are valued at
their last bid price in the case of listed options or at the average
of the last bid prices obtained from dealers in the case of OTC
options. Where market quotations are not readily available, securities
are valued at fair value pursuant to methods approved by the Board of
Directors.

27
<PAGE>

3. Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the
close of the business day in New York. In addition, European or Far
Eastern securities trading may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Fund's net asset value is
not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of securities
held by the Fund used in such calculation. Events affecting the values
of portfolio securities that occur between the time their prices are
determined and the close of the New York Stock Exchange will not be
reflected in the Fund's calculation of net asset value unless the
Board of Directors deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.

4. The value of each security denominated in a currency other than U.S.
dollars will be translated into U.S. dollars at the prevailing market
rate as determined by the Advisor and/or Sub-Advisor.

5. The Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure
is obtained.

6. The net assets so obtained are then divided by the total number of
shares outstanding (excluding treasury shares), and the result,
rounded to the nearest cent, is the net asset value per share.

OTHER INVESTMENT AND REDEMPTION SERVICES

THE OPEN ACCOUNT. When an investor makes an initial investment in the Fund, a
shareholder account is opened in accordance with the investor's registration
instructions. Each time there is a transaction in a shareholder account, such as
an additional investment, redemption, or distribution (dividend or capital
gain), the shareholder will receive from the Sub-Transfer Agent a confirmation
statement showing the current transaction in the shareholder account, along with
a summary of the status of the account as of the transaction date.

PAYMENT AND TERMS OF OFFERING. Payment of shares purchased should accompany the
purchase order, or funds should be wired to the Sub-Transfer Agent as described
in the Prospectus. Payment, other than by wire transfer, must be made by check
or money order drawn on a U.S. bank. Checks or money orders must be payable in
U.S. dollars and made payable to Fremont Mutual Funds. Third party checks,
credit cards, and cash will not be accepted.

As a condition of this offering, if an order to purchase shares is cancelled due
to nonpayment (for example, because of a check returned for "not sufficient
funds"), the person who made the order will be responsible for reimbursing the
Advisor for any loss incurred by reason of such cancellation. If such purchaser
is a shareholder, the Fund shall have the authority as agent of the shareholder
to redeem shares in the shareholder's account for the then-current net asset
value per share to reimburse the Fund for the loss incurred. Such loss shall be
the difference between the net asset value of the Fund on the date of purchase
and the net asset value on the date of cancellation of the purchase. Investors
whose purchase orders have been cancelled due to nonpayment may be prohibited
from placing future orders.

28
<PAGE>

The Fund reserves the right at any time to waive or increase the minimum
requirements applicable to initial or subsequent investments with respect to any
person or class of persons. An order to purchase shares is not binding on the
Fund until it has been confirmed in writing by the Sub-Transfer Agent (or other
arrangements made with the Fund, in the case of orders utilizing wire transfer
of funds) and payment has been received. To protect existing shareholders, the
Fund reserves the right to reject any offer for a purchase of shares by any
individual.

REDEMPTION IN KIND. The Fund may elect to redeem shares in assets other than
cash but must pay in cash (if so requested) all redemptions with respect to any
shareholder during any 90-day period in an amount equal to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period.

SUSPENSION OF REDEMPTION PRIVILEGES. The Fund may suspend redemption privileges
or postpone the date of payment for more than seven calendar days after the
redemption order is received during any period (1) when the New York Stock
Exchange is closed other than customary weekend and holiday closings, or trading
on the Exchange is restricted as determined by the SEC, (2) when an emergency
exists, as defined by the SEC, which makes it not reasonably practicable for the
Investment Company to dispose of securities owned by it or to fairly determine
the value of its assets, or (3) as the SEC may otherwise permit.

TAXES - MUTUAL FUNDS

STATUS AS A "REGULATED INVESTMENT COMPANY." The Fund will be treated under the
Internal Revenue Code of 1986, as amended (the "Code") as a separate entity, and
the Fund intends to qualify and elect, and to continue to qualify, to be treated
as a separate "regulated investment company" under Subchapter M of the Code. To
qualify for the tax treatment afforded a regulated investment company under the
Code, the Fund must annually distribute at least 90% of the sum of its
investment company taxable income (generally net investment income and certain
short-term capital gains), its tax-exempt interest income (if any) and net
capital gains, and meet certain diversification of assets and other requirements
of the Code. If the Fund qualifies for such tax treatment, it will not be
subject to federal income tax on the part of its investment company taxable
income and its net capital gain which it distributes to shareholders. To meet
the requirements of the Code, the Fund must (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or currencies; (b)
diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies, and
other securities, limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
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. Income and gain from
investing in gold or other commodities will not qualify in meeting the 90% gross
income test.

29
<PAGE>

is imposed on the excess of a regulated investment company's "required
distribution" for the calendar year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-year
period ending on October 31 of such year, and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the Fund pays income tax for the year. The Fund intends to meet these
distribution requirements to avoid the excise tax liability.

DISTRIBUTIONS OF NET INVESTMENT INCOME. Dividends from net investment income
(including net short-term capital gains) are taxable as ordinary income.
Shareholders will be taxed for federal income tax purposes on dividends from the
Fund in the same manner whether such dividends are received as shares or in
cash. If the Fund does not receive any dividend income from U.S. corporations,
dividends from the Fund will not be eligible for the dividends received
deduction allowed to corporations. To the extent that dividends received by the
Fund would qualify for the dividends received deduction available to
corporations, the Fund must designate in a written notice to shareholders the
amount of the Fund's dividends that would be eligible for this treatment

NET CAPITAL GAINS. Any distributions designated as being made from the Fund's
net capital gains will be taxable as long-term capital gains regardless of the
holding period of the shareholders of the Fund's shares. The maximum federal
capital gains rate for individuals is 20% with respect to capital assets held
more than 12 months. The maximum capital gains rate for corporate shareholders
is the same as the maximum tax rate for ordinary income.

Capital loss carryforwards result when the Fund has net capital losses during a
tax year. These are carried over to subsequent years and may reduce
distributions of realized gains in those years. Unused capital loss
carryforwards expire in eight years. Until such capital loss carryforwards are
offset or expire, it is unlikely that the Board of Directors will authorize a
distribution of any net realized gains.

NON-U.S. SHAREHOLDERS. Under the Code, distributions of net investment income by
the Fund to a shareholder who, as to the U.S., is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. tax withholding (at a 30% or lower treaty rate). Withholding will not apply
if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business, in which case the reporting and
withholding requirements applicable to U.S. citizens, U.S. residents, or
domestic corporations will apply. Distributions of net long-term capital gains
are not subject to tax withholding, but in the case of a foreign shareholder who
is a nonresident alien individual, such distributions ordinarily will be subject
to U.S. income tax at a rate of 30% if the individual is physically present in
the U.S. for more than 182 days during the taxable year.

30
<PAGE>

OTHER INFORMATION. The amount of any realized gain or loss on closing out a
futures contract such as a forward commitment for the purchase or sale of
foreign currency will generally result in a realized capital gain or loss for
tax purposes. Under Section 1256 of the Code, futures contracts held by the Fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Sixty percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain or loss from any actual sales will
be treated as long-term capital gain or loss, and the remainder will be treated
as short-term capital gain or loss. Code Section 988 may also apply to currency
transactions. Under Section 988 of the Code, each foreign currency gain or loss
is generally computed separately and treated as ordinary income or loss. In the
case of overlap between Sections 1256 and 988 of the Code, special provisions
determine the character and timing of any income, gain, or loss. The Fund will
attempt to monitor transactions under Section 988 of the Code to avoid an
adverse tax impact. See also "Investment Objective, Policies, and Risk
Considerations" in this Statement of Additional Information.

Any loss realized on redemption or exchange of the Fund's shares will be
disallowed to the extent shares are reacquired within the 61 day period
beginning 30 days before and ending 30 days after the shares are redeemed or
exchanged.

Under the Code, the Fund's taxable income for each year will be computed without
regard to any net foreign currency loss attributable to transactions after
October 31, and any such net foreign currency loss will be treated as arising on
the first day of the following taxable year. The Fund may be required to pay
withholding and other taxes imposed by foreign countries generally at rates from
10% to 40% which would reduce the Fund's investment income. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is not anticipated that shareholders will be entitled to a foreign tax
credit or deduction for such foreign taxes.

The Fund may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies ("PFICs"). Currently, PFICs
are the only or primary means by which the Fund may invest in some countries. If
the Fund invests in PFICs, it may be subject to U.S. federal income tax on a
portion of any "excess distribution" or gain from the disposition of such shares
even if such income is distributed as a taxable dividend to shareholders. In
addition to bearing their proportionate share of the Fund's expenses,
shareholders will also bear indirectly similar expenses of PFICs in which the
Fund has invested. Additional charges in the nature of interest may be imposed
on either the Fund or its shareholders in respect of deferred taxes arising from
such distributions or gains. Capital gains on the sale of such holdings will be
deemed to be ordinary income regardless of how long such PFICs are held. If the
Fund were to invest in a PFIC and elect to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, the Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to the Fund, and such amounts would be subject to the 90% and
calendar year distribution requirements described above.

31
<PAGE>

requirements apply to the Fund with respect to each qualifying dividend the Fund
receives. Shareholders are advised to consult their tax advisor regarding
application of these rules to their particular circumstances.

The foregoing is a general abbreviated summary of present United States federal
income taxes on dividends and distributions by the Fund. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state, and local taxes applicable to dividends and
distributions received.

ADDITIONAL INFORMATION

CUSTODIAN. State Street Bank & Trust Company, 801 Pennsylvania, Kansas City,
Missouri 64105, acts as Custodian for the Investment Company's assets, and as
such safekeeps the Fund's portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Investment Company's
request, and maintains records in connection with its duties.

INDEPENDENT AUDITORS; FINANCIAL STATEMENTS. The Investment Company's independent
auditor is PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105. PricewaterhouseCoopers LLP will conduct an annual audit of the
Fund, assist in the preparation of the Fund's federal and state income tax
returns, and consult with the Investment Company as to matters of accounting,
regulatory filings, and federal and state income taxation. The financial
statements of the Fund as of October 31, 1998 incorporated herein by reference
are audited. Such financial statements are included herein in reliance on the
opinion of PricewaterhouseCoopers LLP given on the authority of said firm as
experts in auditing and accounting.

SHAREHOLDER VOTING RIGHTS. The Investment Company currently issues shares in 12
series and may establish additional classes or series of shares in the future.
When more than one class or series of shares is outstanding, shares of all
classes and series will vote together for a single set of directors, and on
other matters affecting the entire Investment Company, with each share entitled
to a single vote. On matters affecting only one class or series, only the
shareholders of that class or series shall be entitled to vote. On matters
relating to more than one class or series but affecting the classes and series
differently, separate votes by class and series are required. Shareholders
holding 10% of the shares of the Investment Company may call a special meeting
of shareholders.

32
<PAGE>

CERTAIN SHAREHOLDERS. To the best knowledge of the Fund, shareholders owning 5%
or more of the outstanding shares of the Fund as of record are set forth below:

SHAREHOLDER % HELD AS OF
NAME & ADDRESS JANUARY 12,2000
-------------- ---------------
Bechtel Mast Trust for Qualified Employees 50%
100 Plaza One
Jersey City, NJ 07311

Charles Schwab & Co. 19%
101 Montgomery Street
San Francisco, Ca 94104-4122

National Financial Services Corp. 8%
200 Liberty Street
New York, NY 10281-1003

Wells Frago Bank 7%
FBO KLA Tencor 401(k) Retirement Plan
P.O. Box 9800
Calabasas, CA 91372-0800

OTHER INVESTMENT INFORMATION. The Advisor directs the management of over $
billion of assets and internally manages over $ billion of assets for retirement
plans, foundations, private portfolios, and mutual funds. The Advisor's
philosophy is to apply a long-term approach to investing that balances risk and
return potential.

Historical annual returns of various market indices may be used to represent the
returns of various asset classes as follows:

(1) U.S. Stocks: Standard & Poor's 500 Index;
(2) Foreign Stocks: Morgan Stanley Europe, Australasia and Far East (EAFE)
Index;
(3) Intermediate U.S. Bonds: Lehman Brothers Intermediate
Government/Corporate Bond Index;
(4) Foreign Bonds: Salomon Brothers Non-U.S. Dollar Bond Index; and
(5) Money Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate:
1987-1998 IBC First Tier Money Market Fund Average.

The total returns for the above indices for the years 1980 through 1999 are as
follows (source: Fremont Investment Advisors, Inc.):

U.S. Foreign Intermediate Foreign Money Market
Stocks Stocks U.S. Bonds Bonds Securities

1980 32.4% 24.4% 6.4% 14.2% 11.8%
1981 -5.0% -1.0% 10.5% -4.6% 16.1%
1982 21.3% -0.9% 26.1% 11.9% 10.7%
1983 22.3% 24.6% 8.6% 4.4% 8.6%
1984 6.3% 7.9% 14.4% -1.9% 10.0%
1985 31.8% 56.7% 18.1% 35.0% 7.5%
1986 18.7% 70.0% 13.1% 31.4% 5.9%
1987 5.1% 24.9% 3.7% 35.2% 6.0%
1988 16.8% 28.8% 6.7% 2.4% 6.9%
1989 31.4% 11.1% 12.8% -3.4% 8.5%
1990 -3.2% -23.0% 9.2% 15.3% 7.5%
1991 30.6% 12.9% 14.6% 16.2% 5.5%
1992 7.7% -11.5% 7.2% 4.8% 3.3%
1993 10.0% 33.3% 8.8% 15.1% 2.6%
1994 1.3% 8.1% -1.9% 6.0% 3.6%
1995 37.5% 11.2% 15.3% 19.6% 5.3%

33
<PAGE>

1996 23.0% 6.1% 4.1% 4.5% 4.8%
1997 33.4% 1.8% 7.9% -4.3% 5.0%
1998 28.6% 20.0% 9.5% 11.5% 4.9%
1999 21.0% 27.0% -2.2% -5.1% 4.5%

The Fund is best suited as a long-term investment. While it offers higher
potential total returns than certificates of deposit or money market funds, it
involves added return volatility or risk. The prospective investor must weigh
this potential for higher return against the associated higher risk.

The Investment Company offers shares in twelve additional series under separate
Prospectuses and Statements of Additional Information.

INVESTMENT RESULTS

The Investment Company may from time to time include information on the
investment results of the Fund in advertisements or in reports furnished to
current or prospective shareholders.

The average annual rate of return ("T") for a given period is computed by using
the redeemable value at the end of the period ("ERV") of a hypothetical initial
investment of $1,000 ("P") over the period in years ("n") according to the
following formula as required by the SEC:

n
P(1+T) = ERV

The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the Board of
Directors; and (2) a complete redemption at the end of any period illustrated.
The Fund will calculate total return for one, five, and ten-year periods after
such a period has elapsed, and may calculate total returns for other periods as
well. In addition, the Fund will provide lifetime average annual total return
figures.

The Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and operating expenses of
the Fund, so that current or past total return should not be considered
representations of what an investment in the Fund may earn in any future period.
These factors and possible differences in the methods used in calculating
investment results should be considered when comparing the Fund's investment
results with those published for other investment companies and other investment
vehicles. The Fund's results also should be considered relative to the risks
associated with the Fund's investment objective and policies.

The Investment Company may from time to time compare the investment results of
the Fund with, or refer to, the following:

34
<PAGE>

principal, but no opportunity for capital growth. During certain
periods, the maximum rates paid on some savings deposits were fixed by
law.

(3) Statistics reported by Lipper Analytical Services, Inc., which ranks
mutual funds by overall performance, investment objectives, and
assets.

(4) Standard & Poor's "500" Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
large publicly traded U.S. common stocks.

(5) Dow Jones Industrial Average.

(6) CNBC/Financial News Composite Index.

(7) Russell 1000 Index, which reflects the common stock price changes of
the 1,000 largest publicly traded U.S. companies by market
capitalization.

(8) Russell 2000 Index, which reflects the common stock price changes of
the 2,000 largest publicly traded U.S. companies by market
capitalization.

(9) Russell 3000 Index, which reflects the common stock price changes of
the 3,000 largest publicly traded U.S. companies by market
capitalization.

(10) Wilshire 5000 Index, which reflects the investment return of the
approximately 5,000 publicly traded securities for which daily pricing
is available, weighted by market capitalization, excluding income.

(11) Salomon Brothers Broad Investment Grade Index, which is a widely used
index composed of U.S. domestic government, corporate, and
mortgage-backed fixed income securities.

(12) Wilshire Associates, an on-line database for international financial
and economic data including performance measures for a wide variety of
securities.

(13) Morgan Stanley Europe, Australasia and Far East (EAFE) Index, which is
composed of foreign stocks.

(14) IFC Emerging Markets Investables Indices, which measure stock market
performance in various developing countries around the world.

35
<PAGE>

(15) Salomon Brothers World Bond Index, which is composed of domestic and
foreign corporate and government fixed income securities.

(16) Lehman Brothers Government/Corporate Bond Index, which is a widely
used index composed of investment quality U.S. government and
corporate fixed income securities.

(17) Lehman Brothers Government/Corporate Intermediate Bond Index, which is
a widely used index composed of investment quality U.S. government and
corporate fixed income securities with maturities between one and ten
years.

(18) Salomon Brothers World Government Bond Index, which is a widely used
index composed of U.S. and non-U.S. government fixed income securities
of the major countries of the World.

(19) 90-day U.S. Treasury Bills Index, which is a measure of the
performance of constant maturity 90-day U.S. Treasury Bills.

(20) IBC First Tier Money Fund Average, which is an average of the 30-day
yield of approximately 250 major domestic money market funds.

(21) Salomon Brothers Non-U.S. World Government Bond Index, which is the
World Government Bond index excluding its U.S. market component.

(22) Salomon Brothers Non-Dollar Bond Index, which is composed of foreign
corporate and government fixed income securities.

(23) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.

(24) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.

(25) The World Bank Publication of Trends in Developing Countries ("TIDE"),
which provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks
at global and regional economic trends and their implications for the
developing economies.

(26) Datastream and Worldscope, which is an on-line database retrieval
service for information including but not limited to international
financial and economic data.

(27) International Financial Statistics, which is produced by the
International Monetary Fund.

36
<PAGE>

(28) Various publications and annual reports such as the World Development
Report, produced by the World Bank and its affiliates.

(29) Various publications from the International Bank for Reconstruction
and Development/The World Bank.

(30) Various publications including but not limited to ratings agencies
such as Moody's Investors Service, Fitch Investors Service, and
Standard Poor's Ratings Group.

(31) Various publications from the Organization for Economic Cooperation
and Development.

Indices prepared by the research departments of such financial organizations as
J.P. Morgan; Lehman Brothers; S.G. Warburg; Jardine Fleming; the Asian
Development Bank; Bloomberg, L.P.; Morningstar, Inc; Salomon Brothers, Inc.;
Merrill Lynch, Pierce, Fenner & Smith, Inc.; Morgan Stanley; Bear Stearns & Co.,
Inc.; Prudential Securities, Inc.; Smith Barney Inc.; and Ibbottson Associates
of Chicago, Illinois ("Ibbottson") may be used, as well as information provided
by the Federal Reserve and the respective central banks of various countries.

The Advisor believes the Fund is an appropriate investment for long-term
investment goals including, but not limited to, funding retirement, paying for
education, or purchasing a house. The Fund does not represent a complete
investment program, and investors should consider the Fund as appropriate for a
portion of their overall investment portfolio with regard to their long-term
investment goals.

From time to time, the Investment Company may refer to the number of
shareholders in the Fund or the aggregate number of shareholders in all Fremont
Mutual Funds or the dollar amount of Fund assets under management or rankings by
DALBAR Savings, Inc. in advertising materials.

37
<PAGE>

The Fund may compare its performance to that of other compilations or indices of
comparable quality to those listed above which may be developed and made
available in the future. The Fund may be compared in advertising to Certificates
of Deposit (CDs), the Bank Rate Monitor National Index, an average of the quoted
rates for 100 leading banks and thrifts in ten U.S. cities chosen to represent
the ten largest Consumer Metropolitan statistical areas, or other investments
issued by banks. The Fund differs from bank investments in several respects. The
Fund may offer greater liquidity or higher potential returns than CDs; but
unlike CDs, the Fund will have a fluctuating share price and return and is not
FDIC insured. The Fund's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings prepared by
Lipper Analytical Services, Inc. (Lipper), an independent service which monitors
the performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take sales
charges or redemption fees into consideration, and is prepared without regard to
tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.

The Investment Company may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not correspond directly to those of the Fund. The Fund
may also compare performance to that of other compilations or indices that may
be developed and made available in the future.

The Fund may discuss its NASDAQ symbol, CUSIP number, and its current portfolio
management team.

From time to time, the Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, the Fund may

38
<PAGE>

quote Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a
mutual fund rating service that rates mutual funds on the basis of risk-adjusted
performance. In addition, the Fund may quote financial or business publications
and periodicals as they relate to fund management, investment philosophy, and
investment techniques. Rankings that compare the performance of Fremont Mutual
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising.

The Fund may quote various measures of volatility and benchmark correlation such
as beta, standard deviation, and R2 in advertising. In addition, the Fund may
compare these measures to those of other funds. Measures of volatility seek to
compare the Fund's historical share price fluctuations or total returns compared
to those of a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation are
calculated using averages of historical data.

The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in the Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if a
fixed number of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
through periods of low price levels.

The Fund may be available for purchase through retirement plans of other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $10,000 investment earning
a taxable return of 10% annually would have an after-tax value of $17,976 after
ten years, assuming tax was deducted from the return each year at a 39.6% rate.
An equivalent tax-deferred investment would have an after-tax value of $19,626
after ten years, assuming tax was deducted at a 39.6% rate from the deferred
earnings at the end of the ten-year period.

The Fund may describe in its sales material and advertisements how an investor
may invest in the Fund through various retirement accounts and plans that offer
deferral of income taxes on investment earnings and may also enable an investor
to make pre-tax contributions. Because of their advantages, these retirement
accounts and plans may produce returns superior to comparable non-retirement
investments. The Fund may also discuss these accounts and plans which include
the following:

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): Any individual who receives earned income
from employment (including self-employment) can contribute up to $2,000 each
year to an IRA (or 100% of compensation, whichever is less). If your spouse is
not employed, a total of $2,250 may be contributed each year to IRAs set up for
each individual (subject to the maximum of $2,000 per IRA). Some individuals may
be able to take an income tax deduction for the contribution. Regular
contributions may not be made for the year after you become 70 1/2, or
thereafter.

39
<PAGE>

ROLLOVER IRAS: Individuals who receive distributions from qualified retirement
plans (other than required distributions) and who wish to keep their savings
growing tax-deferred can rollover (or make a direct transfer of) their
distribution to a Rollover IRA. These accounts can also receive rollovers or
transfers from an existing IRA.

SEP-IRAS AND SIMPLE IRAS: Simplified employee pension (SEP) plans and SIMPLE
plans provide employers and self-employed individuals (and any eligible
employees) with benefits similar to Keogh-type plans or 401(k) plans, but with
fewer administrative requirements and therefore lower annual administration
expenses.

PROFIT SHARING (INCLUDING 401(K) AND MONEY PURCHASE PENSION PLANS): Corporations
can sponsor these qualified defined contribution plans for their employees. A
401(k) plan, a type of profit sharing plan, additionally permits the eligible,
participating employees to make pre-tax salary reduction contributions to the
plan (up to certain limitations).

From time to time, the Fund and the Advisor will quote certain information
including, but not limited to, data regarding: individual countries, regions,
world stock exchanges, and economic and demographic statistics from sources the
Advisor deems reliable, including, but not limited to, the economic and
financial data of such financial organizations as: