-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NDvs9BhI4Q7NOqs3MCbMjhbV0otRwQ7Jop4pMTeW8ok2ycVtsblKE1w5ItGsA8xl om7eS6heD0b0/zVksbnR3A== 0000950147-98-000154.txt : 19980304 0000950147-98-000154.hdr.sgml : 19980304 ACCESSION NUMBER: 0000950147-98-000154 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19980302 EFFECTIVENESS DATE: 19980302 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREMONT MUTUAL FUNDS INC CENTRAL INDEX KEY: 0000837389 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-23453 FILM NUMBER: 98554792 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-05632 FILM NUMBER: 98554793 BUSINESS ADDRESS: STREET 1: 50 FREMONT ST STE 3600 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4157685461 MAIL ADDRESS: STREET 1: 50 FREMONT STREET STREET 2: SUITE 3600 CITY: SAN FRANCISCO STATE: CA ZIP: 45202 FORMER COMPANY: FORMER CONFORMED NAME: SIERRA MUTUAL FUNDS INC DATE OF NAME CHANGE: 19881113 485BPOS 1 AMENDMENT TO N1-A File Nos. 33-23453 811-5632 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X/ Post-Effective Amendment No. 31 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X/ Amendment No. 34 FREMONT MUTUAL FUNDS, INC. (Exact Name of Registration as Specified in Charter) 333 Market Street, Suite 2600 SAN FRANCISCO, CALIFORNIA 94105 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (415) 284-8733 Tina Thomas, Secretary Fremont Mutual Funds, Inc. 333 Market Street, Suite 2600 SAN FRANCISCO, CALIFORNIA 94105 (Name and Address of Agent for Service) copy to: Julie Allecta Paul, Hastings, Janofsky & Walker, LLP 345 California Street, 29th floor SAN FRANCISCO, CA 94104-2635 It is proposed that this filing will become effective (check appropriate box) / / immediately upon filing pursuant to paragraph (b) /X/ on March 2, 1998 pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a) / / on _________ pursuant to paragraph (a) of Rule 485 / / 75 days after filing pursuant to paragraph (a)(ii) FREMONT MUTUAL FUNDS, INC. CROSS-REFERENCE SHEET Between Items Enumerated in Form N-1A and this Registration Statement References to items numbered 1 - 23 are for the Fremont Mutual Funds, Inc. Item No. of PART A OF FORM N-1A CAPTIONS IN PROSPECTUS 1. Cover Page Cover Page 2. Synopsis Summary of Fees and Expenses; Investment Results 3. Financial Highlights Financial Highlights 4. General Description of The Advisor and the Fund; Registrant Investment Objective, Policies, and Risk Considerations; General Investment Policies 5. Management of the Fund The Advisor and the Fund; Execution of Portfolio Transactions; General Information 6. Capital Stock and Other Shareholder Account Services Securities and Privileges; Dividends, Distributions, and Federal Income Taxation; General Information 7. Purchase of Securities How to Invest; Calculation of Being Offered Net Asset Value and Public Offering Price 8. Redemption or Repurchase How to Redeem Shares; Calculation of Net Asset Value and Public Offering Price 9. Pending Legal Proceedings Inapplicable Item No. of Captions in Statement of PART B OF FORM N-1A ADDITIONAL INFORMATION 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and Inapplicable History 13. Investment Objectives and Investment Objective, Policies Policies, and Risk Considerations; Investment Restrictions; Appendix A: Description of Securities Ratings 14. Management of the Funds Investment Company Directors and Officers; Investment Advisory and Other Services 15. Control Persons and Investment Company Directors Principal Holders of and Officers; Investment Securities Advisory and Other Services; Additional Information 16. Investment Advisory and Investment Advisory and Other Other Services Services; Additional Information 17. Brokerage Allocation and Execution of Portfolio Other Practices Transactions 18. Capital Stock and Other Additional Information Securities 19. Purchase, Redemption and How to Invest; Other Pricing of Securities Investment and Redemption Being Offered Services 20. Tax Status Taxes -- Mutual Funds 21. Underwriters Investment Advisory and Other Services 22. Calculation of Performance Investment Results Data 23. Financial Statements Independent Audit; Financial Statements PART C OF FORM N-1A Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to the Registration Statement. FREMONT MUTUAL FUNDS, INC. o Money Market Fund o Bond Fund o Real Estate Securities Fund o Global Fund o Growth Fund o Select Fund o U.S. Small Cap Fund o Emerging Markets Fund o U.S. Micro-Cap Fund March 1, 1998 Table of Contents Item Page No. Summary of Fees and Expenses............................................ Financial Highlights.................................................... The Advisor, The Sub-Advisors and the Funds............................. Investment Objectives, Policies and Risk Considerations................. General Investment Policies............................................. Investment Results...................................................... How to Invest........................................................... Shareholder Account Services and Privileges............................. How to Redeem Shares.................................................... Retirement Plans........................................................ Dividends, Distributions and Federal Income Taxation.................... Plan of Distribution.................................................... Calculation of Net Asset Value and Public Offering Price................ Execution of Portfolio Transactions..................................... General Information..................................................... Telephone Numbers and Addresses......................................... 2 PROSPECTUS FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in nine series, or Funds: FREMONT MONEY MARKET FUND seeks to maximize current income to the extent consistent with preservation of capital and liquidity by investing in short-term money market instruments. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT OR ANY OTHER ENTITY. THE FUND WILL ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. FREMONT BOND FUND seeks to realize maximum total return consistent with the preservation of capital and prudent investment management by investing primarily in bonds, notes, bills and money market instruments of U.S. and foreign issuers. FREMONT REAL ESTATE SECURITIES FUND seeks to obtain total return through a combination of income and long-term capital appreciation by investing primarily in equity securities of companies in the real estate industry. FREMONT GLOBAL FUND seeks to maximize total return (including income and capital gains) while reducing risk by investing in multiple categories of U.S. and foreign securities. FREMONT GROWTH FUND seeks to provide growth of capital over the long term by investing primarily in common stocks of companies domiciled within the United States. FREMONT SELECT FUND seeks to achieve long-term capital appreciation by investing primarily in equity securities of medium capitalized U.S. companies. FREMONT U.S. SMALL CAP FUND seeks to achieve long-term capital appreciation by investing primarily in common stocks of small, rapidly growing U.S. cap companies. FREMONT EMERGING MARKETS FUND seeks to achieve long-term capital appreciation by investing primarily in equity securities of issuers domiciled in countries with emerging or developing capital markets. FREMONT U.S. MICRO-CAP FUND seeks to achieve long-term capital appreciation by investing primarily in equity securities of micro-cap companies domiciled within the United States. 3 There can be no assurance that any Fund will achieve its investment objective. Each of the Funds, except for the Fremont Real Estate Securities Fund, Fremont Select Fund, and Fremont Emerging Markets Fund, is a diversified fund as defined by the Investment Company Act of 1940, as amended (the "1940 Act").. Shares of each Fund are offered without a sales charge. This Prospectus, which should be retained for future reference, sets forth concisely the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, California 94105. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SHARES INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated March 1, 1998 FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 800-548-4539. 4 SUMMARY OF FEES AND EXPENSES Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees1 None Exchange Fee None Annual Fund Operating Expenses (as a percentage of average net assets) Total Fund Management 12b-1(9) Other Operating Fee Fees Expenses Expenses --- ---- -------- -------- Money Market Fund(2) .21% None .09% .30% Bond Fund(3) .40% None .21% .61% Real Estate Securities Fund(4) None .25% .25% .50% Global Fund .60% None .25% .85% Growth Fund .50% None .35% .85% Select Fund(5) 1.00% .25% .15% 1.40% U.S. Small Cap Fund(6) 1.00% .25% .25% 1.50% Emerging Markets Fund(7) 1.00% .25% .25% 1.50% U.S. Micro-Cap Fund(8) 1.88% None None 1.88% Example: You would pay the following total expenses on a $1,000 investment in each Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Money Market Fund $ 3 $10 $17 $38 Bond Fund 6 20 34 77 Real Estate Securities Fund 5 16 Global Fund 9 27 47 105 Growth Fund 9 27 47 105 Select Fund 15 44 U.S. Small Cap Fund 15 47 5 Emerging Markets Fund 15 47 82 179 U.S. Micro-Cap Fund 19 59 102 221 THESE EXAMPLES SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. The tables above are intended to give you information and assistance in understanding the various costs and expenses of the Funds that an investor may bear directly or indirectly. Other expenses include, but are not limited to, administrative and transfer agent fees paid to Fremont Investment Advisors, Inc., custody, legal and audit, costs of registration of fund shares under applicable laws, and costs of printing and distributing reports to shareholders. The percentages expressing annual fund operating expenses of the Emerging Markets Fund are based on estimated amounts for the current fiscal year. The percentages expressing annual fund operating expenses of the remaining Funds are based on actual expenses incurred during the most recent fiscal year, except that the management fee of the International Small Cap Fund has been restated to reflect the management fee currently being charged to the Fund. See "The Advisor, the Sub-Advisor and the Funds." (1) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $10. See "How to Redeem Shares." (2) Administrative fees of .15% have been waived by the Advisor. Absent such waiver, other expenses and total fund operating expenses of the Money Market Fund would have been .24% and .45%, respectively, for the fiscal year ended October 31, 1997. (3) Administrative fees of .15% have been waived by the Advisor. Absent such waiver, other expenses and total operating expenses of the Bond Fund would have been .36% and .76%, respectively, for the fiscal year ended October 31, 1997. Effective 3/1/98, the Advisor will waive .10% out of the .15% administrative fee with respect to the Fund (4) The Advisor has voluntarily agreed to waive the management fee for the first six months, until June 30, 1998, and will continue to waive fees until December 31, 1998 or until the assets in the fund reach $25 million. Absent this limitation, the management fee, 12b-1 fee, other expenses and total operating expenses are estimated to be 1.00%, .25%, .55% and 1.80%, respectively. (5) The Advisor has voluntarily agreed to currently limit the total operating expenses to 1.40% of average net assets. Absent this limitation, the management fee, 12b-1 fee, other expenses and total operating expenses are estimated to be 1.00%, .25%, .63% and 1.88%, respectively. (6) The Advisor has voluntarily agreed to currently limit the total operating expenses to 1.40% of average net assets. Absent this limitation, the management fee, 12b-1 fee, other expenses and total operating expenses are estimated to be 1.00%, .25%, .55% and 1.80%, respectively. (7) The Advisor has voluntarily agreed to currently limit the total operating expenses to 1.50% of average net assets. Absent this limitation, the management fee, 12b-1 fee, other expenses and total operating expenses would have been 1.00%, .25%, 1.38% and 2.63%, respectively, for the fiscal year ended October 31, 1997. (8) The U.S. Micro-Cap Fund is obligated, under the terms of the management agreement, to pay the 6 Advisor an annual management fee of 2.5% of average net assets with respect to the first $30 million, 2.0% with respect to the next $70 million and 1.5% thereafter. However, the Advisor is obligated to pay all of the Fund's other ordinary operating expenses. Absent waivers of management fees, the management fee and total operating expenses would have been 1.90% for the fiscal year ended October 31, 1997. (9) 12b-1fees may be paid to financial intermediaries for services provided through sales program(s). Long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted by the rules of the National Association of Securities Dealers. For more information on 12b-1 fees, see "Plan of Distribution." 7 FINANCIAL HIGHLIGHTS The financial highlights of the Funds presented below have been audited by Coopers & Lybrand, L.L.P., independent accountants. Their report covering each of the five fiscal years in the period ended October 31, 1997, is included in the Funds' Annual Report. Further information about the Funds' performance is also contained in the Annual Report, which is included in the Funds' Statement of Additional Information and which may be obtained without charge.
Year Ended October 31 --------------------- MONEY MARKET FUND 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ---------- ---------- ---------- ---------- --------- INCOME FROM INVESTMENT OPERATIONS Net investment income(a) .05 .05 .06 .03 .03 ---------- ---------- ---------- ---------- --------- Total investment operations .05 .05 .06 .03 .03 ---------- ---------- ---------- ---------- --------- LESS DISTRIBUTIONS From net investment income (.05) (.05) (.06) (.03) (.03) ---------- ---------- ---------- ---------- --------- Total distributions (.05) (.05) (.06) (.03) (.03) ---------- ---------- ---------- ---------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========== ========== ========== ========== ========= TOTAL RETURN # 5.34% 5.84% 3.49% 2.66% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 433,152 $ 329,652 $ 299,312 $ 224,439 $ 24,207 Ratio of expenses to average net assets(a) .30% .31% .30% .46% .67% Ratio of net investment income to average net assets(a) 5.26% 5.22% 5.70% 4.02% 2.62% * Annualized Year Ended October 31 PERIOD MONEY MARKET FUND --------------------------------------- 11/18/88 1992 1991 1990 10/31/89 SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 ---------- ---------- --------- ---------- INCOME FROM INVESTMENT OPERATIONS Net investment income(a) .04 .06 .08 .08 ---------- ---------- --------- ---------- Total investment operations .04 .06 .08 .08 ---------- ---------- --------- ---------- LESS DISTRIBUTIONS From net investment income (.04) (.06) (.08) (.08) ---------- ---------- --------- ---------- Total distributions (.04) (.06) (.08) (.08) ---------- ---------- --------- ---------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========== ========== ========== ========== TOTAL RETURN# 3.73% 6.51% 7.99% 8.52% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 31,832 $ 33,814 $ 62,599 $ 56,477 Ratio of expenses to average net assets(a) .70% .51% .60% .65%* Ratio of net investment income to average net assets(a) 3.70% 6.44% 7.66% 8.04%*
8 For footnote references, see "Notes to Financial Highlights" on page 8.
Year Ended October 31 PERIOD FROM BOND FUND ----------------------------------------------- APRIL 30, 1993 TO 1997 1996 1995 1994 OCTOBER 31, 1993 ---- ---- ---- ---- ---------------- SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 10.13 $ 9.29 $ 10.27 $ 10.04 ---------- ---------- --------- --------- ----------- INCOME FROM INVESTMENT OPERATIONS Net investment income(a) .67 .67 .65 .53 .27 ---------- ---------- --------- --------- ----------- Net realized and unrealized gain (loss) .11 .11 .83 (.98) .24 ---------- ---------- --------- --------- ----------- Total investment operations .92 .78 1.48 (.45) .51 ---------- ---------- --------- --------- ----------- LESS DISTRIBUTIONS From net investment income (.66) (.70) (.64) (.53) (.27) ---------- ---------- --------- --------- ----------- From net realized gains (.02) (.22) -- -- (.01) ---------- ---------- --------- --------- ----------- Total distributions (.68) (.92) (.64) (.53) (.28) ---------- ---------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 10.23 $ 9.99 $ 10.13 $ 9.29 $ 10.27 ========== ========== ========= ========= =========== TOTAL RETURN # 9.54% 8.18% 16.49% -4.42% 5.15% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 90,302 $ 70,577 $ 86,343 $ 64,244 $ 11,738 Ratio of expenses to average net assets(a) .61% .68% .60% .66% .50%* Ratio of net investment income to average net assets(a) 6.40% 6.82% 6.69% 5.76% 5.35%* Portfolio turnover rate 191% 154% 21% 205% 13%*
Year Ended October 31 GLOBAL FUND ---------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 15.11 $ 14.24 $ 13.13 $ 13.17 $ 11.52 $ 11.25 ---------- ---------- ---------- --------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS Net investment income .45 .39 .40 .26 .32 .39 ---------- ---------- ---------- --------- ---------- ---------- Net realized and unrealized gain (loss) 1.31 1.49 1.24 (.03) 1.67 .40 ---------- ---------- ---------- --------- ---------- ----------
9 Total investment operations 1.76 1.88 1.64 .23 1.99 .79 ---------- ---------- ---------- --------- ---------- ---------- LESS DISTRIBUTIONS From net investment income (.52) (.44) (.50) (.14) (.26) (.40) From net realized gains (2.19) (.57) (.03) (.13) (.08) (.11) Return of Capital -- -- -- -- -- (.01) ---------- ---------- ---------- --------- ---------- ---------- Total distributions (2.71) (1.01) (.53) (.27) (.34) (.52) NET ASSET VALUE, END OF PERIOD $ 14.16 $ 15.11 $ 14.24 $ 13.13 $ 13.17 $ 11.52 ========== ========== ========== ========= ========== ========== TOTAL RETURN 13.01% 13.72% 12.78% 1.74% 17.51% 7.10% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 665,747 $ 572,150 $ 482,355 $ 453,623 $ 186,325 $ 101,839 Ratio of expenses to average net assets .85% .87% .88% .95% .99% 1.09% Ratio of net investment income to average 2.66% 2.66% 2.98% 2.47% 2.89% 3.41% net assets Portfolio turnover rate 48% 71% 83% 52% 40% 50% Average commission rate paid $ .0149 $ .0238 -- -- -- --
Year Ended October 31 PERIOD GLOBAL FUND ------------------------ NOVEMBER 18, 1988 1991 1990 TO OCTOBER 31, 1989 SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $9.93 $10.77 $10.00 ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .47 .54 .57 Net realized and unrealized gain (loss) 1.34 (.82) (.79) ------ ------ ------ Total investment operations 1.81 (.28) 1.36 ------ ------ ------ LESS DISTRIBUTIONS From net investment income (.45) (.54) (.45) From net realized gains (.04) (.02) (.14) Return of capital -- -- -- ------ ------ ------ Total distributions (.49) (.56) (.59) ------ ------ ------ NET ASSET VALUE, END OF PERIOD $11.25 $9.93 $10.77 ====== ===== ====== TOTAL RETURN 18.38% -2.64% 13.71% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $74,502 $55,028 $43,918 Ratio of expenses to average net assets 1.12% 1.10% 1.02%* Ratio of net investment income to average 4.34% 5.01% 5.30%* net assets Portfolio turnover rate 81% 36% 51%* Average commission paid -- -- -- Year Ended October 31 PERIOD FROM GROWTH FUND --------------------------------------- AUGUST 14, 1992 TO 1997 1996 1995 1994 1993 OCTOBER 31, 1992 ----------------
10 SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 15.02 $ 13.06 $ 10.46 $ 11.25 $ 10.08 $ 9.92 ---------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS Net investment income(a) .20 .10 .13 .21 .13 .02 Net realized and unrealized gain (loss) 3.43 2.65 2.74 (.02) 1.16 .18 ---------- --------- --------- --------- --------- --------- Total investment operations 3.63 2.75 2.87 .19 1.29 .20 ---------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS From net investment income (.22) (.08) (.17) (.18) (.12) (.04) From net realized gains (3.47) (.71) (.10) (.80) -- -- ---------- --------- --------- --------- --------- --------- Total distributions (3.69) (.79) (.27) (.98) (.12) (.04) ---------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 14.96 $ 15.02 $ 13.06 $ 10.46 $ 11.25 $ 10.08 ========== ========= ========= ========= ========= ========= TOTAL RETURN # 29.26% 22.06% 28.12% 1.72% 12.80% 2.00% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 147,641 $ 78,624 $ 59,632 $ 27,244 $ 42,306 $ 32,388 Ratio of expenses to average net assets(a) .85% .92% .97% .94% .87% .94%* Ratio of net investment income to average net assets(a) 1.44% .75% 1.02% 1.31% 1.19% 1.08% Portfolio turnover rate 48% 129% 108% 55% 44% 49% Average commission rate paid $ .0467 $ .0429 -- -- -- --
PERIOD FROM U.S. Small Cap Fund 9/24/97 TO 10/31/97 --------- SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $10.00 ------ INCOME FROM INVESTMENT OPERATIONS Net investment income(a) .02 Net realized and unrealized gain (loss) (.42) ------ Total investment operations .40 ------- LESS DISTRIBUTIONS From net investment income (.02) From net realized gains (.01) ------ Total distributions (.03) ------ NET ASSET VALUE, END OF PERIOD $ 9.57 ====== TOTAL RETURN # -4.06% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 5,350 Ratio of expenses to average net assets(a) 1.50% Ratio of net investment income to average net assets(a) 1.81% Portfolio turnover rate 8% Average commission rate paid $0.543
11
Year PERIOD FROM Ended 6/24/96 to 10/31/97 10/31/96 EMERGING MARKETS FUND ----------- SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $10.00 ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income(a) .17 .10 Net realized and unrealized gain (loss) 1.03 (.41) ------ ------ Total investment operations 1.20 (.31) ------- ------ LESS DISTRIBUTIONS From net investment income (.06) (.07) From net realized gains (1.18) -- ------ ------ Total distributions (1.24) (.07) ------ ------ NET ASSET VALUE, END OF PERIOD $ 9.58 $ 9.62 ====== ====== TOTAL RETURN # 12.55% -3.12% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 12,175 $ 3,772 Ratio of expenses to average net assets(a) .26% -- Ratio of net investment income to average net assets(a) 2.04% 3.32% Portfolio turnover rate 208% 7% Average commission rate paid $.0038 $.0063
U.S. MICRO-CAP FUND
PERIOD FROM YEAR ENDED OCTOBER 31 JUNE 30, 1994 TO 1997 1996 1995 OCTOBER 31, 1994 ---- ---- ---- ---------------- SELECTED PER SHARE DATA for one share outstanding during the period NET ASSET VALUE, BEGINNING OF PERIOD $ 19.63 $ 14.34 $ 10.34 $ 10.00 ----------- ----------- --------- --------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)(a) (.10) (.04) (.05) .02 Net realized and unrealized gain 5.60 5.83 4.05 .34 ----------- ----------- --------- --------- Total investment operations 5.50 5.79 4.00 .36 ----------- ----------- --------- --------- LESS DISTRIBUTIONS From net investment income -- -- -- (.02) From net realized gains (2.44) (.50) -- -- ----------- ----------- --------- --------- Total distributions (2.44) (.50) -- (.02) ----------- ----------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 22.69 $ 19.63 $ 14.34 $ 10.34 =========== =========== ========= ========= TOTAL RETURN # 28.80%(1) 41.46%(1) 38.68%(1) 3.60% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 171,507 $ 102,481 $ 7,792 $ 2,052
12 Ratio of expenses to average net assets(2) 1.88% 1.96% 2.04% 2.50%* Ratio of net investment income (loss) to average net assets(2) -.67% -.51% -.67% .68%* Portfolio turnover rate 125% 81% 144% 129%* Average commission rate paid $ .0505 $ .0541 -- --
Notes to Financial Highlights The following notes are being used as reference items in the Financial Highlights of the Funds presented on Pages 3 through 8. (1) Total returns would have been lower had the Advisor not waived/and or reimbursed expeneses (2) For the most recent period ended 10/31/97, the Advisor has voluntarily waived and/or reimbursed some of its fees for the following Funds: Money Markets Fund, Bond Fund, U.S. Small Cap Fund, Emerging Markets Fund and the U.S. Micro-Cap Fund. Except for the U.S. Small Cap Fund, all fees waived in the past will not be recouped int eh future. The waivers are voluntary and may be changed in the future. For the Money Market Fund, the Advisor is voluntarily waiving the administrative fee in its entirety. For the Bond Fund, the Advisor is voluntarily waiving the administrative fee in its entirety. For the U.S. Small Cap Fund, the Advisor is voluntarily limiting the Fund's total operating expenses to 1.50% of average n4et assets. The Fund may reimburse the Advisor for any reduction in the Advisor's fees during the three years following the reduction if such reimbursements is requested by the Advisor, if such reimbursement can be achieved within the forgoing expense limit, and if the Board of Directors approves the reimbursement at the time oaf the request as not inconsistent with the best interest of the Fund. The Advisor generally seeks to reimburse the oldest reductions and waiver before payment of fees and expenses for the current year. Because of these substantial contingencies, the potential reimbursement will be accounted for as contingent liabilities that are not recordable on the balance sheet of the Fund until payment is probable. For the Emerging Markets Fund, the Advisor voluntarily waived advisory, 12b-1 and administrative fees and reimbursed all other operating expenses from June 24, 1996 to September 18, 1997, after which the Advisor limited the total operating expenses to 1.50% of average net assets. For the U.S. Micro-Cap Fund, the Advisor is voluntarily limiting the advisory fee t a reduced rate of no greater than 1.98% of average net assets. (3) Disclosure not required for years prior to 1996. *Annualized 13 THE ADVISOR, THE SUB-ADVISORS AND THE FUNDS Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment company which under this Prospectus is offering shares in nine series, or Funds. The Board of Directors of the Investment Company is permitted to create additional Funds at any time. Each Fund has its own investment objective and policies and operates as a separate mutual fund. The management of the business and affairs of the Investment Company is the responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the "Advisor") provides each Fund with investment management and administrative services under an Investment Advisory and Administrative Agreement (the "Advisory Agreement") with the Investment Company. The Advisory Agreement provides that the Advisor shall furnish advice to each Fund with respect to its investments and shall, to the extent authorized by the Board of Directors, determine what securities shall be purchased or sold by the Fund. As described more fully below, the Advisor has retained investment management firms (the "Sub-Advisors") to provide certain of the Funds with portfolio management services. The Advisor's Investment Committee oversees the portfolio management of the Funds, including the services provided by the Sub-Advisors. The professional staff of the Advisor has offered professional investment management services regarding asset allocation in connection with securities portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987. The Advisor also provides investment advisory services regarding asset allocation, investment manager selection and portfolio diversification to a number of large Bechtel-related investors. The Investment Company is one of its clients. The Advisor will provide direct portfolio management services to the extent that a sub-advisor does not provide those services. In the future, the Advisor may propose to the Investment Company that different or additional sub-advisor(s) be engaged to provide investment advisory or portfolio management services to the Funds. Prior to such engagement, any agreement with a sub-advisor must be approved by the Board of Directors and, if required by law, by the shareholders of the applicable Fund. The Advisor may in its discretion manage all or a portion of a Fund's portfolio directly with or without the use of a sub-advisor. Investment Company Administration Corporation (the "Sub-Administrator"), pursuant to an administrative agreement with the Advisor, supervises the administration of the Investment Company and the Fund including, among other responsibilities, the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations. Certain officers of the Investment Company may be provided by the Sub-Administrator For additional information about the Advisor and the Sub-Advisors, see "Investment Advisory and Other Services" in the Statement of Additional Information. Money Market Fund As compensation for its services to the Money Market Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of .30% per annum of the first $50 million of the Fund's average net assets and .20% of such assets in excess of $50 million. The Advisory Agreement also provides that the Fund 14 will pay to the Advisor an administrative fee of .15% per annum of average net assets. Currently, the Advisor is waiving the entire administrative fee with respect to the Fund. See "Other Expenses of the Funds" below. o Norman Gee is the Senior Portfolio Manager for the Money Market Fund, Vice President of the Advisor and a member of the Advisor's Fixed Income Committee. Norman has 19 years' experience in portfolio management and analysis. He is a graduate of San Francisco State University. Bond Fund As compensation for its services to the Bond Fund, the Advisor receives from the Fund an advisory fee of .40% per annum of the Fund's average net assets, computed daily and paid monthly. The Advisory Agreement also provides that the Fund will pay to the Advisor an administrative fee of .15% per annum of average net assets. The Advisor is currently waiving .10% out of the .15% administrative fee with respect to the Fund. See "Other Expenses of the Funds" below. Pacific Investment Management Company ("PIMCO"), 840 Newport Center Drive, Suite 360, Newport Beach, California 92660, serves as Sub-Advisor for the Bond Fund pursuant to a Portfolio Management Agreement. PIMCO is an investment counseling firm founded in 1971, and currently has $115 billion of assets under management. The controlling partner of PIMCO is PIMCO Advisors Holdings L.P. PIMCO is one of seven investment management subsidiaries of PIMCO Advisors Holding L.P. The ownership of PIMCO Advisors Holdings L.P. is represented by the following, approximate positions; 30% Pacific Life, 30% management, 40% public. PIMCO is registered as an investment advisor with the Securities and Exchange Commission and as a commodity trading advisor with the Commodity Futures Trading Commission. William H. Gross, CFA, Chairman and Chief Investment Officer of PIMCO, is the portfolio manager of the Fund and has served in that capacity since March 1, 1994. A founder of the firm, Bill has been associated with PIMCO for 27 years. He received his bachelor's degree from Duke University and his MBA from the UCLA Graduate School of Business. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the Bond Fund), the Advisor and PIMCO provides that PIMCO will manage the investment and reinvestment of the assets of the Fund and continually review, supervise, and administer the Fund's investments. PIMCO pays all expenses of its staff and their activities in connection with its portfolio management activities. As compensation for its services, the Advisor (not the Bond Fund) pays PIMCO a fee equal to .25% per annum of Fund assets managed by PIMCO. The Portfolio Management Agreement with PIMCO may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by PIMCO. Real Estate Securities Fund As compensation for its services to the Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of 1.00% per annum of the Fund's average net assets. This advisory fee is higher than for most mutual funds. The Fund also pays the Advisor a 12b-1 fee of 0.25% per annum, subject to the terms of a plan of distribution more fully described under "Plan of Distribution." See "Other Expenses of the Funds" below. 15 The Advisor anticipates waiving fees and reimbursing the Fund for other operating expenses in order to limit total operating expenses to 1.50% of average daily net assets. To the extent management fees are waived and/or other expenses are reimbursed by the Advisor, the Advisor may elect to recapture such amounts if it requests reimbursement within three years of the year in which the waiver and/or reimbursement is made, and the Board of Directors approves the reimbursement, and the Fund is able to make reimbursement and still stay within the then current operating expense limitation. Kensington Investment Group is an SEC-registered investment advisor that specializes in the management of both publicly traded and non-traded real estate securities portfolios. Kensington was founded in 1993 by principals who have been active in real estate securities research, trading and portfolio management since 1985. Kensington currently manages over $70 million in private funds, which have invested in traded real estate investment trusts, real estate related operating companies and existing real estate limited partnerships. John P. Kramer, President and founding partner of Kensington Investment Group, is involved in all aspects of the organization and is primarily responsible for directing the firm's investment policies. Paul Gray, Vice President and Portfolio Manager is responsible for securities investment decisions on behalf of Kensington's portfolios. The Kensington Investment Group accounts were not registered under the Investment Company Act of 1940 and therefore were not subject to certain investment restrictions nor specific tax restrictions imposed by that Act or Subchapter M of the Internal Revenue Code. If the accounts had been registered under the 1940 Act, their performance may have been different. Total return for the Kensington managed accounts in the following table was calculated using a methodology that incorporates a time-weighted total rate of return concept and is adjusted for cash flows. This methodology of calculating total return differs from the methodology required to be employed by a mutual fund in calculating total return, which is not time-weighted or dollar-weighted but simply measures the total return of an investment in the Fund over a period of time. The Advisor believes , however, that the performance would be substantially the same if it was recalculated in accordance with mutual fund performance rules. The following table depicts the Sub-Advisors performance on all separately managed accounts that contain publicly traded real estate securities and are managed with an objective, policies, and strategy substantially similar to that of the Fremont Real Estate Securities Fund. The performance information has been adjusted to back-out the Sub-Advisor's performance fee and all expenses and has been restated to reflect what the performance results would have been had the Sub-Advisor charged a fee equal to the Fund's anticipated gross expense ratio. This performance information is based on historical data and is not indicative of the future performance of the Fund. Average Annual Total Returns for Period Ended December 31, 1997 1 Year Inception to Date(1) Kensington Investment Group 29.14% 25.30% NAREIT Total Return Index(2) 18.86% 19.48% S&P 500 Index(3) 33.36% 27.79% (1) "Inception To Date" returns incorporates the period July 10, 1994 through December 31, 1997. (2) The National Association of Real Estate Investment Trusts Composite Total Return Index (NAREIT Index) is comprised of all publicly traded real estate investment trusts, dividends are reinvested monthly. Unlike Kensington Investment Group net returns, Index returns do not reflect any fees or expenses. (3) The Standard & Poors 500 Index is an unmanaged market value-weighted measure of 500 widely-held common stocks listed on the New York Stock Exchange, the American Stock Exchange, and the Over the Counter market. Index returns are computed monthly and assume reinvestment of dividends. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the Fund), the Advisor and the Sub-Advisor provides that the Sub-Advisor will manage the investment and reinvestment of the assets of the Fund and continually review and administer the Fund's investments. As compensation for its services, the Advisor (not the Fund) pays the Sub-Advisor a fee equal to .50% per annum of Fund assets managed by the Sub-Advisor. Both the Advisor and the Sub-Advisor will waive their fees for the first six months, and will then continue to waive fees until the earlier of December 31, 1998 or until assets in the Fund reach $25 million. The Portfolio Management Agreement with the Sub-Advisor may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by the Sub-Advisor. Global Fund As compensation for its services to the Global Fund, the Advisor receives from the Fund an advisory fee of .60% per annum of the Fund's average net assets, computed daily and paid monthly. The Advisory Agreement also provides that the Fund will pay to the Advisor an administrative fee of .15% per annum of average net assets. See "Other Expenses of the Funds" below. The Advisor will allocate and reallocate the assets of the Global Fund to seek to achieve the Fund's investment objective. This will involve a periodic review of the outlook for various securities which may result in reallocation of assets among the categories. The Advisor's asset allocation review process is based on forecasts of returns for each asset class. The investment environment is also analyzed since capital markets often anticipate economic developments. Given the Advisor's evaluation, an appropriate asset mix is determined for the Fund. 16 The Global Fund is managed by the Advisor's Asset Allocation Committee, whose members are Robert J. Haddick, Alexandra Kinchen, Albert W. Kirschbaum, Peter F. Landini, and David L. Redo. o Robert J. Haddick, CFA, is Vice President of the Advisor and a member of its Investment and U.S. Equity Committees. His primary responsibilities include developing global asset allocation and investment management strategies. Bob earned his B.A. and M.B.A. from the University of Illinois. o Alexandra Kinchen is Vice President of the Advisor and a member of its Investment and Fixed Income Committees. Sandie earned her B.A. and M.B.A. from Golden Gate University, San Francisco, California. o Albert W. Kirschbaum is Senior Vice President and Director of Fremont Investment Advisors. He is Chairman of the Advisor's Fixed Income Committee and is also a member of the Fremont Investment Committee. Al received an undergraduate degree from Washington University and has done course work at Princeton and Wharton. o Peter F. Landini is Executive Vice President, Chief Operating Officer, and Director of the Advisor and a member of its Investment Committee. Pete graduated from the University of Santa Clara with a degree in Accounting and received an M.B.A. from Golden Gate University, San Francisco, California. He is Chairman of the Advisor's U.S. Equity and Asset Allocation Committees. o David L. Redo is a Director of Fremont Mutual Funds and President, CEO and Chief Investment Officer for the Advisor. He has overall responsibility for the management of approximately $5 billion of marketable securities portfolios including the Fremont Mutual Funds. Prior to joining the Advisor's predecessor organization in 1977, Dave was responsible for Pacific Telesis' Pension Fund Investments. He received a B.S. in Electrical Engineering from the University of California, Berkeley and an M.B.A. from the University of Santa Clara. Growth Fund As compensation for its services to the Growth Fund, the Advisor receives from the Fund an advisory fee of .50% per annum of the Fund's average net assets, computed daily and paid monthly. The Advisory Agreement also provides that the Fund will pay to the Advisor an administrative fee of .15% per annum of average net assets. See "Other Expenses of the Funds" below. The U.S. Equity Committee is responsible for reviewing the securities and overall characteristics of the Fund's portfolio. The portfolio managers for the Growth Fund are W. Kent Copa, John B. Kosecoff and Peter F. Landini. Ken has co-managed the Fund since January 1995. Ken, John and Pete have managed the Fund since January 1995, November 1996, and since inception, respectively. o W. Kent Copa, CFA, is Vice President of the Advisor and a member of its U.S. Equity Committee. Ken earned his B.A. and M.B.A. from Brigham Young University. o John B. Kosecoff is Vice President of the Advisor and a member of its U.S. Equity Committee. John earned his B.A. from the University of California at Berkeley and his M.B.A. from Cornell University. He was previously employed as a senior analyst and portfolio manager at RCM Capital Management from December 1993 to December 1996, as a hedge fund analyst and portfolio manager at Omega Advisors from November 1992 to November 1993. 17 For a biography on Peter F. Landini, chairman of the Advisor's U.S. Equity Committee, please refer to the Global Fund section. Select Fund As compensation for its services to the Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of 1.00% per annum of the Fund's average net assets. This advisory fee is higher than for most mutual funds. The Fund also pays the Advisor a 12b-1 fee of 0.25% per annum, subject to the terms of a plan of distribution, more fully described in "Plan of Distribution." See "Other Expenses of the Funds" below. The Advisor anticipates waiving fees and reimbursing the Fund for other operating expenses in order to limit total operating expenses to 1.40% of average daily net assets. To the extent management fees are waived and/or other expenses are reimbursed by the Advisor, the Advisor may elect to recapture such amounts if it requests reimbursement within three years of the year in which the waiver and/or reimbursement is made, and the Board of Directors approves the reimbursement, and the Fund is able to make reimbursement and still stay within the then current operating expense limitation. The portfolio managers for the Fund, since inception, are John B. Kosecoff, Debra L. McNeill and Peter F. Landini. o Debra F. McNeill received her B.S. from the University of California at Berkeley. She was previously employed as a portfolio manager with C.M. Bidwell & Associates from July 1990 to January 1996, and as a quantitative analyst with RCM Capital Management from November 1986 to July 1990. For a biography on John B. Kosecoff, please refer to the Growth Fund section. For a biography on Peter F. Landini, please refer to the Global Fund section. U.S. Small Cap Fund As compensation for its services to the Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of 1.00% per annum of the Fund's average net assets. The Advisory Agreement also provides that the Fund will pay to the Advisor an administrative fee of .15% per annum of average net assets. In addition to the fees described above, the Fund pays its own operating expenses including shareholder servicing fees to third party servicing agents. The Advisor anticipates waiving fees and reimbursing the Fund for other operating expenses in order to limit total operating expenses to 1.50% of average daily net assets. To the extent management fees are waived and/or other expenses are reimbursed by the Advisor, the Advisor may elect to recapture such amounts if it requests reimbursement within three years of the year in which the waiver and/or reimbursement is made, and the Board of Directors approves the reimbursement, and the Fund is able to make reimbursement and still stay within the then current operating expense limitation. 18 Kern Capital Management LLC, ("KCM"), 114 West 47th Street, Suite 1926, New York, New York 10036, serves as Sub-Advisor for the Fund pursuant to a Portfolio Management Agreement. The controlling economic and voting members of the Sub-Advisor are Robert E. Kern, and the Advisor; consequently, the Advisor is an affiliate of the Sub-Advisor. The portfolio management team for the Fund is headed by portfolio manager David G. Kern. The senior investment managers are Robert E. Kern Jr., Judy R. Finger and David G. Kern. - - David Kern, Managing Member and Executive Vice President of KCM, was Vice President of the Advisor from May 1997 until September 1997. From January 1995 until April 1997 was employed as portfolio manager and from February 1997 until April 1997 was employed as Vice President of Founders Assets Management, Inc. a registered investment advisor located in Denver, Colorado. David also served as Vice President and Assistant Portfolio Manager for the Delaware Management Company of Philadelphia, Pennsylvania from February 1990 until December 1994. - - Bob Kern, Managing Member, President and Chief Executive Officer of KCM, has over 30 years of investment management experience was a Senior Vice President of the Advisor from April 1997 to August 1997 and was employed by Morgan Grenfell Assets Management, Inc. from 1986 through April 1997, where he headed Morgan Grenfell's Smaller Capitalization Equities Team. - - Judy Finger, Member and Senior Vice President of KCM, was employed from June 1995 to August 1997 as Vice President and Assistant Portfolio Manager for the Delaware Management Company of Philadelphia, Pennsylvania, from June 1992 to June 1995 as a Senior Analyst at Fred Alger Management located in New York. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the U.S. Small-Cap Fund), the Advisor and KCM provides that KCM will manage the investment and reinvestment of the assets of the Fund and continually review, supervise, and administer the Fund's investments. KCM pays all expenses of its staff and their activities in connection with its portfolio management activities. As compensation for its services, the Advisor (not the Fund) pays KCM a fee equal to .65% per annum of the Fund's assets managed by KCM. KCM has agreed to waive its fee until January 1, 1999, or until the Fund reaches $25 million in assets, whichever occurs first. The Portfolio Management Agreement with KCM may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by KCM. The Advisor will provide direct portfolio management services to the extent that the Sub-Advisor does not provide these services. Emerging Markets Fund 19 As compensation for its services to the Emerging Markets Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of 1.00% per annum of the Fund's average net assets. The Advisory Agreement also provides that the Fund will pay to the Advisor an administrative fee of .15% per annum of average daily net assets. The Advisor is currently capping fees at 1.50%. See "Other Expenses of the Fund" below. Nicholas-Applegate Capital Management (Hong Kong) LLC ("Nicholas-Applegate HK"), Three Exchange Square, 38 Connaught Place, 6th floor, Hong Kong, serves as Sub-Advisor to the Emerging Markets Fund pursuant to a Portfolio Management Agreement. Nicholas-Applegate HK is a limited liability company which is an affiliate of Nicholas-Applegate Capital Management, a California limited partnership. Its managing member is Nicholas-Applegate Capital Management Holdings, L.P., a California limited partnership, the general partner of which is Nicholas-Applegate Capital Management Holdings, Inc., a California corporation owned by Arthur E. Nicholas. The Nicholas-Applegate group of companies currently manages approximately $30 billion of discretionary assets for numerous types clients, including employee benefit plans of corporations, public retirement systems and unions, university endowments, foundations, and other institutional investors and individuals. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the Emerging Markets Fund), the Advisor and Nicholas-Applegate HK provides that Nicholas-Applegate HK will manage the investment and reinvestment of the assets of the Fund and continually review, supervise and administer the Fund's investments. Nicholas-Applegate HK pays all expenses of its staff and their activities in connection with its portfolio management activities. As compensation for its services, the Advisor (not the Fund) pays Nicholas-Applegate HK a fee equal to .50% per annum of the Fund's average daily net assets. Nicholas-Applegate HK has agreed, however, to waive its entire fee until further notice. The Portfolio Management Agreement with Nicholas-Applegate HK may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by Nicholas-Applegate HK. U.S. Micro-Cap Fund Under the terms of the Advisory Agreement, the U.S. Micro-Cap Fund pays the Advisor a fee, computed daily and paid monthly, of 2.50% per annum of the Fund's average net assets with respect to the first $30 million, 2.00% with respect to the next $70 million of such assets, and 1.50% of such assets in excess of $100 million. Under this Agreement, the Advisor has agreed to bear all of the Fund's expenses, except extraordinary expenses (as designated by a majority of the Investment Company's disinterested directors) and interest, brokerage commissions and other transaction charges relating to the investing activities of the Fund. Kern Capital Management LLC, ("KCM"), 114 West 47th Street, Suite 1926, New York, New York 10036, serves as Sub-Advisor for the Fund pursuant to a Portfolio Management Agreement. The controlling economic and voting members of the Sub-Advisor are Robert E. Kern, and the Advisor; consequently, the Advisor is an affiliate of the Sub-Advisor. The portfolio management team for the Fund is headed by portfolio manager Robert E. Kern. The senior investment managers are Robert E. Kern, Judy R. Finger and 20 David G. Kern. For a biography on Bob Kern, David Kern and Judy R. Finger, please refer to the U.S. Small Cap Fund section. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the U.S. Micro-Cap Fund), the Advisor and KCM provides that KCM will manage the investment and reinvestment of the assets of the Fund and continually review, supervise, and administer the Fund's investments. KCM pays all expenses of its staff and their activities in connection with its portfolio management activities. As compensation for its services, the Advisor (not the Fund) pays KCM a fee equal to 1.50% per annum of the first $30 million of the Fund's average net assets, 1.00% of the next $70 million of such assets and .75% of such assets in excess of $100 million. The Portfolio Management Agreement with KCM may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by KCM. For further information, see "Other Expenses of the Funds" below. Other Expenses of the Funds. In addition to the fees described above, the Money Market Fund, the Bond Fund, the Real Estate Securities Fund, the Global Fund, the Growth Fund, the Select Fund, the U.S. Small Cap Fund and the Emerging Markets Fund each pay their own operating expenses including, but not limited to: taxes, if any; brokerage and commission expenses, if any; interest charges on any borrowings; transfer agent, administrator, custodian, legal and auditing fees; shareholder servicing fees including fees to third-party servicing agents; fees and expenses of Directors who are not interested persons of the Advisor; costs and expenses of calculating daily net asset value; costs and expenses of accounting, bookkeeping and recordkeeping required under the 1940 Act; insurance premiums; trade association dues; fees and expenses of registering and maintaining registration of shares under federal and applicable state securities laws; all costs associated with shareholders' meetings and the preparation and dissemination of proxy materials, except for meetings called solely for the benefit of the Advisor of its affiliates; printing and mailing prospectuses, statements of additional information and reports to shareholders; and other expenses relating to the Fund's operations, plus any extraordinary and non-recurring expenses that are not expressly assumed by the Advisor. INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS The investment objective and policies of each Fund are stated below. A broad range of objectives and policies is offered because the Funds are intended to offer investment alternatives for a broad range of investors, who are expected to have a wide and varying range of investment objectives. All of the Funds (except for the Money Market Fund) are intended for long-term investors, not for those who may wish to redeem shares a short period of time after the purchase. All investments, including mutual funds, have risks, and no investment is suitable for all investors. Investors should consult with their financial and other advisors concerning the suitability of this investment for their own particular circumstances. Accordingly, there is no assurance that any Fund will achieve its investment objective. 21 Money Market Fund The investment objective of the Money Market Fund is to seek to maximize current income to the extent consistent with preservation of capital and liquidity. The Fund seeks to achieve its objective by investing primarily in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations and governments; U.S. Government and agency securities; and other debt securities having no more than 397 days to maturity. The Money Market Fund also may enter into repurchase agreements. Though it has no current intention to do so, the Fund may in the future enter into reverse repurchase agreements. The Fund attempts to maintain a constant net asset value of $1.00 per share by valuing its securities using the amortized cost method. To do so, it must invest only in readily marketable short-term securities with remaining maturities of not more than 397 days (as allowed by regulations under the 1940 Act) which are of high quality and present minimal credit risks as determined by the Advisor, under the direction of the Board of Directors. The portfolio must have a dollar-weighted average maturity of not more than 90 days. At least 25% of the Fund's assets will have a maturity of 90 days or less. All portfolio securities will be denominated in U.S. dollars. At the time of purchase, short-term securities must be considered "First Tier" quality: rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs"), or by a single NRSRO in the case of a security rated by only one NRSRO, or if unrated, of comparable quality as determined specifically by the Advisor, under the direction of the Board of Directors. There are currently five NRSROs: Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch, Duff & Phelps Credit Rating Co. ("D&P"), IBCA, Inc. ("IBCA"), and Thomson Bankwatch, Inc. ("TBW"). Generally, high quality short-term securities must be issued by an entity with an outstanding debt issue rated single "A" or better by an NRSRO, or if unrated, by an entity of comparable quality as determined specifically by the Advisor, under the direction of the Board of Directors. Obligations of foreign banks, foreign corporations and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A of the Statement of Additional Information for a description of rating categories. The Fund may invest no more than 5% of its total assets in the securities of any one issuer, other than U.S. Government securities, except in times of unexpected shareholder redemptions or purchases. In such circumstances, the Fund may invest temporarily in the securities of any one issuer in excess of 5% (but not more than 25%) of the Fund's total assets for up to three business days after the purchase to allow the Fund to manage its portfolio liquidity. The Fund will not invest more than 10% of its assets in time deposits with a maturity of greater than seven days. The Fund may make loans of its portfolio securities and enter into repurchase agreements as described in the Statement of Additional Information, except that such repurchase agreements with a maturity of greater than seven days and other securities and assets that are not readily marketable shall not exceed 10% of the value of the Fund's net assets. For a description of these investments, see "General Investment Policies." Bond Fund 22 The investment objective of the Bond Fund is to seek to provide maximum total return consistent with the preservation of capital and prudent investment management. Under normal market conditions, the Fund will invest at least 65% of the value of its total assets in debt securities, such as obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities; obligations issued or guaranteed by a foreign government, or any of its political subdivisions, authorities, agencies or instrumentalities or by supranational organizations (such as the World Bank); obligations of domestic or foreign corporations and other entities; and mortgage-related and other asset-backed securities. The obligations in which the Fund may invest may have fixed, variable or floating interest rates. Depending upon the level of interest rates, the average maturity of these securities will typically vary between 5 and 15 years. In addition, the Fund may invest in obligations of domestic and foreign commercial banks and bank holding companies (such as commercial paper, bankers' acceptances, certificates of deposit and time deposits). The Fund will invest primarily in securities rated Baa or better by Moody's, or BBB or better by S&P or, if unrated, determined by the Fund's Sub-Advisor, PIMCO, to be of comparable quality. The Fund also may invest up to 10% of its assets in corporate debt securities that are not investment grade but are rated B or higher by Moody's or S&P. Although long-term securities generally produce higher income than short-term securities, long-term securities are more susceptible to market fluctuations resulting from changes in interest rates. Generally, when interest rates decline, the value of a portfolio invested at higher yields can be expected to rise. Conversely, when interest rates rise, the value of a portfolio invested at lower yields can be expected to decline. See "Corporate Debt Securities" below for more information on quality ratings and risks involved with lower rated securities. The Fund may invest directly in foreign currency-denominated debt securities which meet the credit quality guidelines set forth for U.S. holdings. Under normal market conditions, at least 60% of the Fund's total assets will be invested in securities of U.S. issuers and at least 80% of the Fund's total assets, adjusted to reflect the Fund's net exposure after giving effect to currency transactions and positions, will be denominated in U.S. dollars. The Fund may not invest more than 25% of its total assets in the securities of issuers domiciled in a single country other than the United States. In selecting securities and currencies for the Fund's portfolio, the Sub-Advisor utilizes economic forecasting, interest rate expectations, credit and call risk analysis and other security and currency selection techniques. The proportion of the Fund's assets invested in securities with particular characteristics (such as maturity, type, and coupon rate) may vary based on the Sub-Advisor's outlook for the economy, the financial markets, and other factors. The Fund's investments will be concentrated in certain areas of the bond market (based on quality, sector, coupon or maturity) that the Sub-Advisor believes are relatively undervalued. The Fund may also employ certain active currency and interest rate management techniques. These techniques may be used both to hedge the foreign currency and interest rate risks associated with the Fund's portfolio securities, and, in the case of certain techniques, to seek to increase the total return of the Fund. Such active management techniques include foreign currencies, options on securities, futures contracts, options on 23 futures contracts and currency, and swap agreements. See "General Investment Policies" and the Statement of Additional Information for further information regarding these securities and other instruments. When the Sub-Advisor deems it advisable because of unusual economic or market conditions, the Fund may invest all or a portion of its assets in cash or cash equivalents, such as obligations of banks, commercial paper and short-term obligations of U.S. or foreign issuers. In addition, the Fund may purchase securities on a when-issued or forward commitment basis, engage in portfolio securities lending, invest in reverse repurchase agreements and borrow money for temporary administrative or emergency purposes. See "General Investment Policies" and the Statement of Additional Information for more information. A portion of the Fund's assets may be invested in mortgage-related and other asset-backed securities. See "General Investment Policies" for a discussion of these securities. The Fund may invest in convertible debentures (convertible to equity securities) and preferred stocks (which may or may not have a dividend yield) using the same quality and rating criteria noted above. The Fund may also invest in a small percentage of assets in common stocks consistent with its investment objectives. Fixed-income securities of the type held by the Fund generally appreciate in value when market interest rates decline. If the currency in which a security is denominated appreciates against the U.S. dollar, the dollar value of the security will increase. Conversely, a rise in interest rates or a decline in the exchange rate of the currency would result in a depreciation in value or adversely affect the value of the security expressed in dollars. The Fund may participate in the options market, and may enter into futures contracts and purchase and sell options on such contracts on a non-leveraged basis. The Fund will set aside cash, cash equivalents or high quality debt securities or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contracts. Although these investment practices will be used primarily to enhance total return or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: the imperfect correlation between the prices of options and futures contracts and movement in the price of securities being hedged; the possible absence of a liquid secondary market; in the case of over-the-counter options, the risk of default by the counterparty; and the dependence upon the Sub-Advisor's ability to correctly predict movements in the direction of interest rates and securities prices. The Fund currently intends to commit no more than 5% of its net assets to premiums when purchasing options. The Fund currently intends to limit its writing of options so that the aggregate value of the securities underlying such options, as of the date of sale of the options, will not exceed 50% of the Fund's net assets. A more thorough description of these investment practices and their associated risks is contained in "General Investment Policies" and the Statement of Additional Information. Corporate Debt Securities. The Fund's investments in dollar-denominated and non-dollar-denominated corporate debt securities of domestic or foreign issuers are limited to corporate debt securities (corporate bonds, debentures, notes and other similar corporate debt instruments) which meet the minimum ratings criteria set forth for the Fund, or, if unrated, are in the Sub-Advisor's opinion comparable in quality to corporate debt securities in which the Fund may invest. 24 Securities which are rated BBB by S&P or Baa by Moody's are considered investment grade, but may have speculative characteristics, and changes in economic conditions may lead to a weakened capacity to make principal and interest payments than is the case with higher-rated securities. The securities rated below Baa by Moody's or BBB by S&P (sometimes referred to as "junk bonds") in which the Fund may invest (to a limited extent) will have speculative characteristics (including the possibility of default or bankruptcy of the issuers of such securities, market price volatility based upon interest rate sensitivity, questionable creditworthiness and relative liquidity of the secondary trading market). Because such lower-rated bonds have been found to generally be more sensitive to adverse economic changes or individual corporate developments and less sensitive to interest rate changes than higher-rated investments, an economic downturn could disrupt the market for such bonds and adversely affect the value of outstanding bonds and the ability of issuers to repay principal and interest. In addition, in a declining interest rate market, issuers of lower-rated bonds may exercise redemption or call provisions, which may force the Fund, to the extent it owns such securities, to replace those securities with lower yielding securities. This could result in a decreased return for investors. For further information, see the Statement of Additional Information. Real Estate Securities Fund The investment objective of the Real Estate Securities Fund is to seek to provide total return through a combination of income and long-term capital appreciation by investing primarily in equity securities of companies in the real estate industry. Equity securities include common stocks (including shares or units in real estate investment trusts), rights or warrants to purchase common stocks, limited partnership interests in master limited partnerships, securities convertible into common stocks, and preferred stocks. Under normal market conditions, at least 65% of the Portfolio's total assets will be invested in equity securities of companies principally engaged in the real estate industry. 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 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. A substantial portion of the Fund's assets will be invested in securities of REITs. 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. REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority of their assets directly in real property, derive their income primarily from rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs, which invest the majority of their assets in real estate mortgages, derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs. 25 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 the 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, increase 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. Certain REITs have relatively small capitalization, which may tend to increase the volatility of the market price of securities issued by such REITs. 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, such prepayment may diminish the yield on securities issued by such mortgage REITs. In addition, mortgage REITs may be affected by the ability of borrowers to repay when due the debt extended by the REIT and equity REITs may be affected by the ability of tenants to pay rent. In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. The Fund is a non-diversified portfolio and is not limited by the 1940 Act in the proportion of its assets that may be invested in the obligations of a single issuer. The Fund, therefore, may invest a greater proportion of its assets in the securities of a smaller number of issuers and will be subject to a greater risk with respect to its portfolio securities. Any economic, regulatory, or political developments affecting the value of the securities held in the Fund could have a greater impact on the total value of the Fund's holdings than would be the case if the Fund were classified as diversified under the 1940 Act. Although the Fund invests primarily in common stocks, for liquidity purposes it will normally invest a portion of its assets in high quality debt securities and money market instruments with remaining maturities of one year or less, including repurchase agreements. Whenever in the judgment of the Advisor or Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in these instruments. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. 26 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. Preferred stocks and bonds will be rated at the time of purchase in the top four categories of Moody's Investors Service, Inc. (Baa or higher) or Standard & Poor's Ratings Group (BBB or higher) or be of comparable quality as determined by the Advisor or Sub-Advisor. Bonds and preferred stocks in the lowest investment grade category (Baa or BBB) have speculative characteristics; as a result, changes in the economy or other circumstances are more likely to lead to a weakened capacity 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 to the Statement of Additional Information for a description of rating categories. Global Fund The investment objective of the Fund is to seek to maximize total return (including income and capital gains) while reducing risk. In seeking to achieve this objective, the Fund intends to allocate assets and periodically review the asset allocation to emphasize assets that the Advisor believes have the most favorable return outlook, consistent with the Fund's objective of minimizing price volatility. The Fund may invest in U.S. stocks, U.S. bonds, foreign stocks, foreign bonds, real estate securities, precious metals and cash equivalents, and adjust the level of investment maintained in each asset category in response to changing market conditions. The allocation of assets will be determined by the Advisor based on its evaluation of projections of risk, market conditions, asset value and expected return. This evaluation process is described in more detail below. The Fund seeks to provide a systematic, disciplined approach to reduce overall portfolio risk through asset diversification and to weight the portfolio toward asset categories which, at the time of evaluation, appear to have the best expected return potential. The Fund is designed for investors who wish to accept the risks entailed in investments in foreign securities and securities denominated in various currencies. See "General Investment Policies - Special Considerations for International Investing." Description of Classes of Assets. Under normal circumstances, the Fund will invest in securities of issuers located in at least three different countries, including the United States. The Advisor will allocate the assets of the Fund among the following categories of assets: o U.S. Stocks - The Fund may invest in common and preferred stocks of U.S.-based companies which are traded on a U.S. exchange or in the Over-the-Counter (OTC) market. The Fund may also invest in stock index futures contracts, options on index futures and options on stock indexes. o U.S. Dollar-Denominated Debt Securities - The Fund may invest in the following: obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities; U.S. dollar-denominated corporate debt securities of domestic or foreign issuers; mortgage and other asset-backed securities; variable and floating rate debt securities; convertible bonds; U.S. dollar-denominated obligations of a foreign government, or any of its political subdivisions, authorities, agencies or instrumentalities or by supranational organizations (such as the World Bank); and securities that are eligible as short-term cash equivalents. The Fund will not invest more than 5% of its net assets in variable and floating rate debt securities, nor will the Fund invest more than 5% of its net assets in guaranteed investment contracts. The Fund may invest in interest rate futures and options on 27 such futures. See "General Investment Policies" and the Statement of Additional Information for further information regarding these securities. Most of the debt securities in which the Fund will invest are rated Baa or better by Moody's, BBB or better by S&P, or, if unrated, determined to be of comparable quality by the Advisor. Securities rated BBB or Baa are considered investment grade, but may have speculative characteristics, and changes in economic conditions may lead to a weakened capacity to make principal and interest payments than is the case with higher-rated securities. The Fund also may invest up to 10% of its assets in corporate debt securities that are not investment grade but are rated Ba by Moody's or BB by S&P. Securities rated below Baa by Moody's or BBB by S&P (sometimes referred to as "junk bonds") will have speculative characteristics (including the possibility of default or bankruptcy of the issuers of such securities, market price volatility based upon interest rate sensitivity, questionable creditworthiness and relative liquidity of the secondary trading market). Because such lower-rated bonds have been found to be more sensitive to adverse economic changes or individual corporate developments and less sensitive to interest rate changes than higher-rated investments, an economic downturn could disrupt the market for such bonds and adversely affect the value of outstanding bonds and the ability of issuers to repay principal and interest. In addition, in a declining interest rate market, issuers of lower-rated bonds may exercise redemption or call provisions, which may force the Fund, to the extent it owns such securities, to replace those securities with lower yielding securities. This could result in a decreased return for investors. For further information, see the Statement of Additional Information. o Foreign Stocks - The Fund may purchase stock of foreign-based companies, including securities denominated in foreign currencies and issues of American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs") representing shares of foreign companies. See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities markets. The Fund may invest in foreign stock index futures, options on index futures and options on foreign stock indexes. The Advisor may engage in foreign currency hedging for assets in specific countries based on the Advisor's outlook for the currencies being considered. Hedging may be undertaken through the purchase of currency futures or otherwise. For a discussion of these transactions, see "Options and Futures" and "Forward Currency, Futures and Options Transactions" in the "General Investment Policies" section of this Prospectus. o Foreign Bonds - The Fund may invest in non-U.S. dollar denominated bonds, notes and bills of foreign governments, their agencies and corporations of a quality comparable to the U.S. dollar-denominated debt securities described above. The Advisor will invest the assets in this class based on the Advisor's outlook for currencies being considered. The Advisor may engage in foreign currency hedging from time to time based on the outlook for currency values. For a discussion of the risk factors associated with foreign investing, see "General Investment Policies -- Special Considerations for International Investing." o Real Estate Securities - The Fund may invest in the equity securities of publicly traded and private real estate investment trusts ("REITs") which invest in real estate. A REIT is an entity which concentrates its assets in investments related to equity real estate and/or interests in mortgages on real estate. The shares of 28 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. o Precious Metals and Commodities Futures - The Fund may hold gold, other precious metals, or commodity futures positions and/or securities of companies principally engaged in producing or distributing gold, precious metals or commodities in the United States and/or in foreign countries. Such companies are defined as those which generate a substantial portion of their gross income or net profits from gold, precious metals, or commodities activities and/or have a substantial portion of their assets productively engaged in these activities. The Fund may purchase and sell futures and options contracts on commodities. The Fund will maintain the remainder of its assets in cash or cash equivalents. The objective of the cash equivalent portfolio is to maximize current income to the extent consistent with preservation of capital and liquidity. Other Considerations with Respect to the Fund. The Advisor will allocate investments among securities of particular issuers on the basis of its views as to the best values then currently available in the marketplace. Such values of the fixed income portion of the Fund's portfolio are a function of yield, maturity, issue classification and quality characteristics, coupled with expectations regarding the economy, movements in the general level and term of interest rates, currency values, political developments, and variations of the supply of funds available for investment. Under normal economic and market conditions, the fixed-income portion of the Fund's portfolio will be invested primarily in debt instruments with short to intermediate maturities (1 to 10 years to maturity). However, there are no restrictions on the maturity composition of the Fund's portfolio. If market interest rates decline, fixed-income securities generally appreciate in value. If the currency in which a security is denominated appreciates against the U.S. dollar, the dollar value of the security will increase. Conversely, a rise in interest rates or a decline in the exchange rate of the currency would adversely affect the value of the security expressed in dollars. In seeking to achieve the Fund's objective of total return, the Advisor may increase the average maturity of the fixed income portion of the Fund's portfolio in times of declining interest rates and decrease such average maturity in times of rising interest rates. The Advisor generally evaluates currencies on the basis of fundamental economic criteria (e.g., relative inflation and interest rate levels and trends, growth rate forecasts, balance of payments status and economic policies), as well as technical and political data. In seeking current income or to reduce principal volatility, the Fund may also (1) enter into futures contracts, including contracts for the future delivery of debt securities of the types described above, stock index futures contracts with respect to the S&P 500 Index or other similar broad-based stock market indices and commodities futures, the initial margins of which are limited to 5% of the Fund's assets; and (2) purchase put and call options on portfolio securities, indexes, commodities or futures contracts, the premiums of which are limited to 5% of the Fund's assets. Further information concerning options and futures and their associated risks is contained in "General Investment Policies -- Options and Futures Contracts" and in the Statement of Additional Information. The Fund may enter into forward currency contracts and currency futures contracts, and may purchase put and call options on currencies. See "General Investment Policies -- Forward Currency, Futures and Options 29 Transactions." The Fund will not invest in a foreign currency or in securities denominated in a foreign currency if such currency is not at the time of investment considered by the Advisor to be fully exchangeable into U.S. dollars without legal restriction. The Fund may purchase securities that are issued by the government or a corporation or financial institution of one nation but denominated in the currency of another country. A portion of the Fund's assets may be invested in mortgage-related and other asset-backed securities. See "General Investment Policies" for a discussion of these securities. The Fund may invest in convertible debentures (convertible to equity securities) and preferred stocks (which may or may not have a dividend yield) using the same quality and rating criteria noted above. Growth Fund The investment objective of the Growth Fund is to seek to provide growth of capital over the long term. Although not an objective of the Fund, the Fund may also provide income. The Fund invests primarily in a diversified portfolio of common stocks. Under normal conditions, at least 65% of the total assets of the Fund will be invested in U.S. common stocks. In addition, the Fund may purchase securities convertible into common and preferred stocks, and restricted securities. Preferred stocks held by the Fund will have a rating of B or better. The Fund may invest in common and preferred stocks of U.S. based companies which are traded on a U.S. exchange or in the over-the-counter (OTC) market and may invest in stock index futures contracts, options on index futures and options on stock indexes. The Fund may invest a portion of its assets in the equity securities of a diversified group of small, emerging growth companies that the Advisor believes will eventually become well-recognized as well as in the equity securities of larger companies which the Advisor believes offer improved growth possibilities because of rejuvenated management, changes in product or some other development that might stimulate earnings growth. No assurance can be given that any of these expectations will be met. Because the Fund may invest in small, emerging growth companies before they become well-recognized, investors should realize that the very nature of investing in smaller companies involves greater risk than is customarily associated with more established companies. Smaller companies often have limited product lines, markets or financial resources, and may be dependent upon one-person management. The securities of smaller companies may have limited marketability and may be subject to more abrupt or erratic market movements than securities of larger companies or the market averages in general. Because the Fund invests in companies based on their intrinsic value, and because intrinsic value may not be immediately recognized in the market, investors should consider this Fund a long-term or value-oriented growth fund. Although the Fund invests primarily in common stocks, for liquidity purposes it will normally invest a portion of its assets in high quality, short-term debt securities and money market instruments, including repurchase agreements. When a temporary defensive posture in the market is appropriate in the Advisor's opinion, the Fund may temporarily invest up to 100% of its assets in these instruments. The Fund may also hold other types of securities from time to time, including bonds. 30 The Fund may invest up to 35% of its total assets in stocks of foreign-based companies denominated in foreign currencies and issues of American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs") representing shares of foreign companies. See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities markets. The Fund may invest in foreign stock index futures, options on index futures and options on foreign stock indexes. The Advisor or the Sub-Advisor may engage in foreign currency hedging for assets in specific countries based on the outlook for the currencies involved. Hedging may be undertaken through the use of currency futures or otherwise. For a discussion of the risk factors associated with forward currency, futures and options transactions, see "General Investment Policies -- Forward Currency, Futures and Options Transactions" and the Statement of Additional Information. When the Fund holds bonds, the Fund will be invested primarily in debt instruments with short to intermediate maturities (1 to 10 years to maturity). These bonds, including convertibles, will have a S&P or Moody's rating of A or better. However, there are no restrictions on the maturity composition of the Fund's portfolio. If market interest rates decline, fixed-income securities generally appreciate in value. In seeking to achieve the Fund's objective of growth of capital, the Advisor may increase the average maturity of the fixed income portion of the Fund's portfolio in times of declining interest rates and decrease such average maturity in times of rising interest rates. The Fund may invest in non-U.S. dollar denominated bonds, notes and bills of foreign governments, their agencies and corporations of a quality comparable to the U.S. dollar-denominated debt securities described above. The dollar-weighted average maturity of the Fund's foreign bonds may range from 2 to 8 years. The Advisor will invest the assets in this class based on the outlook for interest rates and currency trends in a particular country. The Advisor may engage in foreign currency hedging from time to time based on the outlook for currency values. For a discussion of the risk factors associated with foreign investing, see "General Investment Policies -- Risk Factors and Special Considerations for International Investing." The Fund will maintain the remainder of its assets in cash or cash equivalents and other fixed income securities. Cash and cash equivalents will be denominated in U.S. dollars. The objective of the cash equivalent portfolio is to maximize current income to the extent consistent with preservation of capital and liquidity. The Advisor will allocate investments among the securities of particular issuers on the basis of its views as to the best values then currently available in the marketplace. Such values are a function of growth potential, relative valuation yield, maturity, issue classification and quality characteristics, coupled with expectations regarding the economy, movements in the general level of interest rates, political developments, and variations of the supply of funds available for investment. Select Fund 31 The Fund seeks to achieve long-term capital appreciation by investing primarily in equity securities of established medium-capitalization U.S.-based companies. Under normal market conditions, the Fund expects to hold not more than 30 common stocks representing at least 80% of its total assets. While limiting the number of securities in the portfolio, the Fund will not purchase a security if, as a result, more than 15% of the assets of the Fund would be invested in the voting securities of a single issuer. Additionally, the Fund may not invest more than 25% of its total assets in any one industry and, although the Fund will normally invest in common stocks of U.S. companies, up to 10% of the Fund's assets, at the time of purchase, may be invested in securities of companies domiciled outside the United States. The Fund may also invest in stock index futures contracts, options on index futures and options on portfolio securities and stock indices. The Advisor defines medium market capitalization companies as those companies whose market capitalization falls within the capitalization range of the Russell MidCap Index. This index measures the performance of the 800 smallest securities in the Russell 1000 Index. The Russell 1000 Index is composed of the 1000 largest U.S. securities as determined by total market capitalization. As of October 31, 1997, 94% of the companies in the Russell MidCap Index had market capitalizations of between $1 billion and $9 billion. These companies represent approximately 35% of the capitalization of the total market. Investing in medium capitalization stocks may involve greater risk than investing in large capitalization stocks, because they can be subject to more abrupt or erratic price movements. Current income, which may be characteristic of large stocks, will be considered only as part of total return and will not be emphasized. Medium capitalization companies tend to involve less risk than stocks of small capitalization companies. Smaller companies, which often have limited product lines, markets, and/or financial resources and may be dependent on one-person management, may have limited marketability and may be subject to more abrupt or erratic market movements than securities of medium- and large- cap companies or the market averages in general. Conversely, medium capitalization companies may have less rapid growth potential than smaller companies and may be able to react less quickly to changes in the market place. The Fund, while focusing on securities of mid-cap companies, may also purchase securities of companies with higher or lower capitalizations. Stock selection is based, first, on "bottom up" fundamental research that focuses on what the Advisor believes are superior business growth prospects and, secondly, on statistical valuation which, at the time of purchase, is measurably below the historic relative worth of such securities. The Fund may invest in several types of equity securities, including common and preferred stocks, convertible securities and warrants. Although equity securities have a history of long-term growth in value, their prices fluctuate based on, among other things, changes in a company's financial condition and on overall market and economic conditions. Over the long term, owning equity interests in well-run, quality businesses should ease the effect of market volatility in the Fund. The Advisor expects that through the exercise of disciplined valuation, the Fund's portfolio typically should encompass less market risk than other medium capitalization growth funds as measured by the Fund's price-to-normal-earnings, price-to-book-value, and enterprise-value-to-internal-cash- flow ratios. 32 The Advisor believes that an investment in shares of the Fund provides an opportunity for greater rewards but will involve more risk than an investment in a fund which seeks capital appreciation from investment in common stocks of larger, better-known companies. The Fund is a non-diversified portfolio and is not limited by the 1940 Act in the proportion of its assets that may be invested in the obligations of a single issuer. The Fund, therefore, may invest a greater proportion of its assets in the securities of a smaller number of issuers and will be subject to a greater risk with respect to its portfolio securities. Any economic, regulatory, or political developments affecting the value of the securities held in the Fund could have a greater impact on the total value of the Fund's holdings than would be the case if the Fund were classified as diversified under the 1940 Act. Although the Fund invests primarily in common stocks, 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 market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in these instruments. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. The Fund may also hold other types of securities from time to time, including convertible and non-convertible bonds and preferred stocks, when the Advisor believes that these investments offer opportunities for capital appreciation. Preferred stocks and bonds will be rated at the time of purchase in the top four categories of Moody's Investors Service, Inc. (Baa or higher) or Standard & Poor's Ratings Group (BBB or higher) or be of comparable quality as determined by the Advisor or Sub-Advisor . Bonds and preferred stocks in the lowest investment grade category (Baa or BBB) have speculative characteristics; as a result, changes in the economy or other circumstances are more likely to lead to a weakened capacity 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 to the Statement of Additional Information for a description of rating categories. U.S. Small Cap Fund The Fund seeks to achieve long-term capital appreciation by investing primarily in a diversified portfolio of common stocks. Under normal market conditions, at least 65% of the total assets of the Fund will be invested in common stocks of small, rapidly growing U.S. companies. Typically, these companies are not listed on a national securities exchange but trade on the over-the-counter (OTC) market. Although the Fund will normally invest in common stocks of U.S. companies, up to 25% of the Fund's total assets, at the time of purchase, may be invested in securities of companies domiciled outside the United States, including sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities market. The Fund may also invest in stock index futures contracts, options on index futures, and options on portfolio securities and stock indices. The Advisor generally selects the Fund's portfolio securities among small-cap companies, which the Fund defines as companies whose individual market capitalizations would place them in the smallest 20% of 33 market capitalization of companies in the United States as measured by the Wilshire 5000 Index. Currently, these companies have a market capitalization of about $1.8 billion or less. Many small-cap companies in which the Fund is likely to invest may be more vulnerable than larger companies to adverse business or market developments, may have limited product lines, markets, or financial resources, and may lack management depth. In addition, many small-cap companies are not well-known to the investing public, do not have significant institutional ownership, and are followed by relatively few securities analysts, with the result that there may tend to be less publicly available information concerning such companies compared to what is available for larger capitalization securities. Finally, the securities of small-cap companies traded in the OTC market may have fewer market makers, wider spreads between their quoted bid and asked prices, and lower trading volumes, resulting in comparatively greater price volatility and less liquidity than the securities of companies that have larger market capitalizations and/or that are traded on the New York or American Stock Exchanges or the market averages in general. Thus, an investment in the Fund may involve considerably more risk than an investment in an investment company that invests in the more liquid equity securities of companies traded on the New York or American Stock Exchanges. The Advisor believes that an investment in shares of the Fund provides an opportunity for greater rewards but will involve more risk than an investment in a fund which seeks capital appreciation from investment in common stocks of larger, better-known companies. The Fund generally selects its portfolio securities among small-cap companies which are, the Advisor believes, still in the developing stages of their life cycles and may be able to achieve rapid growth in both sales and earnings. Capable management and fertile operating areas are two of the most important characteristics of such companies. In addition, the Advisor believes these companies should employ sound financial and accounting policies; demonstrate effective research and successful product development and marketing; provide efficient service; and possess pricing flexibility. The Advisor will seek to avoid investing in companies where operating results may be adversely affected by excessive competition, severe governmental regulation, or unsatisfactory productivity. The investable universe provides what the Advisor believes is a broad range of stock selection opportunities. Although the Fund invests primarily in common stocks, 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 market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in these instruments. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. The Fund may also hold other types of securities from time to time, including convertible and non-convertible bonds and preferred stocks, when the Advisor believes that these investments offer opportunities for capital appreciation. Preferred stocks and bonds will be rated at the time of purchase in the top four categories of Moody's Investors Service, Inc. (Baa or higher) or Standard & Poor's Ratings Group (BBB or higher) or be of comparable quality as determined by the Advisor. Bonds and preferred stocks in the lowest investment grade category (Baa or BBB) have speculative characteristics; as a result changes in the economy or other 34 circumstances are more likely to lead to a weakened capacity 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 to the Statement of Additional Information for a description of rating categories. Emerging Markets Fund The Fund is a non-diversified mutual fund which seeks to provide long-term capital appreciation by investing primarily in equity securities of issuers domiciled in countries with emerging or developing capital markets. Investments in emerging or developing capital markets may exhibit substantially greater price volatility than investments in developed markets. Under normal market conditions, at least 65% of the total assets of the Fund will be invested in equity securities of issuers in Emerging Markets (as defined below). The Fund will not necessarily seek to diversify investments on a geographical basis or on the basis of the level of economic development of any particular country. However, the Fund will be invested in a minimum of three countries defined as Emerging Markets. The Fund's portfolio of equity securities will typically consist of common and preferred stock, warrants and debt securities convertible into common stock. Included in this 65% total, up to 5% of the Fund's assets may be invested in rights or warrants to purchase equity securities. For defensive purposes, the Fund may temporarily have less than 65% of its total assets invested in equity securities of issuers in Emerging Markets. In addition to investing directly in equity securities, the Fund may invest in instruments such as sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities markets. An issuer will be deemed to be in an Emerging Market if: (1) the principal securities trading market for such issuer is in an Emerging Market; (2) such issuer derives at least 50% of its revenues or earnings, either alone or on a consolidated basis, from goods produced or sold, investments made or services performed in an Emerging Market, or has at least 50% of its total assets situated in one or more Emerging Markets: or (3) such issuer is organized under the laws of, and with a principal office in, an Emerging Market. Determinations as to whether an issuer is an Emerging Markets issuer will be made by the Sub- Advisor based on publicly available information and inquiries made to the issuers. As used in this Prospectus, an international Emerging Market is any country except Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom and the United States. Emerging Markets tend to be in the less economically developed regions of the world. General characteristics of emerging market countries typically also include lower degrees of political stability, a high demand for capital investment, a high dependence on export markets for their major industries, a need to develop basic economic infrastructures and rapid economic growth. The Advisor and Sub-Advisor believe that investments in equity securities of issuers in Emerging Markets offer the opportunity for significant long-term investment returns. However, these investments involve not only the risks discussed below with respect to foreign 35 securities (see "General Investment Policies -- Risk Factors and Special Considerations for International Investing"), but also other risks. Investments in Emerging Markets may exhibit greater price volatility, have less liquidity and have settlement arrangements which are less efficient than in developed markets. Furthermore, the economies of countries with Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by adjustments in currency values and protectionist measures imposed or negotiated by the countries with which they trade. These Emerging Market economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The Fund may invest a portion of its assets in equity securities of smaller- to medium-sized growth companies. Investing in small companies involves certain special risks. Small companies may have limited product lines, markets, or financial resources, and their managements may be dependent on a limited number of key individuals. The securities of small companies may have limited market liquidity and may be subject to more abrupt or erratic market movements than securities of larger, more established companies or the market averages in general. The governments in some Emerging Markets have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The Advisor and Sub-Advisor believe that privatizations may offer opportunities for significant capital appreciation, and intend to invest assets of the Fund in privatizations in appropriate circumstances. In certain Emerging Markets, the ability of foreign entities such as the Fund to participate in privatizations may be limited by local laws. Terms on which the Fund may be permitted to participate may be less advantageous than those afforded local investors. There can be no assurance that governments in Emerging Markets will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. Because the Fund is non-diversified, it may invest a larger percentage of its assets in individual issuers than a diversified fund. In this regard, the Fund is not subject to the general limitation that it not invest more than 5% of its total assets in the securities of any one issuer. To the extent the Fund makes investments in excess of 5% of its assets in a particular issuer, its exposure to credit and market risks associated with that issuer is increased. The Fund may invest in debt securities of both governmental and corporate issuers in Emerging Markets which are rated Baa or higher by Moody's or BBB or higher by S&P or, if unrated, determined by the Sub- Advisor to be of comparable quality. Securities which are rated BBB by S&P or Baa by Moody's are considered investment grade, but may have speculative characteristics, and changes in economic conditions may lead to a weakened capacity to make principal and interest payments than is the case with higher rated securities. For further information, see the Statement of Additional Information. Debt securities are susceptible to market fluctuations resulting from, among other things, changes in interest rates. Typically, when interest rates decline, the value of a portfolio invested at higher yields can be expected to rise. Conversely, when interest rates rise, the value of a portfolio invested at lower yields can be expected to decline. Capital appreciation in debt securities in which the Fund invests may arise as a result of favorable 36 changes in relative foreign exchange rates, in relative interest rate levels and/or in the creditworthiness of issuers. The receipt of income from debt securities owned by the Fund is incidental to the Fund's objective of long-term capital appreciation. Whenever in the judgment of the Advisor or Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in U.S. dollar denominated or foreign currency-denominated cash-equivalent investments or in high quality debt securities with maturities of one year or less. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. For liquidity purposes, the Fund may normally also invest up to 10% of its assets in U.S. dollar-denominated or foreign currency-denominated cash-equivalent investments or in high quality debt securities with maturities of one year or less. In seeking to protect against the effect of adverse changes in the financial markets in which the Fund invests, or against currency exchange rate changes that are adverse to the present or prospective positions of the Fund, the Fund may use forward currency contracts, options on securities, options on indices, options on currencies, and futures contracts and options on futures contracts on securities and currencies. These instruments are often referred to as "derivatives," which may be defined as financial instruments whose performance is derived, at least in part, from the performance of another asset (such as a security, currency or an index of securities). There can be no assurance that the Fund's risk management policies will succeed. These techniques are described below and are further detailed in the Statement of Additional Information. U.S. Micro-Cap Fund The Fund seeks to achieve long-term capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stock. Under normal market conditions, at least 65% of the total assets of the Fund will be invested in equity securities of U.S. micro-cap companies (described below). These securities will typically trade on a U.S. exchange or in the OTC market. However, up to 25% of the Fund's total assets, at the time of purchase, may be invested in securities of micro-cap companies domiciled outside the United States, including sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities market. The Fund may also invest in stock index futures contracts, options on index futures and options on portfolio securities and stock indices. The Fund generally selects its portfolio securities among micro-cap companies, which the Fund defines as companies whose individual market capitalizations would place them in the smallest 10% of market capitalization of companies in the United States as measured by the Wilshire 5000 Index. Currently, these companies have a market capitalization of about $870 million or less. Under normal market conditions, the weighted average capitalization of the portfolio will be less than the market capitalization of the largest company in the bottom 5% of the market value of all U.S. equities as measured by the Wilshire 5000 Index (currently about $400 million). 37 Many micro-cap companies in which the Fund is likely to invest may be more vulnerable than larger companies to adverse business or market developments, may have limited product lines, markets or financial resources and may lack management depth. In addition, many micro-cap companies are not well-known to the investing public, do not have significant institutional ownership and are followed by relatively few securities analysts, with the result that there may tend to be less publicly available information concerning such companies compared to what is available for larger capitalization securities. Finally, the securities of micro-cap companies traded in the OTC market may have fewer market makers, wider spreads between their quoted bid and asked prices and lower trading volumes, resulting in comparatively greater price volatility and less liquidity than the securities of companies that have larger market capitalizations and/or that are traded on the New York or American Stock Exchanges or the market averages in general. Thus, an investment in the Fund may involve considerably more risk than an investment in an investment company investing in the more liquid equity securities of companies traded on the New York or American Stock Exchanges. The Advisor and Sub-Advisor believe that an investment in shares of the Fund provides an opportunity for greater rewards but may involve more risk than an investment in a fund which seeks capital appreciation from investment in common stocks of larger, better-known companies. This is due, among other things, the likelihood of greater opportunities for superior returns from companies with small stock market capitalizations which are not as well-known to the general public. These shares may have less investor following, and, therefore, may provide opportunities for investment gains due to the inefficiencies in this sector of the marketplace. The Fund seeks to invest in those companies which are in the early stages of an emerging growth cycle, where the Advisor and Sub-Advisor believe earnings will grow faster than both inflation and the economy in general and where it believes such growth has not yet been fully reflected in the market price of these stocks. In seeking investments, the Advisor and Sub-Advisor will typically give weight to companies possessing a variety of characteristics including quality of management, companies which have gone public in recent years, an entrepreneurial management team, a narrow product line focus, or established companies where the growth potential has been significantly enhanced by new product developments, new market opportunities, mergers or divestitures, or new management. The investable universe provides what the Advisor and Sub-Advisor believe is a broad range of stock selection opportunities. Although the Fund invests primarily in common stocks and securities convertible into common stock, for liquidity purposes it will normally invest a portion of its assets in high quality debt securities and money market instruments with remaining maturities of one year or less, including repurchase agreements. Whenever in the judgment of the Advisor or Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in these instruments. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. The Fund may also hold other types of securities from time to time, including non-convertible bonds and preferred stocks, in an amount not exceeding 5% of its net assets. Preferred stocks and bonds will be rated at the time of purchase in the top two categories of Moody's (Aaa or Aa) or S&P (AAA or AA) or be of comparable quality as determined by the Advisor or Sub-Advisor. 38 GENERAL INVESTMENT POLICIES Money Market Instruments. The Funds may invest in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations and governments; U.S. Government and agency securities; money market mutual funds; and other debt securities which are not specifically named but which meet a Fund's quality guidelines. The Funds also may enter into repurchase agreements as described below and may purchase variable and floating rate debt securities. At the time of purchase, short-term securities must be rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs") or by a single NRSRO in the case of a security rated by only one NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined by the Advisor or the Sub-Advisor. Generally, high quality short-term securities must be issued by an entity with an outstanding debt issue rated A or better by a NRSRO, or an entity of comparable quality as determined by the Advisor (or the Sub-Advisor, if applicable). Obligations of foreign banks, foreign corporations and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A to the Statement of Additional information for a description of rating categories. U.S. Government Securities. Each of the Funds may invest in U.S. Government securities, which are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds and Government National Mortgage Association ("GNMA") certificates, are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies or instrumentalities as described above in the future, other than as set forth above, because it is not obligated to do so by law. When-Issued Securities and Firm Commitment Agreements. Each Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). Each Fund (except for the Bond Fund) will not purchase securities the value of which is greater than 5% of its net assets on a when-issued basis. A Fund, as purchaser, assumes the risk of any decline in value of the security beginning on the date of the agreement or purchase, and no interest accrues to the Fund until it accepts delivery of the security. The Funds will not use such transactions for leveraging purposes, and accordingly will segregate cash, cash equivalents or liquid securities or hold a covered position in an amount sufficient to meet its payment obligations thereunder. There is always a risk that the securities may not be delivered and that a Fund may incur a loss or will have 39 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. Mortgage-Related and Other Asset-Backed Securities. Mortgage pass-through securities are securities representing interests in "pools" of mortgages in which payments of both interest and principal on the securities are made monthly, in effect, "passing through" monthly payments made by the individual borrowers on the residential mortgage loans which underlie the securities (net of fees paid to the issuer or guarantor of the securities). The total return on mortgage-related securities varies with changes in the general level of interest rates. The maturities of mortgage-related securities are variable and unknown when issued because their maturities depend on pre-payment rates. Early repayment of principal on mortgage pass-through securities (arising from prepayments of principal due to sale of the underlying property, refinancing, or foreclosure, net of fees and costs which may be incurred) may expose a Fund to a lower rate of return upon reinvestment of principal. Also, if a security subject to prepayment has been purchased at a premium, in the event of prepayment the value of the premium would be lost. Mortgage prepayments generally increase with falling interest rates and decrease with rising interest rates. Like other fixed-income securities, when interest rates rise, the value of a mortgage-related security generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as that of other fixed income securities. A Fund may invest in GNMA certificates, which are mortgage-backed securities representing part ownership of a pool of mortgage loans on which timely payment of interest and principal is guaranteed by the full faith and credit of the U.S. Government. GNMA certificates differ from typical bonds because principal is repaid monthly over the term of the loan rather than returned in a lump sum at maturity. Because both interest and principal payments (including prepayments) on the underlying mortgage loans are passed through to the holder of the certificate, GNMA certificates are called "pass-through" securities. Although most mortgage loans in the pool will have stated maturities of up to 30 years, the actual average life or effective maturity of the GNMA certificates will be substantially less because the mortgages are subject to normal amortization of principal and may be repaid prior to maturity. Prepayment rates may vary widely over time among pools and typically are affected by the relationship between the interest rates on the underlying loans and the current rates on new home loans. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the GNMA certificates. Conversely, when interest rates are rising, the rate of prepayment tends to decrease, thereby lengthening the actual average life of the GNMA certificates. Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayments may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current market rates, GNMA certificates can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates. GNMA certificates may appreciate or decline in market value during periods of declining or rising interest rates, respectively. 40 A Fund may invest also in mortgage-related securities issued by the FNMA or by the FHLMC. FNMA, a federally chartered and privately owned corporation, issues pass-through securities representing interests in a pool of conventional mortgage loans. FNMA guarantees the timely payment of principal and interest but this guarantee is not backed by the full faith and credit of the U.S. Government. FHLMC, a corporate instrumentality of the U.S. Government, issues participation certificates which represent an interest in a pool of conventional mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate collection of principal, and maintains reserves to protect holders against losses due to default, but the certificates are not backed by the full faith and credit of the U.S. Government. As is the case with GNMA certificates, the actual maturity of and realized yield on particular FNMA and FHLMC pass-through securities will vary based on the prepayment experience of the underlying pool of mortgages. A Fund may invest also in mortgage-related securities issued by financial institutions, such as commercial banks, savings and loan associations, mortgage bankers and securities broker-dealers (or separate trusts or affiliates of such institutions established to issue these securities). Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with characteristics of both mortgage-backed bonds and mortgage pass-through securities. Real Estate Mortgage Investment Conduits are CMO vehicles that qualify for special tax treatment under the Internal Revenue Code and invest in mortgages principally secured by interests in real property and other investments permitted by the Internal Revenue Code. Stripped Mortgage Securities are derivative multiclass mortgage securities issued by agencies or instrumentalities of the United States Government, or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. Stripped Mortgage Securities are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of Stripped Mortgage Security will have one class receiving all of the interest from the mortgage assets (the interest-only or "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the securities' yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to recoup fully its initial investment in these securities even if the security is rated AAA or Aaa, and could even lose its entire investment. Although Stripped Mortgage Securities are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, these securities were only recently developed. As a result, established trading markets have not yet developed for certain Stripped Mortgage Securities. Investments in Stripped Mortgage Securities for which there is no established market are considered illiquid and together with other illiquid securities will not exceed 15% of a Fund's net assets. Other asset-backed securities (unrelated to mortgage loans) have been offered to investors, such as Certificates for Automobile ReceivablesSM ("CARSSM") and interests in pools of credit card receivables. CARSSM represent undivided fractional interests in a trust whose assets consist of a pool of motor vehicle retail 41 installment sales contracts and security interests in the vehicles securing the contracts. CARSSM 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 CARSSM although the underlying loans are unsecured. As new types of mortgage-related securities and other asset-backed securities are developed and offered to investors, the Advisor (or the Sub-Advisor, if applicable) may, consistent with a Fund's investment objective, policies and quality standards, and subject to the review and approval of the Investment Company's Board of Directors, consider making investments in such new types of securities. The Funds may invest only in high quality mortgage-related (or other asset-backed) securities either (i) issued by U.S. Government sponsored corporations or (ii) rated in one of the three highest categories by Moody's or S&P, or, if not rated, of equivalent investment quality as determined by the Advisor (or the Sub-Advisor, if applicable). The Advisor 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 a Fund from loss due to factors such as a change in market interest rate levels or other particular financial market change that affects the value of or return due on an instrument. Shares of Investment Companies. Each Fund may invest some portion of its assets in shares of other no-load, open-end investment companies and closed-end investment companies to the extent that such investment may facilitate achieving the objective of the Fund or to the extent that they afford the primary or most practical means of access to a particular market or markets or they represent attractive investments in their own right. The percentage of Fund assets which may be so invested is not limited, provided that a Fund and its affiliates do not acquire more than 3% of the shares of any such investment company. The provisions of the 1940 Act may also impose certain restrictions on redemption of a Fund's shares in other investment companies. A Fund's purchase of shares of investment companies may result in the payment by a shareholder of duplicative management fees. The Advisor and/or Sub-Advisor will consider such fees in determining whether to invest in other mutual funds. The Funds will invest only in investment companies which do not charge a sales load; however, the Funds may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on a Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. A Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Funds, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above, each Fund has the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions and policies as that of the Fund. A Fund will notify its shareholders prior to initiating such an arrangement. Repurchase Agreements. As part of its cash reserve position, each Fund may enter into repurchase 42 agreements through which the Fund acquires a security (the "underlying security") from the seller, a well-established securities dealer or a bank that is a member of the Federal Reserve System. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest. Repurchase agreements are generally for a short period of time, often less than a week. The seller must maintain with the Fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. A Fund will not enter into a repurchase agreement with a maturity of more than seven business days if, as a result, more than 15% (or 10% in the case of the Money Market Fund) of the value of its net assets, would then be invested in such repurchase agreements. A Fund will only enter into repurchase agreements where (1) the underlying securities are issued or guaranteed by the U.S. Government, (2) the market value of the underlying security, including accrued interest, will be at all times equal to or in excess of the value of the repurchase agreement, and (3) payment for the underlying securities is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, a Fund could experience both delays in liquidating the underlying securities and losses, including: (1) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible reduced levels of income and lack of access to income during this period; and (3) expenses of enforcing the Fund's rights. Portfolio Turnover. Each Fund (except for the Money Market Fund) expects to trade in securities for short-term gain whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take advantage of anomalies occurring in general market, economic or political conditions. Therefore, each Fund may have a higher portfolio turnover rate than that of some other investment companies, but it is anticipated that the annual portfolio turnover rate of each Fund will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by each 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. Loans of Portfolio Securities. Each Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors in an amount not exceeding 331/3% of its net assets. The borrower must maintain with the Funds' custodian collateral consisting of cash, cash equivalents or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. A Fund will receive any interest or dividends paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The risks in lending portfolio securities, as with other extensions of secured credit, consist of, among other things, possible delay in receiving additional collateral or in the recovery of the securities, or possible loss of rights in the collateral should the borrower fail financially. The lender also may bear the risk of capital loss on investment of the cash collateral, which must be returned in full to the borrower when the loan is terminated. Loans will be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. Borrowing. Each Fund may borrow from banks an amount not exceeding 30% of the value of its total assets for temporary or emergency purposes and enter into reverse repurchase agreements. If the income and gains 43 on securities purchased with the proceeds of borrowings or reverse repurchase agreements exceed the cost of such borrowings or agreements, a Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the cost, earnings or net asset value would decline faster than otherwise would be the case. Restricted Securities. Each Fund may purchase securities that are not registered ("restricted securities") under federal securities laws, but can be offered and sold to "qualified institutional buyers." However, a Fund will not invest more than 15% of its assets (or 10% with respect to the Money Market Fund) in illiquid investments, which includes repurchase agreements and fixed time deposits maturing in more than seven days, and securities that are not readily marketable and restricted securities, unless the Board of Directors determines, based upon a continuing review of the trading markets for the specific restricted security, that such restricted securities are liquid. The Board of Directors may adopt guidelines and delegate to the Advisor or Sub-Advisor the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. Warrants or Rights. Warrants or rights may be acquired by a Fund in connection with other securities or separately and provide the Fund with the right to purchase other securities of the issuer at a later date. It is the present intention of each Fund to limit its investments in warrants or rights, valued at the lower of cost or market, to no more than 5% of the value of its net assets. Warrants or rights acquired by the Funds in units or attached to securities will be deemed to be without value for purposes of this restriction. Options and Futures Contracts. (Except for the Money Market Fund.) When a Fund is not fully invested, strategies such as buying calls, writing puts, and buying futures may be used to increase its exposure to price changes in stocks or debt securities. When the Advisor and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such as buying puts, writing calls, and selling futures may be used to reduce market exposure. Because most stock index futures and options are based on broad stock market indexes, their performance tends to track the performance of common stocks generally - which may or may not correspond to the types of securities in which the Funds invest. Each Fund will maintain segregated accounts consisting of cash, U.S. Government securities or other liquid securities (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under options and futures contracts to avoid leveraging. In seeking appreciation or to reduce principal volatility, a Fund may also (1) enter into futures contracts -- contracts for the future delivery of debt securities, stock, stock index futures contracts with respect to the S&P 500 Index, small capitalization stock market indices or other similar broad-based stock market indices, the initial margins of which are limited to 5% of the Fund's assets; and (2) purchase put and call options on portfolio securities, stock indices or stock index futures contracts -- the premiums of which are limited to 5% of the Fund's assets. A Fund may write put and call options. It will only do so, however, by writing covered put or call options, and the aggregate value of the securities underlying put options, as of the date of sale of the options, will not exceed 50% of the net assets of the Fund. 44 The Funds will set aside cash, cash equivalents, or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contracts. Options and futures can be volatile investments. If the Advisor and/or Sub-Advisor applies a hedge at an inappropriate time or evaluates market conditions incorrectly, options and futures strategies may lower a Fund's return. A Fund could also experience a loss if the prices of its options or futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. Although these investment practices will be used primarily to generate income or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: futures contracts -- no assurance that closing purchase transactions will be available at favorable prices, possible reduction of a Fund's income due to the use of hedging, the possible reduction in value of both the securities hedged and the hedging instrument, and possible loss in excess of the initial margin payment; options and futures contracts -- imperfect correlation between the contract and the underlying security, commodity or index and unsuccessful hedging transactions due to incorrect forecasts of market trends; writing covered call options -- the inability to effect closing transactions at favorable prices and the inability to participate in the appreciation of the underlying securities above the exercise price and premium received; and purchasing or selling put and call options -- possible loss of the entire premium. A more thorough description of these investment practices and their associated risks is contained in the Statement of Additional Information. Forward Currency, Futures and Options Transactions. Except for the Money Market Fund, the Funds may enter into forward currency contracts and currency futures contracts and may purchase put or call options on currencies (each such arrangement sometimes referred to as a "currency contract"). Forward contracts typically will involve the purchase or sale of a foreign currency against the dollar. These techniques are designed primarily to hedge against future changes in currency prices which might adversely affect the value of a Fund's portfolio securities. A Fund may attempt to accomplish objectives similar to those involved in its use of forward currency contracts by purchasing put or call options on currencies or currency futures. For a more detailed description of such arrangements, see the Statement of Additional Information. A Fund may enter into currency contracts either with respect to specific transactions or with respect to the Fund's portfolio positions. For example, when the Advisor and/or Sub-Advisor anticipates making a purchase or sale of a security, the Fund may enter into a currency contract in order to set the rate (either relative to the U.S. dollar or another currency) at which a currency exchange transaction related to the purchase or sale will be made. Further, when it is believed that a particular currency may decline compared to the U.S. dollar or another currency, a Fund may enter into a currency contract to sell the currency the Advisor or Sub-Advisor expects to decline in the amount approximating the value of some or all of the Fund's portfolio securities denominated in that currency or related currencies that the Advisor and/or Sub-Advisor feels demonstrate a correlation in exchange rate movements. The practice of using correlated currencies is known as "cross-hedging." When the Advisor and/or Sub-Advisor believes that the U.S. dollar may suffer a substantial decline against a foreign currency or currencies, a Fund may enter into a currency contract to buy a 45 foreign currency for a fixed dollar amount. By entering into such transactions, however, the Fund may be required to forego the benefits of advantageous changes in exchange rates. Currency contracts generally are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, such contracts operate in a manner distinct from exchange-traded instruments, and their use involves certain risks beyond those associated with transactions in other futures contracts. While a Fund enters into forward currency contracts and purchases currency options or currency futures to reduce the risks of fluctuations in exchange rates, these contracts cannot eliminate all such risks and do not eliminate fluctuations in the prices of the Fund's portfolio securities. Purchasing (selling) a currency forward limits the Fund's exposure to risk of loss from a rise (decline) in the dollar value of the currency, but also limits its potential for gain from a decline (rise) in the currency's dollar value. While purchasing options can protect the Fund against certain exchange rate fluctuations, a Fund is subject to the loss of its entire premium payment when an option is allowed to expire without exercise. To avoid leverage in connection with forward currency transactions, a Fund will set aside with its Custodian cash, cash equivalents or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding contracts. To the extent a Fund enters into over-the-counter options, the options and the assets so set aside to cover such options are considered illiquid assets and, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. In addition, premiums paid for currency options held by a Fund may not exceed 5% of the Fund's net assets. Although a Fund will enter into currency contracts solely for hedging purposes, their use does involve certain risks. For example, there can be no assurance that a liquid secondary market will exist for any currency contract purchased or sold, and a Fund may be required to maintain a position until exercise or expiration, which could result in losses. Currency contracts may be entered into on United States exchanges regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission as well as in the over-the-counter market and on foreign exchanges. Swap Agreements. (Except for the Money Market Fund.) The Funds may enter into interest rate, index and currency exchange rate swap agreements for purposes of seeking to obtain a particular desired return at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level; and interest rate collars, under which a party sells a cap and purchases a floor or, 46 purchases a cap and sells a floor in an attempt to protect itself against interest rate movements exceeding minimum or maximum levels. Whether a Fund's use of swap agreements will be successful in furthering its investment objective will depend on the Advisor's or Sub-Advisor's ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. A Fund's obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash, U.S. Government securities or other liquid securities to avoid any potential leveraging of the Fund's portfolio. Swap agreements having a term of greater than seven days are considered illiquid assets and a Fund's obligations under such agreements, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. Risk Factors and Special Considerations for International Investing. (Except for the Money Market Fund.) Investment in securities of foreign entities and securities denominated in foreign currencies involves risks typically not present to the same degree in domestic investments. Likewise, investment in ADRs and EDRs presents similar risks, even though the Funds will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include, among other things, fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social or economic instability. A Fund may be required to pay foreign withholding or other taxes on certain of its foreign investments, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. income taxes. See "Dividends, Distributions and Federal Income Taxation." There may be less publicly available information about foreign issuers or securities than about U.S. issuers or securities, and foreign issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of U.S. entities. With respect to unsponsored ADRs, these programs cover securities of companies which are not required to meet either the reporting or accounting standards of the United States. Many foreign financial markets, while generally growing in volume, continue to have substantially less volume than domestic markets, and securities of many foreign companies are less liquid and their prices are more volatile than are securities of comparable U.S. companies. Certain foreign markets may have longer settlement periods than markets in the United States. In addition, brokerage commissions, custodial services and other costs related to investment in foreign markets generally are more expensive than in the United States, particularly with respect to emerging markets. Such markets have different settlement and clearance procedures. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. The inability of 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 47 failure of the broker or other service provider to deliver cash or securities. The risks of foreign investing are of greater concern in the case of investments in emerging markets which may exhibit greater price volatility, have less liquidity and have settlement arrangements which are less efficient than in developed markets. Furthermore, the economies of emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. These emerging market economies also have been, and may continue to be, adversely affected by economic and market conditions in the countries with which they trade. The value of a Fund's portfolio securities computed in U.S. dollars will vary with increases and decreases in the exchange rate between the currencies in which the Fund has invested and the U.S. dollar. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of a Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and net investment income and capital gains, if any, to be distributed in U.S. dollars to shareholders by the Fund. The rate of exchange between the U.S. dollar and other currencies is influenced by many factors, including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the price of oil, the pace of activity in the industrial countries, including the United States, and other economic and financial conditions affecting the world economy. The Funds will not invest in a foreign currency or in securities denominated in a foreign currency if such currency is not at the time of investment considered by the Advisor (or the Sub-Advisor, if applicable) to be fully exchangeable into U.S. dollars without legal restriction. The Funds may purchase securities that are issued by the government or a corporation or financial institution of one nation but denominated in the currency of another nation. To the extent that a Fund invests in ADRs, the depository bank generally pays cash dividends in U.S. dollars regardless of the currency in which such dividends originally are paid by the issuer of the underlying security. The operating expense ratio of a Fund investing in foreign securities may be higher than that of an investment company investing exclusively in U.S. securities because certain expenses, such as custodial costs, may be higher. Several of the countries in which the Funds may invest restrict, to varying degrees, foreign investments in their securities markets. Governmental and private restrictions take a variety of forms, including (i) limitation on the amount of funds that may be invested into or repatriated from the country (including limitations on repatriation of investment income and capital gains), (ii) prohibitions or substantial restrictions on foreign investment in certain industries or market sectors, such as defense, energy and transportation, (iii) restrictions (whether contained in the charter of an individual company or mandated by the government) on the percentage of securities of a single issuer which may be owned by a foreign investor, (iv) limitations on the types of securities which a foreign investor may purchase and (v) restrictions on a foreign investor's right to invest in companies whose securities are not publicly traded. In some circumstances, these restrictions may 48 limit or preclude investment in certain countries. Therefore, the Funds may to invest in such countries through the purchase of shares of investment companies organized under the laws of such countries. A Fund's interest and dividend income from foreign issuers may be subject to non-U.S. withholding taxes. A Fund also may be subject to taxes on trading profits in some countries. In addition, many of the countries in the Pacific Basin have a transfer or stamp duties tax on certain securities transactions. The imposition of these taxes will increase the cost to the Funds of investing in any country imposing such taxes. For United States federal income tax purposes, United States shareholders may be entitled to a credit or deduction to the extent of any foreign income taxes paid by the Funds. See "Dividends, Distributions and Federal Income Taxation." American Depository Receipts. (Except for the Money Market Fund.) ADRs are negotiable receipts issued by a United States bank or trust to evidence ownership of securities in a foreign company which have been deposited with such bank or trust's office or agent in a foreign country. Investing in ADRs presents risks not present to the same degree as investing in domestic securities even though the Funds will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include, among other things, fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social and economic instability. The Funds may be required to pay foreign withholding or other taxes on certain of its ADRs, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. federal income tax. See "Dividends, Distributions and Federal Income Taxation." Unsponsored ADRs are offered by companies which are not prepared to meet either the reporting or accounting standards of the United States. While readily exchangeable with stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs. Additionally, there generally is less publicly available information with respect to unsponsored ADRs. Investment Restrictions. Each Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions include prohibitions against borrowing money (except as described above) and against concentrating a Fund's investments in issuers conducting their principal business activities in a single industry (except that this limitation does not apply with respect to U.S. Government securities). These investment restrictions and each Fund's investment objective cannot be changed without the approval of shareholders of that Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information, however, can be changed by the Board of Directors without shareholder approval. INVESTMENT RESULTS Each Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future 49 performance. The investment return on an investment in a Fund will fluctuate. With respect to each Fund, except the Money Market Fund, the principal value of an investment will also fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Money Market Fund seeks to maintain a stable net asset value of $1.00 per share. Each Fund except for the Money Market Fund may calculate performance on an average annual total return basis for 1-, 5- and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced, including reinvested dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending redeemable values as determined above. From time to time, each Fund may advertise its yield. The Funds' yields are calculated according to methods that are standardized for all mutual funds. Because yield calculation methods differ from the methods used for other purposes, a Fund's yield may not equal its distribution rate, the income paid to a shareholder's account, or the income reported in the Fund's financial statements. With respect to the Money Market Fund, the yield refers to the income generated by an investment in the Fund over a seven-day period (which period will be stated in the advertisement). The Money Market Fund's net income per share for such period (excluding realized gains and losses, if any) will be divided by the Fund's constant net asset value of $1.00 and annualized on a 365-day basis. An effective yield quotation, taking into account the effects of a shareholder's assumed reinvestment of income (compounding), may also be used. With respect to the Funds other than the Money Market Fund, yield refers to the income generated by an investment in a Fund over a 30-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that period is assumed to be generated each 30 days over a 365-day period and is shown as a percentage of the investment. A Fund's investment results will vary from time to time depending upon, among other things, economic and market conditions, the composition of the Fund's portfolio, and operating expenses of the Fund, so that any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing a Fund's investment results with those published for other investment companies, other investment vehicles and unmanaged indices. The comparison of a Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Funds may also be mentioned in newspapers, magazines, or other media from time to time. The Funds assume no responsibility for the accuracy of such data. A Fund's results 50 also should be considered relative to the risks associated with the Fund's investment objective and policies. See "Investment Results" in the Statement of Additional Information. The Funds may also be mentioned in newspapers, magazines, or other media from time to time. Additional performance information regarding the Funds will be included in the Funds' annual report, which will be mailed to shareholders without charge upon request. HOW TO INVEST The shares of each Fund may be purchased through the Transfer Agent by submitting payment by check, bank wire or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Funds. All orders for the purchase of shares are subject to acceptance or rejection by the Board of Directors or the Advisor. Purchases of shares are made at the current net asset value price next determined after the purchase order is received by the Transfer Agent or by a selling agent of the Funds. A minimum initial investment of $2,000 is required to open a shareholder account, except for retirement plans such as Individual Retirement Accounts (IRAs). Retirement plans are subject to a $1,000 minimum initial investment. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan and may be waived in other instances at the sole discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent investment in the Funds must be $100 or more except in the case of retirement plans or Automatic Investment Plans. There is a minimum continuing balance of $1,500 required for non-retirement accounts (calculated on the basis of original investment value). All investments not meeting the minimum will be returned. In some cases, the minimum balance requirement may be waived at the sole discretion of the Advisor. All purchases made by check should be in U.S. dollars and be made payable to Fremont Mutual Funds. Third party checks, credit cards, and cash will not be accepted. All investment checks are subject to a 10-day holding period. The Fund will be closed to new shareholders whenever the Fund's market capitalization exceeds 3/10 of 1% of the market capitalization, recalculated quarterly, of the REITs which comprise the "ALL REITS Index" as published by the National Association of Real Estate Investment Trusts ("NAREIT"). As of January 31, 1998, the NAREIT Index showed a market capitalization of $146.734 billion for all REITs. Investors wishing to open a new account by bank wire must call the Transfer Agent at 800-548-4539 to obtain an account number and detailed wire instructions. All bank wire investments received before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be credited the same day. Otherwise, bank wire investments received will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. 51 Shares of a Fund may also be purchased through broker-dealers or other financial intermediaries who have made appropriate arrangements with the Funds. Such agents are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased for their customers pursuant to such orders. These agents may charge a reasonable transaction fee to their customers. In some instances, all or a portion of the transaction fee or other selling charges may be paid by the Advisor. To the extent these agents perform shareholder servicing activities for a Fund, they may receive fees from the Fund or the Advisor for such services. From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor for such activities. As a condition of this offering, if an order to purchase shares is cancelled due to nonpayment (for example, a check returned for "insufficient funds"), the person who placed the order must reimburse the Funds for any loss incurred by reason of such cancellation. For more information, see "Other Investment and Redemption Services" in the Statement of Additional Information. First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018, is the principal underwriter for the Funds. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES Statements and Reports When a shareholder makes an initial investment in the Funds, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Money Market Fund and the Bond Fund will receive monthly statements. Shareholders of the other Funds will receive statements as of the end of March, June, September and December. Shares are issued only in book-entry form (without certificates). The fiscal year of the Funds ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of each Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to each Fund's shareholders after the end of the calendar year on Form 1099-DIV. Exchanges Between Funds Shares of one Fund may be exchanged for shares of another Fund at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund that are offered for sale in your state of residence at the time of exchange. It is required that (1) all shares in one Fund must be exchanged or (2) the remaining balance must be at least $1,500. This minimum balance requirement may be waived at the sole discretion of the Advisor. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes, except in the case of tax-deferred retirement accounts or other tax-exempt shareholders that have not borrowed to acquire the shares exchanged. 52 Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions and exchanges of shares should be made for investment purposes only. A pattern of frequent exchanges, purchases and sales can be limited and, at the discretion of the Board of Directors, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from the shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. Telephone Exchange Privilege An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Funds. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. Autobuy Privilege The Autobuy privilege allows shareholders to purchase subsequent shares by moving money directly from their checking account to a Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not be added to an account without written authorization from the shareholder. The Autobuy privilege will be automatically added to an account when the shareholder chooses any type of ACH privilege. A shareholder may then purchase additional shares in an existing account by calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount wanting to be invested. The investment will automatically be processed through the Automatic Clearing House (ACH) system. There is no fee for this option. If the privilege was not established at the time the account was opened, the shareholder must complete the appropriate form. The form is available on request. Automatic Investment Plan A shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the shareholder's bank checking, savings, negotiable on withdrawal (NOW) or similar account, with the proceeds to be used to purchase shares of the Funds. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan. The amount of the monthly investment must be at least $50, and is not otherwise subject to the $100 minimum for subsequent investments. If the purchase date falls on a weekend or holiday, the purchase will be made on the previous business day. Shareholders should note that if there is an Automatic Investment Plan established for an account and the entire account is exchanged into another Fund, the Automatic Investment Plan must be renewed by the shareholder to the Transfer Agent. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any 53 time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is cancelled due to nonpayment (for example, "insufficient funds"), the shareholder will be responsible for reimbursing the Funds for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available on request. HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $10 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent, or other Fund agent authorized to accept orders, before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, Fund shares will be redeemed at the price determined as of the close of trading on the New York Stock Exchange on the next business day. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see "Signature Guarantee" below). Redemptions from retirement accounts require a written request, with a signature guarantee, unless authorized under the Automatic Withdrawal Plan. Call the Transfer Agent for specific instructions on redemptions. For written redemption requests for an amount greater than $25,000, or a redemption request that directs proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee" below). Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less than the amount paid for them. Redemption of shares by exchanges, transfers, and redemptions under an Automatic Withdrawal Plan may result in taxable capital gains or losses. Telephone Redemption Privilege An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 800-548-4539. (The Telephone Redemption Privilege is not available for IRA or other retirement accounts.) Telephone requests received by 54 the close of trading of the New York Stock Exchanged (currently 4:00 p.m., Eastern time), will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, the Transfer Agent, nor their respective affiliates, will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Investment Company and/or the Transfer Agent do not employ such procedures, they may be liable for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. Check Redemption Privilege (Money Market Fund and Bond Fund only) The Transfer Agent will, upon request, provide each shareholder of the Money Market Fund and the Bond Fund (except for retirement accounts) with free checks which may be made payable by shareholders to the order of anyone in any amount of at least $250. The Funds will arrange for checks to be honored by State Street Bank and Trust Company, Kansas City, Missouri (the "Bank") for this purpose. The Bank has the right to refuse any check which does not conform with its requirements. The shareholder will be subject to the Bank's rules and regulations governing checking accounts. When such a check is presented to the Transfer Agent for payment, the Transfer Agent, as the shareholder's agent, will cause the Investment Company to redeem a sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check. Since it is not possible to predict the exact value of a shareholder's account when a redemption check is cleared, shareholders may not close an account with a check. The Check Redemption Privilege enables the shareholder to continue receiving dividends on those shares equaling the amount being redeemed by check until such time as the check is presented to the Transfer Agent for payment. The Check Redemption Privilege may be modified or terminated by the Investment Company or the Transfer Agent upon three days' notice to shareholders. Automatic Withdrawal Plan A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions by check will be made on the 15th and/or the last business day of the month. Redemptions made by electronic transfer will be made on any date the shareholder chooses. Shareholders may also request automatic exchanges and transfers of a specified dollar amount. Exchanges and transfers will be made on any date the shareholder chooses. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Systematic redemptions should not reduce the account below the minimum balance required (currently $1,500). If the redemption date falls on a weekend or holiday, the redemption will be made on the previous business day. Shareholders may terminate the Automatic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Fremont Funds, shareholders must specify if they desire the automatic withdrawal option to be transferred to a new account opened by the 55 exchange. As an account balance declines to the minimum permitted, the shareholder must advise the Transfer Agent if the automatic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is an Automatic Withdrawal Plan established for an account and the entire account is exchanged into another Fund, the automatic withdrawal option must be renewed by the shareholder to the Transfer Agent. A shareholder wishing to initiate automatic redemptions must complete an Automatic Withdrawal Plan form available from the Transfer Agent. Signature Guarantee To better protect the Funds and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. Other Important Redemption Information A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. Payment in redemption of shares is normally made within three business days after receipt by the Transfer Agent of a request in proper form, provided that payment in redemption of shares purchased by check or draft will be effected only after such check or draft has been collected. Although it is anticipated that this process will be completed in less time, it may take up to 15 days. Redemption proceeds will not be delayed when shares have been paid for by bank wire or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven calendar days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. The Fund reserves the right to redeem mandatorily the shares in a shareholder's account (other than a retirement plan account) if the balance is reduced to less than $1,500 in net asset value through redemptions or other action by the shareholder. Notice will be given to the shareholder at least 30 days prior to the date fixed for such redemption, during which time the shareholder may increase its holdings to an aggregate amount of $1,500 or more (with a minimum purchase of $100 or more.) This minimum balance may be waived at the sole discretion of the Advisor. Redemption in Kind The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the applicable Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. Transfer Agent 56 The Advisor is transfer agent to the Funds and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. RETIREMENT PLANS Shares of the Funds may be purchased in connection with various tax-deferred retirement plans. These include Individual Retirement Accounts (IRAs); SEP-IRAs; SIMPLE IRAs; Roth IRAs; corporate pension and profit-sharing plans and Section 403(b) Plans, which are deferred compensation arrangements for employees of public schools and certain charitable organizations. Forms for establishing IRAs, SEP-IRAs, SIMPLE IRAs, Roth IRAs and Qualified Retirement Plans are available through the Investment Company, as are forms for corporate Pension and Profit-Sharing plans. Please contact the Investment Company for more information about establishing these accounts. In accordance with industry practice, there may be an annual account charge for participation in these plans. Information regarding these charges is available from the Investment Company. Retirement plan participants may receive additional services related to their plan at no extra cost to any shareholder. DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION Each Fund has qualified, and intends to continue to qualify to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code (the "Code"). For any tax year in which a Fund so qualifies and meets certain other distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires a Fund to, among other things, diversify its investments so that, at the end of each fiscal quarter, (1) at least 50 % of the market value of the Fund's assets is represented by cash, U.S. government securities, securities of other regulated investment companies, and other securities, limited, in respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. Each Fund intends to distribute substantially all of its net investment income according to the following schedule: The Money Market Fund and the Bond Bond Fund declare dividends daily and will distribute net investment income monthly. The Global Fund intends to distribute its net investment income four times a year, at the end of March, June, September and on or about December 15. The Fund will also distribute short-term capital gains, if any, in October. Each of the Growth Fund, the Select Fund, the U.S. Small Cap Fund, the Emerging Markets Fund and the U.S. Micro-Cap Fund intend to distribute substantially all of its net investment income once each year in October. 57 Each Fund intends to distribute substantially all of its net realized capital gains, if any, at the end of the calendar year (on or about December 15). Dividend and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All dividends and distributions are taxable to a shareholder (except tax-exempt shareholders who have not borrowed to acquire their shares) whether or not they are reinvested in shares of the Fund. Any long-term or mid-term capital gains distributions are taxable to shareholders as long-term or mid-term capital gains, respectively, regardless of how long shareholders have held Fund shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months, and 20% with respect to assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Corporate investors may be entitled to the dividends received deduction on all or a portion of the dividends paid by the Global Fund, the Growth Fund and the U.S. Micro-Cap Fund. Availability of the "dividends received" deduction is subject to certain holding period and debt-financing limitations. Shareholders may elect: o to have all dividends and capital gain distributions automatically reinvested in additional shares; or o to receive the income dividends and short-term capital gains distributions in cash and accept the long-term capital gains distributions in additional shares; or o to receive all distributions of income dividends and capital gains in cash. o to invest all dividend and capital gain distributions in another Fremont Fund owned through an identically registered account. Automatic reinvestments will be at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gain distributions will be automatically reinvested. These elections may be changed by the shareholder at any time, but to be effective for a particular dividend or capital gain distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in October, November or December by the Funds and paid in January are taxable as if paid in December. Each Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Funds that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Funds to withhold 31% from any dividends and/or redemptions (including exchange redemptions to the shareholder). Amounts withheld are applied to the shareholder's federal tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Funds to withhold 30%, or the applicable tax treaty rate, 58 from ordinary dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. Long-term capital gains distributions may be subject to this withholding. Dividends and interest from foreign issuers earned by a Fund may give rise to withholding and other taxes imposed by foreign countries, generally at rates from 10% to 40%. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by non-resident investors. Except as indicated below, to the extent that a Fund does pay foreign withholding or other foreign taxes on certain of its investments, investors will not be able to deduct their pro rata shares of such taxes in computing their taxable income nor be able to take their shares of such taxes as a credit against U.S. income taxes. If more than 50% of the value of a Fund's total assets at the close of its fiscal year consist of securities of foreign corporations, the Fund may elect to "pass through" to its shareholders the amount of foreign taxes paid. If this election is made, the shareholders of the Fund will be required to include in their federal income tax returns as gross income their respective pro rata portions of foreign taxes paid by the Fund, to treat such amounts as foreign taxes paid by them, and to deduct such respective pro rata portions in computing their taxable incomes, or, alternatively, to use them as foreign tax credits (subject to certain limitations) against their U.S. income taxes. The Funds will report annually to their shareholders the amount per share of such withholding, if any. The foregoing is a brief discussion of certain federal income tax considerations. Please see "Taxes - Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of an investment in the Funds. PLAN OF DISTRIBUTION (REAL ESTATE SECURITIES FUND, SELECT FUND, U.S. SMALL CAP FUND AND EMERGING MARKETS FUND ONLY) Pursuant to Rule 12b-1 under the 1940 Act, the Real Estate Securities Fund, Select Fund, U.S. Small Cap Fund and the Emerging Markets Fund have adopted a plan of distribution (the "Plan") under which the Funds may directly compensate the Advisor, paying for certain distribution-related expenses, including payments to securities dealers and others (including the Underwriter) who are engaged in promoting the sale of shares of the Funds and who may be advising investors regarding the purchase, sale, or retention of such shares; expenses of maintaining personnel who engage in or support distribution of shares or who render shareholder support services not otherwise provided by the Advisor or the Transfer Agent; expenses of formulating and implementing marketing and promotional activities, including direct mail promotions and mass media advertising; expenses of preparing, printing, and distributing sales literature, prospectuses, statements of additional information, and reports for recipients other than existing shareholders of the Funds; expenses of obtaining such information, analyses, and reports with respect to marketing and promotional activities as the Investment Company may, from time to time, deem advisable; and other expenses related to the distribution of the Fund's shares. The annual limitation for compensation to the Advisor pursuant to the Plan is .25% of the Fund's average daily net assets. All payments will be reviewed by the Fund's Board of Directors. However, it is possible that 59 in certain periods, the amount of the Advisor's compensation could exceed the Advisor's distribution expenses resulting in a profit to the Advisor. If the Plan is terminated by the Funds in accordance with its terms, the Funds will not be required to make any payments for expenses incurred by the Advisor after the date the Plan terminates. CALCULATION OF NET ASSET VALUE AND PUBLIC OFFERING PRICE Each Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet 60 received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. Each Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open (excluding banking holidays, in the case of the Money Market Fund). The Funds' portfolios may include securities which trade primarily on non-U.S. exchanges or otherwise in non-U.S. markets. Because of time zone differences, the prices of these securities, as used for net asset value calculations, may be established substantially in advance of the close of the New York Stock Exchange. Foreign securities may also trade on days when the New York Stock Exchange is closed (such as a Saturday). The net asset value and public offering price of a Fund, to the extent that it holds securities valued on foreign markets, may vary during periods when the New York Stock Exchange is closed. As a result, the value of a Fund's portfolio may be affected significantly by such trading on days when a shareholder has no access to the Fund. For further information, see "How to Invest," "How to Redeem Shares" and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the Statement of Additional Information. The net asset value and public offering price of each Fund will be determined as of the close of the regular session of the New York Stock Exchange. The shares of each Fund are offered at net asset value without a sales charge. Purchase, redemption and exchange orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. Amortized Cost Method of Valuation -- Money Market Fund Only The Money Market Fund attempts to maintain a stable net asset value of $1.00 per share by valuing its assets on the basis of amortized cost. This involves initially valuing a portfolio instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. Although the Money Market Fund attempts to maintain a stable net asset value of $1.00 per share, there can be no assurance that a stable net asset value will be maintained. As is generally the case with other money market funds, on any day that the Money Market Fund experiences a decline in net asset value below $1.00 per share, the Fund may offset any such amount against the shareholder dividends accrued during the month. Alternatively, to maintain the net asset value of its shares at $1.00, the Money Market Fund may redeem or declare a dividend of shares. Any such action would not change a shareholder's pro rata share of net assets, but would reflect the increase or decrease in the value of the shareholder's holdings which resulted from the change in net asset value. EXECUTION OF PORTFOLIO TRANSACTIONS Orders for each Fund's portfolio securities transactions are placed by the Advisor or Sub-Advisor, as applicable. The Advisor and Sub-Advisors strive to obtain the best available prices in the Funds' portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical and other information to the Funds, the Advisor or the Sub-Advisors or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States and other countries and money market securities in which the Funds may invest are generally traded in the OTC markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures, currency and options transactions. Commissions or discounts in foreign securities exchanges or OTC markets typically are fixed and generally are higher than those in U.S. securities exchanges or OTC markets. There is generally less government supervision and regulation of foreign exchanges and brokers than in the United States. Foreign security settlements may, in some instances, be subject to delays and related administrative uncertainties. Subject to the requirements of the 1940 Act and procedures adopted by the Board of Directors, the Funds may execute portfolio transactions through any broker or dealer and pay brokerage commissions to a broker which is an affiliated person of the Investment Company, the Advisor, or a Sub-Advisor, or an affiliated person of such person. It is presently anticipated that certain affiliates of the Sub-Advisor(s) will effect brokerage transactions of the Funds in certain markets and receive compensation for such services. 61 GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July 13, 1988, is a fully managed open-end investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by a Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor and the Portfolio Management Agreement with a Sub-Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that series and is entitled to such dividends and distributions out of the income earned on the assets belonging to that series as may be declared at the discretion of the Board of Directors. Shares of a series when issued are fully paid and are non-assessable. The Board of Directors may, at its discretion, establish and issue shares of additional series of the Investment Company. Stephen D. Bechtel, Jr., and members of his family, including trusts for family members, due to their shareholdings, may be considered controlling persons of the Funds under applicable Securities and Exchange Commission regulations. 62 TELEPHONE NUMBERS AND ADDRESSES To make an initial purchase: 1. By mail: Fremont Mutual Funds, Inc. c/o National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 Street address: 1004 Baltimore Avenue Kansas City, MO 64105 2. By wire: Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account number and detailed instructions. To make a subsequent purchase: Include shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and automatic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 Fremont Mutual Funds, Inc. Fremont Money Market Fund Fremont Bond Fund Fremont California Intermediate Tax-Free Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund 63 Fremont U.S. Small Cap Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund Fremont Real Estate Securities Fund Fremont Select Fund For more information on the Fremont Mutual Funds please call 800-548-4539 or write to: Fremont Mutual Funds 50 Beale Street, Suite 100 San Francisco, CA 94105 Advisor/Transfer Agent Fremont Investment Advisors, Inc. 333 Market Street, Suite 2600 San Francisco, CA 94105 Sub-Transfer Agent Mailing Address: National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 800-548-4539 (press 2) Street Address: National Financial Data Services 1004 Baltimore Avenue Kansas City, MO 64105 Custodian The Northern Trust Company 50 South Lasalle Street Chicago, IL 60675 64 Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 Auditors Coopers & Lybrand, L.L.P. 333 Market Street San Francisco, CA 94105 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Funds or the Advisor. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. 65 Fremont Mutual Funds, Inc. Fremont California Intermediate Tax-Free Fund March 1, 1998 TABLE OF CONTENTS ITEM PAGE NO. Summary of Fees and Expenses .................................... Financial Highlights ............................................ The Advisor and the Fund ........................................ Investment Objective, Policies and Risk Considerations ..................................... Investment Results ............................................. How to Invest .................................................. Shareholder Account Services and Privileges .................... How to Redeem Shares ........................................... Dividends, Distributions and Income Taxation ............................................ Calculation of Net Asset Value and Public Offering Price ...................................... Execution of Portfolio Transactions ............................ General Information ............................................ Telephone Numbers and Addresses ................................ PROSPECTUS FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in the Fremont California Intermediate Tax-Free Fund, investing in tax-exempt securities of the State of California and its political subdivisions. FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND seeks to obtain as high a level of interest income exempt from federal income tax and California personal income tax as is consistent with prudent investment management. There can be no assurance that the Fund will achieve its investment objective. The Fund is a non-diversified fund as defined by the Investment Company Act of 1940,as amended (the "1940 Act"). Shares of the Fund are offered without a sales charge. This Prospectus, which should be retained for future reference, sets forth concisely the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, California 94105. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SHARES INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is March 1, 1998. FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 800-548-4539. SUMMARY OF FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees(a) None Exchange Fee None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)(b) Management Fee .30% 12b-1 Fees None Other Expenses .19% Total Fund Operating Expenses .49% Example: You would pay the following total expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 Year $ 5 3 Years 16 5 Years 27 10 Years 62 The purpose of the above table is to give you information and assistance in understanding the various costs and expenses of the Fund that an investor may bear directly or indirectly. Other expenses include, but are not limited to, administrative and transfer agent fees paid to Fremont Investment Advisors, Inc., custody, legal and audit, costs of registration of Fund shares under applicable laws, and costs of printing and distributing reports to shareholders. The percentages expressing annual fund operating expenses are based on actual expenses incurred during the most recent fiscal year. THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. (a) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $10. See "How to Redeem Shares." (b) The Advisor has voluntarily waived management and administrative fees. Absent such waivers, the management fee, other expenses and total operating expenses of the Fund would have been .36%, .33% and .69%, respectively, for the fiscal year ended October 31, 1997. FINANCIAL HIGHLIGHTS The financial highlights of the Fund presented below have been audited by Coopers & Lybrand, L.L.P., independent accountants. Their report covering each of the five fiscal years in the period ended October 31, 1997, is included in the Fund's Annual Report. Further information about the Fund's performance is contained in the Annual Report, which is included in the Fund's Statement of Additional Information and which may be obtained without charge.
YEAR ENDED OCTOBER 31 PERIOD FROM ---------------------------------------------------------- NOVEMBER 16, 1990 1997 1996 1995 1994 1993 1992 TO OCTOBER 31, 1991 ---- ---- ---- ---- ---- ---- ------------------- SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 10.80 $ 10.86 $ 10.13 $ 11.10 $ 10.55 $ 10.39 $10.11 ------- ------- ------- ------- ------- ------- ------ INCOME FROM INVESTMENT OPERATIONS Net investment income(a) .51 .52 .53 .53 .55 .57 .58 Net realized and unrealized gain (loss) .20 (.03) .73 (.97) .62 .19 .34 ------- ------- ------- ------- ------- ------- ------ Total investment operations .71 .49 1.26 (.44) 1.17 .76 .92 ------- ------- ------- ------- ------- ------- ------ LESS DISTRIBUTIONS From net investment income (.51) (.52) (.53) (.53) (.55) (.57) (.58) From net realized gains (.01) (.03) -- -- (.07) (.03) (.06) ------- ------- ------- ------- ------- ------- ------ Total distributions (.52) (.55) (.53) (.53) (.62) (.60) (.64) ------- ------- ------- ------- ------- ------- ------ NET ASSET VALUE, END OF PERIOD $ 10.99 $ 10.80 $ 10.86 $ 10.13 $ 11.10 $ 10.55 $10.39 ======= ======= ======= ======= ======= ======= ====== TOTAL RETURN(1) 6.75% 4.63% 12.77% -3.94% 11.37% 7.37% 9.78% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $64,309 $51,156 $50,313 $58,305 $59,716 $44,305 $33,572 Ratio of expenses to average net assets(2) .49% .51% .50%* .51% .50% .54% .36%* Ratio of net investment income to average net assets(2) 4.72% 4.86%* 5.08% 4.94% 5.05% 5.38% 5.88%* Portfolio turnover rate 6% 6%* 18% 21% 26% 18% 41%*
*Annualized (1) Total return would have been lower had the advisor not waived expenses. (2) The Advisor is voluntarily reducing the advisory and administrative fees to 0.30% and 0.005% of average net assets, respectively. THE ADVISOR AND THE FUND Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment company which under this Prospectus is offering shares in the Fremont California Intermediate Tax-Free Fund (the "Fund"). The Investment Company has other series offered with a different prospectus, and the Board of Directors of the Investment Company is permitted to create additional funds at any time. The Fund has its own investment objective and policies and operates as a separate mutual fund. The management of the business and affairs of the Investment Company is the responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the "Advisor") provides the Fund with investment management and administrative services under an Investment Advisory and Administrative Agreement (the "Advisory Agreement") with the Investment Company. The Advisory Agreement provides that the Advisor shall furnish advice to the Fund with respect to its investments and shall, to the extent authorized by the Board of Directors, determine what securities shall be purchased or sold by the Fund. The professional staff of the Advisor has offered professional investment management services regarding asset allocation in connection with securities portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987. The Advisor also provides investment advisory services regarding asset allocation, investment manager selection and portfolio diversification to a number of large Bechtel-related investors. The Investment Company is one of its clients. As compensation for its services to the Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of .40% per annum of the first $25 million of the Fund's average net assets, .35% of the next $25 million of such assets, .30% of the next $50 million of such assets, .25% of the next $50 million of such assets and .20% of such assets in excess of $150 million. The Advisory Agreement also provides that the Fund will pay to the Advisor an administrative fee of .15% per annum of average net assets. The advisory and administrative fees are currently being charged at voluntarily reduced rates of .30% and .005%, respectively, of the Fund's average net assets. The portfolio manager for the Fund since the Fund's inception is William M. Feeney, Vice President of the Advisor. Will received his B.A. from the University of Colorado and his M.B.A. from the University of San Francisco. Investment Company Administration Corporation (the "Sub-Administrator"), pursuant to an administrative agreement with the Advisor, supervises the administration of the Investment Company and the Fund including, among other responsibilities, the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations. Certain officers of the Investment Company may be provided by the Sub-Administrator. For additional information about the Advisor, see "Investment Advisory and Other Services" in the Statement of Additional Information. OTHER EXPENSES OF THE FUNDS. In addition to the fees described above, the Fund pays all expenses not assumed by the Advisor. These expenses include, but are not limited to, the following: custodian, stock transfer and dividend disbursing fees and expenses; and shareholder servicing fees including fees to third party servicing agents. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS The investment objective of the Fund is to seek to obtain as high a level of interest income exempt from federal income tax and California personal income tax as is consistent with prudent investment management. The Fund seeks to achieve its objective by investing in debt securities, the interest income from which is not includable in gross income for federal income tax purposes ("exempt from federal income tax") and is exempt from California personal income taxes. There is no assurance that the Fund will achieve its investment objective. A portion of the income received from the Fund may be included in the calculation of the federal alternative minimum tax. The Fund may also 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 Prospectus 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 Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("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/VMIG1 or 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 in the Statement of Additional Information for a description of these ratings.) The Fund's net asset value per share will fluctuate as market conditions change. 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 determines to have a credit quality comparable to that required for investment by the Fund (see the discussion of securities ratings above). Securities which are rated BBB by S&P or Baa by Moody's are considered investment grade, but are more likely to have speculative characteristics, and changes in economic conditions may lead to a weakened capacity to make principal and interest payments than is the case with higher rated securities. As a matter of operating policy, not more than 25% of the Fund's 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. The Fund is considered "non-diversified" because the Fund may invest more than 5% of its assets in the securities of a single California issuer, such as the State of California. Since the Fund invests primarily in California municipal securities, it may be advantageous to be able to invest more than 5% of such assets in the securities of a particular issuer. This may result in additional risk since changes in the value of the securities of one issuer may affect the value of the Fund to a greater extent than would be the case with a diversified fund. See "Special Risk Considerations In California." The Fund has qualified and intends to continue to qualify to be treated as a "regulated investment company" for purposes of the Internal Revenue Code ("the Code") and meet the Code's separate requirements for portfolio diversification. See discussion of taxes in "Dividends, Distributions and Income Taxation." 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. DESCRIPTION OF MUNICIPAL SECURITIES. Municipal securities may have fixed, variable or floating rates of interest. Any variable or floating rate municipal security not payable on demand within seven days will be deemed illiquid unless the Advisor determines, according to procedures established by the Board of Directors, that such securities are liquid. If held by the Fund, such securities will be included in the calculation of the limitation of 15% of net assets which may be invested in illiquid securities. Municipal bonds, which finance long-term capital needs and generally have maturities of more than one year when issued, are generally classified as either general obligation bonds or revenue bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, the proceeds of a special excise tax or other specific revenue source. The Fund may also invest in certificates of participation in general fund obligation leases of the State of California and its political subdivisions. The staff of the Securities and Exchange Commission may view such a security as illiquid. Unless the Board of Directors determines that such a security is not illiquid, the Advisor will limit its investment in such securities, together with all other illiquid securities and assets, to 15% of the Fund's net assets. The securities in which the Fund invests are subject to market and credit risk. Market risk relates to the changes in market value that occur as a result of variation in the level of prevailing interest rates and yield relationships in the municipal securities market. In general, the longer the maturity of a municipal security, the higher the yield and the greater the potential for taxable capital appreciation or depreciation. Conversely, shorter maturities tend to provide lower yields, but greater stability of principal. An increase in interest rates will normally decrease the value of these longer-term investments, while a decline in interest rates will normally increase the value of these investments. Generally, the shorter the average maturity of the Fund's portfolio, the less its price will be affected by interest rate fluctuations. In addition to the market risk of changing interest rates, municipal securities are subject to credit risk relating to the operations of individual issuers. The ability of the Fund to achieve its investment objective is dependent upon the continuing ability of the issuers of municipal securities in which the Fund invests to meet their obligations for the payment of principal and interest when due. SPECIAL RISK CONSIDERATIONS IN CALIFORNIA. The Fund's performance may be especially affected by factors pertaining to the California economy, as well as other factors affecting the ability of issuers of California municipal securities to meet their obligations. As a result, the value of the Fund's shares may fluctuate more widely than the value of shares of a portfolio investing in securities relating to a number of different states. The amounts of tax and other revenues available to issuers of California municipal securities may be affected from time to time by economic, political, geographic and demographic conditions. There are additional risks associated with the Fund's investment in California municipal obligations. These risks result from certain amendments to the California Constitution and other statues that limit the taxing and spending authority of California governmental entities, as well as from the general financial conditions of the State of California. These may impair the ability of issuers of California municipal obligations to pay interest and principal on their obligations. California constitutional and statutory amendments and initiatives have imposed certain limitations on taxes that may be levied against real property, as well as place limits on the annual appropriations of the state and its political subdivisions. These initiative measures approved by California voters have resulted in a reduction in state and local government revenues and in spending limits. The payment of California municipal securities may be dependent on the ability and willingness of the California Legislature to assist local governments in paying bond obligations, and on the collection of ad valorem or special taxes by local governments within the state. The continuing ability of the California Legislature to increase the revenue of local governments, as well as to make timely payments in connection with its own obligations, and the continuing ability of local governments to raise revenue through taxation will affect the ability of the state and local governments to pay debt service on these obligations. The payment of California municipal securities secured by general fund leases of the state and local governments may depend on continued lease payments by the lessor and continued use and occupancy of the leased property. California municipal securities secured by payments from health care institutions are subject to declining revenues of such institutions resulting from more stringent cost controls by health insurers and by the federal, state and local governments which reimburse such health institutions for indigent and Medicare patients, which may adversely affect payment on those debt obligations. California municipal securities that are secured by mortgages or deeds of trust on real property are subject to certain provisions of California law which limit the remedies available to creditors in the case of a default and subsequent foreclosure. The California economy and general financial condition affect the ability of the State and local governments to raise and redistribute revenues to assist issuers of municipal securities to make timely payments on their obligations. California has a diverse economy, with major employment in the agriculture, manufacturing, high technology, services, trade, entertainment, and construction sectors. Starting in mid-1990, the State entered a sustained economic recession, somewhat later than the rest of the nation. It was the most severe recession in the State since the 1930's, with job losses estimated at over 800,000, particularly in the manufacturing (predominantly aerospace), services, and construction sectors. The greatest effects were felt in Southern California. Since the start of 1994, California's economy has been on a steady recovery. The rate of economic growth in California ins 1996, in terms of job gains, exceeded that of the rest of the United States. The state added nearly 350,000 jobs during 1996, surpassing its pre-recession employment peak. The unemployment rate, while still higher than the national average, fell to the low 6 percent range in mi-1997, compared to over 10 percent during the recession. Many new jobs were created in such industries as computer services, software design, motion pictures and high technology manufacturing. Business serves, export trade and other manufacturing also experienced growth. All major economies regions of the state grew, with particularly large gains in the Silicon Valley region of Northern California. California's economic recovery from the recession is continuing at a strong pace. Recent economic reports indicate that, while the rate of economic growth in California is expected to moderate over the next three years, the increase in employment and income may exceed those of the nation as a whole. The unsettled financial situation occurring in certain Asian economies may adversely affect the state's export-related industries and, therefore, the state's rate of economic growth. On December 6, 1994, Orange County, California, together with its pooled investment funds (the "Pools"), filed for protection under Chapter 9 of the federal Bankruptcy Code, after reports that the Pools had suffered significant market losses in their investments, causing a liquidity crisis for the Pools and Orange County. One June 12, 1996, Orange County emerged from bankruptcy after the successful sale of $880 million in municipal bonds allowed the county to pay off the last of its creditors. On January 7, 1997, orange County returned to the municipal bond market with a $136 million bond issue maturing in 13 years at an insured yield of 7.3%. An expanded discussion of investment considerations regarding investment in California municipal obligations is contained in the Statement of Additional Information. WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). The Fund will not purchase securities the value of which is greater than 5% of its net assets on a when-issued basis. The Fund, as purchaser, assumes the risk of any decline in value of the security beginning on the date of the agreement or purchase, and no interest accrues to the Fund until its accepts delivery of the security. The Fund will not use such transactions for leveraging purposes, and accordingly will segregate cash, cash equivalents or liquid securities or hold a covered position in an amount sufficient to meet its payment obligations thereunder. There is always a risk that the securities may not be delivered and that the Fund may incur a loss or will have lost the opportunity to invest the amount set aside for such transaction in the segregated asset account. FINANCIAL FUTURES CONTRACTS. The Fund may purchase and sell financial futures contracts listed on a commodities board of trade to hedge its portfolio investments against changes in value or as a temporary substitute for purchases or sales of actual securities. The Fund is not a commodity pool and will engage in futures transactions only for bona fide hedging purposes. Futures contracts are agreements to buy or sell underlying securities at a specific future date and price. The underlying instrument may be a security or an index of securities. By buying or selling a futures contract, the Fund agrees to buy or sell the underlying instrument or to deliver or receive cash settlement. Income from financial futures trading is not exempt from federal or state income taxes. Because fixed-income securities fluctuate in value inversely with the movement of interest rates, a decline in value of a security can be hedged, or offset, by an increase in value of an interest rate futures contract. Also, if the Advisor anticipates that the value of a security will decline, it may purchase a futures contract instead of the security to gain the benefit of the expected lower price. Different trading strategies for futures have different risk and return characteristics. The Advisor will choose among futures strategies based on its judgment of how best to meet the Fund's goals. The judgment will be based on factors such as current and anticipated interest rates, relative market liquidity, and price levels in the futures markets compared to the underlying securities markets. If the Advisor judges these factors incorrectly, or if price changes in the futures positions are not well correlated with other investments, the strategies may lower the Fund's return. These strategies involve certain risks. There is no assurance that closing purchase transactions will be available at favorable prices, resulting in possible reduction of the Fund's income due to the use of hedging instruments, and possible loss in excess of the initial margin. There may be imperfect correlation between the contract and the underlying security and unsuccessful hedging transactions due to incorrect market trend forecasts. A more thorough description of these investment practices and their associated risks is contained in the Statement of Additional Information. When required by Securities and Exchange Commission guidelines, the Fund will maintain a segregated account with the custodian with sufficient cash, U.S. Government securities or other liquid securities to cover the potential obligations created by futures. The Fund may invest up to 5% of its assets in futures transactions represented by the aggregate "initial margin" (down payment). The aggregate market value of securities underlying futures contracts will not exceed 25% of the net assets of the Fund. 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 which invest in securities whose income is exempt from Federal and California state income taxes. Pursuant to the 1940 Act, 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 will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees under Rule 12b-1 of the 1940 Act, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above 1940 Act restrictions, the Fund does have the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objective, restrictions and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. PORTFOLIO TURNOVER. The Fund expects to trade in securities for short-term gain whenever deemed advisable by the 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 100%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by the Fund's average month-end long-term investments. High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions and other costs that the Fund will bear directly, and may result in the realization of net capital gains, which are generally taxable whether or not distributed to shareholders. LOANS OF PORTFOLIO SECURITIES. The Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors up to 331/3% 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 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 FREMONT MUTUAL FUNDS credit, consist of possible delay in receiving additional collateral or in the recovery of the securities, or possible loss of rights in the collateral should the borrower fail financially. The lender also may bear the risk of capital loss on investment of the cash collateral, which must be returned in full to the borrower when the loan is terminated. Loans will be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. BORROWING. The Fund may borrow from banks up to 30% of the value of its total assets for temporary or emergency purposes and enter into reverse repurchase agreements. If the income and gains on securities purchased with the proceeds of borrowings or reverse repurchase agreements exceed the cost of such borrowings or agreements, the Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the cost, earnings or net asset value would decline faster than otherwise would be the case. 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 and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. INVESTMENT RESTRICTIONS. The Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions include prohibitions against borrowing money (except as described above) and against concentrating the Fund's investments in issuers conducting their principal business activities in a single industry (except that this limitation does not apply with respect to U.S. Government securities). In addition, a minimum of 80% of assets must be invested in California municipal securities exempt from federal and California income taxes and not subject to the alternative minimum tax on individuals. These investment restrictions and the Fund's investment objective cannot be changed without the approval of shareholders of the Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information can be changed by the Board of Directors without shareholder approval. INVESTMENT RESULTS The Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future performance. The investment return on and the principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund may calculate performance on an average annual total return basis for 1-, 5- and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced from reinvested dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending values as determined above. From time to time, the Fund may advertise its yield and "tax-equivalent" yield. The Fund's yields are calculated according to methods that are standardized for all mutual funds. Because yield calculation methods differ from the methods used for other purposes, the Fund's yield may not equal its distribution rate, the income paid to a shareholder s account, or the income reported in the Fund's financial statements. The yield of the Fund refers to the income generated by an investment in the Fund over a 30-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that period is assumed to be generated each 30 days over a 365-day period and is shown as a percentage of the investment. The Fund may also advertise together with its yield a tax-equivalent yield which reflects the yield which would be required of a taxable investment at a stated income tax rate in order to equal the Fund's yield. 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 any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing the Fund's investment results with those published for other investment companies, other investment vehicles and unmanaged indices. The comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Fund may also be mentioned in newspapers, magazines, or other media from time to time. The Fund assumes no responsibility for the accuracy of such data. The Fund's results also should be considered relative to the risks associated with the Fund's investment objective and policies. See "Investment Results" in the Statement of Additional Information. The Fund may also be mentioned in newpapers, magazines, or other media from time to time. Additional performance information regarding the Fund is included in the Fund's annual report, which will be mailed to shareholders without charge upon request. HOW TO INVEST The shares of the Fund may be purchased through the Transfer Agent by submitting payment by check, bank wire or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Fund. All orders for the purchase of shares are subject to acceptance or rejection by the Board of Directors or the Advisor. Purchases of shares are made at the net asset value price next determined after the purchase order is received by the Transfer Agent or by a selling agent of the Fund. All investment checks are subject to a 10-day holding period. A minimum initial investment of $2,000 is required to open a shareholder account. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan and may be waived in other instances at the sole discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent investment must be $100 or more. There is a minimum continuing balance of $1,500 required (calculated on the basis of original investment value). In some cases, the initial investment minimum balance requirement may be waived. Investors wishing to open a new account by bank wire must call the Transfer Agent at 800-548-4539 to obtain an account number and detailed wire instructions. Bank wire instructions are also provided in the last section of this Prospectus. All bank wire investments received before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be credited the same day. Otherwise, bank wire investments received will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. Shares of the Fund may also be purchased through broker-dealers or other financial intermediaries who have made appropriate arrangements with the Fund. Such agents are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased for their customers pursuant to such orders. These agents may charge a reasonable transaction fee to their customers. In some instances, all or a portion of the transaction fee, or other selling charge, may be paid by the Advisor. To the extent these agents perform shareholder servicing activities for the Fund, they may receive fees from the Fund or the Advisor for such services. From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor for such activities. As a condition of this offering, if an order to purchase shares is cancelled due to nonpayment (for example, a check returned for "insufficient funds"), the person who made the order will be subject to a $20 charge and must reimburse the Fund for any loss incurred by reason of such cancellation. For more information, see Other Investment and Redemption Services in the Statement of Additional Information. First Funds Distributor, Inc., 4455 Camelback Road, Suite 261E, Phoenix, Arizona 85018, is the principal underwriter for the Fund. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES STATEMENTS AND REPORTS When a shareholder makes an initial investment in the Fund, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Fund will receive monthly statements. Shares are issued only in book-entry form (without certificates). The fiscal year of the Fund ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of the Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to the Fund's shareholders after the end of the calendar year on Form 1099-DIV. EXCHANGES BETWEEN FUNDS Shares of the Fund and of any other Fremont Fund may be exchanged for each other at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund then offered for sale in your state of residence. It is required that (1) all shares in one Fund must be exchanged or (2) the remaining balance must be at least $1,500. The minimum balance requirement may be waived. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes. Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions and exchanges should be made for investment purposes only. A pattern of frequent exchanges, purchases and sales is not acceptable and, at the discretion of the Board of Directors, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from the shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. TELEPHONE EXCHANGE PRIVILEGE An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Fund. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by the close of trading on the New York Stock Exchange (currently, 4:00 p.m., Eastern time), will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. AUTOBUY PRIVILEGE The Autobuy privilege allows shareholders to purchase subsequent shares by moving money directly from their checking account to a Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not be added to an account without written authorization from the shareholder. The Autobuy privilege will be automatically added to an account when the shareholder chooses any type of ACH privilege. A shareholder may then purchase additional shares in an existing account by calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount wanting to be invested. The investment will automatically be processed through the Automatic Clearing House (ACH) system. There is no fee for this option. If the privilege was not established at the time the account was opened, the shareholder must complete the appropriate form. The form is available on request. AUTOMATIC INVESTMENT PLAN A shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the shareholder's bank checking, savings, negotiable on withdrawal (NOW) or similar account, with the proceeds to be used to purchase shares of the Fund. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan. The amount of the monthly investment must be at least $50, and is not otherwise subject to the $100 minimum for subsequent investments. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is cancelled due to nonpayment (for example, "insufficient funds"), the shareholder's account will be subject to a $20 charge and the shareholder will be responsible for reimbursing the Fund for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available upon request. HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $8 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent, or other Fund agent authorized to accept orders, before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time, will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see Signature Guarantee" below). For written redemption requests for an amount greater than $25,000, or a redemption request that directs proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee" below). Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less than the amount paid for them. Redemption of shares, exchanges and redemptions under an Automatic Withdrawal Plan may result in taxable capital gains or losses. TELEPHONE REDEMPTION PRIVILEGE An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 800-548-4539. Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, nor the Transfer Agent, nor their respective affiliates, will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Investment Company and/or the Transfer Agent do not employ such procedures, they may be liable for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. CHECK REDEMPTION PRIVILEGE The Transfer Agent will, upon request, provide each shareholder with free checks which may be made payable by shareholders to the order of anyone in any amount of at least $250. The Fund will arrange for checks to be honored by The Fifth Third Bank, Cincinnati, Ohio (the "Bank") for this purpose. The Bank has the right to refuse any check which does not conform with its requirements. The shareholder will be subject to the Bank's rules and regulations governing checking accounts, including a $20 charge for refused checks. This charge may change without notice. When such a check is presented to the Transfer Agent for payment, the Transfer Agent, as the shareholder's agent, will cause the Investment Company to redeem a sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check. Since it is not possible to predict the exact value of a shareholder's account when a redemption check is cleared, shareholders may not close an account with a check. The Check Redemption Privilege enables the shareholder to continue receiving dividends on those shares equaling the amount being redeemed by check until such time as the check is presented to the Transfer Agent for payment. The Check Redemption Privilege may be modified or terminated by the Investment Company or the Transfer Agent upon three days' notice to shareholders. AUTOMATIC WITHDRAWAL PLAN A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions will be made on the last business day of the month. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Automatic redemptions should not reduce the account below the minimum balance required (currently $1,500). Shareholders may terminate the Automatic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Fremont Funds, shareholders must specify if they desire the automatic withdrawal option to be transferred to a new account opened by the exchange. As an account balance declines to the minimum permitted, the shareholder must advise the Transfer Agent if the automatic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is an Automatic Withdrawal Plan established for an account and the entire account is exchanged into another fund, the automatic withdrawal option must be renewed by written request to the Transfer Agent. A shareholder wishing to initiate automatic redemptions must complete an Automatic Withdrawal Plan form available from the Transfer Agent. SIGNATURE GUARANTEE To better protect the Fund and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. OTHER IMPORTANT REDEMPTION INFORMATION A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. Payment in redemption of shares is normally made within three business days after receipt by the Transfer Agent of a request in proper form, provided that payment in redemption of shares purchased by check or draft will be effected only after such check or draft has been collected. Although it is anticipated that this process will be completed in less time, it may take up to 15 days. Redemption proceeds will not be delayed when shares have been paid for by bank wire or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances and as permissible under the 1940 Act, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven calendar days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. The Investment Company reserves the right to redeem mandatorily the shares in a shareholder's account if the balance is reduced to less than $1,500 in net asset value through redemptions or other action by the shareholder. Notice will be given to the shareholder at least 30 days prior to the date fixed for such redemption, during which time the shareholder may increase its holdings to an aggregate amount of $1,500 or more (with a minimum purchase of $100 or more). This minimum balance may be waived. REDEMPTION IN KIND The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. TRANSFER AGENT The Advisor is transfer agent to the Funds and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. DIVIDENDS, DISTRIBUTIONS AND INCOME TAXATION The Fund has elected, and intends to continue to qualify to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code (the "Code"). For any tax year in which the Fund so qualifies and meets certain other distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires the Fund to diversify its investments so that, at the end of each fiscal quarter, (1) at least 50% of the market value of the Fund s assets is represented by cash, U.S. Government securities, securities of other regulated investment companies and other securities, limited, in respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. The Fund declares dividends daily and will distribute its net investment income monthly. The Fund intends to distribute substantially all of its net realized capital gains, if any, at the end of the calendar year (on or about December 15). Dividend and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All taxable dividends and distributions are taxable to a shareholder whether or not they are reinvested in shares of the Fund. Any long-term or mid-term capital gains distributions are taxable to shareholders as long-term or mid-term capital gains, respectively, regardless of how long shareholders have held Fund shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months, and 20% with respect to assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Shareholders may elect: - - - to have all dividends and capital gain distributions automatically reinvested in additional shares; or - - - to receive the income dividends and short-term capital gains distributions in cash and accept the long-term capital gains distributions in additional shares; or - - - to receive all distributions of income dividends and capital gains in cash. Automatic reinvestments will be made at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gain distributions will be automatically reinvested. These elections may be changed by the shareholder at any time, but to be effective for a particular dividend or capital gain distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in December by the Fund and paid in January are taxable as if paid in December. The Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year. The Fund intends to invest in sufficient municipal securities so that it will qualify to pay "exempt-income dividends" (as defined in the Code) to shareholders. Exempt-interest dividends distributed to shareholders are not includable in the shareholder's gross income for federal income tax purposes. However, this favorable tax treatment may not apply to shareholders who are "substantial users" (or "related persons" thereto) with respect to facilities financed by securities held by the Fund. To the extent that dividends are derived from interest on California municipal securities, or from interest earnings on certain U.S. Government obligations, and as long as at least 50% of the value of the total assets of the Fund consists of bonds on which the interest is exempt from taxation under the laws of California or the laws of the United States, such dividends will also be exempt from California personal income taxes. For California income tax purposes, capital gain distributions and any income from investment in taxable securities (other than California municipal obligations and direct U.S. Government obligations) are taxable as ordinary income. The Fund will inform shareholders annually as to the portion of the distributions which constitutes dividends exempt from California personal income tax. All distributions received by a corporation doing business in California may be subject to California franchise taxes. Interest income (in the form of dividends) exempt from federal income tax is not necessarily exempt under the income or other tax laws of state and local taxing authorities. Shareholders should consult their tax advisors about the status of distributions from the Fund in this regard. The Tax Reform Act of 1986 restricts the federal tax exemption for interest earned on certain municipal obligations. Under that law, interest on "private activity" municipal bonds (for example, those issued to finance housing projects) issued after the effective date is an item of "tax preference" subject to the individual Alternative Minimum Tax. It is the current intention of the Fund not to purchase bonds that are subject to the individual Alternative Minimum Tax. Shareholders will be given prior notification if the Fund intends to change this policy. Corporate shareholders may wish to consult their tax advisors before investing in the Fund, since some of the interest on municipal bonds held in the Fund's portfolio may be included in income subject to the corporate Alternative Minimum Tax. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Fund that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Funds to withhold 31% from any dividends and/or redemptions (including exchange redemptions). Amounts withheld are applied to the shareholder s federal tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Fund to withhold 30%, or the applicable tax treaty rate, from dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. The foregoing is a brief discussion of certain income tax considerations. Please see "Special Tax Considerations" and "Taxes - Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of an investment in the Fund. CALCULATION OF NET ASSET VALUE AND PUBLIC OFFERING PRICE The Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. The Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open. For further information, see "How to Invest," "How to Redeem Shares" and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the Statement of Additional Information. The net asset value and public offering price of the Fund will be determined as of the close of the regular session of the New York Stock Exchange. The shares of the Fund are offered at net asset value without a sales charge. Purchase, redemption and exchange orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. EXECUTION OF PORTFOLIO TRANSACTIONS Orders for the Fund's portfolio securities transactions are placed by the Advisor. The Advisor strives to obtain the best available prices in the Fund's portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical and other information to the Fund or the Advisor or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States, municipal securities and money market securities in which the Fund may invest are generally traded in the over-the-counter markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures and options transactions. 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. GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July_13, 1988, is a fully managed open-end investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by the Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that 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. TELEPHONE NUMBERS AND ADDRESSES TO MAKE AN INITIAL PURCHASE: 1. By mail: Fremont Mutual Funds, Inc. c/o National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 Street address: 1004 Baltimore Avenue Kansas City, MO 64105 2. By wire: Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account number and detailed instructions. TO MAKE A SUBSEQUENT PURCHASE: Include shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and automatic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 or 415-284-8900 FREMONT MUTUAL FUNDS, INC. Fremont Money Market Fund Fremont California Intermediate Tax-Free Fund Fremont Bond Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund Fremont Real Estate Securities Fund Fremont Select Fund For more information on the Fremont Mutual Funds please call 800-548-4539 or write to: Fremont Mutual Funds,Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 ADVISOR/TRANSFER AGENT Fremont Investment Advisors, Inc. 333 Market Street, Suite 2600 San Francisco, CA 94105 SUB-TRANSFER AGENT Mailing Address: National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 800-548-4539 Street Address: National Financial Data Services 1004 Baltimore Avenue Kansas City, MO 64105 CUSTODIAN The Northern Trust Company 50 South Lasalle Street Chicago, IL 60675 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 AUDITORS Coopers & Lybrand, L.L.P 333 Market Street San Francisco, CA 94105 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Fund or the Advisor. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. FREMONT MUTUAL FUNDS, INC. Fremont Real Estate Securities Fund March 1, 1998 TABLE OF CONTENTS Item Page No. Summary of Fees and Expenses The Advisor, the Sub-Advisor and the Fund Investment Objective, Policies, and Risk Considerations General Investment Policies Investment Results How to Invest Shareholder Account Services and Privileges How to Redeem Shares Retirement Plans Dividends, Distributions, and Federal Income Taxation Plan of Distribution Calculation of Net Asset Value and Public Offering Price Execution of Portfolio Transactions General Information Telephone Numbers and Addresses PROSPECTUS FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in the FREMONT REAL ESTATE SECURITIES FUND (the "Fund"). FREMONT REAL ESTATE SECURITIES FUND seeks to provide total return through a combination of income and long-term capital appreciation by investing primarily in equity securities of companies in the real estate industry. There can be no assurance that the Fund will achieve its investment objective. The Fund is a non- diversified fund as defined by the Investment Company Act of 1940, as amended (the "1940 Act"). Shares of the Fund are offered without a sales charge. This Prospectus, which should be retained for future reference, sets forth concisely the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, California 94105. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is March.1, 1998. FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 800-548-4539. SUMMARY OF FEES AND EXPENSES Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees(1) None Exchange Fee None Annual Fund Operating Expenses (as a percentage of average net assets)(2) Management Fee(3) None 12b-1 Expenses(4) .25% Other Expenses after Reimbursement 1.25% Total Fund Operating Expenses 1.00% Example: You would pay the following total expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 Year $5 3 Years $16 THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. The purpose of the above table is to give you information and assistance in understanding the various costs and expenses of the Fund that an investor may bear directly or indirectly. Other expenses include, but are not limited to, transfer agent fees paid to Fremont Investment Advisors, Inc.; custody, legal and audit fees; costs of registration of Fund shares under applicable laws; and costs of printing and distributing reports to shareholders. The percentages expressing annual fund operating expenses of the Fund are based on estimated expenses for the current fiscal year. See "The Advisor, the Sub-Advisor and the Fund." (1) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $10. See "How to Redeem Shares." (2) The Advisor has agreed to limit the Fund's total operating expenses to 1.50% of average daily net assets. The Fund may reimburse the Advisor for any reductions in the Advisor's fees 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 interests of the Fund. The Advisor generally seeks to reimburse the oldest reductions and waivers before payment of fees and expenses for the current year. Absent reimbursements of expenses by the Advisor, other expenses and total operating expenses are estimated to be .25% and 1.30%, respectively. (3) The Advisor has voluntarily waived the management fee for the first six months, until June 30, 1998, and will continue to waive fees until December 31, 1998 or until the assets in the Fund reach $25 million. (4) 12b-1 fees may be paid to financial intermediaries for services provided through sales program(s). Long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted by the rules of the National Association of Securities Dealers. For more information on 12b-1 fees, see "Plan of Distribution." THE ADVISOR, THE SUB-ADVISOR AND THE FUND Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment company which under this Prospectus is offering shares in the Fremont Real Estate Securities Fund. The Investment Company has other series offered under a different prospectus, and the Board of Directors of the Investment Company is permitted to create additional series at any time. The Fund has its own investment objective and policies and operates as a separate mutual fund. The management of the business and affairs of the Investment Company is the responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the "Advisor") provides the Fund with investment management services under an Investment Advisory Agreement (the "Advisory Agreement") with the Investment Company. The Advisory Agreement provides that the Advisor shall furnish advice to the Fund with respect to its investments and shall, to the extent authorized by the Board of Directors, determine what securities shall be purchased or sold by the Fund. As described more fully below, the Advisor has retained Kensington Investment Group (the "Sub-Advisor") to provide the Fund with portfolio management services. The Advisor's Investment Committee oversees the portfolio management of the Fund, including the services provided by the Sub-Advisor. The professional staff of the Advisor has offered professional investment management services regarding asset allocation in connection with securities portfolios to the Bechtel Trust and Thrift Plan and the Bechtel Foundation since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987. The Advisor also provides investment advisory services regarding asset allocation, investment manager selection and portfolio diversification to a number of large Bechtel-related investors. The Investment Company is one of its clients. As compensation for its services to the Fund, the Advisor receives from the Fund an advisory fee, computed daily and paid monthly, of 1.00% per annum of the Fund's average net assets. This advisory fee is higher than for most mutual funds. The Fund also pays the Advisor a 12b-1 fee of 0.25% per annum, subject to the terms of a plan of distribution more fully described under "Plan of Distribution." In addition to the fees described above, the Fund pays its own operating expenses including, but not limited to: taxes, if any; brokerage and commission expenses, if any; interest charges on any borrowings; transfer agent, administrator, custodian, legal and auditing fees; shareholder servicing fees including fees to third-party servicing agents; fees and expenses of Directors who are not interested persons of the Advisor or the Sub-Advisor; costs and expenses of calculating daily net asset value; costs and expenses of accounting, bookkeeping and recordkeeping required under the 1940 Act; insurance premiums; trade association dues; fees and expenses of registering and maintaining registration of shares under federal and applicable state securities laws; all costs associated with shareholders' meetings and the preparation and dissemination of proxy materials, except for meetings called solely for the benefit of the Advisor of its affiliates; printing and mailing prospectuses, statements of additional information and reports to shareholders; and other expenses relating to the Fund's operations, plus any extraordinary and non-recurring expenses that are not expressly assumed by the Advisor. The Advisor anticipates waiving fees and reimbursing the Fund for other operating expenses in order to limit total operating expenses to 1.50% of average daily net assets. To the extent management fees are waived and/or other expenses are reimbursed by the Advisor, the Advisor may elect to recapture such amounts if it requests reimbursement within three years of the year in which the waiver and/or reimbursement is made, and the Board of Directors approves the reimbursement, and the Fund is able to make reimbursement and still stay within the then current operating expense limitation. Kensington Investment Group is an SEC-registered investment advisor that specializes in the management of both publicly traded and non-traded real estate securities portfolios. Kensington was founded in 1993 by principals who have been active in real estate securities research, trading and portfolio management since 1985. Kensington currently manages over $70 million in private funds, which have invested in traded real estate investment trusts, real estate related operating companies and existing real estate limited partnerships. John P. Kramer, President and founding partner of Kensington Investment Group, is involved in all aspects of the organization and is primarily responsible for directing the firm's investment policies. Paul Gray, Vice President and Portfolio Manager is responsible for securities investment decisions on behalf of Kensington's portfolios. The Kensington Investment Group accounts were not registered under the Investment Company Act of 1940 and therefore were not subject to certain investment restrictions nor specific tax restrictions imposed by that Act or Subchapter M of the Internal Revenue Code. If the accounts had been registered under the 1940 Act, their performance may have been different. Total return for the Kensington managed accounts in the following table was calculated using a methodology that incorporates a time-weighted total rate of return concept and is adjusted for cash flows. This methodology of calculating total return differs from the methodology required to be employed by a mutual fund in calculating total return, which is not time-weighted or dollar-weighted but simply measures the total return of an investment in the Fund over a period of time. The Advisor believes , however, that the performance would be substantially the same if it was recalculated in accordance with mutual fund performance rules. The following table depicts the Sub-Advisors performance on those portions of all separately managed accounts that contain publicly traded real estate securities and are managed with an objective, policies, and strategy substantially similar to that of the Fremont Real Estate Securities Fund. The performance information has been adjusted to back-out the Sub-Advisor's performance fee and all expenses and has been restated to reflect what the performance results would have been had the Sub-Advisor charged a fee equal to the Fund's anticipated gross expense ratio. This performance information is based on historical data and is not indicative of the future performance of the Fund. Average Annual Total Returns for Period Ended December 31, 1997 1 Year Inception to Date(1) Kensington Investment Group 29.14% 25.30% NAREIT Total Return Index(2) 18.86% 19.48% S&P 500 Index(3) 33.36% 27.79% (1) "Inception To Date" returns incorporates the period July 10, 1994 through December 31, 1997. (2) The National Association of Real Estate Investment Trusts Composite Total Return Index (NAREIT Index) is comprised of all publicly traded real estate investment trusts, dividends are reinvested monthly. Unlike Kensington Investment Group net returns, Index returns do not reflect any fees or expenses. (3) The Standard & Poors 500 Index is an unmanaged market value-weighted measure of 500 widely-held common stocks listed on the New York Stock Exchange, the American Stock Exchange, and the Over the Counter market. Index returns are computed monthly and assume reinvestment of dividends. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the Fund), the Advisor and the Sub-Advisor provides that the Sub-Advisor will manage the investment and reinvestment of the assets of the Fund and continually review and administer the Fund's investments. As compensation for its services, the Advisor (not the Fund) pays the Sub-Advisor a fee equal to .50% per annum of Fund assets managed by the Sub-Advisor. Both the Advisor and the Sub-Advisor will waive their fees for the first six months, and will then continue to waive fees until the earlier of December 31, 1998 or until assets in the Fund reach $25 million. The Portfolio Management Agreement with the Sub-Advisor may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by the Sub-Advisor. The Advisor will provide direct portfolio management services to the extent that the Sub-Advisor does not provide these services. The Investment Company and the Advisor have received from the Securities and Exchange Commission an order (the "SEC Order") exempting the Fund from the provisions of the 1940 Act that require the shareholders of the Fund to approve the Fund's sub-advisory agreement(s) and any amendments thereto. The SEC Order permits the Advisor to hire new sub-advisors, terminate sub-advisors, rehire existing sub-advisors whose agreements have been re-assigned (and, thus, automatically terminated), and modify sub-advisory agreements without the prior approval of shareholders. By eliminating shareholder approval in these matters, the Advisor would have greater flexibility in managing sub-advisors, and shareholders would save the considerable expense involved in holding shareholder meetings and soliciting proxies. 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. Investment Company Administration Corporation (the "Sub-Administrator"), pursuant to an administrative agreement with the Advisor, supervises the administration of the Investment Company and the Fund including, among other responsibilities, the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations. Certain officers of the Investment Company may be provided by the Administrator. For its services, the Administrator receives an annual fee from the Advisor (not the Fund) equal to 0.02% of the first $1 billion of the Investment Company's average daily net assets and 0.015% thereafter, subject to a minimum annual fee of $20,000 per Fund. For additional information, see "Investment Advisory and Other Services" in the Statement of Additional Information. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS The investment objective and policies of the Fund are stated below. The Fund is intended for long-term investors, not for those who may wish to redeem their shares after a short period of time. All investments, including mutual funds, have risks, and no investment is suitable for all investors. The Fremont Real Estate Securities Fund is not intended to constitute a complete investment program. Investors should consult with their financial and other advisors concerning the suitability of this investment for their own particular circumstances. There is no assurance that the Fund will achieve its investment objective. The investment objective of the Real Estate Securities Fund is to seek to provide total return through a combination of income and long-term capital appreciation by investing primarily in equity securities of companies in the real estate industry. Equity securities include common stocks (including shares or units in real estate investment trusts), rights or warrants to purchase common stocks, limited partnership interests in master limited partnerships, securities convertible into common stocks, and preferred stocks. Under normal market conditions, at least 65% of the Portfolio's total assets will be invested in equity securities of companies principally engaged in the real estate industry. 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 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. A substantial portion of the Fund's assets will be invested in securities of REITs. 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. REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority of their assets directly in real property, derive their income primarily from rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs, which invest the majority of their assets in real estate mortgages, derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs. 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 the 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, increase 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. Certain REITs have relatively small capitalization, which may tend to increase the volatility of the market price of securities issued by such REITs. 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, such prepayment may diminish the yield on securities issued by such mortgage REITs. In addition, mortgage REITs may be affected by the ability of borrowers to repay when due the debt extended by the REIT and equity REITs may be affected by the ability of tenants to pay rent. In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. The Fund is a non-diversified portfolio and is not limited by the 1940 Act in the proportion of its assets that may be invested in the obligations of a single issuer. The Fund, therefore, may invest a greater proportion of its assets in the securities of a smaller number of issuers and will be subject to a greater risk with respect to its portfolio securities. Any economic, regulatory, or political developments affecting the value of the securities held in the Fund could have a greater impact on the total value of the Fund's holdings than would be the case if the Fund were classified as diversified under the 1940 Act. Although the Fund invests primarily in common stocks, for liquidity purposes it will normally invest a portion of its assets in high quality debt securities and money market instruments with remaining maturities of one year or less, including repurchase agreements. Whenever in the judgment of the Advisor or Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in these instruments. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. The Fund may also hold other types of securities from time to time, including convertible and non-convertible bonds and preferred stocks, when the Advisor and Sub-Advisor believe that these investments offer opportunities for capital appreciation. Preferred stocks and bonds will be rated at the time of purchase in the top four categories of Moody's Investors Service, Inc. (Baa or higher) or Standard & Poor's Ratings Group (BBB or higher) or be of comparable quality as determined by the Advisor or Sub-Advisor. Bonds and preferred stocks in the lowest investment grade category (Baa or BBB) have speculative characteristics; as a result, changes in the economy or other circumstances are more likely to lead to a weakened capacity 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 to the Statement of Additional Information for a description of rating categories. GENERAL INVESTMENT POLICIES Money Market Instruments. The Fund may invest in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances, and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations, and governments; U.S. Government and agency securities; money market mutual funds; and other debt securities which are not specifically named but which meet the Fund's quality guidelines. The Fund also may enter into repurchase agreements as described below and may purchase variable and floating rate debt securities. At the time of purchase, short-term securities must be rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs") or by a single NRSRO in the case of a security rated by only one NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined by the Advisor or the Sub-Advisor. Generally, high quality short-term securities must be issued by an entity with an outstanding debt issue rated A or better by an NRSRO, or an entity of comparable quality as determined by the Advisor or the Sub-Advisor. Obligations of foreign banks, foreign corporations, and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A to the Statement of Additional Information for a description of rating categories. U.S. Government Securities. The Fund may invest in U.S. Government securities, which are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes, and bonds and Government National Mortgage Association certificates, are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Mortgage Association, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies or instrumentalities as described above in the future, other than as set forth above, because it is not obligated to do so by law. When-Issued Securities and Firm Commitment Agreements. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). The Fund will not purchase when-issued securities the value of which is greater than 5% of its net assets. Shares of Investment Companies. The Fund may invest some portion of its assets in shares of other no-load, open-end investment companies and closed-end investment companies to the extent that such investments may facilitate achieving the objective of the Fund or to the extent that they afford the primary or most practical means of access to a particular market or markets or they represent attractive investments in their own right. The percentage of Fund assets which may be so invested is not limited, provided that the Fund and its affiliates do not acquire more than 3% of the shares of any such investment company. The provisions of the 1940 Act may also impose certain restrictions on redemption of the Fund's shares in other investment companies. The Fund's purchase of shares of investment companies may result in the payment by a shareholder of duplicative management fees. The Advisor and/or Sub-Advisor will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. Repurchase Agreements. As part of its cash reserve position, the Fund may enter into repurchase agreements through which the Fund acquires a security (the "underlying security") from the seller, a well-established securities dealer or a bank that is a member of the Federal Reserve System. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest. Repurchase agreements are generally for a short period of time, often less than a week. The seller must maintain with the Fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Advisor and/or Sub-Advisor . The Fund will not enter into a repurchase agreement with a maturity of more than seven business days if, as a result, more than 15% of the value of its net assets would then be invested in such repurchase agreements. The Fund will enter into repurchase agreements only where (1) the underlying securities are issued or guaranteed by the U.S. Government, (2) the market value of the underlying security, including accrued interest, will be at all times equal to or in excess of the value of the repurchase agreement, and (3) payment for the underlying securities is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (1) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible reduced levels of income and lack of access to income during this period; and (3) expenses of enforcing the Fund's rights. Portfolio Turnover. The Fund expects to trade in securities for short-term gain whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take advantage of perceived anomalies occurring in general market, economic, or political conditions. Therefore, the Fund may have a higher portfolio turnover rate than that of some other investment companies, but it is anticipated that the annual portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by the Fund's average month-end long-term investments. High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions and other costs that the Fund will bear directly, and may result in the realization of net capital gains, which are generally taxable whether or not distributed to shareholders. Loans of Portfolio Securities. The Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors in an amount not exceeding 33 1/3% of its net assets. The borrower must maintain with the Fund's custodian collateral consisting of cash, cash equivalents, or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Fund will receive any interest or dividends paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The risks in lending portfolio securities, as with other extensions of secured credit, consist of, among other things, possible delay in receiving additional collateral or in the recovery of the securities, or possible loss of rights in the collateral should the borrower fail financially. The lender also may bear the risk of capital loss on investment of the cash collateral, which must be returned in full to the borrower when the loan is terminated. Loans will be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. Borrowing. The Fund may borrow from banks an amount not exceeding 30% of the value of its total assets for temporary or emergency purposes and 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 assets value would decline faster than otherwise would be the case. Restricted Securities. The Fund may purchase securities that are not registered ("restricted securities") under federal securities laws, but can be offered and sold to "qualified institutional buyers." However, the Fund will not invest more than 15% of its assets in illiquid investments, which includes repurchase agreements and fixed time deposits maturing in more than seven days, and securities that are not readily marketable and restricted securities, unless the Board of Directors determines, based upon a continuing review of the trading markets for the specific restricted security, that such restricted securities are liquid. The Board of Directors may adopt guidelines and delegate to the Advisor or Sub-Advisor the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. Warrants or Rights. Warrants or rights may be acquired by the Fund in connection with other securities or separately and provide the Fund with the right to purchase other securities of the issuer at a later date. It is the present intention of the Fund to limit its investments in warrants or rights, valued at the lower of cost or market, to no more than 5% of the value of its net assets. Warrants or rights acquired by the Fund in units or attached to securities will be deemed to be without value for purposes of this restriction. Options and Futures Contracts. When the Advisor and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such as buying puts, writing calls, and selling futures may be used to reduce market exposure. Because most stock index futures and options are based on broad stock market indices, their performance tends to track the performance of common stocks generally, which may or may not correspond to the types of securities in which the Fund invests. The Fund will segregate cash, U.S. Government securities, or other liquid securities (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under options and futures contracts to avoid leveraging. To reduce principal volatility, the Fund may also (1) enter into futures contracts -- contracts for the future delivery of debt securities, stock, stock index futures contracts with respect to the S&P 500 Index, small capitalization stock market indices, or other similar broad-based stock market indices, the premiums and initial margins of which are limited to 5% of the Fund's assets; and (2) purchase put and call options on portfolio securities, stock indices, or stock index futures contracts--the premiums of which are limited to 5% of the Fund's assets. The Fund may write put and call options. It will only do so, however, by writing covered put or call options, and the aggregate value of the securities underlying put options, as of the date of sale of the options, will not exceed 50% of the net assets of the Fund. The Fund will segregate cash, cash equivalents, or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contacts. Options and futures can be volatile investments. If the Advisor and/or Sub-Advisor applies a hedge at an inappropriate time or evaluates market conditions incorrectly, options and futures strategies may lower the Fund's return. The Fund could also experience a loss if the prices of its options or futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. Although these investment practices will be used primarily to generate income or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: futures contracts -- no assurance that closing purchase transactions will be available at favorable prices, possible reduction of the Fund's income due to the use of hedging, possible reduction in value of both the securities hedged and the hedging instrument, possible loss in excess of the initial margin payment; options and futures contracts -- imperfect correlation between the contract and the underlying security, commodity, or index and unsuccessful hedging transactions due to incorrect forecasts of market trends; writing covered call options --inability to effect closing transactions at favorable prices and inability to participate in the appreciation of the underlying securities above the exercise price and premium received; and purchasing or selling put and call options -- possible loss of the entire premium. A more thorough description of these investment practices and their associated risks is contained in the Statement of Addition Information. Investment Restrictions. The Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions and the Fund's investment objective cannot be changed without the approval of shareholders of the Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information, however, can be changed by the Board of Directors without shareholder approval. INVESTMENT RESULTS The Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature, or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future performance. The investment return on and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund may calculate performance on an average annual total return basis for 1-, 5-, and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced, including reinvested income dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending redeemable values as determined above. The Fund's investment results will vary from time to time depending upon, among other things, economic conditions, market conditions, the composition of the Fund's portfolio, and operating expenses of the Fund, so that any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs, or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing the Fund's investment results with those published for other investment companies, other investment vehicles, and unmanaged indices. The comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Fund may also be mentioned in newspapers, magazines, or other media from time to time. The Fund assumes no responsibility for the accuracy of such data. The Fund's results also should be considered relative to the risks associated with the Fund's investment objective and policies. See "Investment Results" in the Statement of Additional Information. Additional performance information regarding the Fund will be included in its annual report, which will be mailed to shareholders without charge upon request. HOW TO INVEST The Fund will be closed to new shareholders whenever the Fund's market capitalization exceeds 3/10 of 1% of the market capitalization, recalculated quarterly, of the REITs which comprise the "ALL REITS Index" as published by the National Association of Real Estate Investment Trusts ("NAREIT"). As of January 31, 1998, the NAREIT Index showed a market capitalization of $146.734 billion for all REITs. The shares of the Fund may be purchased through the Transfer Agent by submitting payment by check, bank wire, or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Fund. All orders for the purchase of shares are subject to acceptance or rejection by the Fund. Purchases of shares are made at the current public offering price next determined after the purchase order is received by the Transfer Agent or by a selling agent of the Fund. A minimum initial investment of $2,000 is required to open a shareholder account, except for retirement plans such as Individual Retirement Accounts (IRAs) and Keogh Plans. Retirement plans are subject to a $1,000 minimum initial investment. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan and may be waived in other instances at the sole discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent investment in the Fund must be $100 or more except in the case of retirement plans or Automatic Investment Plans. There is a minimum continuing balance of $1,500 required for non-retirement accounts (calculated on the basis of original investment value). All investments not meeting the minimum will be returned. In some cases, the minimum balance requirement may be waived at the sole discretion of the Advisor. All purchases made by check should be in U.S. dollars and be made payable to the appropriate Fremont Fund. Third party checks, credit cards, and cash will not be accepted. All investment checks are subject to a 10-day holding period. Investors wishing to open a new account by bank wire must call the Transfer Agent at 800-548-4539 to obtain an account number and detailed wire instructions. All bank wire investments received before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be credited the same day. Otherwise, bank wire investments will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. Shares of the Fund may also be purchased through broker-dealers or other financial intermediaries who have made appropriate arrangements with the Fund. Such agents are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased for their customers pursuant to such orders. These agents may charge a reasonable transaction fee to their customers. In some instances, all or a portion of the transaction fee or other selling charge may be paid by the Advisor. To the extent these agents perform shareholder servicing activities for the Fund, they may receive fees from the Fund or the Advisor for such services. From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor for such activities. As a condition of this offering, if an order to purchase shares is canceled due to nonpayment (for example, a check returned for "insufficient funds"), the person who placed the order must reimburse the Fund for any loss incurred by reason of such cancellation. For more information, see "Other Investment and Redemption Services" in the Statement of Additional Information. First Fund Distributors, Inc., 4455 Camelback Road, Suite 261E, Phoenix, Arizona, 85018, is the principal underwriter for the Fund. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES Statements and Reports. When a shareholder makes an initial investment in the Fund, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Fund will receive statements as of the end of March, June, September, and December. Shares are issued only in book-entry form (without certificates). The fiscal year of the Fund ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of the Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to the Fund's shareholders after the end of the calendar year on Form 1099-DIV. See "Dividends, Distributions and Federal Income Taxation" for further information. Exchanges Between Funds. Shares of one Fremont Fund may be exchanged for shares of another Fremont Fund at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund that are offered for sale in your state of residence at the time of exchange. It is required that (1) all shares in one Fund must be exchanged or (2) the remaining balance must be at least $1,500. This minimum balance requirement may be waived at the sole discretion of the Advisor. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes, except in the case of tax-deferred retirement accounts or other tax-exempt shareholders that have not borrowed to acquire the shares exchanged. Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions, and exchanges of shares should be made for investment purposes only. A pattern of frequent exchanges, purchases, and sales is can be limited at the discretion of the Board of Directors, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from a shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. Telephone Exchange Privilege. An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Fund. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. Autobuy Privilege. The autobuy privilege allows shareholders to purchase subsequent shares by moving money directly from their checking account to a Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not be added to an account without written authorization from the shareholder. The Autobuy privilege will be automatically added to an account when the shareholder chooses any type of ACH privilege. A shareholder may then purchase additional shares in an existing account by calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount wanting to be invested. The investment will automatically be processed through the Automatic Clearing House (ACH) system. There is no fee for this option. If the privilege was not established at the time the account was opened, the shareholder must complete the appropriate form. The form is available on request. Automatic Investment Plan. A shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the shareholder's bank checking, savings, negotiable on withdrawal (NOW), or similar account, with the proceeds to be used to purchase shares of the Fund. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan. The amount of the monthly investment must be at least $50, and is not otherwise subject to the $100 minimum for subsequent investments. If the purchase falls on a weekend or holiday, the purchase will be made on the previous business day. Shareholders should note that if there is an Automatic Investment Plan established for an account and the entire account is exchanged into another Fund, the Automatic Investment Plan must be renewed by the shareholder to the Transfer Agent. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is canceled due to nonpayment (for example, "insufficient funds"), the shareholder will be responsible for reimbursing the Fund for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available on request. HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $10 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Shares are redeemed at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $10 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent or other Fund agent authorized to accept orders before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see "Signature Guarantee" below). Redemptions from retirement accounts require a written request, with a signature guarantee, unless authorized under the Automatic Withdrawal Plan. Call the Transfer Agent for specific instructions on redemptions. For written redemption requests for an amount greater than $25,000, or a redemption request that directs proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee" below). Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less that the amount paid for them. Redemption of shares by exchanges, transfers and redemptions under an Automatic Withdrawal Plan may result in taxable capital gains or losses. Telephone Redemption Privilege. An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 800-548-4539. (The Telephone Redemption Privilege is not available for IRA or other retirement accounts.) Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, the Transfer Agent, nor their respective affiliates will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost, or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. Automatic Withdrawal Plan. A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions by check will be made on the 15th and/or the last business day of the month. Redemptions made by electronic transfer will be made on any date the shareholder chooses. Shareholders may also request automatic exchanges and transfers of a specified dollar amount. Exchanges and transfers will be made on any date the shareholder chooses. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Automatic redemptions should not reduce the account below the minimum balance required (currently $1,500). If the redemption date falls on a weekend or holiday, the redemption will be made on the previous business day. Shareholders may terminate the Automatic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Funds, shareholders must specify if they desire the automatic withdrawal option to be transferred to a new account opened by the exchange. As an account balance declines to the minimum permitted, the shareholder must advise the Transfer Agent if the automatic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is an Automatic Withdrawal Plan established for an account and the entire account is exchanged into another Fremont Fund, the automatic withdrawal option must be renewed by the shareholder to the Transfer Agent. A shareholder wishing to initiate automatic redemptions must complete an Automatic Withdrawal Plan form available from the Transfer Agent. Signature Guarantee. To better protect the Fund and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies, and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. Other Important Redemption Information. A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. Payment in redemption of shares is normally made within three business days after receipt by the Transfer Agent of a request in proper form, provided that payment in redemption of shares purchased by check or draft will be effected only after such check or draft has been collected. Although it is anticipated that this process will be completed in less time, it may take up to 15 days. Redemption proceeds will not be delayed when shares have been paid for by bank wire or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven calendar days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. The Fund reserves the right to redeem mandatorily the shares in a shareholder's account (other than a retirement plan account) if the balance is reduced to less than $1,500 in net asset value through redemptions or other action by the shareholder. Notice will be given to the shareholder at least 30 days prior to the date fixed for such redemption, during which time the shareholder may increase its holdings to an aggregate amount of $1,500 or more (with a minimum purchase of $100 or more.) This minimum balance may be waived at the sole descretion of the Advisor. Redemption in Kind. The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. Transfer Agent. The Advisor is the transfer agent of the Fund an has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. RETIREMENT PLANS Shares of the Fund may be purchased in connection with various tax-deferred retirement plans. These include Individual Retirement Accounts (IRAs); SEP-IRAs; SIMPLE IRAs; Roth IRAs; corporate pension and profit-sharing plans; and Section 403(b) Plans, which are deferred compensation arrangements for employees of public schools and certain charitable organizations. Forms for establishing IRAs, SEP-IRAs, SIMPLE IRAs, Roth IRAs, and Qualified Retirement Plans are available through the Investment Company, as are forms for corporate Pension and Profit-Sharing plans. Please contact the Investment Company for more information about establishing these accounts. In accordance with industry practice, there may be an annual account charge for participation in these plans. Information regarding these charges is available from the Investment Company. Retirement plan participants may receive additional services related to their plan at no extra cost to any shareholder. DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION The Fund intends to qualify and elect, and to continue to qualify, to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). For any tax year in which the Fund so qualifies and meets distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires a Fund, among other things, to diversify its investments so that, at the end of each fiscal quarter, (1) at least 50% of the market value of the Fund's assets is represented by cash, U.S. government securities, securities of other regulated investment companies, and other securities, limited, in respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. The Fund intends to distribute substantially all of its net investment income in October and December or January. The Fund intends to distribute substantially all of its net realized capital gains, if any, at the end of the calendar year. Net investment income and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All dividends and distributions are taxable to a shareholder (except tax-exempt shareholders who have not borrowed to acquire their shares) whether or not they are reinvested in shares of the Fund. Any long-term or mid-term capital gains distributions are taxable to shareholders as long-term or mid-term capital gains, respectively, regardless of how long shareholders have held Fund shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months, and 20% with respect to assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Shareholders may elect: o to have all dividends and capital gain distributions automatically reinvested in additional shares; o to receive the income dividends and short-term capital gains distributions in cash and accept the long-term capital gains distributions in additional shares; o to receive all distributions of income dividends and capital gains in cash; or o to invest all dividend and capital gain distributions in another Fremont Fund owned through an identically registered account. Automatic reinvestments will be at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gain distributions will be automatically reinvested. These elections may be changed by the shareholder at any time but, to be effective for a particular dividend or capital gain distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in October, November, or December by the Fund and paid in January are taxable as if paid in December. (The Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year.) Because REITs invested in by the Fund do not provide complete information about the taxability of their distributions until after the calendar year end, Fremont Advisors may not be able to determine how much of the Fund's distribution is taxable to shareholders until after the January 31 deadline for issuing Form 1099-DIV. As a result, the Fund may request permission each year from the Internal Revenue Service for an extension of time to issue Form 1099-DIV to February 28. Distributions are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) remains the same. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the Fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In the case of corporate shareholders, certain dividends may be eligible for the dividends received deduction, except that the amount eligible for the deduction is limited to the amount of qualifying dividends received by the Fund. Dividends received from REITs generally do not constitute qualifying dividends. A corporation's dividends-received deduction will be disallowed unless the corporation holds shares in the Fund at least 46 days. Furthermore, the dividends-received deduction will be disallowed to the extent a corporation's investment in shares of the Fund is financed with indebtedness. Because of the nature of REIT investments, REITs may generate significant non cash deductions (i.e. depreciation on real estate holdings) while having a greater cash flow to distribute to its shareholders, If a REIT distributes more cash than it has taxable income, a "return on capital" results. A "return of capital" represents a portion of shareholder's original investment that is generally non taxable when distributed (returned) to the investor. If you do not reinvest distributions, the cost basis of your shares will be decreased by the amount of return capital, which may result in a larger capital gain when you sell your shares. Although a return of capital is generally non taxable to you upon distribution, it would be taxable to you as a capital gain if your cost basis in the shares is reduced to zero. This could occur if you do not reinvest distributions and the returns of capital are significant. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Fund that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Fund to withhold 31% from any dividends and/or redemption proceeds to the shareholder. Amounts withheld are applied to the shareholder's federal tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Fund to withhold 30%, or the applicable tax treaty rate, from ordinary dividends (which includes short-term capital gains) paid to certain nonresident alien, non-U.S. partnership, and non-U.S. corporation shareholder accounts. Although not expected, under certain circumstances the Fund may be required to withhold additional amounts of federal income tax on redemptions of shares by non-U.S. shareholders. The foregoing is a brief discussion of certain federal income tax considerations. Please see "Taxes - Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of an investment in the Fund. PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan of distribution (the "Plan") under which the Fund may directly compensate the Advisor, paying for certain distribution-related expenses, including payments to securities dealers and others (including the Underwriter) who are engaged in promoting the sale of shares of the Fund and who may be advising investors regarding the purchase, sale, or retention of such shares; expenses of maintaining personnel who engage in or support distribution of shares or who render shareholder support services not otherwise provided by the Advisor or the Transfer Agent; expenses of formulating and implementing marketing and promotional activities, including direct mail promotions and mass media advertising; expenses of preparing, printing, and distributing sales literature, prospectuses, statements of additional information, and reports for recipients other than existing shareholders of the Fund; expenses of obtaining such information, analyses, and reports with respect to marketing and promotional activities as the Investment Company may, from time to time, deem advisable; and other expenses related to the distribution of the Fund's shares. The annual limitation for compensation to the Advisor pursuant to the Plan is .25% of the Fund's average daily net assets. All payments will be reviewed by the Fund's Board of Directors. However, it is possible that in certain periods, the amount of the Advisor's compensation could exceed the Advisor's distribution expenses resulting in a profit to the Advisor. If the Plan is terminated by the Fund in accordance with its terms, the Fund will not be required to make any payments for expenses incurred by the Advisor after the date the Plan terminates. CALCULATION OF NET ASSET VALUE AND PUBLIC OFFERING PRICE The Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. The Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange, or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open. Investments, including options, are stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the last reported bid and asked prices or at fair value as determined by the Board of Directors. Short-term notes and similar securities are included in investments at amortized cost, which approximates value. Securities which are primarily traded on foreign exchanges are generally valued at the preceding closing values of such securities on their respective exchanges or the most recent price available where no closing value is availableThe Fund's portfolio may include securities which trade primarily on non-U.S. exchanges or otherwise in non-U.S. markets. Because of time zone differences, the prices of these securities, as used for net asset value calculations, may be established substantially in advance of the close of the New York Stock Exchange. Foreign securities may also trade on days when the New York Stock Exchange is closed (such as a Saturday). The net asset value and public offering price of the Fund, to the extent that it holds securities valued on foreign markets, may vary during periods when the New York Stock Exchange is closed. As a result, the value of the Fund's portfolio may be affected significantly by such trading on days when a shareholder has no access to the Fund. For further information, see "How to Invest," "How to Redeem Shares," and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the Statement of Additional Information. The net asset value and public offering price of the Fund will be determined as of the close of the regular session of the New York Stock Exchange ("NYSE"). The shares of the Fund are offered at net asset value without a sales charge. Purchase, redemption, and exchange orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. EXECUTION OF PORTFOLIO TRANSACTIONS Orders for the Fund's portfolio securities transactions are placed by the Advisor or Sub-Advisor, as applicable. The Advisor and Sub-Advisor strive to obtain the best available prices in the Fund's portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical, and other information to the Fund, the Advisor or the Sub-Advisor, or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States and other countries and money market securities in which the Fund may invest are generally traded in the OTC markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures, currency, and options transactions. Commissions or discounts in foreign securities exchanges or OTC markets typically are fixed and generally are higher than those in U.S. securities exchanges or OTC markets. There is generally less government supervision and regulation of foreign exchanges and brokers than in the United States. Foreign security settlements may, in some instances, be subject to delays and related administrative uncertainties. Subject to the requirements of the 1940 Act and procedures adopted by the Board of Directors, the Fund may execute portfolio transactions through any broker or dealer and pay brokerage commissions to a broker which is an affiliated person of the Investment Company, the Advisor or the Sub-Advisor, or an affiliated person of such person. GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July 13, 1988, is a fully managed open-end investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by the Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that series, and is entitled to such dividends and distributions out of the income earned on the assets belonging to that series as may be declared at the discretion of the Board of Directors. Shares of a series when issued are fully paid and are non-assessable. The Board of Directors may, at its discretion, establish and issue shares of additional series of the Investment Company. Stephen D. Bechtel, Jr., and members of his family, including trusts for family members, due to their shareholdings, may be considered controlling persons of the Fund under applicable Securities and Exchange Commission regulations. TELEPHONE NUMBERS AND ADDRESSES To make an initial purchase: 1. By mail: Fremont Mutual Funds, Inc. c/o National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 Street address: 1004 Baltimore Avenue Kansas City, MO 64105 2. By wire: Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account number and detailed instructions. To make a subsequent purchase: Include shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and automatic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 Fremont Mutual Funds, Inc. Fremont Money Market Fund Fremont Bond Fund Fremont California Intermediate Tax-Free Fund Fremont Real Estate Securities Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont Select Fund Fremont U.S. Small Cap Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund Fremont Institutional U.S. Micro-Cap Fund For more information on the Fremont Mutual Funds please call 800-548-4539 or write to: Fremont Mutual Funds 50 Beale Street, Suite 100 San Francisco, CA 94105 Advisor/Transfer Agent Fremont Investment Advisors, Inc. 333 Market Street, Suite 2600 San Francisco, CA 94105 Sub-Transfer Agent Mailing Address: National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 800-548-4539 (press 2) Street Address: National Financial Data Services 1004 Baltimore Avenue Kansas City, MO 64105 Custodian The Northern Trust Company 50 South Lasalle Street Chicago, IL 60675 Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 Auditors Coopers & Lybrand, L.L.P. 333 Market Street San Francisco, CA 94105 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Funds or the Advisor. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. FREMONT MUTUAL FUNDS, INC. o International Growth Fund March 1, 1998 1 Table of Contents Item Page No. Summary of Fees and Expenses x Financial Highlights x The Advisor x Investment Objectives, Policies and Risk Considerations x General Investment Policies x Investment Results x How to Invest x Shareholder Account Services and Privileges x How to Redeem Shares x Retirement Plans x Dividends, Distributions and Federal Income Taxation x Calculation of Net Asset Value and Public Offering Price x Execution of Portfolio Transactions x General Information x Telephone Numbers and Addresses x 2 PROSPECTUS FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in the Fremont International Growth Fund (the "Fund"). FREMONT INTERNATIONAL GROWTH FUND seeks to achieve long-term growth of capital by investing primarily in equity securities of issuers domiciled outside the United States. There can be no assurance that the Fund will achieve its investment objective. The Fund is a diversified fund as defined by the Investment Company Act of 1940, as amended (the "1940 Act"). Shares of the Fund are offered without a sales charge. This Prospectus, which should be retained for future reference, sets forth concisely the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, California 94105. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated March 1, 1998. FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 800-548-4539. 3 SUMMARY OF FEES AND EXPENSES Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees(1) None Exchange Fee None Annual Fund Operating Expenses (as a percentage of average net assets) Management Fee 1.50%(2) 12b-1 Expense None Other Expenses after Reimbursement None ---- Total Fund Operating Expenses 1.50% ==== - -------------------------------------------------------------------------------- Example: You would pay the following total expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 Year 3 Years 5 Years 10 Years $15 $47 $82 $179 THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. The purpose of the above table is to give you information and assistance in understanding the various costs and expenses of the Fund that an investor may bear directly or indirectly. Other expenses include, but are not limited to, administrative and transfer agent fees paid to Fremont Investment Advisors, Inc., custody, legal and audit, costs of registration of fund shares under applicable laws, and costs of printing and distributing reports to shareholders. The percentages expressing annual fund operating expenses of the Fund are based on actual expenses incurred during the most recent fiscal year. See "The Advisor and the Fund." (1) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $10. See "How to Redeem Shares." (2) The Fund is obligated, under the terms of the management agreement, to pay the Advisor an annual management fee of 1.5% of average net assets. However, the Advisor is obligated to pay all of the Fund's other ordinary operating expenses. 4 FINANCIAL HIGHLIGHTS The following information has been audited by Coopers & Lybrand, L.L.P., independent accountants, whose unqualified opinion is included in the Fund's Annual Report. Further information about the Fund's performance is contained in the Annual Report, which is included in the Fund's Statement of Additional Information and which may be obtained without charge.
YEAR ENDED OCTOBER 31 PERIOD FROM March 1, 1994 to 1997 1996 1995 OCTOBER 31, 1994 SELECTED PER SHARE DATA for one share outstanding during the period NET ASSET VALUE, beginning of period $ 10.40 $ 9.72 $ 9.79 $ 9.57 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)(a) .02 (.02) .10 .02 Net realized and unrealized gain (loss) (.02) .71 (.09) .20 ------------ ------------ ------------ ------------ Total investment operations -- .69 .01 .22 ------------ ------------ ------------ ------------ LESS DISTRIBUTIONS From net investment income -- (.01) (.08) -- From net realized gains (.03) -- -- -- ------------ ------------ ------------ ------------ Total distributions (.03) (.010 (.08) -- ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 10.37 $ 10.40 $ 9.72 $ 9.79 ============ ============ ============ ============ TOTAL RETURN # (.01)% 7.07% .13% 2.30% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 38,643 $ 35,273 $ 32,156 $ 29,725 Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50%* Ratio of net investment income (loss) to average net assets .34% (.20)% 1.19% .35%* Portfolio turnover rate 56% 74% 96% -- Average commission rate paid(1) $ .0173 $ .0150 -- --
*Annualized (1) Disclosure not required for year prior to 1996. 5 THE ADVISOR AND THE FUND Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment company which under this Prospectus is offering shares in the Fremont International Growth Fund (the "Fund"). The Investment Company has other series offered under different prospectuses, and the Board of Directors of the Investment Company is permitted to create additional Funds at any time. The Fund has its own investment objective and policies and operates as a separate mutual fund. The management of the business and affairs of the Investment Company is the responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the "Advisor") provides the Fund with investment management and administrative services under an Investment Advisory and Administrative Agreement (the "Advisory Agreement") with the Investment Company. The Advisory Agreement provides that the Advisor shall furnish advice to the Fund with respect to its investments and shall, to the extent authorized by the Board of Directors, determine what securities shall be purchased or sold by the Fund. 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 its clients. Under the terms of the Advisory Agreement, the Fund pays the Advisor a fee of 1.50% per annum of the Fund's average net assets, computed daily and paid monthly. Under this Agreement the Advisor has agreed to bear all of the Fund's expenses, except extraordinary expenses (as designated by a majority of the Investment Company's disinterested directors) and interest, brokerage commissions and other transaction charges relating to the investing activities of the Fund. The portfolio manager for the Fund since September 1995 is Andrew L. Pang. o Andrew L. Pang is Vice President of the Advisor and a member of its Investment Committee and Equity Committee. Andrew received his degree in Finance from San Francisco State University and received an M.B.A. from Golden Gate University, San Francisco, California The Advisor currently provides direct portfolio management services to the Fund. In the future, the Advisor may propose to the nvestment Company that a 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. Investment Company Administration Corporation (the "Administrator"), pursuant to an administrative agreement with the Advisor, supervises the administration of the Fund including, among other responsibilities, the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations. Certain officers of the Investment Company may be provided by the Administrator. For its services, the Administrator receives an annual fee from the Advisor (not the Fund) equal to 0.02% of the first $1 billion of the Investment company's average daily net assets and 0.015% thereafter, subject to a minimum annual fee of $20,000 per Fund. For additional information about the Advisor, see "Investment Advisory and Other Services" in the Statement of Additional Information. 6 INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS The investment objective and policies of the Fund are stated below. The Fund is intended for long-term investors, not for those who may wish to redeem their shares after a short period of time. All investments, including mutual funds, have risks, and no investment is suitable for all investors. Investors should consult with their financial and other advisors concerning the suitability of this investment for their own particular circumstances. Accordingly, there is no assurance that any Fund will achieve its investment objective. The Fund seeks to achieve long-term growth of capital by investing primarily in equity securities of issuers domiciled outside the United States. The Fund is designed for investors who wish to accept the risks entailed in investments in foreign securities and securities denominated in various currencies. See "General Investment Policies -- Risk Factors and Special Considerations for International Investing." Under normal market conditions, at least 90% of the Fund's assets will be invested in equity securities of issuers domiciled outside the United States. The Fund will be invested in a minimum of three countries excluding the United States. The Fund's portfolio of equity securities consists of common and preferred stock, warrants and debt securities convertible into common stock. Included in this 90% total, up to 5% of the Fund's assets may be invested in rights or warrants to purchase equity securities. For defensive purposes, the Fund may temporarily have less than 90% of its assets invested in equity securities domiciled outside the United States. The Fund's management anticipates that, from time to time, the Fund may have more than 25% of its assets invested in securities of companies domiciled in the countries of Japan, the United Kingdom and/or Germany. These are among the leading industrial economies outside the United States and the values of their stock markets account for a significant portion of the value of international markets. In addition to investing directly in equity securities, the Fund may invest in instruments such as sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities markets. The Fund may invest up to 50% of its total assets in equity securities of smaller to medium sized growth companies in both developed and emerging world markets. For the developed markets, such investments include equity securities of companies with market capitalizations of over $200 million but less than $2 billion. However, market capitalizations of smaller to medium sized company equity securities in emerging markets are significantly smaller and currently range between $25 million and $200 million. Emerging growth companies are small- and medium-sized companies that the Advisor believes often have a potential for earnings growth over time that is above the growth rate of more established companies or are early in their life cycles and have the potential to become major enterprises. 7 As used in this Prospectus, international emerging markets are countries categorized as emerging markets by the International Finance Corporation, the World Bank's private sector division. Such countries currently include but are not limited to Thailand, Indonesia, the Philippines, South Korea, Taiwan and certain Latin American countries. Such markets tend to be in the less economically developed regions of the world. General characteristics of emerging market countries also include lower degrees of political stability, a high demand for capital investment, a high dependence on export markets for their major industries, a need to develop basic economic infrastructures and rapid economic growth. The Advisor believes that investments in equity securities of companies in international emerging markets offer the opportunity for significant long-term investment returns. However, these investments involve certain risks, as discussed below and in "General Investment Policies - Risk Factors and Special Considerations for International Investing." Investing in emerging growth companies involves certain special risks. Emerging growth companies may have limited product lines, markets, or financial resources, and their managements may be dependent on a limited number of key individuals. The securities of emerging growth companies may have limited market liquidity and may be subject to more abrupt or erratic market movements than securities of larger, more established companies or the market averages in general. Whenever in the judgment of the Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in U.S. dollar-denominated or foreign currency denominated cash or in high-quality debt securities with remaining maturities of one year or less. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. For liquidity purposes, the Fund may normally also invest up to 10% of its assets in U.S. dollar-denominated or foreign currency-denominated cash or in high quality debt securities with remaining maturities of one year or less. Emphasis is placed on identifying securities of companies believed to be undervalued in the marketplace in relation to factors such as the company's revenues, earnings, assets and long-term competitive positions which over time will enhance the equity value of the company. The Fund will not concentrate its investments in companies of a particular asset size, although, from time to time, it may emphasize investments in companies within particular industries, and will select its investments based on the characteristics of the particular markets and economies of the countries in which it invests. In selecting portfolio investments, a company's growth prospects will be considered, including the potential for superior appreciation due to growth in earnings, relative valuation of its securities, and any risks associated with such investment; the industry in which the company operates, with a view to identification of international developments within industries, international investment trends, and social, economic or political factors affecting a particular industry; the country in which the company is based, as well as historical and anticipated foreign currency exchange rate fluctuations; and the feasibility of gaining access to the securities market in a country and of implementing the necessary custodial arrangements. The investment program of the Fund has been developed in the belief that research-based investment in a portfolio of equity securities of companies in a number of foreign countries will give shareholders a chance to participate on an international basis in the opportunities available in the growing foreign securities markets. 8 Investment will be made in those countries where the Advisor believes that economic and political factors, including currency movements, are likely to produce above average long-term investment returns. There is no limitation on the percentage of the Fund's assets that may be invested at any one time in one or more countries except that the Fund will normally be invested in at least three countries outside the United States. The Fund may enter into forward currency contracts and currency futures contracts, and may purchase put and call options on currencies. See "General Investment Policies -- Forward Currency, Futures and Options Transactions." GENERAL INVESTMENT POLICIES Money Market Instruments. The Fund may invest in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations and governments; U.S. Government and agency securities; money market mutual funds; and other debt securities which are not specifically named but which meet the Fund's quality guidelines. The Fund also may enter into repurchase agreements as described below and may purchase variable and floating rate debt securities. At the time of purchase, short-term securities must be rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs") or by a single NRSRO in the case of a security rated by only one NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined by the Advisor or the Sub-Advisor. Generally, high quality short-term securities must be issued by an entity with an outstanding debt issue rated A or better by a NRSRO, or an entity of comparable quality as determined by the Advisor or the Sub-Advisor. Obligations of foreign banks, foreign corporations and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A to the Statement of Additional information for a description of rating categories. U.S. Government Securities. The Fund may invest in U.S. Government securities, which are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds and Government National Mortgage Association ("GNMA") certificates, are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies or instrumentalities as described above in the future, other than as set forth above, because it is not obligated to do so by law. When-Issued Securities and Firm Commitment Agreements. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). The 9 Fund (except for the Bond Fund) will not purchase securities the value of which is greater than 5% of its net assets on a when-issued basis. The Fund, as purchaser, assumes the risk of any decline in value of the security beginning on the date of the agreement or purchase, and no interest accrues to the Fund until it accepts delivery of the security. The Fund will not use such transactions for leveraging purposes, and accordingly will segregate cash, cash equivalents or liquid securities or hold a covered position in an amount sufficient to meet its payment obligations thereunder. There is always a risk that the securities may not be delivered and that the Fund may incur a loss or will have lost the opportunity to invest the amount set aside for such transaction in the segregated asset account. Settlements in the ordinary course of business, which may take substantially more than three business days for non-U.S. securities, are not treated by the Fund as when-issued or forward commitment transactions and, accordingly, are not subject to the foregoing limitations, even though some of the risks described above may be present in such transactions. Shares of Investment Companies. The Fund may invest some portion of its assets in shares of other no-load, open-end investment companies and closed-end investment companies to the extent that 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 will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above, the Fund has the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. Repurchase Agreements. As part of its cash reserve position, the Fund may enter into repurchase agreements through which the Fund acquires a security (the "underlying security") from the seller, a well-established securities dealer or 10 a bank that is a member of the Federal Reserve System. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest. Repurchase agreements are generally for a short period of time, often less than a week. The seller must maintain with the Fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Advisor. 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. The Fund will only enter into repurchase agreements where (1) the underlying securities are issued or guaranteed by the U.S. Government, (2) the market value of the underlying security, including accrued interest, will be at all times equal to or in excess of the value of the repurchase agreement, and (3) payment for the underlying securities is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (1) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible subnormal levels of income and lack of access to income during this period; and (3) expenses of enforcing the Fund's rights. Portfolio Turnover. The Fund expects to trade in securities for short-term gain whenever deemed advisable by the Advisor in order to take advantage of anomalies occurring in general market, economic or political conditions. Therefore, the Fund may have a higher portfolio turnover rate than that of some other investment companies, but it is anticipated that the annual portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by the Fund's average month-end long-term investments. High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions and other costs that the Fund will bear directly, and may result in the realization of net capital gains, which are generally taxable whether or not distributed to shareholders. Loans of Portfolio Securities. The Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors in an amount not exceeding 331/3% 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 to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. Borrowing. The Fund may borrow from banks an amount not exceeding 30% of the value of its total assets for temporary or emergency purposes and enter into reverse repurchase agreements. If the income and gains on securities purchased 11 with the proceeds of borrowings or reverse repurchase agreements exceed the cost of such borrowings or agreements, the Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the cost, earnings or net asset value would decline faster than otherwise would be the case. Restricted Securities. The Fund may purchase securities that are not registered ("restricted securities") under federal securities laws, but can be offered and sold to "qualified institutional buyers." However, the Fund will not invest more than 15% of its assets in illiquid investments, which includes repurchase agreements and fixed time deposits maturing in more than seven days, and securities that are not readily marketable and restricted securities, unless the Board of Directors determines, based upon a continuing review of the trading markets for the specific restricted security, that such restricted securities are liquid. The Board of Directors may adopt guidelines and delegate to the Advisor the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. Warrants or Rights. Warrants or rights may be acquired by the Fund in connection with other securities or separately and provide the Fund with the right to purchase other securities of the issuer at a later date. It is the present intention of the Fund to limit its investments in warrants or rights, valued at the lower of cost or market, to no more than 5% of the value of its net assets. Warrants or rights acquired by the Fund in units or attached to securities will be deemed to be without value for purposes of this restriction. Options and Futures Contracts. When the Fund is not fully invested, strategies such as buying calls, writing puts, and buying futures may be used to increase its exposure to price changes in stocks or debt securities. When the Advisor wishes to hedge against market fluctuations, strategies such as buying puts, writing calls, and selling futures may be used to reduce market exposure. Because most stock index futures and options are based on broad stock market indexes, their performance tends to track the performance of common stocks generally - which may or may not correspond to the types of securities in which the Fund invest. The Fund will maintain segregated accounts consisting of cash, U.S. Government securities or other liquid securities (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under options and futures contracts to avoid leveraging. In seeking appreciation or to reduce principal volatility, the Fund may also (1) enter into futures contracts -- contracts for the future delivery of debt securities, stock, stock index futures contracts with respect to the S&P 500 Index, small capitalization stock market indices or other similar broad-based stock market indices, the initial margins of which are limited to 5% of the Fund's assets; and (2) purchase put and call options on portfolio securities, stock indices or stock index futures contracts -- the premiums of which are limited to 5% of the Fund's assets. The Fund may write put and call options. It will only do so by writing covered put or call options, and the aggregate value of the securities underlying put options, as of the date of sale of the options, will not exceed 50% of the net assets of the Fund. 12 The Fund will set aside cash, cash equivalents, or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contracts. Options and futures can be volatile investments. If the Advisor applies a hedge at an inappropriate time or evaluates market conditions incorrectly, options and futures strategies may lower the Fund's return. The Fund could also experience a loss if the prices of its options or futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. Although these investment practices will be used primarily to generate income or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: futures contracts -- no assurance that closing purchase transactions will be available at favorable prices, possible reduction of the Fund's income due to the use of hedging, the possible reduction in value of both the securities hedged and the hedging instrument, and possible loss in excess of the initial margin payment; options and futures contracts -- imperfect correlation between the contract and the underlying security, commodity or index and unsuccessful hedging transactions due to incorrect forecasts of market trends; writing covered call options -- the inability to effect closing transactions at favorable prices and the inability to participate in the appreciation of the underlying securities above the exercise price and premium received; and purchasing or selling put and call options -- possible loss of the entire premium. A more thorough description of these investment practices and their associated risks is contained in the Statement of Additional Information. Forward Currency, Futures and Options Transactions. The Fund may enter into forward currency contracts and currency futures contracts and may purchase put or call options on currencies (each such arrangement sometimes referred to as a "currency contract"). Forward contracts typically will involve the purchase or sale of a foreign currency against the dollar. These techniques are designed primarily to hedge against future changes in currency prices which might adversely affect the value of the Fund's portfolio securities. The Fund may attempt to accomplish objectives similar to those involved in its use of forward currency contracts by purchasing put or call options on currencies or currency futures. For a more detailed description of such arrangements, see the Statement of Additional Information. The Fund may enter into currency contracts either with respect to specific transactions or with respect to the Fund's portfolio positions. For example, when the Advisor anticipates making a purchase or sale of a security, the Fund may enter into a currency contract in order to set the rate (either relative to the U.S. dollar or another currency) at which a currency exchange transaction related to the purchase or sale will be made. Further, when it is believed that a particular currency may decline compared to the U.S. dollar or another currency, the Fund may enter into a currency contract to sell the currency the Advisor expects to decline in the amount approximating the value of some or all of the Fund's portfolio securities denominated in that currency or related currencies that the Advisor feels demonstrate a correlation in exchange rate movements. The practice of using correlated currencies is known as "cross-hedging." When the Advisor believes that the U.S. dollar may suffer a substantial decline against a foreign currency or currencies, the Fund may enter 13 into a currency contract to buy a foreign currency for a fixed dollar amount. By entering into such transactions, however, the Fund may be required to forego the benefits of advantageous changes in exchange rates. Currency contracts generally are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, such contracts operate in a manner distinct from exchange-traded instruments, and their use involves certain risks beyond those associated with transactions in other futures contracts. While the Fund enters into forward currency contracts and purchases currency options or currency futures to reduce the risks of fluctuations in exchange rates, these contracts cannot eliminate all such risks and do not eliminate fluctuations in the prices of the Fund's portfolio securities. Purchasing (selling) a currency forward limits the Fund's exposure to risk of loss from a rise (decline) in the dollar value of the currency, but also limits its potential for gain from a decline (rise) in the currency's dollar value. While purchasing options can protect the Fund against certain exchange rate fluctuations, the Fund is subject to the loss of its entire premium payment where the option is allowed to expire without exercise. To avoid leverage in connection with forward currency transactions, the Fund will set aside with its Custodian cash, cash equivalents or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding contracts. To the extent the Fund enters into over-the-counter options, the options and the assets so set aside to cover such options are considered illiquid assets and, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. In addition, premiums paid for currency options held by the Fund may not exceed 5% of the Fund's net assets. Although the Fund will enter into currency contracts solely for hedging purposes, their use does involve certain risks. For example, there can be no assurance that a liquid secondary market will exist for any currency contract purchased or sold, and the Fund may be required to maintain a position until exercise or expiration, which could result in losses. Currency contracts may be entered into on United States exchanges regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission as well as in the over-the-counter market and on foreign exchanges. Swap Agreements. The Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level; and 14 interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding minimum or maximum levels. Whether the Fund's use of swap agreements will be successful in furthering its investment objective will depend on the Advisor's or Sub-Advisor's ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. The Fund's obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash, U.S. Government securities or other liquid securities to avoid any potential leveraging of the Fund's portfolio. Swap agreements having a term of greater than seven days are considered illiquid assets and the Fund's obligations under such agreements, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. Risk Factors and Special Considerations for International Investing. Investment in securities of foreign entities and securities denominated in foreign currencies involves risks typically not present to the same degree in domestic investments. Likewise, investment in ADRs and EDRs presents similar risks, even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social or economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its foreign investments, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. income taxes. See "Dividends, Distributions and Federal Income Taxation." There may be less publicly available information about foreign issuers or securities than about U.S. issuers or securities, and foreign issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of U.S. entities. With respect to unsponsored ADRs, these programs cover securities of companies which are not required to meet either the reporting or accounting standards of the United States. Many foreign financial markets, while generally growing in volume, continue to have substantially less volume than domestic markets, and securities of many foreign companies are less liquid and their prices are more volatile than are securities of comparable U.S. companies. Such markets may have longer settlement periods than markets in the United States. In addition, brokerage commissions, custodial services and other costs related to investment in foreign markets generally are more expensive than in the United States, particularly with respect to emerging markets. Such markets have different settlement and clearance procedures. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. The inability of the Fund to make intended securities purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result either in losses to the Fund due to subsequent declines in value of a portfolio security or, if the Fund had entered into a contract to sell the security, could result in possible liability to the purchaser. Settlement procedures in certain emerging markets also carry with them a heightened risk of loss due to the failure of the broker or other service provider to deliver cash or securities. 15 The risks of foreign investing are of greater concern in the case of investments in emerging markets which may exhibit greater price volatility, have less liquidity and have settlement arrangements which are less efficient than in developed markets. Furthermore, the economies of emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. These emerging market economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The value of the Fund's portfolio securities computed in U.S. dollars will vary with increases and decreases in the exchange rate between the currencies in which the Fund has invested and the U.S. dollar. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and net investment income and capital gains, if any, to be distributed in U.S. dollars to shareholders by the Fund. The rate of exchange between the U.S. dollar and other currencies is influenced by many factors, including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the price of oil, the pace of activity in the industrial countries, including the United States, and other economic and financial conditions affecting the world economy. The Fund will not invest in a foreign currency or in securities denominated in a foreign currency if such currency is not at the time of investment considered by the Advisor to be fully exchangeable into U.S. dollars without legal restriction. The Fund may purchase securities that are issued by the government or a corporation or financial institution of one nation but denominated in the currency of another nation. To the extent that the Fund invests in ADRs, the depository bank generally pays cash dividends in U.S. dollars regardless of the currency in which such dividends originally are paid by the issuer of the underlying security. The operating expense ratio of the Fund investing in foreign securities may be higher than that of an investment company investing exclusively in U.S. securities because certain expenses, such as custodial costs, may be higher. Several of the countries in which the Fund may invest restrict, to varying degrees, foreign investments in their securities markets. Governmental and private restrictions take a variety of forms, including (i) limitation on the amount of funds that may be invested into or repatriated from the country (including limitations on repatriation of investment income and capital gains), (ii) prohibitions or substantial restrictions on foreign investment in certain industries or market sectors, such as defense, energy and transportation, (iii) restrictions (whether contained in the charter of an individual company or mandated by the government) on the percentage of securities of a single issuer which may be owned by a foreign investor, (iv) limitations on the types of securities which a foreign investor may purchase and (v) restrictions on a 16 foreign investor's right to invest in companies whose securities are not publicly traded. In some circumstances, these restrictions may limit or preclude investment in certain countries. Therefore, the Fund intends to invest in such countries through the purchase of shares of investment companies organized under the laws of such countries. The Fund's interest and dividend income from foreign issuers may be subject to non-U.S. withholding taxes. The Fund also may be subject to taxes on trading profits in some countries. In addition, many of the countries in the Pacific Basin have a transfer or stamp duties tax on certain securities transactions. The imposition of these taxes will increase the cost to the Fund of investing in any country imposing such taxes. For United States federal income tax purposes, United States shareholders may be entitled to a credit or deduction to the extent of any foreign income taxes paid by the Fund. See "Dividends, Distributions and Federal Income Taxation." American Depository Receipts. American Depository Receipts ("ADRs") are negotiable receipts issued by a United States bank or trust to evidence ownership of securities in a foreign company which have been deposited with such bank or trust's office or agent in a foreign country. Investing in ADRs presents risks not present to the same degree as investing in domestic securities even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social and economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its ADRs, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. federal income tax. See "Dividends, Distributions and Federal Income Taxation." Unsponsored ADRs are offered by companies which are not prepared to meet either the reporting or accounting standards of the United States. While readily exchangeable with stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs. Additionally, there generally is less publicly available information with respect to unsponsored ADRs. Investment Restrictions. The Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions include prohibitions against borrowing money (except as described above) and against concentrating the Fund's investments in issuers conducting their principal business activities in a single industry (except that this limitation does not apply with respect to U.S. Government securities). These investment restrictions and the Fund's investment objective cannot be changed without the approval of shareholders of that Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information can be changed by the Board of Directors without shareholder approval. INVESTMENT RESULTS The Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature, or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future performance. The investment return on and principal value 17 of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund may calculate performance on an average annual total return basis for 1-, 5-, and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced from reinvested income dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending redeemable values as determined above. 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 any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs, or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing the Fund's investment results with those published for other investment companies, other investment vehicles, and unmanaged indices. The comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Fund may also be mentioned in newspapers, magazines, or other media from time to time. The Fund assumes no responsibility for the accuracy of such data. The Fund's results also should be considered relative to the risks associated with the Fund's investment objective and policies. See "Investment Results" in the Statement of Additional Information. Additional performance information regarding the Fund will be included in its annual report, which will be mailed to shareholders without charge upon request. HOW TO INVEST The shares of the Fund may be purchased through the Transfer Agent by submitting payment by check, bank wire, or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Fund. All orders for the purchase of shares are subject to acceptance or rejection by the Fund. Purchases of shares are made at the current public offering price next determined after the purchase order is received by the Transfer Agent or by a selling agent of the Fund. A minimum initial investment of $2,000 is required to open a shareholder account, except for retirement plans such as Individual Retirement Accounts (IRAs) and Keogh Plans. Retirement plans are subject to a $1,000 minimum initial investment. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan and may be waived in other instances at the sole discretion of the Advisor. (See "Automatic Investment Plan.") 18 Each subsequent investment in the Fund must be $100 or more except in the case of retirement plans or Automatic Investment Plans. There is a minimum continuing balance of $1,500 required for non-retirement accounts (calculated on the basis of original investment value). All investments not meeting the minimum will be returned. In some cases, the minimum balance requirement may be waived. All purchases made by check should be in U.S. dollars and be made payable to Fremont Mutual Funds. Third party checks, credit cards, and cash will not be accepted. All investment checks are subject to a 10-day holding period. Investors wishing to open a new account by bank wire must call the Transfer Agent at 800-548-4539 to obtain an account number and detailed wire instructions. All bank wire investments received before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be credited the same day. Otherwise, bank wire investments received will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. Shares of the Fund may also be purchased through broker-dealers or other financial intermediaries who have made appropriate arrangements with the Fund. Such agents are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased for their customers pursuant to such orders. These agents may charge a reasonable transaction fee to their customers. In some instances, all or a portion of the transaction fee may be paid by the Advisor. To the extent these agents perform shareholder servicing activities for the Fund, they may receive fees from the Fund or the Advisor for such services. From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor to do so. As a condition of this offering, if an order to purchase shares is canceled due to nonpayment (for example, a check returned for "insufficient funds"), the person who made the order must reimburse the Fund for any loss incurred by reason of such cancellation. For more information, see "Other Investment and Redemption Services" in the Statement of Additional Information. First Fund Distributors, Inc., 4455 Camelback Road, Suite 261E, Phoenix, Arizona, 85018, is the principal underwriter for the Fund. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES Statements and Reports. When a shareholder makes an initial investment in the Fund, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Fund will receive statements as of the end of March, June, September, and December. Shares are issued only in book-entry form (without certificates). The fiscal year of the Fund ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of the Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to the Fund's shareholders after the end of the calendar year on Form 1099-DIV. 19 Exchanges Between Funds. Shares of one Fremont Fund may be exchanged for shares of another Fremont Fund at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund then offered for sale in your state of residence. It is required that (1) all shares in one Fund must be exchanged or (2) the remaining balance must be at least $1,500. This minimum balance requirement may be waived. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes, except in the case of tax-deferred retirement accounts or other tax-exempt shareholders that have not borrowed to acquire the shares exchanged. Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions, and exchanges should be made for investment purposes only. A pattern of frequent exchanges, purchases, and sales is not acceptable and, at the discretion of the Fund, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from a shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Funds. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. Autobuy Privilege. The Autobuy privilege allows shareholders to purchase subsequent shares by moving money directly from their checking account to a Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not be added to an account without written authorization from the shareholder. The Autobuy privilege will be automatically added to an account when the shareholder chooses any type of ACH privilege. A shareholder may then purchase additional shares in an existing account by calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount wanting to be invested. The investment will automatically be processed through the Automatic Clearing House (ACH) system. There is no fee for this option. If the privilege was not established at the time the account was opened, the shareholder must complete the appropriate form. The form is available on request. Automatic Investment Plan. A shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the shareholder's bank checking, savings, negotiable on withdrawal (NOW), or similar account, with the proceeds to be used to purchase shares of the Fund. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan. The amount of the monthly investment must be at least $50, and is not otherwise subject to the $100 minimum for subsequent investments. If the purchase falls on a weekend or holiday, the purchase will be made on the previous business day. Shareholders should note that if there is an Automatic Investment Plan established for an account and the entire account is exchanged 20 into another Fund, the Automatic Investment Plan must be renewed by the shareholder to the Transfer Agent. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is canceled due to nonpayment (for example, "insufficient funds"), the shareholder will be responsible for reimbursing the Fund for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available on request. HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $10 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, Fund shares will be redeemed at the price determined as of the close of trading on the New York Stock Exchange on the next business day. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see "Signature Guarantee" below). Redemptions from retirement accounts require a written request, with a signature guarantee, unless authorized under the Automatic Withdrawal Plan. Call the Transfer Agent for specific instructions on redemptions. For written redemption requests for an amount greater than $25,000, or a redemption request that directs proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee" below). Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less that the amount paid for them. Redemption of shares by exchanges, transfers and redemptions under an Automatic Withdrawal Plan may result in taxable capital gains or losses. Telephone Redemption Privilege. An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 800-548-4539. (The Telephone Redemption Privilege is not available for IRA or other retirement accounts.) Telephone requests received by the close of trading 21 on the New York Stock Exchanged (currently 4:00 p.m., Eastern time), will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, the Transfer Agent, nor their respective affiliates will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost, or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. Automatic Withdrawal Plan. A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions by check will be made on the 15th and/or the last business day of the month. Redemptions made by electronic transfer will be made on any date the shareholder chooses. Shareholders may also request automatic exchanges and transfers of a specified dollar amount. Exchanges and transfers will be made on any date the shareholder chooses. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Automatic redemptions should not reduce the account below the minimum balance required (currently $1,500). If the redemption date falls on a weekend or holiday, the redemption will be made on the previous business day. Shareholders may terminate the Automatic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Funds, shareholders must specify if they desire the automatic withdrawal option to be transferred to a new account opened by the exchange. As an account balance declines to the minimum permitted, the shareholder must advise the Transfer Agent if the automatic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is an Automatic Withdrawal Plan established for an account and the entire account is exchanged into another Fremont Fund, the automatic withdrawal option must be renewed by the shareholder to the Transfer Agent. A shareholder wishing to initiate automatic redemptions must complete an Automatic Withdrawal Plan form available from the Transfer Agent. Signature Guarantee. To better protect the Fund and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies, and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. Other Important Redemption Information. A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. 22 Payment in redemption of shares is normally made within three business days after receipt by the Transfer Agent of a request in proper form, provided that payment in redemption of shares purchased by check or draft will be effected only after such check or draft has been collected. Although it is anticipated that this process will be completed in less time, it may take up to 15 days. Redemption proceeds will not be delayed when shares have been paid for by bank wire or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven calendar days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. The Fund reserves the right to redeem mandatorily the shares in a shareholder's account (other than a retirement plan account) if the balance is reduced to less than $1,500 in net asset value through redemptions or other action by the shareholder. Notice will be given to the shareholder at least 30 days prior to the date fixed for such redemption, during which time the shareholder may increase its holdings to an aggregate amount of $1,500 or more (with a minimum purchase of $100 or more.) This minimum balance may be waived. Redemption in Kind. The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. Transfer Agent. The Advisor is transfer agent to the Fund and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the Fund will be processed. RETIREMENT PLANS Shares of the Fund may be purchased in connection with various tax-deferred retirement plans. These include Individual Retirement Accounts (IRAs); SEP-IRAs; ROTH IRAs; SIMPLE IRAs; corporate pension and profit-sharing plans; and Section 403(b) Plans, which are deferred compensation arrangements for employees of public schools and certain charitable organizations. Forms for establishing IRAs, SEP-IRAs, ROTH IRAs; SIMPLE IRAs, and Qualified Retirement Plans are available through the Investment Company, as are forms for corporate Pension and Profit-Sharing plans. Please contact the Investment Company for more information about establishing these accounts. In accordance with industry practice, there may be an annual account charge for participation in these plans. Information regarding these charges is available from the Investment Company. Retirement plan participants may receive additional services related to their plan at no extra cost to any shareholder. 23 DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION The Fund intends to qualify and elect, and to continue to qualify, to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). For any tax year in which the Fund so qualifies and meets certain distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires the Fund, among other things, to diversify its investments so that, at the end of each fiscal quarter, (1) at least 50% of the market value of the Fund's assets is represented by cash, U.S. government securities, securities of other regulated investment companies, and other securities, limited, in respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. The Fund intends to distribute substantially all of its net investment income and short-term net realized capital gains once each year in October. The Fund intends to distribute substantially all of its long term net realized capital gains, if any, at the end of the calendar year (on or about December 15). Dividend and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All dividends and distributions are taxable to a shareholder (except tax-exempt shareholders who have not borrowed to acquire their shares) whether or not they are reinvested in shares of the Fund. Any long-term or mid-term capital gains distributions are taxable to shareholders as long-term or mid-term capital gains, respectively, regardless of how long shareholders have held Fund shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months, and 20% with respect to assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Corporate investors may be entitled to the "dividends received" deduction on all or a portion of the dividends paid by the Fund. Availability of the "dividends received" deduction is subject to certain holding period and debt-financing limitations. Shareholders may elect: o to have all dividends and capital gain distributions automatically reinvested in additional shares; o to receive the income dividends and short-term capital gains distributions in cash and accept the capital gains distributions in additional shares; o to receive all distributions of income dividends and capital gains in cash; or o to invest all dividend and capital gain distributions in another Fremont Fund owned through an identically registered account. Automatic reinvestments will be at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gain distributions will be automatically reinvested. These elections may be changed by the shareholder at any time but, to be effective for a particular dividend or capital gain distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. 24 Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in October, November, or December by the Fund and paid in January are taxable as if paid in December. The Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Fund that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Fund to withhold 31% from any dividends and/or redemption proceeds to the shareholder. Amounts withheld are applied to the shareholder's federal tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Fund to withhold 30%, or the applicable tax treaty rate, from ordinary dividends (which includes short-term capital gains) paid to certain nonresident alien, non-U.S. partnership, and non-U.S. corporation shareholder accounts. Long-term capital gains distributions may be subject to this withholding. The foregoing is a brief discussion of certain federal income tax considerations. Please see "Taxes Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of an investment in the Fund. CALCULATION OF NET ASSET VALUE The Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. The Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange, or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open. Investments, including options, are stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the last reported bid and asked prices or at fair value as determined by the Board of Directors. Short-term notes and similar securities are included in investments at amortized cost, which approximates value. Securities which are primarily traded on foreign exchanges are generally valued at the preceding closing values of such securities on their respective exchanges or the most recent price available where no closing value is availableThe Fund's portfolio may include securities which trade primarily on non-U.S. exchanges or otherwise in non-U.S. markets. Because of time zone differences, the prices of these securities, as used for net asset value calculations, may be established substantially in advance of the close of the New York Stock Exchange. Foreign securities may also trade on days when the New York Stock Exchange is closed (such as a Saturday). The net asset value and public offering price of the Fund, to the extent that it holds securities valued on foreign markets, may vary during periods when the New York Stock Exchange is closed. As a result, the value of the Fund's portfolio may be affected significantly by such trading on days when a shareholder has no access to the Fund. For further information, see "How to Invest," "How to Redeem Shares," and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the Statement of Additional Information. 25 The net asset value and public offering price of each Fund will be determined as of the close of the regular session of the New York Stock Exchange. The shares of each Fund are offered at net asset value without a sales charge. Purchase, redemption and exchange orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. EXECUTION OF PORTFOLIO TRANSACTIONS Orders for the Fund's portfolio securities transactions are placed by the Advisor. The Advisor strives to obtain the best available prices in the Fund's portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical, and other information to the Fund, the Advisor, or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States and other countries and money market securities in which the Fund may invest are generally traded in the OTC markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures, currency, and options transactions. Commissions or discounts in foreign securities exchanges or OTC markets typically are fixed and generally are higher than those in U.S. securities exchanges or OTC markets. There is generally less government supervision and regulation of foreign exchanges and brokers than in the United States. Foreign security settlements may, in some instances, be subject to delays and related administrative uncertainties. Subject to the requirements of the 1940 Act and procedures adopted by the Board of Directors, the Fund may execute portfolio transactions through any broker or dealer and pay brokerage commissions to a broker which is an affiliated person of the Investment Company, the Advisor, or an affiliated person of such person. GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July 13, 1988, is a fully managed open-end investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative 26 voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by the Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that series, and is entitled to such dividends and distributions out of the income earned on the assets belonging to that series as may be declared at the discretion of the Board of Directors. Shares of a series when issued are fully paid and are non-assessable. The Board of Directors may, at its discretion, establish and issue shares of additional series of the Investment Company. Stephen D. Bechtel, Jr., and members of his family, including trusts for family members, due to their shareholdings, may be considered controlling persons of the Fund under applicable Securities and Exchange Commission regulations. 27 TELEPHONE NUMBERS AND ADDRESSES To make an initial purchase: 1. By mail: Fremont Mutual Funds, Inc. c/o National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 Street address: 1004 Baltimore Avenue Kansas City, MO 64105 2. By wire: Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account number and detailed instructions. To make a subsequent purchase: Include shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and automatic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 Fremont Mutual Funds, Inc. Fremont Money Market Fund Fremont Bond Fund Fremont California Intermediate Tax-Free Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont Select Fund Fremont U.S. Small Cap Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund 28 Fremont Institutional U.S. Micro-Cap Fund Fremont Real Estate Securities Fund For more information on the Fremont Mutual Funds please call 800-548-4539 or write to: Fremont Mutual Funds 50 Beale Street, Suite 100 San Francisco, CA 94105 Advisor/Transfer Agent Fremont Investment Advisors, Inc. 333 Market Street, Suite 2600 San Francisco, CA 94105 Sub-Transfer Agent Mailing Address: National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 800-548-4539 (press 2) Street Address: National Financial Data Services 1004 Baltimore Avenue Kansas City, MO 64105 Custodian The Northern Trust Company 50 South LaSalle Street Chicago, IL 60675 Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 29 Auditors Coopers & Lybrand, L.L.P. 333 Market Street San Francisco, CA 94105 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Funds or the Advisor. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. 30 FREMONT MUTUAL FUNDS, INC. INTERNATIONAL SMALL CAP FUND March 1, 1998 TABLE OF CONTENTS ITEM PAGE NO. Summary of Fees and Expenses ....................................... Financial Highlights ............................................... The Advisor, The Sub-Advisor and the Fund .......................... Investment Objective, Policies and Risk Considerations ............. General Investment Policies ........................................ Investment Results ................................................. How to Invest ...................................................... Shareholder Account Services and Privileges ........................ How to Redeem Shares ............................................... Retirement Plans ................................................... Dividends, Distributions and Federal Income Taxation ............... Calculation of Net Asset Value and Public Offering Price ........... Execution of Portfolio Transactions ................................ General Information ................................................ Telephone Numbers and Addresses .................................... PROSPECTUS FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in the Fremont International Small Cap Fund (the "Fund"). FREMONT INTERNATIONAL SMALL CAP FUND seeks to achieve long-term capital appreciation by investing primarily in equity securities of small cap companies domiciled outside the United States. There can be no assurance that the Fund will achieve its investment objective. The Fund is a diversified fund as defined by the Investment Company Act of 1940, as amended (the "1940 Act"). Shares of the Fund are offered without a sales charge. This Prospectus, which should be retained for future reference, sets forth concisely the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, California 94105. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SHARES INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is March 1, 1998. FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 800-548-4539. SUMMARY OF FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees(1) None Exchange Fee None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fee(2) 1.50% 12b-1 Expenses None Other Expenses None ---- Total Fund Operating Expenses 1.50% Example: You would pay the following total expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 YEAR 3 YEARS 5 YEARS 10 YEARS International Small Cap Fund $15 $47 $82 $179 THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. The purpose of the above tables is to give you information and assistance in understanding the various costs and expenses of the Fund that an investor may bear directly or indirectly. The percentages expressing annual fund operating expenses of the Fund are based on actual expenses incurred during the most recent fiscal year, except that the management fee of the Fund has been restated to reflect the management fee currently being charged to the Fund. See "The Advisor, the Sub-Advisor and the Fund." (1) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $10. See "How to Redeem Shares." (2) The Fund is obligated, under the terms of the management agreement, to pay the Advisor an annual management fee of 1.5% of average net assets. However, the Advisor is obligated to pay all of the Fund's other ordinary operating expenses. FINANCIAL HIGHLIGHTS The following information has been audited by Coopers & Lybrand, L.L.P., independent accountants, whose unqualified opinion is included in the Fund's Annual Report. Further information about the Fund's performance is contained in the Annual Report, which is included in the Fund's Statement of Additional Information and which may be obtained without charge. INTERNATIONAL SMALL CAP FUND
YEAR ENDED OCTOBER 31 PERIOD FROM JUNE 30, 1994 TO 1997 1996 1995 OCTOBER 31, 1994 SELECTED PER SHARE DATA for one share outstanding during the period NET ASSET VALUE, beginning of period $ 10.15 $ 9.00 $ 9.86 $ 10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)(a) .14 .14 .10 (.01) Net realized and unrealized gain (loss) (1.58) 1.08 (.88) (.13) ----------- ----------- ----------- ----------- Total investment operations (1.44) 1.22 (.78) (.14) ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS From net investment income (.21) (.07) (.08) -- From net realized gains (.27) -- -- -- ----------- ----------- ----------- ----------- Total distributions (.48) (.07) (.08) -- ----------- ----------- ----------- ----------- NET ASSET VALUE, END OF PERIOD $ 8.23 $ 10.15 $ 9.00 $ 9.86 =========== =========== =========== =========== TOTAL RETURN # (14.56)% 13.69%(1) (7.96)%(1) (1.40)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 8,534 $ 9,214 $ 4,245 $ 1,768 Ratio of expenses to average net assets(2) 1.50% 1.81% 2.06% 2.50%* Ratio of net investment income (loss) to average net assets(2) 1.97% 1.61% 1.67% (.28)%* Portfolio turnover rate 56% 74% 96% -- Average commission rate paid(3) $ .0005 $ .0003 -- --
*Annualized (1) Total return would have been lower had the advosr not waive expenses. (2) Managemetn fees were voluntrily waived from Febrturay 1, 1995 to October 31, 1996. (3) Disclosure not requred for years prior to 1996. THE ADVISOR, THE SUB-ADVISOR AND THE FUND Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment company which under this Prospectus is offering shares in the Fremont International Small Cap Fund. The Investment Company has other series offered with a different prospectus, and the Board of Directors of the Investment Company is permitted to create additional funds at any time. The Fund has its own investment objective and policies and operates as a separate mutual fund. The management of the business and affairs of the Investment Company is the responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the "Advisor") provides the Fund with investment management and administrative services under an Investment Advisory and Administrative Agreement (the "Advisory Agreement") with the Investment Company. The Advisory Agreement provides that the Advisor shall furnish advice to the Fund with respect to its investments and shall, to the extent authorized by the Board of Directors, determine what securities shall be purchased or sold by the Fund. As described more fully below, the Advisor has retained an investment management firm (the "Sub-Advisor") to provide the Fund with portfolio management services. The Advisor's Investment Committee oversees the portfolio management of the Fund, including the services provided by the Sub-Advisor. The professional staff of the Advisor has offered professional investment management services regarding asset allocation in connection with securities portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987. The Advisor also provides investment advisory services regarding asset allocation, investment manager selection and portfolio diversification to a number of large Bechtel-related investors. The Investment Company is one of its clients. The Advisor will provide direct portfolio management services to the extent that a sub-advisor does not provide those services. In the future, the Advisor may propose to the Investment Company that different or additional sub-advisor(s) be engaged to provide investment advisory or portfolio management services to the Fund. Prior to such engagement, any agreement with a sub-advisor must be approved by the Board of Directors and, if required by law, by the shareholders of the Fund. The Advisor may in its discretion manage all or a portion of the Fund's portfolio directly with or without the use of a sub-advisor. For additional information about the Advisor and the Sub-Advisor, see "Investment Advisory and Other Services" in the Statement of Additional Information. Under the terms of the Advisory Agreement, the Fund pays the Advisor a fee, computed daily and paid monthly, of 1.50% per annum of the Fund's average net assets. Under this Agreement the Advisor has agreed to bear all of the Fund's expenses, except extraordinary expenses (as designated by a majority of the Investment Company's disinterested directors) and interest, brokerage commissions and other transaction charges relating to the investing activities of the Fund. Acadian Asset Management, Inc. ("Acadian"), Two International Place, Boston, Massachusetts, 02110, serves as Sub-Advisor to the Fund pursuant to a Portfolio Management Agreement. Acadian is an international investment management firm and currently manages approximately $3.9 billion in assets. Acadian is a wholly-owned subsidiary of United Asset Management Corporation and provides investment management services to corporations, pension and profit-sharing plans, 401(k) and thrift plans, endowments, foundations and other institutions and individuals. Dr. Gary L. Bergstrom, President of Acadian, oversees the day-to-day investment decisions for the Fund and has done so since the Fund's inception. Dr. Bergstrom founded Acadian's predecessor, Acadian Financial Research, Inc., in 1977. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the Fund), the Advisor and Acadian provides that Acadian will manage the investment and reinvestment of the assets of the Fund and continually review, supervise and administer the Fund's investments. Acadian pays all expenses of its staff and their activities in connection with its portfolio management activities. As compensation for its services, the Advisor (not the Fund) pays Acadian a fee equal to .75% per annum of the first $50 million of the Fund's average net assets, .65% of the next $50 million of such assets, .50% of the next $100 million of such assets and .40% of such assets in excess of $200 million. The Portfolio Management Agreement with Acadian may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by Acadian Asset Management. Investment Company Administration Corporation (the "Sub-Administrator"), pursuant to an administrative agreement with the Advisor, supervises the administration of the Investment Company and the Fund including, among other responsibilities, the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations. Certain officers of the Investment Company may be provided by the Sub-Administrator For additional information about the Advisor, see "Investment Advisory and Other Services" in the Statement of Additional Information. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS The investment objective and policies of the Fund is stated below. The Fund is intended for long-term investors, not for those who may wish to redeem their shares after a short period of time. All investments, including mutual funds, have risks, and no investment is suitable for all investors. Investors should consult with their financial and other advisors concerning the suitability of this investment for their own particular circumstances. Accordingly, there is no assurance that the Fund will achieve its investment objective. The Fund seeks to achieve long-term capital appreciation by investing primarily in small capitalization ("small cap") equity securities of issuers domiciled outside the United States. The Fund selects its portfolio securities primarily from among small cap companies in developed markets whose individual market capitalizations would place them among the smallest 20% of market capitalization in their respective markets. Developed markets will generally be defined as those included in the Morgan Stanley Capital International Europe, Asia and Far East (EAFE) Index. It is expected that the majority of the companies in which the Fund invests will have a market capitalization of under $1 billion; however, the Fund is likely to hold some companies with a market capitalization greater than $1 billion. The Fund is designed for investors willing to accept the risks entailed in investments in foreign securities of small companies and securities denominated in various currencies. See "General Investment Policies - Special Considerations for International Investing." Under normal market conditions, at least 65% of the total assets of the Fund will be invested in small cap equity securities of issuers domiciled outside the United States with a market capitalization of under $1 billion. The Fund will be invested in a minimum of three countries excluding the United States. The Fund's portfolio of equity securities will consist of common and preferred stock, warrants and debt securities convertible into common stock. Included in this 65% total, up to 5% of the Fund's assets may be invested in rights or warrants to purchase equity securities. For defensive purposes, the Fund may temporarily have less than 65% of its total assets invested in small cap equity issuers domiciled outside the United States. In addition to investing directly in equity securities, the Fund may invest in instruments such as sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities markets. International small cap companies are smaller sized companies that the Advisor and Sub-Advisor believe often have a potential for earnings growth over time that is above the growth rate of more established companies or are early in their life cycles and have the potential to become major enterprises. In addition, some smaller companies may be undervalued because they are not as closely followed by security analysts or institutional investors. The Advisor and Sub-Advisor believe that an investment in shares of the Fund provides an opportunity for greater rewards but will involve more risk than an investment in a fund which seeks capital appreciation from investment in common stocks of larger, better-known companies. Investing in small companies involves certain special risks. Small companies may have limited product lines, markets, or financial resources, and their managements may be dependent on a limited number of key individuals. The securities of small companies may have limited market liquidity and may be subject to more abrupt or erratic market movements than securities of larger, more established companies or the market averages in general. Emphasis is placed on identifying securities of companies believed to be undervalued in the marketplace in relation to factors such as the company's revenues, earnings, assets and long-term competitive positions which over time will enhance the equity value of the company. In selecting portfolio investments, a company's growth prospects will be considered, including the potential for superior appreciation due to growth in earnings, relative valuation of its securities, and any risks associated with such investment; the industry in which the company operates, with a view to identification of international developments within industries, international investment trends, and social, economic or political factors affecting a particular industry; the country in which the company is based, as well as historical and anticipated foreign currency exchange rate fluctuations; and the feasibility of gaining access to the securities market in a country and of implementing the necessary custodial arrangements. Investments will be made in those countries where the Advisor and Sub-Advisor believe that economic and political factors, including currency movements, are likely to produce above average long-term investment returns. There is no limitation on the percentage of the Fund's assets that may be invested at any one time in one or more countries. However, except during times that the Fund is in a temporary defensive posture, the Fund will invest at least 65% of its total assets in the securities of issuers domiciled in at least three different non-U.S. countries. The Fund may invest in equity securities of companies domiciled in emerging markets. As used in this prospectus, international emerging markets are countries categorized as emerging markets by the International Finance Corporation, the World Bank's private sector division. Such countries currently include but are not limited to Thailand, Indonesia, the Philippines, South Korea, Taiwan and certain Latin American countries. Such markets tend to be in less economically developed regions of the world. General characteristics of emerging market countries also include lower degrees of political stability, a high demand for capital investment, a high dependence on export markets for their major industries, a need to develop basic economic infrastructures and rapid economic growth. The Advisor believes that investments in equity securities of companies in international emerging markets offer the opportunity for significant long-term investment returns. However, these investments involve certain risks, as discussed below in "Risk Factors and Special Considerations for International Investing." The Fund's management anticipates that, from time to time, the Fund may have more than 25% of its assets invested in securities of companies domiciled in the countries of Japan, the United Kingdom and/or Germany. These are among the leading industrial economies outside the United States and the values of their stock markets account for a significant portion of the value of international markets. Whenever in the judgment of the Advisor or Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in U.S. dollar-denominated or foreign currency-denominated cash or in high quality debt securities with remaining maturities of one year or less. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. For liquidity purposes, the Fund may normally also invest up to 10% of its assets in U.S. dollar-denominated or foreign currency-denominated cash or in high quality debt securities with remaining maturities of one year or less. The Fund may also invest in convertible debentures (convertible to equity securities) and preferred stocks (which may or may not have a dividend yield). All preferred stocks and debt securities, both foreign and domestic, in which the Fund invests must, at the time of acquisition, be rated Aa or better by Moody's Investors Service, Inc., or AA or better by Standard & Poor's Ratings Group, or be of comparable quality as determined by the Advisor or Sub-Advisor. The Fund may enter into forward currency contracts and currency futures contracts, and may purchase put and call options on currencies. See "General Investment Policies -- Forward Currency, Futures and Options Transactions. RISK FACTORS AND SPECIAL CONSIDERATIONS FOR INTERNATIONAL INVESTING. Investment in securities of foreign entities and securities denominated in foreign currencies involves risks typically not present to the same degree in domestic investments. Likewise, investment in ADRs and EDRs presents similar risks, even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social or economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its foreign investments, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. income taxes. See "Dividends, Distributions and Federal Income Taxation." There may be less publicly available information about foreign issuers or securities than about U.S. issuers or securities, and foreign issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of U.S. entities. With respect to unsponsored ADRs, these programs cover securities of companies which are not required to meet either the reporting or accounting standards of the United States. Many foreign financial markets, while generally growing in volume, continue to have substantially less volume than domestic markets, and securities of many foreign companies are less liquid and their prices are more volatile than are securities of comparable U.S. companies. Such markets may have longer settlement periods than markets in the United States. In addition, brokerage commissions, custodial services and other costs related to investment in foreign markets generally are more expensive than in the United States, particularly with respect to emerging markets. Such markets have different settlement and clearance procedures. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. The inability of the Fund to make intended securities purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result either in losses to the Fund due to subsequent declines in value of a portfolio security or, if the Fund had entered into a contract to sell the security, could result in possible liability to the purchaser. Settlement procedures in certain emerging markets also carry with them a heightened risk of loss due to the failure of the broker or other service provider to deliver cash or securities. The risks of foreign investing are of greater concern in the case of investments in emerging markets which may exhibit greater price volatility, have less liquidity and have settlement arrangements which are less efficient than in developed markets. Furthermore, the economies of emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. These emerging market economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The value of the Fund's portfolio securities computed in U.S. dollars will vary with increases and decreases in the exchange rate between the currencies in which the Fund has invested and the U.S. dollar. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and net investment income and capital gains, if any, to be distributed in U.S. dollars to shareholders by the Fund. The rate of exchange between the U.S. dollar and other currencies is influenced by many factors, including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the price of oil, the pace of activity in the industrial countries, including the United States, and other economic and financial conditions affecting the world economy. The Fund will not invest in a foreign currency or in securities denominated in a foreign currency if such currency is not at the time of investment considered by the Advisor or Sub-Advisor to be fully exchangeable into U.S. dollars without legal restriction. The Fund may purchase securities that are issued by the government or a corporation or financial institution of one nation but denominated in the currency of another nation. To the extent that the Fund invests in ADRs, the depository bank generally pays cash dividends in U.S. dollars regardless of the currency in which such dividends originally are paid by the issuer of the underlying security. Several of the countries in which the Fund may invest restrict, to varying degrees, foreign investments in their securities markets. Governmental and private restrictions take a variety of forms, including (i) limitation on the amount of funds that may be invested into or repatriated from the country (including limitations on repatriation of investment income and capital gains), (ii) prohibitions or substantial restrictions on foreign investment in certain industries or market sectors, such as defense, energy and transportation, (iii) restrictions (whether contained in the charter of an individual company or mandated by the government) on the percentage of securities of a single issuer which may be owned by a foreign investor, (iv) limitations on the types of securities which a foreign investor may purchase and (v) restrictions on a foreign investor's right to invest in companies whose securities are not publicly traded. In some circumstances, these restrictions may limit or preclude investment in certain countries. Therefore, the Fund intends to invest in such countries through the purchase of shares of investment companies organized under the laws of such countries. The Fund's interest and dividend income from foreign issuers may be subject to non-U.S. withholding taxes. The Fund also may be subject to taxes on trading profits in some countries. In addition, many of the countries in the Pacific Basin have a transfer or stamp duties tax on certain securities transactions. The imposition of these taxes will increase the cost to the Fund of investing in any country imposing such taxes. For United States federal income tax purposes, United States shareholders may be entitled to a credit or deduction to the extent of any foreign income taxes paid by the Fund. See "Dividends, Distributions and Federal Income Taxation." GENERAL INVESTMENT POLICIES MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations and governments; U.S. Government and agency securities; money market mutual funds; and other debt securities which are not specifically named but which meet the Fund's quality guidelines. The Fund also may enter into repurchase agreements as described below and may purchase variable and floating rate debt securities. At the time of purchase, short-term securities must be rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs") or by a single NRSRO in the case of a security rated by only one NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined by the Advisor or the Sub-Advisor. Generally, high quality short-term securities must be issued by an entity with an outstanding debt issue rated A or better by an NRSRO, or an entity of comparable quality as determined by the Advisor or the Sub-Advisor. Obligations of foreign banks, foreign corporations and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A to the Statement of Additional information for a description of rating categories. U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government securities, which are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds and Government National Mortgage Association ("GNMA") certificates, are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies or instrumentalities as described above in the future, other than as set forth above, because it is not obligated to do so by law. WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). The Fund will not purchase securities the value of which is greater than 5% of its net assets on a when-issued basis. The Fund, as purchaser, assumes the risk of any decline in value of the security beginning on the date of the agreement or purchase, and no interest accrues to the Fund until it accepts delivery of the security. The Fund will not use such transactions for leveraging purposes, and accordingly will segregate cash, cash equivalents or liquid securities or hold a covered position in an amount sufficient to meet its payment obligations thereunder. There is always a risk that the securities may not be delivered and that the Fund may incur a loss or will have lost the opportunity to invest the amount set aside for such transaction in the segregated asset account. Settlements in the ordinary course of business, which may take substantially more than three business days for non-U.S. securities, are not treated by the Fund as when-issued or forward commitment transactions and, accordingly, are not subject to the foregoing limitations, even though some of the risks described above may be present in such transactions. SHARES OF INVESTMENT COMPANIES. The Fund may invest some portion of its assets in shares of other no-load, open-end investment companies and closed-end investment companies to the extent that such investmetns may facilitate achieving the objective of the Fund or to the extent that they afford the primary or most practical means of access to a particular market or markets or they represent attractive investments in their own right. The percentage of Fund assets which may be so invested is not limited, provided that the Fund and its affiliates do not acquire more than 3% of the shares of any such investment company. The provisions of the 1940 Act may also impose certain restrictions on redemption of the Fund's shares in other investment companies. The Fund's purchase of shares of investment companies may result in the payment by a shareholder of duplicative management fees. The Advisor and/or Sub-Advisor will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above, the Fund does have the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. REPURCHASE AGREEMENTS. As part of its cash reserve position, the Fund may enter into repurchase agreements through which the Fund acquires a security (the "underlying security") from the seller, a well-established securities dealer or a bank that is a member of the Federal Reserve System. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest. Repurchase agreements are generally for a short period of time, often less than a week. The seller must maintain with the Fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. The Fund will not enter into a repurchase agreement with a maturity of more than seven business days if, as a result, more than 15% of the value of its net assets, would then be invested in such repurchase agreements. The Fund will only enter into repurchase agreements where (1) the underlying securities are issued or guaranteed by the U.S. Government, (2) the market value of the underlying security, including accrued interest, will be at all times equal to or in excess of the value of the repurchase agreement, and (3) payment for the underlying securities is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (1) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible reduced levels of income and lack of access to income during this period; and (3) expenses of enforcing the Fund's rights. PORTFOLIO TURNOVER. The Fund expects to trade in securities for short-term gain whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take advantage of anomalies occurring in general market, economic or political conditions. Therefore, the Fund may have a higher portfolio turnover rate than that of some other investment companies, but it is anticipated that the annual portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by the Fund's average month-end long-term investments. High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions and other costs that the Fund will bear directly, and may result in the realization of net capital gains, which are generally taxable whether or not distributed to shareholders. LOANS OF PORTFOLIO SECURITIES. The Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors in an amount not exceeding 33 1/3% of its net assets. The borrower must maintain with the Fund's custodian collateral consisting of cash, cash equivalents or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Fund will receive any interest or dividends paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The risks in lending portfolio securities, as with other extensions of secured credit, consist of, among other things, possible delay in receiving additional collateral or in the recovery of the securities, or possible loss of rights in the collateral should the borrower fail financially. The lender also may bear the risk of capital loss on investment of the cash collateral, which must be returned in full to the borrower when the loan is terminated. Loans will be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. BORROWING. The Fund may borrow from banks an amount not exceeding 30% of the value of its total assets for temporary or emergency purposes and enter into reverse repurchase agreements. If the income and gains on securities purchased with the proceeds of borrowings or reverse repurchase agreements exceed the cost of such borrowings or agreements, the Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the cost, earnings or net asset value would decline faster than otherwise would be the case. RESTRICTED SECURITIES. The Fund may purchase securities that are not registered ("restricted securities") under federal securities law, but can be offered and sold to "qualified institutional buyers." However, the Fund will not invest more than 15% of its assets in illiquid investments, which includes repurchase agreements and fixed time deposits maturing in more than seven days, and securities that are not readily marketable and restricted securities, unless the Board of Directors determines, based upon a continuing review of the trading markets for the specific restricted security, that such restricted securities are liquid. The Board of Directors may adopt guidelines and delegate to the Advisor or Sub-Advisor the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. WARRANTS OR RIGHTS. Warrants or rights may be acquired by the Fund in connection with other securities or separately and provide the Fund with the right to purchase other securities of the issuer at a later date. It is the present intention of the Fund to limit its investments in warrants or rights, valued at the lower of cost or market, to no more than 5% of the value of its net assets. Warrants or rights acquired by the Fund in units or attached to securities will be deemed to be without value for purposes of this restriction. OPTIONS AND FUTURES CONTRACTS. When the Fund is not fully invested, strategies such as buying calls, writing puts, and buying futures may be used to increase its exposure to price changes in stocks or debt securities. When the Advisor and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such as buying puts, writing calls, and selling futures may be used to reduce market exposure. Because most stock index futures and options are based on broad stock market indices, their performance tends to track the performance of common stocks generally - which may or may not correspond to the types of securities in which the Fund invests. The Fund will maintain segregated accounts consisting of cash, U.S. Government securities or other liquid securities (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under options and futures contracts to avoid leveraging. In seeking appreciation or to reduce principal volatility, the Fund may also (1) enter into futures contracts -- contracts for the future delivery of debt securities, stock, stock index futures contracts with respect to the S&P 500 Index, small capitalization stock market indices or other similar broad-based stock market indices, the initial margins of which are limited to 5% of the Fund's assets; and (2) purchase put and call options on portfolio securities, stock indices or stock index futures contracts -- the premiums of which are limited to 5% of the Fund's assets. The Fund may write put and call options. It will only do so by writing covered put or call options, and the aggregate value of the securities underlying put options, as of the date of sale of the options, will not exceed 50% of the net assets of the Fund. The Fund will set aside cash, cash equivalents, or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contracts. Options and futures can be volatile investments. If the Advisor and/or Sub-Advisor applies a hedge at an inappropriate time or evaluates market conditions incorrectly, options and futures strategies may lower the Fund's return. The Fund could also experience a loss if the prices of its options or futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. Although these investment practices will be used primarily to generate income or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: futures contracts -- no assurance that closing purchase transactions will be available at favorable prices, possible reduction of the Fund's income due to the use of hedging, the possible reduction in value of both the securities hedged and the hedging instrument, and possible loss in excess of the initial margin payment; options and futures contracts -- imperfect correlation between the contract and the underlying security, commodity or index and unsuccessful hedging transactions due to incorrect forecasts of market trends; writing covered call options -- the inability to effect closing transactions at favorable prices and the inability to participate in the appreciation of the underlying securities above the exercise price and premium received; and purchasing or selling put and call options -- possible loss of the entire premium. A more thorough description of these investment practices and their associated risks is contained in the Statement of Additional Information. FORWARD CURRENCY, FUTURES AND OPTIONS TRANSACTIONS. The Fund may enter into forward currency contracts and currency futures contracts and may purchase put or call options on currencies (each such arrangement sometimes referred to as a "currency contract"). Forward contracts typically will involve the purchase or sale of a foreign currency against the dollar. These techniques are designed primarily to hedge against future changes in currency prices which might adversely affect the value of the Fund's portfolio securities. The Fund may attempt to accomplish objectives similar to those involved in its use of forward currency contracts by purchasing put or call options on currencies or currency futures. For a more detailed description of such arrangements, see the Statement of Additional Information. The Fund may enter into currency contracts either with respect to specific transactions or with respect to the Fund's portfolio positions. For example, when the Advisor and/or Sub-Advisor anticipates making a purchase or sale of a security, the Fund may enter into a currency contract in order to set the rate (either relative to the U.S. dollar or another currency) at which a currency exchange transaction related to the purchase or sale will be made. Further, when it is believed that a particular currency may decline compared to the U.S. dollar or another currency, the Fund may enter into a currency contract to sell the currency the Advisor or Sub-Advisor expects to decline in the amount approximating the value of some or all of the Fund's portfolio securities denominated in that currency or related currencies that the Advisor and/or Sub-Advisor feels demonstrate a correlation in exchange rate movements. The practice of using correlated currencies is known as "cross-hedging." When the Advisor and/or Sub-Advisor believes that the U.S. dollar may suffer a substantial decline against a foreign currency or currencies, the Fund may enter into a currency contract to buy a foreign currency for a fixed dollar amount. By entering into such transactions, however, the Fund may be required to forego the benefits of advantageous changes in exchange rates. Currency contracts generally are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, such contracts operate in a manner distinct from exchange-traded instruments, and their use involves certain risks beyond those associated with transactions in other futures contracts. While the Fund enters into forward currency contracts and purchases currency options or currency futures to reduce the risks of fluctuations in exchange rates, these contracts cannot eliminate all such risks and do not eliminate fluctuations in the prices of the Fund's portfolio securities. Purchasing (selling) a currency forward limits the Fund's exposure to risk of loss from a rise (decline) in the dollar value of the currency, but also limits its potential for gain from a decline (rise) in the currency's dollar value. While purchasing options can protect the Fund against certain exchange rate fluctuations, the Fund is subject to the loss of its entire premium payment where the option is allowed to expire without exercise. To avoid leverage in connection with forward currency transactions, the Fund will set aside with its Custodian cash, cash equivalents or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding contracts. To the extent the Fund enters into over-the-counter options, the options and the assets so set aside to cover such options are considered illiquid assets and, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. In addition, premiums paid for currency options held by the Fund may not exceed 5% of the Fund's net assets. Although the Fund will enter into currency contracts solely for hedging purposes, their use does involve certain risks. For example, there can be no assurance that a liquid secondary market will exist for any currency contract purchased or sold, and the Fund may be required to maintain a position until exercise or expiration, which could result in losses. Currency contracts may be entered into on United States exchanges regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission as well as in the over-the-counter market and on foreign exchanges. SWAP AGREEMENTS. The Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding minimum or maximum levels. Whether the Fund's use of swap agreements will be successful in furthering its investment objective will depend on the Advisor's or Sub-Advisor's ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. The Fund's obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash, U.S. Government securities or other liquid securities to avoid any potential leveraging of the Fund's portfolio. Swap agreements having a term of greater than seven days are considered illiquid assets and the Fund's obligations under such agreements, together with other illiquid assets and securities, will not exceed 15% of the net assets of the Fund. AMERICAN DEPOSITORY RECEIPTS. American Depository Receipts ("ADRs") are negotiable receipts issued by a United States bank or trust to evidence ownership of securities in a foreign company which have been deposited with such bank or trust's office or agent in a foreign country. Investing in ADRs presents risks not present to the same degree as investing in domestic securities even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social and economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its ADRs, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. federal income tax. See "Dividends, Distributions and Federal Income Taxation." Unsponsored ADRs are offered by companies which are not prepared to meet either the reporting or accounting standards of the United States. While readily exchangeable with stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs. Additionally, there generally is less publicly available information with respect to unsponsored ADRs. INVESTMENT RESTRICTIONS. The Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions include prohibitions against borrowing money (except as described above) and against concentrating the Fund's investments in issuers conducting their principal business activities in a single industry (except that this limitation does not apply with respect to U.S. Government securities). These investment restrictions and the Fund's investment objective cannot be changed without the approval of shareholders of the Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information can be changed by the Board of Directors without shareholder approval. INVESTMENT RESULTS The Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future performance. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund may calculate performance on an average annual total return basis for 1-, 5- and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced from reinvested dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending redeemable values as determined above. 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 any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing the Fund's investment results with those published for other investment companies, other investment vehicles and unmanaged indices. The comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Fund may also be mentioned in newspapers, magazines, or other media from time to time. The Fund assumes no responsibility for the accuracy of such data. The Fund's results also should be considered relative to the risks associated with its investment objective and policies. See "Investment Results" in the Statement of Additional Information. Additional performance information regarding the Fund will be included in its annual report, which will be mailed to shareholders without charge upon request. HOW TO INVEST Shares of the Fund may be purchased through the Transfer Agent by submitting payment by check, bank wire or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Fund. All orders for the purchase of shares are subject to acceptance or rejection by the Board of Directors or the Advisor. Purchases of shares are made at the current net asset value next determined after the purchase order is received by the Transfer Agent or by a selling agent of the Fund. A minimum initial investment of $2,000 is required to open a shareholder account, except for retirement plans such as Individual Retirement Accounts (IRAs) and Keogh Plans. Retirement plans are subject to a $1,000 minimum initial investment. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan and may be waived in other instances at the sole discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent investment in the Fund must be $100 or more except in the case of retirement plans or Automatic Investment Plans. There is a minimum continuing balance of $1,500 required for non-retirement accounts (calculated on the basis of original investment value). In some cases, the minimum balance requirement may be waived at the sole discretion of the Advisor. All purchases made by check should be in U.S. dollars and be made payable to Fremont Mutual Funds. Third party checks, credit cards, and cash will not be accepted. All investment checks are subject to a 10-day holding period. Investors wishing to open a new account by bank wire must call the Transfer Agent at 800-548-4539 to obtain an account number and detailed wire instructions. Bank wire instructions are also provided in the last section of this Prospectus. All bank wire investments received before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be credited the same day. Otherwise, bank wire investments will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. Shares of the Fund may also be purchased through broker-dealers or other financial intermediaries who have made appropriate arrangements with the Fund. Such agents are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased for their customers pursuant to such orders. These agents may charge a reasonable transaction fee, or other selling charge to their customers. In some instances, all or a portion of the transaction fee may be paid by the Advisor. To the extent these agents perform shareholder servicing activities for the Fund, they may receive fees from the Fund or the Advisor for such services. From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor for such activities. As a condition of this offering, if an order to purchase shares is cancelled due to nonpayment (for example, a check returned for "insufficient funds"), the person who palced the order will be subject to a $20 charge and must reimburse the Fund for any loss incurred by reason of such cancellation. For more information, see "Other Investment and Redemption Services" in the Statement of Additional Information. First Funds Distributor, Inc., 4455 Camelback Road, Suite 261E, Phoenix, Arizona, 85018, is the principal underwriter for the Fund. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES STATEMENTS AND REPORTS. When a shareholder makes an initial investment in the Fund, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Fund will receive statements as of the end of March, June, September and December. Shares are issued only in book-entry form (without certificates). The fiscal year of the Fund ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of the Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to the Fund's shareholders after the end of the calendar year on Form 1099-DIV. EXCHANGES BETWEEN FUNDS. Shares of one Fremont Fund may be exchanged for shares of another Fremont Fund at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund then offered for sale in your state of residence. It is required that (1) all shares in one Fund must be exchanged or (2) the remaining balance must be at least $1,500. This minimum balance requirement may be waived. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes, except in the case of tax-deferred retirement accounts or other tax-exempt shareholders that have not borrowed to acquire shares exchanged. Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions and exchanges should be made for investment purposes only. A pattern of frequent exchanges, purchases and sales is not acceptable and, at the discretion of the Board of Directors, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from the shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. TELEPHONE EXCHANGE PRIVILEGE. An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Fund. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by the close of trading on the New York Stocke Exchanges (currently, 4:00 p.m., Eastern time), will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. Autobuy Privilege The autobuy privilege allows shareholders to purchase subsequent shares by moving money directly from their checking account to a Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not be added to an account without written authorization from the shareholder. The Autobuy privilege will be automatically added to an account when the shareholder chooses any type of ACH privilege. A shareholder may then purchase additional shares in an existing account by calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount wanting to be invested. The investment will automatically be processed through the Automatic Clearing House (ACH) system. There is no fee for this option. If the privilege was not established at the time the account was opened, the shareholder must complete the appropriate form. The form is available on request. AUTOMATIC INVESTMENT PLAN. A shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the shareholder's bank checking, savings, negotiable on withdrawal (NOW) or similar account, with the proceeds to be used to purchase shares of the Fund. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan. The amount of the monthly investment must be at least $50, and is not otherwise subject to the $200 minimum for subsequent investments. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is cancelled due to nonpayment (for example, "insufficient funds"), the shareholder's account will be subject to a $20 charge and the shareholder will be responsible for reimbursing the Fund for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available on request. HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $10 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see "Signature Guarantee" below). Redemptions from retirement accounts require a written request, with a signature guarantee, unless authorized under the Automatic Withdrawal Plan. Call the Transfer Agent for specific instructions on redemptions. For written redemption requests for an amount greater than $25,000, or a redemption request that directs proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee.") Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less than the amount paid for them. Redemption of shares, exchanges and redemptions under an Automatic Withdrawal Plan may result in taxable capital gains or losses. TELEPHONE REDEMPTION PRIVILEGE. An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 800-548-4539. (The Telephone Redemption Privilege is not available for IRA or other retirement accounts.) Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, the Transfer Agent, nor their respective affiliates, will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Investment Company and/or the Transfer Agent do not employ such procedures, they may be liable for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. AUTOMATIC WITHDRAWAL PLAN. A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions will be made on the last business day of the month. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Automatic redemptions should not reduce the account below the minimum balance required (currently $1,500). Shareholders may terminate the Automatic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Fremont Funds, shareholders must specify if they desire the automatic withdrawal option to be transferred to a new account opened by the exchange. As an account balance declines to the minimum permitted, the shareholder must advise the Transfer Agent if the automatic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is an Automatic Withdrawal Plan established for an account and the entire account is exchanged into another Fremont Fund, the automatic withdrawal option must be renewed by written request to the Transfer Agent. A shareholder wishing to initiate automatic redemptions must complete an Automatic Withdrawal Plan form available from the Transfer Agent. SIGNATURE GUARANTEE. To better protect the Fund and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. OTHER IMPORTANT REDEMPTION INFORMATION. A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. Payment in redemption of shares is normally made within three business days after receipt by the Transfer Agent of a request in proper form, provided that payment in redemption of shares purchased by check or draft will be effected only after such check or draft has been collected. Although it is anticipated that this process will be completed in less time, it may take up to 10 days. Redemption proceeds will not be delayed when shares have been paid for by bank wire or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven calendar days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. The Fund reserves the right to redeem mandatorily the shares in a shareholder's account (other than a retirement plan account) if the balance is reduced to less than $1,500 in net asset value through redemptions or other action by the shareholder. Notice will be given to the shareholder at least 30 days prior to the date fixed for such redemption, during which time the shareholder may increase its holdings to an aggregate amount of $1,500 or more (with a minimum purchase of $100 or more). This minimum balance may be waived. REDEMPTION IN KIND. The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. TRANSFER AGENT. The Advisor is the transfer agent for the Funds and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. RETIREMENT PLANS Shares of the Fund may be purchased in connection with various tax-deferred retirement plans. These include Individual Retirement Accounts (IRAs); SEP-IRAs; SIMPLE IRAs; Roth IRAs; Qualified Retirement Plans for self-employed persons and their employees; corporate pension and profit-sharing plans; and Section 403(b) Plans, which are deferred compensation arrangements for employees of public schools and certain charitable organizations. Forms for establishing IRAs, SEP-IRAs, SIMPLE IRAs, Roth IRAs, and Qualified Retirement Plans are available through the Investment Company, as are forms for corporate Pension and Profit-Sharing plans. Please contact the Investment Company for more information about establishing these accounts. In accordance with industry practice, there may be an annual account charge for participation in these plans. Information regarding these charges is available from the Investment Company. Retirement plan participants may receive additional services related to their plan at no extra cost to any shareholder. DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION The Fund has qualified, and intends to continue to qualify to be treated as a "regulated investment company" under Sub-chapter M of the Internal Revenue Code (the "Code"). For any tax year in which the Fund so qualifies and meets certain other distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires a Fund to diversify its investments so that, at the end of each fiscal quarter, (1) at least 50 % of the market value of the Fund's assets is represented by cash, U.S. government securities, securities of other regulated investment companies, and other securities, limited, in respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. The Fund intends to distribute substantially all of its net investment income once each year in September. The Fund intends to distribute substantially all of its net realized capital gains, if any, at the end of the calendar year (on or about December 15). Dividend and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All dividends and distributions are taxable to a shareholder (except tax-exempt shareholders who have not borrowed to acquire their shares) whether or not they are reinvested in shares of the Fund. Any long-term or mid-term capital gains distributions are taxable to shareholders as long-term or mid-term capital gains, respectively, regardless of how long shareholders have held Fund shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months, and 20% with respect to assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Shareholders may elect: - -- to have all dividends and capital gain distributions automatically reinvested in additional shares; or - -- to receive the income dividends and short-term capital gains distributions in cash and accept the long-term capital gains distributions in additional shares; or - -- to receive all distributions of income dividends and capital gains in cash. Automatic reinvestments will be at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gain distributions will be automatically reinvested. These elections may be changed by the shareholder at any time, but to be effective for a particular dividend or capital gain distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in October, November or December by the Fund and paid in January are taxable as if paid in December. The Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Fund that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Fund to withhold 31% from any dividends and/or redemptions (including exchange redemptions to the shareholder). Amounts withheld are applied to the shareholder's federal tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Fund to withhold 30%, or the applicable tax treaty rate, from ordinary dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. Long-term capital gains distributions may be subject to this withholding. Dividends and interest from foreign issuers earned by the Fund may give rise to withholding and other taxes imposed by foreign countries, generally at rates from 10% to 40%. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by non-resident investors. Except as indicated below, to the extent that the Fund does pay foreign withholding or other foreign taxes on certain of its investments, investors will not be able to deduct their pro rata shares of such taxes in computing their taxable income nor be able to take their shares of such taxes as a credit against U.S. income taxes. If more than 50% of the value of the Fund's total assets at the close of its fiscal year consist of securities of foreign corporations, the Fund may elect to "pass through" to its shareholders the amount of foreign taxes paid. If this election is made, the shareholders of the Fund will be required to include in their federal income tax returns as gross income their respective pro rata portions of foreign taxes paid by the Fund, to treat such amounts as foreign taxes paid by them, and to deduct such respective pro rata portions in computing their taxable incomes, or, alternatively, to use them as foreign tax credits, (subject to certain limitations) against their U.S. income taxes. The Fund will report annually to its shareholders the amount per share of such withholding, if any. The foregoing is a brief discussion of certain federal income tax considerations. Please see "Taxes - Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of an investment in the Fund. CALCULATION OF NET ASSET VALUE The Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. The Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open. Investments, including options, are stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the last reported bid and asked prices or at fair value as determined by the Board of Directors. Short-term notes and similar securities are included in investments at amortized cost, which approximates value. Securities which are primarily traded on foreign exchanges are generally valued at the preceding closing values of such securities on their respective exchanges or the most recent price available where no closing value is available. The Fund's portfolio may include securities which trade primarily on non-U.S. exchanges or otherwise in non-U.S. markets. Because of time zone differences, the prices of these securities, as used for net asset value calculations, may be established substantially in advance of the close of the New York Stock Exchange. Foreign securities may also trade on days when the New York Stock Exchange is closed (such as a Saturday). The net asset value and public offering price of the Fund, to the extent that it holds securities valued on foreign markets, may vary during periods when the New York Stock Exchange is closed. As a result, the value of the Fund's portfolio may be affected significantly by such trading on days when a shareholder has no access to the Fund. For further information, see "How to Invest," "How to Redeem Shares" and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the "Statement of Additional Information." The net asset value and public offering price of the Fund will be determined as of the close of the regular session of the New York Stock Exchange. The shares of the Fund are offered at net asset value without a sales charge. Purchase, redemption and exchange orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. EXECUTION OF PORTFOLIO TRANSACTIONS Orders for the Fund's portfolio securities transactions are placed by the Advisor or Sub-Advisor, as applicable. The Advisor and Sub- Advisor strive to obtain the best available prices in the Fund's portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical and other information to the Fund, the Advisor or the Sub-Advisor or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States and other countries and money market securities in which the Fund may invest are generally traded in the OTC markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures, currency and options transactions. Commissions or discounts in foreign securities exchanges or OTC markets typically are fixed and generally are higher than those in U.S. securities exchanges or OTC markets. There is generally less government supervision and regulation of foreign exchanges and brokers than in the United States. Foreign security settlements may, in some instances, be subject to delays and related administrative uncertainties. Subject to the requirements of the 1940 Act and procedures adopted by the Board of Directors, the Fund may execute portfolio transactions through any broker or dealer and pay brokerage commissions to a broker which is an affiliated person of the Investment Company, the Advisor or the Sub-Advisor, or an affiliated person of such person. GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July 13, 1988, is a fully managed, open-end investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by the Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor and the Portfolio Management Agreement with the Sub-Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that series and is entitled to such dividends and distributions out of the income earned on the assets belonging to that series as may be declared at the discretion of the Board of Directors. Shares of a series when issued are fully paid and are non-assessable. The Board of Directors may, at its discretion, establish and issue shares of additional series of the Investment Company. Stephen D. Bechtel, Jr., and members of his family, including trusts for family members, due to their shareholdings, may be considered controlling persons of the Fund under applicable Securities and Exchange Commission regulations. TELEPHONE NUMBERS AND ADDRESSES To make an initial purchase: 1. By mail: Fremont Mutual Funds, Inc. c/o National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 Street address: 1004 Baltimore Avenue Kansas City, MO 64105 2. By wire: Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account number and detailed instructions. To make a subsequent purchase: Include shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and automatic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 Fremont Mutual Funds, Inc. Fremont Money Market Fund Fremont Bond Fund Fremont California Intermediate Tax-Free Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont U.S. Small Cap Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund Fremont Institutional U.S. Micro-Cap Fund Fremont Real Estate Securities Fund Fremont Select Fund For more information on the Fremont Mutual Funds please call 800-548-4539 or write to: Fremont Mutual Funds 50 Beale Street, Suite 100 San Francisco, CA 94105 Advisor/Transfer Agent Fremont Investment Advisors, Inc. 333 Market Street, Suite 2600 San Francisco, CA 94105 Sub-Transfer Agent Mailing Address: National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 800-548-4539 (press 2) Street Address: National Financial Data Services 1004 Baltimore Avenue Kansas City, MO 64105 Custodian The Northern Trust Company 50 South Lasalle Street Chicago, IL 60675 Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 Auditors Coopers & Lybrand, L.L.P. 333 Market Street San Francisco, CA 94105 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Funds or the Advisor. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. FREMONT MUTUAL FUNDS, INC. U.S. Micro-Cap Fund March 1, 1998 TABLE OF CONTENTS ITEM PAGE NO. Summary of Fees and Expenses ......................................... Financial Highlights ................................................. The Advisor, The Sub-Advisor and the Fund ............................ Investment Objective, Policies and Risk Considerations ............... General Investment Policies .......................................... Investment Results ................................................... How to Invest ........................................................ Shareholder Account Services and Privileges .......................... How to Redeem Shares ................................................. Retirement Plans ..................................................... Dividends, Distributions and Federal Income Taxation ................. Calculation of Net Asset Value and Public Offering Price ............. Execution of Portfolio Transactions .................................. General Information .................................................. Telephone Numbers and Addresses ...................................... PROSPECTUS FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in the Fremont U.S. Micro-Cap Fund (the "Fund"). FREMONT U.S. MICRO-CAP FUND seeks to achieve long-term capital appreciation by investing primarily in equity securities of micro-cap companies domiciled within the United States. There can be no assurance that the Fund will achieve its investment objective. The Fund is a diversified fund as defined by the Investment Company Act of 1940, as amended (the "1940 Act"). Shares of the Fund are offered without a sales charge. This Prospectus, which should be retained for future reference, sets forth concisely the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, California 94105. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SHARES INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is March 1, 1998. FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 800-548-4539. SUMMARY OF FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees(1) None Exchange Fee None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fee(2) 1.88% 12b-1 Expenses None Other Expenses None ---- Total Fund Operating Expenses 1.88% Example: You would pay the following total expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 YEAR 3 YEARS 5 YEARS 10 YEARS U.S. Micro-Cap Fund $19 $59 $102 $221 THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. The purpose of the above tables is to give you information and assistance in understanding the various costs and expenses of the Fund that an investor may bear directly or indirectly. The percentages expressing annual fund operating expenses of the Fund are based on actual expenses incurred during the most recent fiscal year. See "The Advisor, the Sub-Advisor and the Fund." (1) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $10. See "How to Redeem Shares." (2) The Fund is obligated, under the terms of the management agreement, to pay the Advisor an annual management fee of 2.5% of average net assets with respect to the first $30 million, 2.0% with respect to the next $70 million and 1.5% thereafter. However, the Advisor is obligated to pay all of the Fund's other ordinary operating expenses. Absent waivers of management fees, the management fee and total operating expenses would have been 1.90% for the fiscal year ended October 31, 1997. FINANCIAL HIGHLIGHTS The following information has been audited by Coopers & Lybrand, L.L.P., independent accountants, whose unqualified opinion is included in the Fund's Annual Report. Further information about the Fund's performance is contained in the Annual Report, which is included in the Fund's Statement of Additional Information and which may be obtained without charge. U.S. MICRO-CAP FUND
PERIOD FROM YEAR ENDED OCTOBER 31 JUNE 30, 1994 TO 1997 1996 1995 OCTOBER 31, 1994 ---- ---- ---- ---------------- SELECTED PER SHARE DATA for one share outstanding during the period NET ASSET VALUE, BEGINNING OF PERIOD $ 19.63 $ 14.34 $10.34 $10.00 -------- ------- ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)(a) (.10) (.04) (.05) .02 Net realized and unrealized gain 5.60 5.83 4.05 .34 -------- ------- ------ ------ Total investment operations 5.50 5.79 4.00 .36 -------- ------- ------ ------ LESS DISTRIBUTIONS From net investment income -- -- -- (.02) From net realized gains (2.44) (.50) -- -- -------- ------- ------ ------ Total distributions (2.44) (.50) -- (.02) -------- ------- ------ ------ NET ASSET VALUE, END OF PERIOD $ 22.69 $ 19.63 $14.34 $10.34 ======== ======= ====== ====== TOTAL RETURN # 28.80%(1) 41.46%(1) 38.68%(1) 3.60% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $171,507 $102,48 $7,792 $2,052 Ratio of expenses to average net assets(2) 1.88% 1.96% 2.04% 2.50%* Ratio of net investment income (loss) to average net assets(2) (.67) (.51)% (.67)% .68%* Portfolio turnover rate 125% 81% 144% 129%* Average commission rate paid $ .0505 $ .0541 -- --
(1) total return would have been lower had the advisor not waived expenses. (2) The Advisor is voluntarily limiting the advisory fee to a reduced rate of no greater than 1.98% of average net assets. *Annualized THE ADVISOR, THE SUB-ADVISOR AND THE FUND Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment company which under this Prospectus is offering shares in the Fremont U.S. Micro-Cap Fund. The Investment Company has other series offered with a different prospectus, and the Board of Directors of the Investment Company is permitted to create additional funds at any time. The Fund has its own investment objective and policies and operates as a separate mutual fund. The management of the business and affairs of the Investment Company is the responsibility of the Board of Directors. Fremont Investment Advisors, Inc. (the "Advisor") provides the Fund with investment management and administrative services under an Investment Advisory and Administrative Agreement (the "Advisory Agreement") with the Investment Company. The Advisory Agreement provides that the Advisor shall furnish advice to the Fund with respect to its investments and shall, to the extent authorized by the Board of Directors, determine what securities shall be purchased or sold by the Fund. As described more fully below, the Advisor has retained an investment management firm (the "Sub-Advisor") to provide the Fund with portfolio management services. The Advisor's Investment Committee oversees the portfolio management of the Fund, including the services provided by the Sub-Advisor. The professional staff of the Advisor has offered professional investment management services regarding asset allocation in connection with securities portfolios to the Bechtel Group, Inc. Retirement Plan and the Bechtel Foundation since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987. The Advisor also provides investment advisory services regarding asset allocation, investment manager selection and portfolio diversification to a number of large Bechtel-related investors. The Investment Company is one of its clients. The Advisor will provide direct portfolio management services to the extent that a sub-advisor does not provide those services. In the future, the Advisor may propose to the Investment Company that different or additional sub-advisor(s) be engaged to provide investment advisory or portfolio management services to the Fund. Prior to such engagement, any agreement with a sub-advisor must be approved by the Board of Directors and, if required by law, by the shareholders of the Fund. The Advisor may in its discretion manage all or a portion of the Fund's portfolio directly with or without the use of a sub-advisor. For additional information about the Advisor and the Sub-Advisor, see "Investment Advisory and Other Services" in the Statement of Additional Information. Under the terms of the Advisory Agreement, the Fund pays the Advisor a fee, computed daily and paid monthly, of 2.50% per annum of the Fund's average net assets with respect to the first $30 million, 2.00% with respect to the next $70 million of such assets, and 1.50% of such assets in excess of $100 million. Under this Agreement the Advisor has agreed to bear all of the Fund's expenses, except extraordinary expenses (as designated by a majority of the Investment Company's disinterested directors) and interest, brokerage commissions and other transaction charges relating to the investing activities of the Fund. Kern Capital Management LLC, ("KCM"), 114 West 47th Street, Suite 1926, New York, New York 10036, serves as Sub-Advisor for the Fund pursuant to a Portfolio Management Agreement. The controlling economic and voting members of the Sub-Advisor are Robert E. Kern, and the Advisor; consequently, the Advisor is an affiliate of the Sub-Advisor. The portfolio management team for the Fund is headed by portfolio manager Robert E. Kern. The senior investment managers are Robert E. Kern, Judy R. Finger and David G. Kern. - - Bob Kern, Managing Member, President and Chief Executive Officer of KCM, has over 30 year of investment management experience was a Senior Vice President of the Advisor from April 1997 to August 1997 and was employed by Morgan Grenfell Asset Management, Inc. from 1986 through April 1997, where he headed Morgan Grenfell's Smaller Capitalization Equities Team. - - David Kern, Managing Member and Executive Vice President of KCM, was Vice President of the Advisor from May 1997 until September 1997. From January 1995 until April 1997 was employed as portfolio manager and from February 1997 until April 1997 was employed as Vice President of Founders Asset Management, Inc. a registered investment advisor located in Denver, Colorado. David also served as Vice President and Assistant Portfolio Manager for the Delaware Management Company of Philadelphia, Pennsylvania from February 1990 until December 1994. - - Judy Finger, Member and Senior Vice President of KCM, was employed from June 1995 to August 1997 as Vice President and Assistant Portfolio Manager for the Delaware Management Company of Philadelphia, Pennsylvania, from June 1992 to June 1995 as a Senior Analyst at Fred Alger Management located in New York. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the U.S. Micro-Cap Fund), the Advisor and KCM provides that KCM will manage the investment and reinvestment of the assets of the Fund and continually review, supervise, and administer the Fund's investments. KCM pays all expenses of its staff and their activities in connection with its portfolio management activities. As compensation for its services, the Advisor (not the Fund) pays KCM a fee equal to 1.50% per annum of the first $30 million of the Fund's average net assets, 1.00% of the next $70 million of such assets and .75% of such assets in excess of $100 million. The Portfolio Management Agreement with KCM may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by KCM. Investment Company Administration Corporation (the "Sub-Administrator"), pursuant to an administrative agreement with the Advisor, supervises the administration of the Investment Company and the Fund including, among other responsibilities, the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations. Certain officers of the Investment Company may be provided by the Sub-Administrator. For additional information se "Investment Advisory and Other Services" in the Statement of Additional Information. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS The investment objective and policies of the Fund is stated below. The Fund is intended for long-term investors, not for those who may wish to redeem their shares after a short period of time. All investments, including mutual funds, have risks, and no investment is suitable for all investors. Investors should consult with their financial and other advisors concerning the suitability of this investment for their own particular circumstances. Accordingly, there is no assurance that the Fund will achieve its investment objective. The Fund seeks to achieve long-term capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stock. Under normal market conditions, at least 65% of the total assets of the Fund will be invested in equity securities of U.S. micro-cap companies (described below). These securities will typically trade on a U.S. exchange or in the over-the-counter (OTC) market. However, up to 25% of the Fund's total assets, at the time of purchase, may be invested in securities of micro-cap companies domiciled outside the United States, including sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities market. The Fund may also invest in stock index futures contracts, options on index futures and options on portfolio securities and stock indices. The Fund generally selects its portfolio securities among micro-cap companies, which the Fund defines as companies whose individual market capitalizations would place them in the smallest 10% of market capitalization of companies in the United States as measured by the Wilshire 5000 Index. Currently, these companies have a market capitalization of about $870 million or less. Under normal market conditions, the weighted average capitalization of the portfolio will be less than the market capitalization of the largest company in the bottom 5% of the market value of all U.S. equities as measured by the Wilshire 5000 Index (currently about $400 million). Many micro-cap companies in which the Fund is likely to invest may be more vulnerable than larger companies to adverse business or market developments, may have limited product lines, markets or financial resources and may lack management depth. In addition, many micro-cap companies are not well-known to the investing public, do not have significant institutional ownership and are followed by relatively few securities analysts, with the result that there may tend to be less publicly available information concerning such companies compared to what is available for larger capitalization securities. Finally, the securities of micro-cap companies traded in the OTC market may have fewer market makers, wider spreads between their quoted bid and asked prices and lower trading volumes, resulting in comparatively greater price volatility and less liquidity than the securities of companies that have larger market capitalizations and/or that are traded on the New York or American Stock Exchanges or the market averages in general. Thus, an investment in the Fund may involve considerably more risk than an investment in an investment company investing in the more liquid equity securities of companies traded on the New York or American Stock Exchanges. The Advisor and Sub-Advisor believe that an investment in shares of the Fund provides an opportunity for greater rewards but may involve more risk than an investment in a fund which seeks capital appreciation from investment in common stocks of larger, better- known companies. This is due to, among other things, the likelihood of greater opportunities for superior returns from companies with small stock market capitalizations which are not as well-known to the general public. These shares may have less investor following, and, therefore, may provide opportunities for investment gains due to the inefficiencies in this sector of the marketplace. The Fund seeks to invest in those companies which are in the early stages of an emerging growth cycle, where the Advisor and Sub-Advisor believe earnings will grow faster than both inflation and the economy in general and where it believes such growth has not yet been fully reflected in the market price of these stocks. In seeking investments, the Advisor and Sub-Advisor will typically give weight to companies possessing a variety of characteristics including quality of management, companies which have gone public in recent years, an entrepreneurial management team, a narrow product line focus, or established companies where the growth potential has been significantly enhanced by new product developments, new market opportunities, mergers or divestitures, or new management. The investable universe provides what the Advisor and Sub-Advisor believe is a broad range of stock selection opportunities. Although the Fund invests primarily in common stocks and securities convertible into common stock, for liquidity purposes it will normally invest a portion of its assets in high quality debt securities and money market instruments with remaining maturities of one year or less, including repurchase agreements. Whenever in the judgment of the Advisor or Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in these instruments. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. The Fund may also hold other types of securities from time to time, including non-convertible bonds and preferred stocks, in an amount not exceeding 5% of its net assets. Preferred stocks and bonds will be rated at the time of purchase in the top two categories of Moody's Investor Service, Inc. (Aaa or Aa) or Standard & Poor's Ratings Group, (AAA or AA) or be of comparable quality as determined by the Advisor or Sub-Advisor. GENERAL INVESTMENT POLICIES MONEY MARKET INSTRUMENTS. The Fund may invest in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations and governments; U.S. Government and agency securities; money market mutual funds; and other debt securities which are not specifically named but which meet the Fund's quality guidelines. The Fund also may enter into repurchase agreements as described below and may purchase variable and floating rate debt securities. At the time of purchase, short-term securities must be rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs") or by a single NRSRO in the case of a security rated by only one NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined by the Advisor or the Sub-Advisor. Generally, high quality short-term securities must be issued by an entity with an outstanding debt issue rated A or better by an NRSRO, or an entity of comparable quality as determined by the Advisor or the Sub-Advisor. Obligations of foreign banks, foreign corporations and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A to the Statement of Additional information for a description of rating categories. U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government securities, which are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds and Government National Mortgage Association ("GNMA") certificates, are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies or instrumentalities as described above in the future, other than as set forth above, because it is not obligated to do so by law. WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). The Fund will not purchase securities the value of which is greater than 5% of its net assets on a when-issued basis. The Fund, as purchaser, assumes the risk of any decline in value of the security beginning on the date of the agreement or purchase, and no interest accrues to the Fund until it accepts delivery of the security. The Fund will not use such transactions for leveraging purposes, and accordingly will segregate cash, cash equivalents or liquid securities or hold a covered position in an amount sufficient to meet its payment obligations thereunder. There is always a risk that the securities may not be delivered and that the Fund may incur a loss or will have lost the opportunity to invest the amount set aside for such transaction in the segregated asset account. Settlements in the ordinary course of business, which may take substantially more than three business days for non-U.S. securities, are not treated by the Fund as when-issued or forward commitment transactions and, accordingly, are not subject to the foregoing limitations, even though some of the risks described above may be present in such transactions. SHARES OF INVESTMENT COMPANIES. The Fund may invest some portion of its assets in shares of other no-load, open-end investment companies and closed-end investment companies to the extent that such investment may facilitate achieving the objective of the Fund or to the extent that they afford the primary or most practical means of access to a particular market or markets or they represent attractive investments in their own right. The percentage of Fund assets which may be so invested is not limited, provided that the Fund and its affiliates do not acquire more than 3% of the shares of any such investment company. The provisions of the 1940 Act may also impose certain restrictions on redemption of the Fund's shares in other investment companies. The Fund's purchase of shares of investment companies may result in the payment by a shareholder of duplicative management fees. The Advisor and/or Sub-Advisor will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above, the Fund has the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. REPURCHASE AGREEMENTS. As part of its cash reserve position, the Fund may enter into repurchase agreements through which the Fund acquires a security (the "underlying security") from the seller, a well-established securities dealer or a bank that is a member of the Federal Reserve System. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest. Repurchase agreements are generally for a short period of time, often less than a week. The seller must maintain with the Fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Advisor and/or Sub-Advisor. The Fund will not enter into a repurchase agreement with a maturity of more than seven business days if, as a result, more than 15% of the value of its net assets, would then be invested in such repurchase agreements. The Fund will only enter into repurchase agreements where (1) the underlying securities are issued or guaranteed by the U.S. Government, (2) the market value of the underlying security, including accrued interest, will be at all times equal to or in excess of the value of the repurchase agreement, and (3) payment for the underlying securities is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (1) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible reduced levels of income and lack of access to income during this period; and (3) expenses of enforcing the Fund's rights. PORTFOLIO TURNOVER. The Fund expects to trade in securities for short-term gain whenever deemed advisable by the Advisor and/or Sub-Advisor in order to take advantage of anomalies occurring in general market, economic or political conditions. Therefore, the Fund may have a higher portfolio turnover rate than that of some other investment companies, but it is anticipated that the annual portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by the Fund's average month-end long-term investments. High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions and other costs that the Fund will bear directly, and may result in the realization of net capital gains, which are generally taxable whether or not distributed to shareholders. LOANS OF PORTFOLIO SECURITIES. The Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors in an amount not exceeding 331/3% of its net assets. The borrower must maintain with the Fund's custodian collateral consisting of cash, cash equivalents or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Fund will receive any interest or dividends paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The risks in lending portfolio securities, as with other extensions of secured credit, consist of, among other things, possible delay in receiving additional collateral or in the recovery of the securities, or possible loss of rights in the collateral should the borrower fail financially. The lender also may bear the risk of capital loss on investment of the cash collateral, which must be returned in full to the borrower when the loan is terminated. Loans will be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. BORROWING. The Fund may borrow from banks an amount not exceeding 30% of the value of its total assets for temporary or emergency purposes and enter into reverse repurchase agreements. If the income and gains on securities purchased with the proceeds of borrowings or reverse repurchase agreements exceed the cost of such borrowings or agreements, the Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the cost, earnings or net asset value would decline faster than otherwise would be the case. RESTRICTED SECURITIES. The Fund may purchase securities that are not registered ("restricted securities") under federal securities laws, but can be offered and sold to "qualified institutional buyers." However, the Fund will not invest more than 15% of its assets in illiquid investments, which includes repurchase agreements and fixed time deposits maturing in more than seven days, and securities that are not readily marketable and restricted securities, unless the Board of Directors determines, based upon a continuing review of the trading markets for the specific restricted security, that such restricted securities are liquid. The Board of Directors may adopt guidelines and delegate to the Advisor or Sub-Advisor the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. WARRANTS OR RIGHTS. Warrants or rights may be acquired by the Fund in connection with other securities or separately and provide the Fund with the right to purchase other securities of the issuer at a later date. It is the present intention of the Fund to limit its investments in warrants or rights, valued at the lower of cost or market, to no more than 5% of the value of its net assets. Warrants or rights acquired by the Fund in units or attached to securities will be deemed to be without value for purposes of this restriction. OPTIONS AND FUTURES CONTRACTS. When the Fund is not fully invested, strategies such as buying calls, writing puts, and buying futures may be used to increase its exposure to price changes in stocks or debt securities. When the Advisor and/or Sub-Advisor wishes to hedge against market fluctuations, strategies such as buying puts, writing calls, and selling futures may be used to reduce market exposure. Because most stock index futures and options are based on broad stock market indices, their performance tends to track the performance of common stocks generally -- which may or may not correspond to the types of securities in which the Fund invests. The Fund will maintain segregated accounts consisting of cash, U.S. Government securities or other liquid securities (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under options and futures contracts to avoid leveraging. In seeking appreciation or to reduce principal volatility, the Fund may also (1) enter into futures contracts -- contracts for the future delivery of debt securities, stock, stock index futures contracts with respect to the S&P 500 Index, small capitalization stock market indices or other similar broad-based stock market indices, the initial margins of which are limited to 5% of the Fund's assets; and (2) purchase put and call options on portfolio securities, stock indices or stock index futures contracts -- the premiums of which are limited to 5% of the Fund's assets. The Fund may write put and call options. It will only do so, however, by writing covered put or call options, and the aggregate value of the securities underlying put options, as of the date of sale of the options, will not exceed 50% of the net assets of the Fund. The Fund will set aside cash, cash equivalents, or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contracts. Options and futures can be volatile investments. If the Advisor and/or Sub-Advisor applies a hedge at an inappropriate time or evaluates market conditions incorrectly, options and futures strategies may lower the Fund's return. The Fund could also experience a loss if the prices of its options or futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. Although these investment practices will be used primarily to generate income or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: futures contracts -- no assurance that closing purchase transactions will be available at favorable prices, possible reduction of the Fund's income due to the use of hedging, the possible reduction in value of both the securities hedged and the hedging instrument, and possible loss in excess of the initial margin payment; options and futures contracts -- imperfect correlation between the contract and the underlying security, commodity or index and unsuccessful hedging transactions due to incorrect forecasts of market trends; writing covered call options -- the inability to effect closing transactions at favorable prices and the inability to participate in the appreciation of the underlying securities above the exercise price and premium received; and purchasing or selling put and call options -- possible loss of the entire premium. A more thorough description of these investment practices and their associated risks is contained in the Statement of Additional Information. RISK FACTORS AND SPECIAL CONSIDERATIONS FOR INTERNATIONAL INVESTING. Investment in securities of foreign entities and securities denominated in foreign currencies involves risks typically not present to the same degree in domestic investments. Likewise, investment in ADRs and EDRs presents similar risks, even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include, among other things, fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention and speculation. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social or economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its foreign investments, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. income taxes. See "Dividends, Distributions and Federal Income Taxation." There may be less publicly available information about foreign issuers or securities than about U.S. issuers or securities, and foreign issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of U.S. entities. With respect to unsponsored ADRs, these programs cover securities of companies which are not required to meet either the reporting or accounting standards of the United States. Many foreign financial markets, while generally growing in volume, continue to have substantially less volume than domestic markets, and securities of many foreign companies are less liquid and their prices are more volatile than are securities of comparable U.S. companies. Certain foreign markets may have longer settlement periods than markets in the United States. In addition, brokerage commissions, custodial services and other costs related to investment in foreign markets generally are more expensive than in the United States, particularly with respect to emerging markets. Such markets have different settlement and clearance procedures. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. The inability of the Fund to make intended securities purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result either in losses to the Fund due to subsequent declines in value of a portfolio security or, if the Fund had entered into a contract to sell the security, in possible liability to the purchaser. Settlement procedures in certain emerging markets also carry with them a heightened risk of loss due to the failure of the broker or other service provider to deliver cash or securities. The risks of foreign investing are of greater concern in the case of investments in emerging markets which may exhibit greater price volatility, have less liquidity and have settlement arrangements which are less efficient than in developed markets. Furthermore, the economies of emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. These emerging market economies also have been, and may continue to be, adversely affected by economic conditions in the countries with which they trade. The value of the Fund's portfolio securities computed in U.S. dollars will vary with increases and decreases in the exchange rate between the currencies in which the Fund has invested and the U.S. dollar. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and net investment income and capital gains, if any, to be distributed in U.S. dollars to shareholders by the Fund. The rate of exchange between the U.S. dollar and other currencies is influenced by many factors, including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the price of oil, the pace of activity in the industrial countries, including the United States, and other economic and financial conditions affecting the world economy. The Fund will not invest in a foreign currency or in securities denominated in a foreign currency if such currency is not at the time of investment considered by the Advisor or Sub-Advisor to be fully exchangeable into U.S. dollars without legal restriction. The Fund may purchase securities that are issued by the government or a corporation or financial institution of one nation but denominated in the currency of another nation. To the extent that the Fund invests in ADRs, the depository bank generally pays cash dividends in U.S. dollars regardless of the currency in which such dividends originally are paid by the issuer of the underlying security. The operating expense ratio of the Fund when investing in foreign securities may be higher than that of an investment company investing exclusively in U.S. securities because certain expenses, such as custodial costs, may be higher. Several of the countries in which the Fund may invest restrict, to varying degrees, foreign investments in their securities markets. Governmental and private restrictions take a variety of forms, including (i) limitation on the amount of funds that may be invested into or repatriated from the country (including limitations on repatriation of investment income and capital gains), (ii) prohibitions or substantial restrictions on foreign investment in certain industries or market sectors, such as defense, energy and transportation, (iii) restrictions (whether contained in the charter of an individual company or mandated by the government) on the percentage of securities of a single issuer which may be owned by a foreign investor, (iv) limitations on the types of securities which a foreign investor may purchase and (v) restrictions on a foreign investor's right to invest in companies whose securities are not publicly traded. In some circumstances, these restrictions may limit or preclude investment in certain countries. Therefore, the Fund may invest in such countries through the purchase of shares of investment companies organized under the laws of such countries. The Fund's interest and dividend income from foreign issuers may be subject to non-U.S. withholding taxes. The Fund also may be subject to taxes on trading profits in some countries. In addition, many of the countries in the Pacific Basin have a transfer or stamp duties tax on certain securities transactions. The imposition of these taxes will increase the cost to the Fund of investing in any country imposing such taxes. For United States federal income tax purposes, United States shareholders may be entitled to a credit or deduction to the extent of any foreign income taxes paid by the Fund. See "Dividends, Distributions and Federal Income Taxation." AMERICAN DEPOSITORY RECEIPTS. American Depository Receipts ("ADRs") are negotiable receipts issued by a United States bank or trust to evidence ownership of securities in a foreign company which have been deposited with such bank or trust's office or agent in a foreign country. Investing in ADRs presents risks not present to the same degree as investing in domestic securities even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include, among other things, fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social and economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its ADRs, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. federal income tax. See "Dividends, Distributions and Federal Income Taxation." Unsponsored ADRs are offered by companies which are not prepared to meet either the reporting or accounting standards of the United States. While readily exchangeable with stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs. Additionally, there generally is less publicly available information with respect to unsponsored ADRs. INVESTMENT RESTRICTIONS. The Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions include prohibitions against borrowing money (except as described above) and against concentrating the Fund's investments in issuers conducting their principal business activities in a single industry (except that this limitation does not apply with respect to U.S. Government securities). These investment restrictions and the Fund's investment objective cannot be changed without the approval of shareholders of the Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information, however, can be changed by the Board of Directors without shareholder approval. INVESTMENT RESULTS The Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future performance. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund may calculate performance on an average annual total return basis for 1-, 5- and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced, including reinvested dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending redeemable values as determined above. The Fund's investment results will vary from time to time depending upon, among other thing, economic condition, market conditions, the composition of the Fund's portfolio, and operating expenses of the Fund, so that any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing the Fund's investment results with those published for other investment companies, other investment vehicles and unmanaged indices. The comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Fund may also be mentioned in newspapers, magazines, or other media from time to time. The Fund assumes no responsibility for the accuracy of such data. The Fund's results also should be considered relative to the risks associated with its investment objective and policies. See "Investment Results" in the Statement of Additional Information. Additional performance information regarding the Fund will be included in its annual report, which will be mailed to shareholders without charge upon request. HOW TO INVEST Shares of the Fund may be purchased through the Transfer Agent by submitting payment by check, bank wire or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Fund. All orders for the purchase of shares are subject to acceptance or rejection by the Board of Directors or the Advisor. Purchases of shares are made at the current net asset value next determined after the purchase order is received by the Transfer Agent or by a selling agent of the Fund. A minimum initial investment of $2,000 is required to open a shareholder account, except for retirement plans such as Individual Retirement Accounts (IRAs) and Keogh Plans. Retirement plans are subject to a $1,000 minimum initial investment. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan and may be waived in other instances at the sole discretion of the Advisor. (See "Automatic Investment Plan.") Each subsequent investment in the Fund must be $100 or more except in the case of retirement plans or Automatic Investment Plans. There is a minimum continuing balance of $1,500 required for non-retirement accounts (calculated on the basis of original investment value). In some cases, the minimum balance requirement may be waived at the sole discretion of the Advisor. All purchases made by check should be in U.S. dollars and be made payable to Fremont Mutual Funds. Third party checks, credit cards, and cash will not be accepted. All investment checks are subject to a 10-day holding period. Investors wishing to open a new account by bank wire must call the Transfer Agent at 800-548-4539 to obtain an account number and detailed wire instructions. Bank wire instructions are also provided in the last section of this Prospectus. All bank wire investments received before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be credited the same day. Otherwise, Fund shares will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. Shares of the Fund may also be purchased through broker-dealers or other financial intermediaries who have made appropriate arrangements with the Fund. Such agents are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased for their customers pursuant to such orders. These agents may charge a reasonable transaction fee to their customers. In some instances, all or a portion of the transaction fee, or other selling charge, may be paid by the Advisor. To the extent these agents perform shareholder servicing activities for the Fund, they may receive fees from the Fund or the Advisor for such services. From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor for such activities. As a condition of this offering, if an order to purchase shares is cancelled due to nonpayment (for example, a check returned for "insufficient funds"), the person who placed the order will be subject to a $20 charge and must reimburse the Fund for any loss incurred by reason of such cancellation. For more information, see "Other Investment and Redemption Services" in the Statement of Additional Information. First Funds Distributor, Inc., 4455 Camelback Road, Suite 261E, Phoenix, Arizona, 85018, is the principal underwriter for the Fund. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES STATEMENTS AND REPORTS. When a shareholder makes an initial investment in the Fund, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Fund will receive statements as of the end of March, June, September and December. Shares are issued only in book-entry form (without certificates). The fiscal year of the Fund ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of the Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to the Fund's shareholders after the end of the calendar year on Form 1099-DIV. EXCHANGES BETWEEN FUNDS. Shares of one Fremont Fund may be exchanged for shares of another Fremont Fund at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund that are offered for sale in your state of residence at the time of exchange. It is required that (1) all shares in one Fund must be exchanged or (2) the remaining balance must be at least $1,500. This minimum balance requirement may be waived at the sole discretion of the Advisor. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes, except in the case of tax-deferred retirement accounts or other tax-exempt shareholders that have not borrowed to acquire the shares exchanged. Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions and exchanges of shares should be made for investment purposes only. A pattern of frequent exchanges, purchases and sales can be limited and, at the discretion of the Board of Directors, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from the shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. TELEPHONE EXCHANGE PRIVILEGE. An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Fund. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by the close of trading on the New York Stokc Exchange (currently 4:00 p.m., Eastern time), will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. Autobuy Privilege The Autobuy privilege allows shareholders to purchase subsequent shares by moving money directly from their checking account to a Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not be added to an account without written authorization from the shareholder. The Autobuy privilege will be automatically added to an account when the shareholder chooses any type of ACH privilege. A shareholder may then purchase additional shares in an existing account by calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount wanting to be invested. The investment will automatically be processed through the Automatic Clearing House (ACH) system. There is no fee for this option. If the privilege was not established at the time the account was opened, the shareholder must complete the appropriate form. The form is available on request. AUTOMATIC INVESTMENT PLAN. A shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the share-holder's bank checking, savings, negotiable on withdrawal (NOW) or similar account, with the proceeds to be used to purchase shares of the Fund. The minimum initial investment is waived for accounts opened with the Automatic Investment Plan. The amount of the monthly investment must be at least $50, and is not otherwise subject to the $200 minimum for subsequent investments. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is cancelled due to nonpayment (for example, "insufficient funds"), the shareholder's account will be subject to a $20 charge and the shareholder will be responsible for reimbursing the Fund for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available on request. HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $8 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent, or other Fund agent authorized to accept orders, before the close of trading of the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, Fund shares will be entered at the next calculated net asset value. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see "Signature Guarantee" below). Redemptions from retirement accounts require a written request, with a signature guarantee, unless authorized under the Automatic Withdrawal Plan. Call the Transfer Agent for specific instructions on redemptions. For written redemption requests for an amount greater than $25,000, or a redemption request that directs proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee" below.) Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less than the amount paid for them. Redemption of shares, exchanges and redemptions under an Automatic Withdrawal Plan may result in taxable capital gains or losses. TELEPHONE REDEMPTION PRIVILEGE. An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 800-548-4539. (The Telephone Redemption Privilege is not available for IRA or other retirement accounts.) Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, the Transfer Agent, nor their respective affiliates, will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Investment Company and/or the Transfer Agent do not employ such procedures, they may be liable for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. AUTOMATIC WITHDRAWAL PLAN. A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions will be made on the last business day of the month. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Automatic redemptions should not reduce the account below the minimum balance required (currently $1,500). Shareholders may terminate the Automatic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Funds, shareholders must specify if they desire the automatic withdrawal option to be transferred to a new account opened by the exchange. As an account balance declines to the minimum permitted, the shareholder must advise the Transfer Agent if the automatic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is an Automatic Withdrawal Plan established for an account and the entire account is exchanged into another Fremont Fund, the automatic withdrawal option must be renewed by written request to the Transfer Agent. A shareholder wishing to initiate automatic redemptions must complete an Automatic Withdrawal Plan form available from the Transfer Agent. SIGNATURE GUARANTEE. To better protect the Fund and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. OTHER IMPORTANT REDEMPTION INFORMATION. A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. Payment in redemption of shares is normally made within three business days after receipt by the Transfer Agent of a request in proper form, provided that payment in redemption of shares purchased by check or draft will be effected only after such check or draft has been collected. Although it is anticipated that this process will be completed in less time, it may take up to 10 days. Redemption proceeds will not be delayed when shares have been paid for by bank wire or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven calendar days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. The Fund reserves the right to redeem mandatorily the shares in a shareholder's account (other than a retirement plan account) if the balance is reduced to less than $1,500 in net asset value through redemptions or other action by the shareholder. Notice will be given to the shareholder at least 30 days prior to the date fixed for such redemption, during which time the shareholder may increase its holdings to an aggregate amount of $1,500 or more (with a minimum purchase of $100 or more.) This minimum balance may be waived at the sole discretion of the Advisor. REDEMPTION IN KIND. The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. Transfer Agent. The Advisor is transfer agent to the Funds and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Transfer and Dividend Disbursing Agent and shareholder service agent. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. RETIREMENT PLANS Shares of the Fund may be purchased in connection with various tax-deferred retirement plans. These include Individual Retirement Accounts (IRAs); SEP-IRAs; SIMPLE IRAs; Roth IRAs; Qualified Retirement Plans for self-employed persons and their employees; corporate pension and profit-sharing plans; and Section 403(b) Plans, which are deferred compensation arrangements for employees of public schools and certain charitable organizations. Forms for establishing IRAs, SEP-IRAs, SIMPLE IRAs, Roth IRAs, and Qualified Retirement Plans are available through the Investment Company, as are forms for corporate Pension and Profit-Sharing plans. Please contact the Investment Company for more information about establishing these accounts. In accordance with industry practice, there may be an annual account charge for participation in these plans. Information regarding these charges is available from the Investment Company. Retirement plan participants may receive additional services related to their plan at no extra cost to any shareholder. DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION The Fund has qualified, and intends to continue to qualify to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code (the "Code"). For any tax year in which the Fund so qualifies and meets certain other distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires a Fund to diversify its investments so that, at the end of each fiscal quarter, (1) at least 50% of the market value of the Fund's assets is represented by cash, U.S. government securities, securities of other regulated investment companies, and other securities, limited, in respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. The Fund intends to distribute all of its net investment income once each year in September. The Fund intends to distribute all of its net realized capital gains, if any, at the end of the calendar year (on or about December 15). Dividend and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All dividends and distributions are taxable to a shareholder (except tax-exempt shareholders who have not borrowed to acquire their shares) whether or not they are reinvested in shares of the Fund. Any long-term or mid-term capital gains distributions are taxable to shareholders as long-term or mid-term capital gains, respectively, regardless of how long shareholders have held Fund shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months, and 20% with respect to assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Corporate investors may be entitled to the "dividends received" deduction on all or a portion of the dividends paid by the Fund. Availability of the "dividends received" deduction is subject to certain holding period and debt-financing limitations. Shareholders may elect: - -- to have all dividends and capital gain distributions automatically reinvested in additional shares; or - -- to receive the income dividends and short-term capital gains distributions in cash and accept the long-term capital gains distributions in additional shares; or - -- to receive all distributions of income dividends and capital gains in cash. Automatic reinvestments will be at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gain distributions will be automatically reinvested. These elections may be changed by the shareholder at any time, but to be effective for a particular dividend or capital gain distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in October, November or December by the Fund and paid in January are taxable as if paid in December. The Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Fund that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Fund to withhold 31% from any dividends and/or redemptions (including exchange redemptions to the shareholder). Amounts withheld are applied to the shareholder's federal tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Fund to withhold 30%, or the applicable tax treaty rate, from ordinary dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. Long-term capital gains distributions may be subject to this withholding. Dividends and interest from foreign issuers earned by the Fund may give rise to withholding and other taxes imposed by foreign countries, generally at rates from 10% to 40%. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by non-resident investors. Except as indicated below, to the extent that the Fund does pay foreign withholding or other foreign taxes on certain of its investments, investors will not be able to deduct their pro rata shares of such taxes in computing their taxable income nor be able to take their shares of such taxes as a credit against U.S. income taxes. If more than 50% of the value of the Fund's total assets at the close of its fiscal year consist of securities of foreign corporations, the Fund may elect to "pass through" to its shareholders the amount of foreign taxes paid. If this election is made, the shareholders of the Fund will be required to include in their federal income tax returns as gross income their respective pro rata portions of foreign taxes paid by the Fund, to treat such amounts as foreign taxes paid by them, and to deduct such respective pro rata portions in computing their taxable incomes, or, alternatively, to use them as foreign tax credits, (subject to certain limitations) against their U.S. income taxes. The Fund will report annually to its shareholders the amount per share of such withholding, if any. The foregoing is a brief discussion of certain federal income tax considerations. Please see "Taxes -- Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of an investment in the Fund. CALCULATION OF NET ASSET VALUE The Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. The Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open. Investments, including options, are stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the last reported bid and asked prices or at fair value as determined by the Board of Directors. Short-term notes and similar securities are included in investments at amortized cost, which approximates value. Securities which are primarily traded on foreign exchanges are generally valued at the preceding closing values of such securities on their respective exchanges or the most recent price available where no closing value is availableThe Fund's portfolio may include securities which trade primarily on non-U.S. exchanges or otherwise in non-U.S. markets. Because of time zone differences, the prices of these securities, as used for net asset value calculations, may be established substantially in advance of the close of the New York Stock Exchange. Foreign securities may also trade on days when the New York Stock Exchange is closed (such as a Saturday). The net asset value and public offering price of the Fund, to the extent that it holds securities valued on foreign markets, may vary during periods when the New York Stock Exchange is closed. As a result, the value of the Fund's portfolio may be affected significantly by such trading on days when a shareholder has no access to the Fund. For further information, see "How to Invest," "How to Redeem Shares" and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the Statement of Additional Information. The net asset value and public offering price of the Fund will be determined as of the close of the regular session of the New York Stock Exchange. The shares of the Fund are offered at net asset value without a sales charge. Purchase, redemption and exchange orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, the orders will be entered at the next calculated net asset value. EXECUTION OF PORTFOLIO TRANSACTIONS Orders for the Fund's portfolio securities transactions are placed by the Advisor or Sub-Advisor, as applicable. The Advisor and Sub-Advisor strive to obtain the best available prices in the Fund's portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical and other information to the Fund, the Advisor or the Sub-Advisor or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States and other countries and money market securities in which the Fund may invest are generally traded in the OTC markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures, currency and options transactions. Commissions or discounts in foreign securities exchanges or OTC markets typically are fixed and generally are higher than those in U.S. securities exchanges or OTC markets. There is generally less government supervision and regulation of foreign exchanges and brokers than in the United States. Foreign security settlements may, in some instances, be subject to delays and related administrative uncertainties. Subject to the requirements of the 1940 Act and procedures adopted by the Board of Directors, the Fund may execute portfolio transactions through any broker or dealer and pay brokerage commissions to a broker which is an affiliated person of the Investment Company, the Advisor or the Sub-Advisor, or an affiliated person of such person. GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July 13, 1988, is a fully managed open-end investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by the Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor and the Portfolio Management Agreement with the Sub-Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that series and is entitled to such dividends and distributions out of the income earned on the assets belonging to that series as may be declared at the discretion of the Board of Directors. Shares of a series when issued are fully paid and are non-assessable. The Board of Directors may, at its discretion, establish and issue shares of additional series of the Investment Company. Stephen D. Bechtel, Jr., and members of his family, including trusts for family members, due to their shareholdings, may be considered controlling persons of the Fund under applicable Securities and Exchange Commission regulations. TELEPHONE NUMBERS AND ADDRESSES To make an initial purchase: 1. By mail: Fremont Mutual Funds, Inc. c/o National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 Street address: 1004 Baltimore Avenue Kansas City, MO 64105 2. By wire: Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account number and detailed instructions. To make a subsequent purchase: Include shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and automatic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 Fremont Mutual Funds, Inc. Fremont Money Market Fund Fremont Bond Fund Fremont California Intermediate Tax-Free Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont U.S. Small Cap Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund Fremont Real Estate Securities Fund Fremont Select Fund For more information on the Fremont Mutual Funds please call 800-548-4539 or write to: Fremont Mutual Funds 50 Beale Street, Suite 100 San Francisco, CA 94105 Advisor/Transfer Agent Fremont Investment Advisors, Inc. 333 Market Street, Suite 2600 San Francisco, CA 94105 Sub-Transfer Agent Mailing Address: National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 800-548-4539 (press 2) Street Address: National Financial Data Services 1004 Baltimore Avenue Kansas City, MO 64105 Custodian The Northern Trust Company 50 South Lasalle Street Chicago, IL 60675 Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 Auditors Coopers & Lybrand, L.L.P. 333 Market Street San Francisco, CA 94105 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Funds or the Advisor. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Fremont Mutual Funds, Inc. Institutional U.S. Micro-Cap Fund March 1, 1998 TABLE OF CONTENTS ITEM PAGE NO. Summary of Fees and Expenses................................... The Advisor and the Fund....................................... Investment Objective, Policies and Risk Considerations......... General Investment Policies.................................... Investment Results............................................ How to Invest................................................. Shareholder Account Services and Privileges................... How to Redeem Shares.......................................... Retirement Plans.............................................. Dividends, Distributions and Federal Income Taxation.......... Calculation of Net Asset Value and Public Offering Price...... Execution of Portfolio Transactions........................... General Information........................................... Telephone Numbers and Addresses............................... Prospectus FREMONT MUTUAL FUNDS, INC. is an open-end investment company which under this Prospectus is offering shares in the Fremont Institutional U.S. Micro-Cap Fund (the "Fund"). FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND seeks to achieve long-term capital appreciation by investing primarily in equity securities of micro-cap companies domiciled within the United States. There can be no assurance that the Fund will achieve its investment objective. The Fund is a diversified fund as defined by the Investment Company Act of 1940, as amended (the "1940 Act"). Shares of the Fund are offered without a sales charge. This Prospectus, which should be retained for future reference, sets forth concisely the information an investor should know before investing. Should more detailed information be desired, a Statement of Additional Information, which is incorporated by reference into this Prospectus, is available without charge by calling toll-free 800-548-4539 (press 1) or by writing to Fremont Mutual Funds, Inc., 50 Beale Street, Suite 100, San Francisco, California 94105. LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is March 1, 1998. FOR FURTHER INFORMATION OR TO REQUEST A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, CALL 800-548-4539. SUMMARY OF FEES AND EXPENSES Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Redemption Fees(1) None Exchange Fee None Estimated Annual Fund Operating Expenses (as a percentage of average net assets)(2) Management Fee 1.15% 12b-1 Expenses None Other Expenses After Reimbursement .10% Total Fund Operating Expenses 1.25% Example: You would pay the following total expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 Year 3 Years Institutional U.S. Micro-Cap Fund $13 $40 THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE EXPENSES OR ANNUAL RETURNS. ACTUAL EXPENSES AND ANNUAL RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE. The purpose of the above table is to give you information and assistance in understanding the various costs and expenses of the Fund that an investor may bear directly or indirectly. Other expenses include, but are not limited to, transfer agent fees paid to Fremont Investment Advisors, Inc.; custody, legal and audit fees, costs of registration of Fund shares under applicable laws; and costs of printing and distributing reports to shareholders. The percentages expressing annual fund operating expenses of the Fund are based on estimated expenses for the current fiscal year. See "The Advisor and the Fund." (1) A wire transfer fee is charged by the Transfer Agent in the case of redemptions made by wire. Such fee is subject to change and is currently $10. See "How to Redeem Shares." (2) The Advisor has agreed to limit the Fund's total operating expenses to 1.25% of average daily net assets. The Fund may reimburse the Advisor for any reductions in the Advisor's fees 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 interests of the Fund. The Advisor generally seeks to reimburse the oldest reductions and waivers before payment of fees and expenses for the current year. Absent reimbursements of expenses by the Advisor, other expenses and total operating expenses would have been .34% and 1.49%, respectively, for the fiscal year ended October 31, 1997. Financial Highlights The financial highlights of the Funds presented below have been audited by Coopers & Lybrand, L.L.P., independent accountants. Their report covering each of the five fiscal years in the period ended October 31, 1997, is included in the Funds' Annual Report. Further information about the Funds' performance is also contained in the Annual Report, which is included in the Funds' Statement of Additional Information and which may be obtained without charge. (FOR THE PERIOD AUGUST 4, 1997, DATE OF INCEPTION, THROUGH OCTOBER 31, 1997) SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ----------- INCOME FROM INVESTMENT OPERATIONS Net realized and unrealized gain .09 ----------- Total investment operations .09 ----------- LESS DISTRIBUTIONS From net realized gains (.31) ----------- Total distributions (.31) ----------- NET ASSET VALUE, END OF PERIOD $ 9.78 =========== TOTAL RETURN# 0.90% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 40,545 Ratio of net expenses to average net assets(a) 1.25%* Ratio of gross expenses to average net assets(a) 1.49%* Ratio of net investment loss to average net assets(a) (0.21)%* Portfolio turnover rate 28% Average commission rate paid $ .0521 *Annualized (a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived and/or reimbursed expenses. THE ADVISOR AND THE FUND Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end investment company which under this Prospectus is offering shares in the Fremont Institutional U.S. Micro-Cap Fund. The Investment Company has other series offered with a different prospectus, and the Board of Directors of the Investment Company is permitted to create additional funds at any time. The Fund has its own investment objective and policies and operates as a separate mutual fund. The Fund is the successor to the post-venture Fund of Fund A of the Bechtel Trust and Thrift Plan. 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") and Kern Capital Management, LLC (the "Sub-Advisor") provide the Fund with investment management and administrative services under, respectively, an Investment Advisory and Administrative Agreement (the "Advisory Agreement") with the Investment Company and a Portfolio Management Agreement between the Advisor and the Sub-Advisor. The Advisory Agreement and Portfolio Management Agreement provide that the Advisor and Sub-Advisor, respectively, 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 professional staff of the Advisor has offered professional investment management services regarding asset allocation in connection with securities portfolios to the Bechtel Trust and Thrift Plan and the Bechtel Foundation since 1978 and to Fremont Investors, Inc. (formerly Fremont Group, Inc.) since 1987. Similarly, the professional staff of the Sub-Advisor have over ten years of experience with this particular Fund. The Advisor also provides investment advisory services regarding asset allocation, investment manager selection and portfolio diversification to a number of large Bechtel-related investors. The Investment Company is one of its clients. As compensation for its services to the Fund, the Advisor receives from the Fund a management fee, computed daily and paid monthly, of 1.15% per annum of the Fund's average net assets. In addition to the fees described above, the Fund pays its own operating expenses including, but not limited to: the Advisor's fees; taxes, if any; brokerage and commission expenses, if any; interest charges on any borrowings; transfer agent, administrator, custodian, legal and auditing fees; shareholder servicing fees including fees to third-party servicing agents; fees and expenses of Directors who are not interested persons of the Advisor or the Sub-Advisor; costs and expenses of calculating daily net asset value; costs and expenses of accounting, bookkeeping and recordkeeping required under the 1940 Act; insurance premiums; trade association dues; fees and expenses of registering and maintaining registration of shares under federal and applicable state securities laws; all costs associated with shareholders' meetings and the preparation and dissemination of proxy materials, except for meetings called solely for the benefit of the Advisor or its affiliates; printing and mailing prospectuses, statements of additional information and reports to shareholders; and other expenses relating to the Fund's operations, plus any extraordinary and nonrecurring expenses that are not expressly assumed by the Advisor. All operating expenses of the Fund are subject to a voluntary limitation of 1.25% per annum. To the extent management fees are waived and/or other expenses are reimbursed by the Advisor, the Advisor may elect to recapture such amounts if it requests reimbursement within three years of the year in which the waiver and/or reimbursement is made, and the Board of Directors approves the reimbursement, and the Fund is able to make reimbursement and still stay within the then current operating expense limitation. Kern Capital Management LLC, ("KCM"), 114 West 47th Street, Suite 1926, New York, New York 10036, serves as Sub-Advisor for the Fund pursuant to a Portfolio Management Agreement. The controlling economic and voting members of the Sub-Advisor are Robert E. Kern, and the Advisor; consequently, the Advisor is an affiliate of the Sub-Advisor. The portfolio management team for the Fund is headed by portfolio manager Robert E. Kern. The senior investment managers are Robert E. Kern, Judy R. Finger and David G. Kern. - - Bob Kern, Managing Member, President and Chief Executive Officer of KCM, has over 30 year of investment management experience was a Senior Vice President of the Advisor from April 1997 to August 1997 and was employed by Morgan Grenfell Asset Management, Inc. from 1986 through April 1997, where he headed Morgan Grenfell's Smaller Capitalization Equities Team. - - David Kern, Managing Member and Executive Vice President of KCM, was Vice President of the Advisor from May 1997 until September 1997. From January 1995 until April 1997 was employed as portfolio manager and from February 1997 until April 1997 was employed as Vice President of Founders Asset Management, Inc. a registered investment advisor located in Denver, Colorado. David also served as Vice President and Assistant Portfolio Manager for the Delaware Management Company of Philadelphia, Pennsylvania from February 1990 until December 1994. - - Judy Finger, Member and Senior Vice President of KCM, was employed from June 1995 to August 1997 as Vice President and Assistant Portfolio Manager for the Delaware Management Company of Philadelphia, Pennsylvania, from June 1992 to June 1995 as a Senior Analyst at Fred Alger Management located in New York. Until terminated, the Portfolio Management Agreement between the Investment Company (with respect to the Fund), the Advisor and the Sub-Advisor provides that the Sub-Advisor will manage the investment and reinvestment of assets of the Fund and continually review and administer the Fund's investments. As compensation for its services, the Advisor (not the Fund) pays the Sub-Advisor a fee equal to .75% per annum of Fund assets managed by the Sub-Advisor. The Portfolio Management Agreement with Sub-Advisor may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by the Sub-Advisor. The Advisor will provide direct portfolio management services to the extent that the Sub-Advisor does not provide these services. The Investment Company and the Advisor have received from the Securities and Exchange Commission an order (the "SEC Order") exempting the Fund from the provisions of the 1940 Act that require the shareholders of the Fund to approve the Fund's subadvisory agreement(s) and any amendments thereto. The SEC Order permits the Advisor to hire new sub-advisors, terminate sub-advisors, rehire existing sub-advisors whose agreements have been assigned (and, thus, automatically terminated), and modify subadvisory agreements without the prior approval of shareholders. By eliminating shareholder approval in these matters, the Advisor would have greater flexibility in managing sub-advisors, and shareholders would save the considerable expense involved in holding shareholder meetings and soliciting proxies. 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. Investment Company Administration Corporation (the "Sub-Administrator"), pursuant to an administration agreement with the Advisor, supervises the administration of the Investment Company and the Fund including, among other responsibilities, the preparation and filing of documents required for compliance by the Fund with applicable laws and regulations. Certain officers of the Investment Company may be provided by the Sub-Administrator. For additional information, see "Investment Advisory and Other Services" in the Statement of Additional Information. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS The investment objective and policies of the Fund is stated below. The Fund is intended for long-term investors, not for those who may wish to redeem their shares after a short period of time. All investments, including mutual funds, have risks, and no investment is suitable for all investors. Investors should consult with their financial and other advisors concerning the suitability of this investment for their own particular circumstances. Accordingly, there is no assurance that the Fund will achieve its investment objective. The Fund seeks to achieve long-term capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stock. Under normal market conditions, at least 65% of the total assets of the Fund will be invested in equity securities of U.S. micro-cap companies (described below). These securities will trade on a U.S. exchange or in the over-the-counter (OTC) market. However, up to 25% of the Fund's total assets, at the time of purchase, may be invested in securities of micro-cap companies domiciled outside the United States, including sponsored and unsponsored American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"). See "General Investment Policies" for a discussion of ADRs. EDRs are similar to ADRs but are designed for use in the European securities market. The Fund may also invest in stock index futures contracts, options on index futures and options on portfolio securities and stock indices. The Fund generally selects its portfolio securities among micro-cap companies, which the Fund defines as companies whose individual market capitalizations would place them in the smallest 10% of market capitalization of companies in the United States as measured by the Wilshire 5000 Index. Currently, these companies have a market capitalization of about $870 million or less. Under normal market conditions, the weighted average capitalization of the portfolio will be less than the market capitalization of the largest company in the bottom 5% of the market value of all U.S. equities as measured by the Wilshire 5000 Index (currently about $400 million). Many micro-cap companies in which the Fund is likely to invest may be more vulnerable than larger companies to adverse business or market developments, may have limited product lines, markets or financial resources and may lack management depth. In addition, many micro-cap companies are not well-known to the investing public, do not have significant institutional ownership and are followed by relatively few securities analysts, with the result that there may tend to be less publicly available information concerning such companies compared to what is available for larger capitalization securities. Finally, the securities of micro-cap companies traded in the OTC market may have fewer market makers, wider spreads between their quoted bid and asked prices and lower trading volumes, resulting in comparatively greater price volatility and less liquidity than the securities of companies that have larger market capitalizations and/or that are traded on the New York or American Stock Exchanges or the market averages in general. Thus, the Fund may involve considerably more risk than an investment company investing in the more liquid equity securities of companies traded on the New York or American Stock Exchanges. The Advisor and Sub-Advisor believe that an investment in shares of the Fund provides an opportunity for greater rewards but will involve more risk than an investment in a fund which seeks capital appreciation from investment in common stocks of larger, better-known companies. This is due to greater opportunities for superior returns from companies with small stock market capitalizations which are not as well-known to the general public. These shares may have less investor following, and, therefore, may provide opportunities for investment gains due to the inefficiencies in this sector of the marketplace. The Fund seeks to invest in those companies which are in the early stages of an emerging growth cycle, where the Advisor and Sub-Advisor believe earnings will grow faster than both inflation and the economy in general and where it believes such growth has not yet been fully reflected in the market price of these stocks. In seeking investments, the Advisor and Sub-Advisor will give weight to companies possessing a variety of characteristics including quality of management, companies which have gone public in recent years, an entrepreneurial management team, a narrow product line focus, or established companies where the growth potential has been significantly enhanced by new product developments, new market opportunities, mergers or divestitures, or new management. The investable universe provides what the Advisor and Sub-Advisor believe is a broad range of stock selection opportunities. Although the Fund invests primarily in common stocks and securities convertible into common stock, for liquidity purposes it will normally invest a portion of its assets in high quality debt securities and money market instruments with remaining maturities of one year or less, including repurchase agreements. Whenever in the judgment of the Advisor or the Sub-Advisor market or economic conditions warrant, the Fund may, for temporary defensive purposes, invest without limitation in these instruments. During times that the Fund is investing defensively, the Fund will not be pursuing its stated investment objective. The Fund may also hold other types of securities from time to time, including non-convertible bonds and preferred stocks, in an amount not exceeding 5% of its net assets. Preferred stocks and bonds will be rated at the time of purchase in the top two categories of Moody's Investor Service, Inc. (Aaa or Aa) or Standard & Poor's Ratings Group, (AAA or AA) or be of comparable quality as determined by the Advisor. GENERAL INVESTMENT POLICIES Money Market Instruments. The Fund may invest in any of the following "money market" instruments: certificates of deposit, time deposits, commercial paper, bankers' acceptances and Eurodollar certificates of deposit; U.S. dollar-denominated money market instruments of foreign financial institutions, corporations and governments; U.S. Government and agency securities; money market mutual funds; and other debt securities which are not specifically named but which meet the Fund's quality guidelines. The Fund also may enter into repurchase agreements as described below and may purchase variable and floating rate debt securities. At the time of purchase, short-term securities must be rated in the top rating category by at least two nationally recognized statistical rating organizations ("NRSROs") or by a single NRSRO in the case of a security rated by only one NRSRO, or, if not rated by an NRSRO, must be of comparable quality as determined by the Advisor. 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. Obligations of foreign banks, foreign corporations and foreign branches of domestic banks must be payable in U.S. dollars. See Appendix A to the Statement of Additional information for a description of rating categories. U.S. Government Securities. The Fund may invest in U.S. Government securities, which are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds and Government National Mortgage Association ("GNMA") certificates, are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Mortgage Corporation ("FHLMC") , are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association ("FNMA") , are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government will provide financial support to U.S. Government agencies or instrumentalities as described above in the future, other than as set forth above, because it is not obligated to do so by law. When-Issued Securities and Firm Commitment Agreements. The Fund may purchase securities on a delayed delivery or "when-issued" basis and enter into firm commitment agreements (transactions whereby the payment obligation and interest rate are fixed at the time of the transaction, but the settlement is delayed). The Fund will not purchase securities the value of which is greater than 5% of its net assets on a when-issued basis. The Fund, as purchaser, assumes the risk of any decline in value of the security beginning on the date of the agreement or purchase, and no interest accrues to the Fund until it accepts delivery of the security. The Fund will not use such transactions for leveraging purposes, and accordingly will segregate cash, cash equivalents or liquid securities or hold a covered position in an amount sufficient to meet its payment obligations thereunder. There is always a risk that the securities may not be delivered and that the Fund may incur a loss or will have lost the opportunity to invest the amount set aside for such transaction in the segregated asset account. Settlements in the ordinary course of business, which may take substantially more than three business days for non-U.S. securities, are not treated by the Fund as when-issued or forward commitment transactions and, accordingly, are not subject to the foregoing limitations, even though some of the risks described above may be present in such transactions. Shares of Investment Companies. The Fund may invest some portion of its assets in shares of other no-load, open-end investment companies and closed-end investment companies to the extent that 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 the Sub-Advisor will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above, the Fund has the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. Repurchase Agreements. As part of its cash reserve position, the Fund may enter into repurchase agreements through which the Fund acquires a security (the "underlying security") from the seller, a well-established securities dealer or a bank that is a member of the Federal Reserve System. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus a specified amount of interest. Repurchase agreements are generally for a short period of time, often less than a week. The seller 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 the Sub-Advisor. The Fund will not enter into a repurchase agreement with a maturity of more than seven business days if, as a result, more than 15% of the value of its net assets, would then be invested in such repurchase agreements. The Fund will only enter into repurchase agreements where (1) the underlying securities are issued or guaranteed by the U.S. Government, (2) the market value of the underlying security, including accrued interest, will be at all times equal to or in excess of the value of the repurchase agreement, and (3) payment for the underlying securities is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (1) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible subnormal levels of income and lack of access to income during this period; and (3) expenses of enforcing the Fund's rights. Portfolio Turnover. The Fund expects to trade in securities for short-term gain whenever deemed advisable by the Advisor and/or the Sub-Advisor in order to take advantage of anomalies occurring in general market, economic or political conditions. Therefore, the Fund may have a higher portfolio turnover rate than that of some other investment companies, but it is anticipated that the annual portfolio turnover rate of the Fund will not exceed 200%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of long-term portfolio securities by the Fund's average month-end long-term investments. High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions and other costs that the Fund will bear directly, and may result in the realization of net capital gains, which are generally taxable whether or not distributed to shareholders. Loans of Portfolio Securities. The Fund is authorized to make loans of its portfolio securities to broker-dealers or to other institutional investors in an amount not exceeding 331/3% 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 to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the associated risk. Borrowing. The Fund may borrow from banks an amount not exceeding 30% of the value of its total assets for temporary or emergency purposes and may enter into reverse repurchase agreements. If the income and gains on securities purchased with the proceeds of borrowings or reverse repurchase agreements exceed the cost of such borrowings or agreements, the Fund's earnings or net asset value will increase faster than otherwise would be the case; conversely, if the income and gains fail to exceed the cost, earnings or net asset value would decline faster than otherwise would be the case. Restricted Securities. The Fund may purchase securities that are not registered under federal securities laws, but can be offered and sold to "qualified institutional buyers" ("restricted securities"). However, the Fund will not invest more than 15% of its net assets in illiquid investments, which includes repurchase agreements and fixed time deposits maturing in more than seven days, and securities that are not readily marketable and restricted securities, unless the Board of Directors determines, based upon a continuing review of the trading markets for the specific restricted security, that such restricted securities are liquid. The Board of Directors may adopt guidelines and delegate to the Advisor or the Sub-Advisor the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and ultimate responsibility for the determinations. Warrants or Rights. Warrants or rights may be acquired by the Fund in connection with other securities or separately and provide the Fund with the right to purchase other securities of the issuer at a later date. It is the present intention of the Fund to limit its investments in warrants or rights, valued at the lower of cost or market, to no more than 5% of the value of its net assets. Warrants or rights acquired by the Fund in units or attached to securities will be deemed to be without value for purposes of this restriction. Options and Futures Contracts. When the Fund is not fully invested, strategies such as buying calls, writing puts, and buying futures may be used to increase its exposure to price changes in stocks or debt securities. When the Advisor and/or the Sub-Advisor wishes to hedge against market fluctuations, strategies such as buying puts, writing calls, and selling futures may be used to reduce market exposure. Because most stock index futures and options are based on broad stock market indices, their performance tends to track the performance of common stocks generally - which may or may not correspond to the types of securities in which the Fund invests. The Fund will maintain segregated accounts consisting of cash, U.S. Government securities or other liquid securities (or, as permitted by applicable regulations, enter into certain offsetting positions) to cover its obligations under options and futures contracts to avoid leveraging. In seeking appreciation or to reduce principal volatility, the Fund may also (1) enter into futures contracts (contracts for the future delivery of debt securities, stock, stock index futures contracts with respect to the S&P 500 Index, small capitalization stock market indices or other similar broad-based stock market indices, the initial margins of which are limited to 5% of the Fund's assets); and (2) purchase put and call options on portfolio securities, stock indices or stock index futures contracts - the premiums of which are limited to 5% of the Fund's assets. The Fund may write put and call options. It will only do so by writing covered put or call options, and the aggregate value of the securities underlying put options, as of the date of sale of the options, will not exceed 50% of the net assets of the Fund. The Fund will set aside cash, cash equivalents, or liquid securities, or hold a covered position against any potential delivery or payment obligations under any outstanding option or futures contracts. Options and futures can be volatile investments. If the Advisor and/or the Sub-Advisor applies a hedge at an inappropriate time or evaluates market conditions incorrectly, options and futures strategies may lower the Fund's return. The Fund could also experience a loss if the prices of its options or futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. Although these investment practices will be used primarily to generate income or to minimize the fluctuation of principal, they do involve risks which are different in some respects from the investment risks associated with similar funds which do not engage in such activities. These risks may include the following: futures contracts - no assurance that closing purchase transactions will be available at favorable prices, possible reduction of the Fund's income due to the use of hedging, the possible reduction in value of both the securities hedged and the hedging instrument, and possible loss in excess of the initial margin payment; options and futures contracts - imperfect correlation between the contract and the underlying security, commodity or index and unsuccessful hedging transactions due to incorrect forecasts of market trends; writing covered call options - the inability to effect closing transactions at favorable prices and the inability to participate in the appreciation of the underlying securities above the exercise price and premium received; and purchasing or selling put and call options -possible loss of the entire premium. A more thorough description of these investment practices and their associated risks is contained in the Statement of Additional Information. Risk Factors and Special Considerations for International Investing. Investment in securities of foreign entities and securities denominated in foreign currencies involves risks typically not present to the same degree in domestic investments. Likewise, investment in ADRs and EDRs presents similar risks, even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social or economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its foreign investments, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. income taxes. See "Dividends, Distributions and Federal Income Taxation." There may be less publicly available information about foreign issuers or securities than about U.S. issuers or securities, and foreign issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of U.S. entities. With respect to unsponsored ADRs, these programs cover securities of companies which are not required to meet either the reporting or accounting standards of the United States. Many foreign financial markets, while generally growing in volume, continue to have substantially less volume than domestic markets, and securities of many foreign companies are less liquid and their prices are more volatile than are securities of comparable U.S. companies. Such markets may have longer settlement periods than markets in the United States. In addition, brokerage commissions, custodial services and other costs related to investment in foreign markets generally are more expensive than in the United States, particularly with respect to emerging markets. Such markets have different settlement and clearance procedures. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. The inability of the Fund to make intended securities purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result either in losses to the Fund due to subsequent declines in value of a portfolio security or, if the Fund had entered into a contract to sell the security, could result in possible liability to the purchaser. Settlement procedures in certain emerging markets also carry with them a heightened risk of loss due to the failure of the broker or other service provider to deliver cash or securities. The risks of foreign investing are of greater concern in the case of investments in emerging markets which may exhibit greater price volatility, have less liquidity and have settlement arrangements which are less efficient than in developed markets. Furthermore, the economies of emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. These emerging market economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The value of the Fund's portfolio securities computed in U.S. dollars will vary with increases and decreases in the exchange rate between the currencies in which the Fund has invested and the U.S. dollar. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and net investment income and capital gains, if any, to be distributed in U.S. dollars to shareholders by the Fund. The rate of exchange between the U.S. dollar and other currencies is influenced by many factors, including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the price of oil, the pace of activity in the industrial countries, including the United States, and other economic and financial conditions affecting the world economy. The Fund will not invest in a foreign currency or in securities denominated in a foreign currency if such currency is not at the time of investment considered by the Advisor to be fully exchangeable into U.S. dollars without legal restriction. The Fund may purchase securities that are issued by the government or a corporation or financial institution of one nation but denominated in the currency of another nation. To the extent that the Fund invests in ADRs, the depository bank generally pays cash dividends in U.S. dollars regardless of the currency in which such dividends originally are paid by the issuer of the underlying security. The operating expense ratio of the Fund when investing in foreign securities may be higher than that of an investment company investing exclusively in U.S. securities because certain expenses, such as custodial costs, may be higher. Several of the countries in which the Fund may invest restrict, to varying degrees, foreign investments in their securities markets. Governmental and private restrictions take a variety of forms, including (i) limitation on the amount of funds that may be invested into or repatriated from the country (including limitations on repatriation of investment income and capital gains), (ii) prohibitions or substantial restrictions on foreign investment in certain industries or market sectors, such as defense, energy and transportation, (iii) restrictions (whether contained in the charter of an individual company or mandated by the government) on the percentage of securities of a single issuer which may be owned by a foreign investor, (iv) limitations on the types of securities which a foreign investor may purchase and (v) restrictions on a foreign investor's right to invest in companies whose securities are not publicly traded. In some circumstances, these restrictions may limit or preclude investment in certain countries. Therefore, the Fund intends to invest in such countries through the purchase of shares of investment companies organized under the laws of such countries. The Fund's interest and dividend income from foreign issuers may be subject to non-U.S. withholding taxes. The Fund also may be subject to taxes on trading profits in some countries. In addition, many of the countries in the Pacific Basin have a transfer or stamp duties tax on certain securities transactions. The imposition of these taxes will increase the cost to the Fund of investing in any country imposing such taxes. For United States federal income tax purposes, United States shareholders may be entitled to a credit or deduction to the extent of any foreign income taxes paid by the Fund. See "Dividends, Distributions and Federal Income Taxation." American Depository Receipts. American Depository Receipts ("ADRs") are negotiable receipts issued by a United States bank or trust to evidence ownership of securities in a foreign company which have been deposited with such bank or trust's office or agent in a foreign country. Investing in ADRs presents risks not present to the same degree as investing in domestic securities even though the Fund will purchase, sell and be paid dividends on ADRs in U.S. dollars. These risks include fluctuations in currency exchange rates, which are affected by international balances of payments and other economic and financial conditions; government intervention; speculation; and other factors. With respect to certain foreign countries, there is the possibility of expropriation or nationalization of assets, confiscatory taxation and political, social and economic instability. The Fund may be required to pay foreign withholding or other taxes on certain of its ADRs, but investors may or may not be able to deduct their pro rata shares of such taxes in computing their taxable income, or take such shares as a credit against their U.S. federal income tax. See "Dividends, Distributions and Federal Income Taxation. "Unsponsored ADRs are offered by companies which are not prepared to meet either the reporting or accounting standards of the United States. While readily exchangeable with stock in local markets, unsponsored ADRs may be less liquid than sponsored ADRs. Additionally, there generally is less publicly available information with respect to unsponsored ADRs. Investment Restrictions. The Fund has certain fundamental policies that are described in the Statement of Additional Information under "Investment Restrictions." These investment restrictions include prohibitions against borrowing money (except as described above) and against concentrating the Fund's investments in issuers conducting their principal business activities in a single industry (except that this limitation does not apply with respect to U.S. Government securities). These investment restrictions and the Fund's investment objective cannot be changed without the approval of shareholders of the Fund; all other investment practices described in this Prospectus and in the Statement of Additional Information, however, can be changed by the Board of Directors without shareholder approval. INVESTMENT RESULTS The Fund may from time to time include information on its investment results and/or comparisons of its investment results to various unmanaged indices or results of other mutual funds or groups of mutual funds in advertisements, sales literature or reports furnished to present or prospective shareholders. All such figures are based on historical performance data and are not intended to be indicative of future performance. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund may calculate performance on an average annual total return basis for 1-, 5- and 10-year periods and over the life of the Fund, after such periods have elapsed. Average annual total return will be computed by determining the average annual compounded rate of return over the applicable period that would equate the initial amount invested to the ending redeemable value of the investment. Ending redeemable value includes dividends and capital gain distributions, reinvested at net asset value at the reinvestment date determined by the Board of Directors. The resulting percentages indicate the positive or negative investment results that an investor would have experienced from reinvested dividends and capital gain distributions and changes in share price during the period. The average annual compounded rate of return over various periods may also be computed by utilizing ending redeemable values as determined above. 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 any investment results reported by the Fund should not be considered representative of what an investment in the Fund may earn in any future period. When utilized, total return for the unmanaged indices described in the Statement of Additional Information will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for recurring expenses such as advisory fees, brokerage costs or administrative expenses. These factors and possible differences in calculation methods should be considered when comparing the Fund's investment results with those published for other investment companies, other investment vehicles and unmanaged indices. The comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. The Fund may also be mentioned in newspapers, magazines, or other media from time to time. The Fund assumes no responsibility for the accuracy of such data. The Fund's results also should be considered relative to the risks associated with its investment objective and policies. See "Investment Results" in the Statement of Additional Information. The Fund commenced operations upon the transfer to the Fund of assets held in the post-venture Fund of Fund A of the Bechtel Trust and Thrift Plan (the "Separate Account"), over which the Advisor has exercised portfolio supervision responsibilities since the inception of the Separate Account in 1982. Mr. Robert E. Kern, the Fund's portfolio manager, was employed by Morgan Grenfell Capital Management, Inc. from 1986 through April 1997 and headed up their team that managed the Separate Account. He currently is employed by the Advisor. The investment policies, objective, guidelines and restrictions of the Fund are in all material respects equivalent to those of the Separate Account, and the management practices of the Fund are in all material respects identical to those of the Separate Account. Assets in the Separate Account were transferred to the Fund in exchange for an interest in the Fund. As a result of this transaction, the investment holdings in the Fund were the same as the investment holdings in the portfolio of the Separate Account immediately prior to the transfer. While the Separate Account continues to exist, its assets consist solely of shares of the Fund. The Separate Account was not a registered investment company because it was exempt from registration under the 1940 Act. However, the Separate Account was managed in a fashion similar to a mutual fund and, while not subject to mutual fund tax rules, would have qualified as a regulated investment company under relevant tax rules in each year of its operation. Because, in a practical sense, the Separate Account constitutes the "predecessor" of the Fund, the Fund calculates its performance for periods commencing prior to the transfer of the Separate Account's assets to the Fund by including the Separate Account's total return, adjusted to reflect the deduction of actual fees and expenses incurred by the Separate Account. The fees and expenses incurred by the Separate Account are higher than the fees and expenses, net of fee waivers, to be incurred by the Fund. The performance data set forth below includes the performance of the Separate Account for periods before the Fund's registration statement became effective. As noted above, the Separate Account was not registered under the 1940 Act and thus was not subject to certain investment restrictions that are imposed by the 1940 Act. If the Separate Account had been registered under the 1940 Act, the Separate Account's performance might have been adversely affected. Total return for the Separate Account was calculated using a methodology that incorporates a time-weighted total rate of return concept and is adjusted for cash flows. This methodology of calculating total return differs from the methodology required to be employed by a mutual fund in calculating total return, which is not time-weighted or dollar-weighted but simply measures the total return of an investment in the Fund over a period of time. The Advisor believes, however, that the Separate Account's performance would be substantially the same if it was recalculated in accordance with mutual fund performance rules. AVERAGE ANNUAL TOTAL RETURNS for periods ended June 30, 1997 STANDARD & RUSSELL SEPARATE ACCOUNT (1) POOR'S 500 INDEX 2000 INDEX 1 Year 21.41% 34.70% 16.33% 3 Years 33.56% 28.85% 20.06% 5 Years 25.96% 19.75% 17.87% 10 Years 17.56% 14.63% 11.14% (1) Total return data for the Separate Account reflect the performance of the pool of assets transferred on that date into the Fund, net of actual fees and expenses. Additional performance information regarding the Fund will be included in its annual report, which will be mailed to shareholders without charge upon request. HOW TO INVEST Shares of the Fund may be purchased through the Transfer Agent by submitting payment by check, bank wire or electronic (Automated Clearing House or "ACH") transfer and, in the case of new accounts, a completed account application form. There is no sales load or contingent deferred sales load charged to purchase shares of the Fund. All orders for the purchase of shares are subject to acceptance or rejection by the Board of Directors or the Advisor. Purchases of shares are made at the current net asset value next determined after the purchase order is received by the Transfer Agent or by a selling agent of the Fund. A minimum initial investment of $250,000 is required to open a shareholder account. Investments not meeting the minimum will be returned. The minimum initial investment requirement may be waived in other instances at the sole discretion of the Advisor. Each subsequent investment in the Fund must be $5,000 or more. Investors wishing to open a new account by bank wire must call the Transfer Agent at 800-548-4539 to obtain an account number and detailed wire instructions. Bank wire instructions are also provided in the last section of this Prospectus. All bank wire investments received before the close of trading of the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be credited the same day. Otherwise, Fund shares will be credited the next business day. A bank wire investment is considered received when the Transfer Agent is notified that the bank wire has been credited to its account. Shares of the Fund may also be purchased through broker-dealers or other financial intermediaries who have made appropriate arrangements with the Fund. Such agents are responsible for ensuring that the account documentation is complete and that timely payment is made for the Fund shares purchased for their customers pursuant to such orders. These agents may charge a reasonable transaction fee to their customers. In some instances, all or a portion of the transaction fee may be paid by the Advisor. To the extent these agents perform shareholder servicing activities for the Fund, they may receive fees from the Fund or the Advisor for such services. From time to time the Advisor may engage third parties as "finders" for the purpose of soliciting potential investors. Such parties may be compensated by the Advisor to do so. As a condition of this offering, if an order to purchase shares is cancelled due to nonpayment (for example, a check returned for "insufficient funds"), the person who made the order will be subject to a $20 charge and must reimburse the Fund for any loss incurred by reason of such cancellation. For more information, see "Other Investment and Redemption Services" in the Statement of Additional Information. First Funds Distributor, Inc., 4455 Camelback Road, Suite 261E, Phoenix, Arizona, 85018, is the principal underwriter for the Fund. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES Statements and Reports. When a shareholder makes an initial investment in the Fund, a shareholder account is opened in accordance with registration instructions. Each time there is a transaction, such as an additional investment, a dividend or other distribution, or a redemption, the shareholder will receive from the Transfer Agent a confirmation statement showing the current transaction in the account and the transaction date. Shareholders of the Fund will receive statements as of the end of March, June, September and December. Shares are issued only in book-entry form (without certificates). The fiscal year of the Fund ends on October 31 of each year. The Investment Company issues to its shareholders semi-annual and annual reports, which contain a schedule of the Fund's portfolio securities and financial statements. Annual reports will include audited financial statements. The federal income tax status of shareholder distributions also will be reported to the Fund's shareholders after the end of the calendar year on Form 1099-DIV. Exchanges Between Funds. Shares of one Fremont Fund may be exchanged for shares of another Fremont Fund at their respective net asset values, provided that the account registration remains identical. Exchanges may only be made for shares of a Fremont Fund then offered for sale in your state of residence. These exchanges are not tax-free and will result in a shareholder realizing a gain or loss for tax purposes, except in the case of tax-deferred retirement accounts or other tax-exempt shareholders that have not borrowed to acquire the shares exchanged. Any exchanges into the Fremont Institutional U.S. Micro-Cap Fund must meet the account minimums. Exchanges by mail should be sent to the Transfer Agent at the address set forth in the last section of this Prospectus. Purchases, redemptions and exchanges should be made for investment purposes only. A pattern of frequent exchanges, purchases and sales is not acceptable and, at the discretion of the Board of Directors, can be limited by the Investment Company's refusal to accept further purchase and exchange orders from the shareholder. The Investment Company reserves the right to modify or eliminate the exchange privilege upon 60 days' written notice to shareholders. Telephone Exchange Privilege. An investor may elect on the account application to authorize exchanges by telephone. A shareholder may give instructions regarding exchanges by calling 800-548-4539. A shareholder wishing to initiate the telephone exchange privilege should contact the Fund. This privilege will not be added to an account without written instruction to do so from the shareholder. Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed the same day. During times of drastic economic or market conditions, the telephone exchange privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written exchange request. See "Telephone Redemption Privilege" in the next section of this Prospectus. Autobuy Privilege The autobuy privilege allows shareholders to purchase subsequent shares by moving money directly from their checking account to a Fremont Fund. The Autobuy privilege is an ACH privilege. ACH privileges will not be added to an account without written authorization from the shareholder. The Autobuy privilege will be automatically added to an account when the shareholder chooses any type of ACH privilege. A shareholder may then purchase additional shares in an existing account by calling 800-548-4539 and instructing the Transfer Agent as to the dollar amount wanting to be invested. The investment will automatically be processed through the Automatic Clearing House (ACH) system. There is no fee for this option. If the privilege was not established at the time the account was opened, the shareholder must complete the appropriate form. The form is available on request. Automatic Investment Plan. After a minimum initial investment is made, a shareholder may authorize a withdrawal to be made automatically once or twice each month from a credit balance in the shareholder's bank checking, savings, negotiable on withdrawal (NOW), or similar account, with the proceeds to be used to purchase shares of the Fund. The amount of the monthly investment must be at least $50. There is no obligation to make additional payments, and the plan may be terminated by the shareholder at any time. Termination requests must be received in writing at least 5 days prior to the regular draft date, or the drafts will not cease until the next cycle. The Transfer Agent may impose a charge for this service, although no such charge currently is contemplated. If a shareholder's order to purchase shares is cancelled due to nonpayment (for example, "insufficient funds"), the shareholder's account will be subject to a $20 charge and the shareholder will be responsible for reimbursing the Fund for any loss incurred by reason of such cancellation. A shareholder wishing to initiate the plan on a new or existing account must fill out an Automatic Investment Plan form. The form is available on request. HOW TO REDEEM SHARES Shares are redeemed at no charge (other than wire transfer fees, if any) at the net asset value next determined after receipt by the Transfer Agent of proper written redemption instructions. The current charge for a wire transfer is $10 per wire. This is subject to change by the Transfer Agent at any time, without prior notification. See "Calculation of Net Asset Value and Public Offering Price." Redemption orders received in proper form by the Transfer Agent before the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. Redemption proceeds can be sent by check, electronic transfer, or bank wire. An electronic transfer can be processed only to bank checking and savings accounts. Before requesting an electronic transfer, shareholders should confirm that their financial institution can receive an electronic transfer. Currently, there is no charge to shareholders for processing an electronic transfer. Shareholders may have redemption proceeds sent by bank wire, electronic transfer, or check to a designated bank account by providing in writing the appropriate bank information to the Transfer Agent at the time of original application. If the investor wishes to change the predesignated account, this must be requested in writing with a signature guarantee (see "Signature Guarantee" below). Redemptions from retirement accounts require a written request, with a signature guarantee, unless authorized under the Automatic Withdrawal Plan. Call the Transfer Agent for specific instructions on redemptions. For written redemption requests that direct proceeds to a party other than the registered account owner(s), all signatures must be guaranteed (see "Signature Guarantee" below). Because of market fluctuations, the amount a shareholder receives for shares redeemed may be more or less than the amount paid for them. Redemption of shares and exchanges may result in taxable capital gains or losses. Telephone Redemption Privilege. An investor may elect on the regular account application to authorize redemptions by telephone. This privilege will not be added to an account without written authorization to do so from the shareholder. A shareholder may then give instructions regarding redemptions by calling 800-548-4539. Telephone requests received by the close of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be processed at the net asset value calculated that same day. During times of drastic economic or market conditions, the telephone redemption privilege may be difficult to implement. The Transfer Agent will make its best effort to accommodate shareholders when its telephone lines are used to capacity. Under these circumstances, a shareholder should consider using overnight mail to send a written redemption request. Neither the Investment Company, the Transfer Agent, nor their respective affiliates, will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The affected shareholder(s) will bear the risk of any such loss. The Investment Company, or the Transfer Agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Investment Company and/or the Transfer Agent do not employ such procedures, they may be liable for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions, and/or tape recording telephone instructions. Automatic Withdrawal Plan. A shareholder may request redemptions of a specified dollar amount (minimum of $100) on either a monthly, quarterly, or yearly basis. Currently, there is no charge for this service. Redemptions will be made on the last business day of the month. Because a redemption constitutes a liquidation of shares, the number of shares owned in the account will be reduced. Shareholders may terminate the Automatic Withdrawal Plan at any time, but not less than five days before a scheduled payment date. When an exchange is made between Funds, shareholders must specify if they desire the automatic withdrawal option to be transferred to a new account opened by the exchange. As an account balance declines to the minimum permitted, the shareholder must advise the Transfer Agent if the automatic withdrawal feature is to be transferred to another account of the shareholder. Shareholders should note that if there is an Automatic Withdrawal Plan established for an account and the entire account is exchanged into another Fremont Fund, the automatic withdrawal option must be renewed by written request to the Transfer Agent. A shareholder wishing to initiate automatic redemptions must complete an Automatic Withdrawal Plan form available from the Transfer Agent. Signature Guarantee. To better protect the Fund and shareholders' accounts, a signature guarantee is required for certain transactions. Signatures must be guaranteed by an "eligible guarantor institution" as defined in applicable regulations. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. A notary public is not an acceptable guarantor. Other Important Redemption Information. A request for redemption will not be processed until all of the documentation described above has been received by the Transfer Agent in proper form. A shareholder in doubt about what documents are required should contact the Transfer Agent. Payment in redemption of shares is normally made within three business days after receipt by the Transfer Agent of a request in proper form, provided that payment in redemption of shares purchased by check or draft will be effected only after such check or draft has been collected. Although it is anticipated that this process will be completed in less time, it may take up to 15 days. Redemption proceeds will not be delayed when shares have been paid for by bank wire or where the account holds a sufficient number of shares already paid for with collected funds. Except in extraordinary circumstances, payment for shares redeemed will be made promptly after receipt of a redemption request, if in good order, but not later than seven calendar days after the redemption request is received in proper form. Requests for redemption which are subject to any special conditions or which specify an effective date other than as provided herein cannot be accepted. Redemption In Kind. The Investment Company reserves the right, if conditions exist which make cash payments undesirable, to honor any request for redemption or repurchase order by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of computing the Fund's net asset value (a redemption in kind). If payment is made in securities, a shareholder may incur transaction expenses in converting these securities into cash. Transfer Agent. The Advisor is the transfer agent for the Funds and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. RETIREMENT PLANS Shares of the Fund may be purchased in connection with various tax-deferred retirement plans. These include Individual Retirement Accounts (IRAs); SEP-IRAs; SIMPLE IRAs; Qualified Retirement Plans for self-employed persons and their employees; corporate pension and profit-sharing plans; and Section 403(b) Plans, which are deferred compensation arrangements for employees of public schools and certain charitable organizations. Forms for establishing IRAs, SEP-IRAs, SIMPLE IRAs, and Qualified Retirement Plans are available through the Investment Company, as are forms for corporate Pension and Profit-Sharing plans. Please contact the Investment Company for more information about establishing these accounts. In accordance with industry practice, there may be an annual account charge for participation in these plans. Information regarding these charges is available from the Investment Company. Retirement plan participants may receive additional services related to their plan at no extra cost to any shareholder. DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAXATION The Fund intends to qualify and elect, and to continue to qualify, to be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). For any tax year in which the Fund so qualifies and meets certain other distribution requirements, it will not incur a federal tax liability. Such qualification under the Code requires a Fund to diversify its investments so that, at the end of each fiscal quarter, (1) at least 50% of the market value of the Fund's assets is represented by cash, U.S. government securities, securities of other regulated investment companies, and other securities, limited, in respect to any one issuer, to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. The Fund intends to distribute substantially all of its net realized capital gains, if any, at the end of the calendar year (on or about December 15). Dividend and capital gains distributions, if any, may be reinvested in additional shares at net asset value on the day of reinvestment, or may be received in cash. All dividends and distributions are taxable to a shareholder (except tax-exempt shareholders who have not borrowed to acquire their shares) whether or not they are reinvested in shares of the Fund. Any long-term or mid-term capital gains distributions are taxable to shareholders as long-term or mid-term capital gains, respectively, regardless of how long shareholders have held Fund shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months, and 20% with respect to assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Distributions of short-term capital gains will be subject to the tax as ordinary income. Corporate investors may be entitled to the "dividends received" deduction on all or a portion of the dividends paid by the Fund. Availability of the "dividends received" deduction is subject to certain holding period and debt-financing limitations. Shareholders may elect: o to have all dividends and capital gains distributions automatically reinvested in additional shares; or o to receive the income dividends and short-term capital gains distributions in cash and accept the long-term capital gains distributions in additional shares; or o to receive all distributions of income dividends and capital gains in cash. Automatic reinvestments will be at net asset value on the day of reinvestment. If no election is made by a shareholder, all dividends and capital gains distributions will be automatically reinvested. These elections may be changed by the shareholder at any time, but to be effective for a particular dividend or capital gains distribution, the election must be received by the Transfer Agent approximately 5 business days prior to the payment date to permit the change to be entered into the shareholder account. The federal income tax status of dividends and capital gains distributions is the same whether taken in cash or reinvested in shares. Dividends and capital gains generally are taxable to shareholders at the time they are paid. However, dividends or capital gains declared in October, November or December by the Fund and paid in January are taxable as if paid in December. The Fund will provide to its shareholders federal tax information annually by January 31, including information about dividends and distributions paid during the year. If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Fund that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Fund to withhold 31% from any dividends and/or redemptions (including exchange redemptions to the shareholder). Amounts withheld are applied to the shareholder's federal tax liability; a refund may be obtained from the Internal Revenue Service if withholding results in overpayment of taxes. A shareholder should contact the Transfer Agent if the shareholder is uncertain whether a proper taxpayer identification number is on file with the Transfer Agent. Federal law also requires the Fund to withhold 30%, or the applicable tax treaty rate, from ordinary dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts. Long-term capital gains distributions may be subject to this withholding. Dividends and interest from foreign issuers earned by the Fund may give rise to withholding and other taxes imposed by foreign countries, generally at rates from 10% to 40%. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by non-resident investors. Except as indicated below, to the extent that the Fund does pay foreign withholding or other foreign taxes on certain of its investments, investors will not be able to deduct their pro rata shares of such taxes in computing their taxable income nor be able to take their shares of such taxes as a credit against U.S. income taxes. If more than 50% of the value of the Fund's total assets at the close of its fiscal year consist of securities of foreign corporations, the Fund may elect to "pass through" to its shareholders the amount of foreign taxes paid. If this election is made, the shareholders of the Fund will be required to include in their federal income tax returns as gross income their respective pro rata portions of foreign taxes paid by the Fund, to treat such amounts as foreign taxes paid by them, and to deduct such respective pro rata portions in computing their taxable incomes, or, alternatively, to use them as foreign tax credits, (subject to certain limitations) against their U.S. income taxes. The Fund will report annually to its shareholders the amount per share of such withholding, if any. The foregoing is a brief discussion of certain federal income tax considerations. Please see "Taxes - Mutual Funds" in the Statement of Additional Information for further information regarding the tax implications of an investment in the Fund. CALCULATION OF NET ASSET VALUE AND PUBLIC OFFERING PRICE The Fund's net asset value per share is computed by dividing the value of the securities held by the Fund, plus any cash or other assets (including interest accrued and dividends declared but not yet received) minus all liabilities (including accrued expenses), by the total number of shares outstanding at such time. There is no sales charge in connection with purchases or redemptions of Fund shares. The Fund will calculate its net asset value and public offering price and complete orders to purchase, exchange or redeem shares on a Monday through Friday basis when the New York Stock Exchange is open. Investments, including options, are stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the last reported bid and asked prices or at fair value as determined by the Board of Directors. Short-term notes and similar securities are included in investments at amortized cost, which approximates value. Securities which are primarily traded on foreign exchanges are generally valued at the preceding closing values of such securities on their respective exchanges or the most recent price available where no closing value is available. The Fund's portfolio may include securities which trade primarily on non-U.S. exchanges or otherwise in non-U.S. markets. Because of time zone differences, the prices of these securities, as used for net asset value calculations, may be established substantially in advance of the close of the New York Stock Exchange. Foreign securities may also trade on days when the New York Stock Exchange is closed (such as a Saturday). The net asset value and public offering price of the Fund, to the extent that it holds securities valued on foreign markets, may vary during periods when the New York Stock Exchange is closed. As a result, the value of the Fund's portfolio may be affected significantly by such trading on days when a shareholder has no access to the Fund. For further information, see "How to Invest," "How to Redeem Shares" and "Exchanges Between Funds" in this Prospectus, and "How to Invest" and "Other Investment and Redemption Services" in the Statement of Additional Information. The net asset value and public offering price of the Fund will be determined as of the close of the regular session of the New York Stock Exchange. The shares of the Fund are offered at net asset value without a sales charge. Purchase, redemption and exchange orders received in proper form by the Transfer Agent before the close of trading of the New York Stock Exchange (currently 4:00 p.m., Eastern time), will be priced at the net asset value next determined on that day (with certain limited exceptions discussed in the Statement of Additional Information). Otherwise, orders received by the Transfer Agent will be entered at the next calculated net asset value. EXECUTION OF PORTFOLIO TRANSACTIONS Orders for the Fund's portfolio securities transactions are placed by the Advisor or the Sub-Advisor. The Advisor and the Sub-Advisor strive to obtain the best available prices in the Fund's portfolio transactions, taking into account the costs and promptness of executions. Subject to this policy, transactions may be directed to those broker-dealers who provide research, statistical and other information to the Fund, the Advisor or the Sub-Advisor or who provide assistance with respect to the distribution of Fund shares. There is no agreement or commitment to place orders with any broker-dealer. Debt securities are generally traded on a "net" basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. Government securities issued by the United States and other countries and money market securities in which the Fund may invest are generally traded in the OTC markets. In underwritten offerings, securities usually are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Dealers may receive commissions on futures, currency and options transactions. Commissions or discounts in foreign securities exchanges or OTC markets typically are fixed and generally are higher than those in U.S. securities exchanges or OTC markets. There is generally less government supervision and regulation of foreign exchanges and brokers than in the United States. Foreign security settlements may, in some instances, be subject to delays and related administrative uncertainties. Subject to the requirements of the 1940 Act and procedures adopted by the Board of Directors, the Fund may execute portfolio transactions through any broker or dealer and pay brokerage commissions to a broker which is an affiliated person of the Investment Company, the Advisor, or an affiliated person of such person. GENERAL INFORMATION The Investment Company, organized as a Maryland corporation on July 13, 1988, is a fully managed open-end investment company. Currently, the Investment Company has authorized several series of capital stock with equal dividend and liquidation rights within each series. Investment Company shares are entitled to one vote per share (with proportional voting for fractional shares) and are freely transferable. Shareholders have no preemptive or conversion rights. Shares may be voted in the election of directors and on other matters submitted to the vote of shareholders. As permitted by Maryland law, there normally will be no annual meeting of shareholders in any year, except as required under the 1940 Act. The 1940 Act requires that a meeting be held within 60 days in the event that less than a majority of the directors holding office has been elected by shareholders. Directors shall continue to hold office until their successors are elected and have qualified. Investment Company shares do not have cumulative voting rights, which means that the holders of a majority of the shares voting for the election of directors can elect all of the directors. Shareholders holding 10% of the outstanding shares may call a meeting of shareholders for any purpose, including that of removing any director. A director may be removed upon a majority vote of the shareholders qualified to vote in the election. The 1940 Act requires the Investment Company to assist shareholders in calling such a meeting. On any matter submitted to a vote of shareholders, such matter shall be voted by the Fund's shareholders separately when the matter affects the specific interest of the Fund (such as approval of the Advisory Agreement with the Advisor) except in matters where a vote of all series in the aggregate is required by the 1940 Act or otherwise. Pursuant to the Articles of Incorporation, the Investment Company may issue ten billion shares. This amount may be increased or decreased from time to time in the discretion of the Board of Directors. Each share of a series represents an interest in that series only, has a par value of $0.0001 per share, represents an equal proportionate interest in that series with other shares of that series and is entitled to such dividends and distributions out of the income earned on the assets belonging to that series as may be declared at the discretion of the Board of Directors. Shares of a series when issued are fully paid and are non-assessable. The Board of Directors may, at its discretion, establish and issue shares of additional series of the Investment Company. Stephen D. Bechtel, Jr., and members of his family, including trusts for family members, due to their shareholdings, may be considered controlling persons of the Fund under applicable Securities and Exchange Commission regulations. TELEPHONE NUMBERS AND ADDRESSES To make an initial purchase: 1. By mail: Fremont Mutual Funds, Inc. c/o National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 Street address: 1004 Baltimore Avenue Kansas City, MO 64105 2. By wire: Please call the Transfer Agent at 800-548-4539 (press 2) to obtain an account number and detailed instructions. To make a subsequent purchase: Include shareholder name and account number. Use the same instructions for initial purchase. To redeem shares: 1. By mail: same instructions as above for purchase by mail. Redemptions greater than $25,000 or payments to a party or address other than registered on the account require a signature guarantee. See "Signature Guarantees." 2. By telephone: 800-548-4539 Requires prior selection of telephone redemption option. For further copies of this Prospectus, the Statement of Additional Information, and details of automatic investment, retirement and automatic withdrawal plans, please contact: Fremont Mutual Funds, Inc. 50 Beale Street, Suite 100 San Francisco, CA 94105 800-548-4539 Fremont Mutual Funds, Inc. Fremont Money Market Fund Fremont Bond Fund Fremont California Intermediate Tax-Free Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont U.S. Small Cap Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund Fremont Institutional U.S. Micro-Cap Fund Fremont Real Estate Securities Fund Fremont Select Fund For more information on the Fremont Mutual Funds please call 800-548-4539 or write to: Fremont Mutual Funds 50 Beale Street, Suite 100 San Francisco, CA 94105 Advisor/Transfer Agent Fremont Investment Advisors, Inc. 333 Market Street, Suite 2600 San Francisco, CA 94105 Sub-Transfer Agent Mailing Address: National Financial Data Services P.O. Box 419343 Kansas City, MO 64141-6343 800-548-4539 (press 2) Street Address: National Financial Data Services 1004 Baltimore Avenue Kansas City, MO 64105 Custodian The Northern Trust Company 50 South Lasalle Street Chicago, IL 60675 Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 Auditors Coopers & Lybrand, L.L.P. 333 Market Street San Francisco, CA 94105 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Funds or the Advisor. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. FREMONT MUTUAL FUNDS, INC. Fremont Money Market Fund Fremont Bond Fund Fremont Real Estate Securities Fund Fremont Global Fund Fremont Growth Fund Fremont International Growth Fund Fremont International Small Cap Fund Fremont Select Fund Fremont U.S. Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Micro-Cap Fund Fremont California Intermediate Tax-Free 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 for the Investment Company. This Statement supplements the Prospectus for the Investment Company dated March 1, 1998, 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 March 1, 1998. TABLE OF CONTENTS Page Introduction To The Funds..................................................... x Investment Objectives, Policies And Risk Considerations.......................xx The Funds (Including The Fremont Money Market Fund) Generally.................xx Investment Restrictions.......................................................xx Investment Company Directors And Officers.....................................xx Investment Advisory And Other Services........................................xx Plan Of Distribution (U.S. Small Cap Fund, Real Estate Securities Fund, Select Fund and Emerging Markets Fund only)..................................xx Execution Of Portfolio Transactions...........................................xx How To Invest.................................................................xx Other Investment And Redemption Services......................................xx Taxes - Mutual Funds .........................................................xx Additional Information .......................................................xx Investment Results............................................................xx Information About Fremont Investment Advisors.................................xx Appendix A: Description Of Ratings ...........................................xx Appendix B: Annual Report.....................................................xx (i) INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS The descriptions below are intended to supplement the material in the Prospectus under "Investment Objectives, Policies and Risk Considerations" and "General Investment Policies." Fremont Bond Fund, Fremont Real Estate Securities Fund, Fremont Global Fund, Fremont Growth Fund, Fremont International Growth Fund, Fremont International Small Cap Fund, Fremont Select Fund, Fremont U.S. Small Cap Fund, Fremont Emerging Markets Fund and Fremont U.S. Micro-Cap Fund: Writing Covered Call Options. The Fremont Bond Fund (formerly the Fremont Income Fund), the Fremont Real Estate Securities Fund, the Fremont Global Fund (formerly the Fremont Multi-Asset Fund), the Fremont Growth Fund (formerly the Fremont Equity Fund), the Fremont International Growth Fund, the Fremont International Small Cap Fund, the Fremont Select Fund, the Fremont U.S. Small Cap Fund, the Fremont Emerging Markets Fund and the Fremont U.S. Micro-Cap Fund (collectively, the "Funds") 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 Fremont Investment Advisors, Inc. (the " Advisor") or a Fund's sub-advisor ("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. 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 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 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 retains 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 option is exercised, the Fund involved will realize a gain or loss from the sale of the underlying security or currency. The security or currency covering the call will be maintained in a separate account by that Fund's custodian. 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 will receive from writing a call option will reflect, 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 writing 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. 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. Federal Income Tax Treatment of Covered Call Options. Expiration of an option or entry into a closing purchase transaction will result in capital gain or loss. If the option was "in-the-money" (i.e., the option strike price was less than the market value of the security or currency covering the option) at the time it was written, any gain or loss realized as a result of the closing purchase transaction will be long-term capital gain or loss if the security or currency covering the option was held for more than 18 months prior to the writing of the option. The holding period of the securities or currencies covering an "in-the-money" option will not include the period of time the option is outstanding. If the option is exercised, a Fund will realize a gain or loss from the sale of the security or currency covering the call option, and in determining such gain or loss the premium will be included in the proceeds of the sale. If a Fund writes options other than "qualified covered call options," as defined in the Internal Revenue Code of 1986, as amended (the "Code"), any losses on such options transactions, to the extent they do not exceed the unrealized gains on the securities or currencies covering the options, may be subject to deferral until the securities or currencies covering the options have been sold. In addition, any options written against securities other than bonds or currencies will be considered to have been closed out at the end of the Fund's fiscal year; and any gains or losses will be recognized for tax purposes at that time. Under Code Section 1256, such gains or losses would be characterized as 60% long-term capital gain or loss and 40% short-term capital gain or loss. Code Section 988 may also apply to currency transactions. Under Section 988, 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, special provisions determine the character and timing of any income, gain, or loss. Each Fund will attempt to monitor Section 988 transactions to avoid an adverse tax impact. Writing Covered Put Options. The Funds may write covered put options. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period. So long as the obligation of the writer continues, 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. Purchasing Put Options. The Funds 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 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 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 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 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 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 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. 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 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, such as the Funds, 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. A public market exists in Futures Contracts covering foreign financial instruments such as U.K. Pound, Japanese Yen, and German Mark, 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. The Funds' 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 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. "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 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 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 expects to 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 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, Futures trading 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, 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 money market instruments equal in value to the current value of the underlying instrument less the margin deposit. Most United States Futures exchanges 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 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. Federal Tax Treatment of Futures Contracts. Except for transactions the Funds identified as hedging transactions, each Fund is required for federal income tax purposes to recognize as income for each taxable year its net unrealized gains and losses on Futures Contracts as of the end of the year as well as those actually realized during the year. Identified hedging transactions would not be subject to the mark to market rules and would result in the recognition of ordinary gain or loss. Otherwise, unless transactions in Futures Contracts are classified as part of a "mixed straddle," any gain or loss recognized with respect to a Futures Contract is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the Contract. In the case of a Futures transaction classified as a "mixed straddle," the recognition of losses may be deferred to a later taxable year. Sales of Futures Contracts which are intended to hedge against a change in the value of securities or currencies held by a Fund may affect the holding period of such securities or currencies and, consequently, the nature of the gain or loss on such securities or currencies upon disposition. In order for a Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or currencies. It is anticipated that any net gain realized from the closing out of Futures Contracts will be considered gain from the sale of securities or currencies and therefore be qualifying income for purposes of the 90% requirement. The Funds will distribute to shareholders annually any net long-term capital gains which have been recognized for federal income tax purposes (including unrealized gains at the end of the Investment Company's fiscal year) on Futures transactions. Such distributions will be combined with distributions of capital gains realized on each Fund's other investments and shareholders will be advised of the nature of the payments. 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 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. 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 Funds will not purchase an OTC option unless they believe that daily valuation for such option is readily obtainable. THE FUNDS (INCLUDING THE FREMONT MONEY MARKET FUND) GENERALLY Diversification. Each Fund, except for the Real Estate Securities Fund, the Fremont Select Fund, and the Fremont Emerging Markets 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), "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 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. "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. The Fremont Real Estate Securities Fund, the Fremont Select Fund, and the Fremont Emerging Markets Fund are non-diversified funds and are not subject to the foregoing requirements. 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, 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 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 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. 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. Certain restrictions imposed on the Funds by 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. 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. 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 equivalents, or liquid securities in an amount sufficient to meet its payment obligations thereunder. 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. 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 will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above, the Fund has the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions, and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. Illiquid Securities. Each Fund (other than the Money Market Fund) may invest up to 15% of its net assets in all forms of "illiquid securities." The 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"). 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 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). 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. 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" below. 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. 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. Lending of Portfolio Securities. For the purpose of realizing additional income, a 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 a Fund's investment program and by regulatory agencies and approved by the Board of Directors. While the securities are being lent, a 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 Funds have a right to call each loan and obtain the securities on five business days' notice. The Funds 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. Particular Risk Factors Relating to California Municipal Securities (Fremont California Intermediate Tax-Free Fund). Certain risks are associated with California municipal securities in which the Fund predominantly will invest. This summarized information is based on information drawn from official statements and prospectuses relating to securities offerings of the state of California and various local agencies in California, available prior to the date of this Statement of Additional Information. While the Advisor has not independently verified such information, it has no reason to believe that such information is not correct in all material respects. In addition to this current information, future California constitutional amendments, legislative measures, executive orders, administrative regulations, and voter initiatives could have an adverse effect on the debt obligations of California issuers. Certain debt obligations held by the Fund may be obligations of issuers who rely in whole or in substantial part on California state revenues for the continuance of their operations and the payment of their obligations. In recent efforts to assist California municipal issuers to raise revenues to pay their bond obligations, the California legislature has passed measures which have provided for the redistribution of California's General Fund surplus to local agencies, the reallocation of revenues to local agencies, and the assumption of certain local obligations by the state. It is not known whether additional revenue redistribution legislation will be enacted in the future or, if enacted, whether such legislation would provide sufficient revenue to allow such issuers to pay their obligations. To the extent local entities do not receive money from the state to pay for their operations and services, their ability to pay debt service on obligations held by the Fund may be impaired. Certain debt obligations held by the Fund may be obligations of issuers who rely in whole or in part on ad valorem real property taxes, on property-related assessments, charges or fees, and on taxes such as utility user's taxes as sources of revenue. The California Constitution limits the taxing and spending powers of the state of California and its public agencies and, therefore, the ability of California issuers to raise revenues through taxation, and to spend such revenues over appropriations limits. Such limits may impair the ability of such issuers to make timely payment on their obligations. Certain debt obligations held by the Fund may be obligations payable solely from lease payments on real property or personal property leased to the state, cities, counties, or their various public entities. California law requires that the lessee is not required to make lease payments during any period that it is denied use and occupancy of the property leased in proportion to such loss. Moreover, the lessee only agrees to include lease payments in its annual budget for the current fiscal year. In case of a default under the lease, the only remedy available against the lessee is that of reletting the property; no acceleration of lease payments is permitted. Each of these factors presents a risk that the lease financing obligations held by the Fund would not be paid in a timely manner. Certain debt obligations held by the Fund may be obligations which are payable solely from the revenues of health care institutions. The method of reimbursement for indigent care, California's selective contracting with health care providers for such care, and selective contracting by health insurers for care of their own beneficiaries now in effect under California and federal law may adversely affect these revenues and, consequently, payment on those debt obligations. Debt obligations payable solely from revenues of health care institutions may also be insured by the state of California pursuant to a mortgage insurance program operated by the Office of Statewide Health Planning and Development (the "Office"). If a default occurs on such insured debt obligations, the Office may either continue to make debt service payments on the obligations, or foreclose on the mortgage and request the State Treasurer to issue debentures payable from a reserve fund established under the insurance program or from unappropriated state funds. Reports and studies prepared most recently a decade ago indicated that the reserve fund was under-funded. Moreover, moneys in the reserve fund may be and have been reappropriated by the California Legislature for other purposes in the past, and the California legislature reserves the right to do so in the future. The Investment Company cannot predict what, if any, impact the underfunding of the reserve fund may have on such debt obligations. Certain debt obligations held by the Fund may be obligations which are secured in whole or in part by a mortgage or deed of trust on real property. California has five principal statutory provisions which limit the remedies of a creditor secured by a mortgage or deed of trust. To limit the creditor's right to obtain a deficiency judgment, one limitation is based on the method of foreclosure, and the second on the type of debt secured. Under the former, a deficiency judgment is barred when the foreclosure is accomplished by means of nonjudicial trustee's sale. Under the latter, a deficiency judgment is barred when the foreclosed mortgage or deed of trust secures certain purchase money obligations. A third statutory provision, commonly known as the "one form of action" rule, requires creditors secured by real property to exhaust their real property security by foreclosure before bringing a personal action against the debtor. A fourth statutory provision limits any deficiency judgment obtained by a creditor secured by real property following a judicial sale of such property to the excess of the outstanding debt over the fair value of the property at the time of the sale, thus preventing the creditor from obtaining a large deficiency judgment against the debtor as a result of low bids at a judicial sale. Finally, a fifth statutory provision gives the debtor the right to redeem the real property from any judicial foreclosure sale as to which a deficiency judgment may be ordered against the debtor. Upon the default of a mortgage or deed of trust with respect to California real property, the creditor's nonjudicial foreclosure rights under the power of sale contained in the mortgage or deed of trust are subject to the constraints imposed by California law upon transfers of title to real property by private power of sale. During the three-month period beginning with the filing of a formal notice of default, the debtor is entitled to reinstate the mortgage by making any overdue payments. Under standard loan servicing procedures, the filing of the formal notice of default does not occur unless at least three full monthly payments have become due and remain unpaid. The power of sale is exercised by posting and publishing a notice of sale for at least 20 days after expiration of the three-month reinstatement period. Therefore, the effective minimum period of foreclosing on a mortgage could be in excess of seven months after the initial default. Such time delays in collections could disrupt the flow of revenues available to an issuer for the payment of debt service on the outstanding obligations if such defaults occur with respect to a substantial number of mortgages or deeds of trust securing an issuer's obligations. In addition, a court could find that there is sufficient involvement of the issuer in the nonjudicial sale of property securing a mortgage for such private sale to constitute "state action," and could hold that the private right-of-sale proceedings violate the due process requirements of the federal or state constitutions, consequently preventing an issuer from using the nonjudicial foreclosure remedy described above. Certain debt obligations held by the Fund may be obligations which finance the acquisition of single-family home mortgages for low and moderate income mortgagors. These obligations may be payable solely from revenues derived from the home mortgages, and are subject to California's statutory limitations described above applicable to obligations secured by real property. Under California antideficiency legislation, there is no personal recourse against a mortgagor of a single family residence purchased with the loan secured by the mortgage, regardless of whether the creditor chooses judicial or nonjudicial foreclosure. Under California law, mortgage loans secured by single-family, owner-occupied dwellings may be prepaid at any time. Prepayment charges on such mortgage loans may be imposed only with respect to voluntary prepayments made during the first five years during the term of the mortgage loan, and cannot in any event exceed six months' advance interest on the amount prepaid in excess of 20% of the original principal amount of the mortgage loan. This limitation could affect the flow of revenues available to an issuer for debt service on the outstanding debt obligations which finance such home mortgages. 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. 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, but not lower than B. 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 or Sub-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 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. 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. 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 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. Make short sales of securities or maintain a short position, except that a Fund may sell short "against the box." 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. 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.
Principal Occupations Date of and Business Experience Name and Address Birth Positions Held for Past Five Years David L. Redo(1)(2)(4) 9-1-37 Chairman, Chief Executive President and Director, Fremont Fremont Investment, Advisors, Inc. Officer and Director Investment Advisors, Inc.; 333 Market Street, 26th Floor Managing Director, Fremont San Francisco, CA 94105 Group, 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 Fremont Investment Advisors, Inc. Senior Vice President and 333 Market Street, 26th Floor Director, Fremont Investment San Francisco, CA 94105 Advisors, Inc. 10/77 - 7/96 Senior Vice 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 Albert W. Kirschbaum(4) 8-17-38 Senior Vice President Senior Vice President and Fremont Investment Advisors, Inc. Director, Fremont Investment 333 Market Street, 26th Floor Advisors, Inc. San Francisco, CA 94105 Peter F. Landini(4) 5-10-51 Executive Vice President, Executive Vice President, COO and Fremont Investment Advisors, Inc. Treasurer and Director Director, Fremont Investment 333 Market Street, 26th Floor Advisors, Inc. San Francisco, CA 94105 Director, J.P. Morgan Securities, Asia John Kosecoff 10-29-51 Vice President 10/96 - Present Fremont Investment Advisors, Inc. Vice President, Fremont 333 Market Street, 26th Floor Investment Advisors, Inc. San Francisco, CA 94105 12/93 - 9/96 Senior Analyst and Portfolio Manager, RCM Capital Management 11/92 - 12/93 Hedge Fund Analyst and Portfolio Manager, Omega Advisors
William M. Feeney 3-27-56 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26th Floor San Francisco, CA 94105 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 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 Robert J. Haddick(4) 2-26-60 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26th Floor San Francisco, CA 94105 Tina Thomas 8-7-49 Vice President, Secretary, and 6/96 - Present Vice President, Secretary Fremont Investment Advisors, Inc. Chief Compliance Officer and Chief Compliance Officer, 333 Market Street, 26th Floor Fremont Investment Advisors, Inc. San Francisco, CA 94105 9/88 - 5/96 Chief Compliance Officer and Vice President, Bailard, Biehl & Kaiser, Inc.; Treasurer, Bailard, Biehl & Kaiser International Fund Group, Inc. and Bailard, Biehl & Kaiser 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 Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26h Floor San Francisco, CA 94105 Allyn Hughes 6-12-60 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26th Floor San Francisco, CA 94105 Greg Hand 10-9-61 Assistant Treasurer Assistant Treasurer. Fremont 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 Investmetnt Avisors, Inc. Controller Controller, Fremont Investment 333 Market Street, 26th Floor Advisors, Inc.; 11/95-10/97, Chief San Francisco, CA 94105 Financial Officer and Treauruer , Sife, Inc.;6/91-6/95, Controller, Concord General Corp.
Dean Boebinger 11-21-55 Vice President 12/95 - Present Fremont Investment Advisors, Inc. National Sales Manager, 3000 Post Oak Blvd., Suite 100 Fremont Investment Houston, TX 77056 Advisors, Inc. 8/94 - 12/95 Regional Sales Manager 3/92 - 7/94 Certified Financial Planner and Account Executive, GNA, Inc.
(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, 1997, Richard E. Holmes, William W. Jahnke, and David L. Egan each received $13,500 and Donald C. Luchessa received $12,000 for serving as directors of the Investment Company. As of ________, 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. 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 sub-transfer agency fees when such entities are engaged in connection with share holdings in the Funds acquired by certain retirement plans. Each Fund (other than the International Growth Fund, the International Small Cap Fund and the 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 International Growth Fund and the International Small Cap Fund, the Advisor has agreed to bear all of each Fund's ordinary operating expenses in return for receiveing a monthly fee of 1.5% per annum of each Fund's average daily net assets. With respect to the 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. The directors of the Advisor are David L. Redo, Jon S. Higgins, Peter F. Landini, Michael H. Kosich and Albert W. Kirschbaum. 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 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, 1997, 1996 and 1995: Fiscal Year Ended October 31, (In '000's) ----------------------------- 1997 1996 1995 ---- ---- ---- Money Market Fund $ 837 $ 650 $ 621 Bond Fund 303 317 274 Real Estate Securities Fund -- -- -- Global Fund 3,850 3,198 2,735 Growth Fund 604 341 196 International Growth Fund 618 549 440 International Small Cap Fund 149 158 57 Select Fund -- -- -- U.S. Small Cap Fund 5 -- -- Emerging Markets Fund 17 Waived -- U.S. Micro-Cap Fund 3,050 890 77 CA Tax-Free Fund 183 153 164 The Advisory Agreements with respect to the Money Market Fund, the Bond Fund, the Global Fund, the Growth Fund, and the Emerging Markets Fund also provide for the payment of an administrative fee to the Advisor at the annual rate of .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, 1997, 1996 and 1995: Fiscal Year Ended October 31, (In '000's) ----------------------------- 1997 1996 1995 ---- ---- ---- Money Market Fund Waived Waived Waived Bond Fund Waived Waived Waived Real Estate Securities Fund N/A N/A N/A Global Fund 962 800 684 Growth Fund 181 102 43 International Growth Fund N/A N/A N/A International Small Cap Fund N/A N/A N/A Select Fund N/A N/A N/A U.S. Small Cap Fund 1 N/A N/A Emerging Markets Fund 3 Waived N/A U.S. Micro-Cap Fund N/A N/A N/A Ca Tax Free Fund 3 3 3 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. The Sub-Advisors - Fremont Bond Fund, Fremont Real Estate Securities Fund, Fremont International Small Cap Fund, Fremont U.S. Small Cap Fund, Fremont Emerging Markets Fund, Fremont U.S. Micro-Cap Fund. 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 - ---- ----------- Bond Fund Pacific Investment Management Company Real Estate Securities Fund Kensignton Investment Group International Small Cap Fund Acadian Asset Management U.S. Small Cap Fund Kern Capital Management LLC Emerging Markets Fund Nicholas-Applegate Capital Management (HK) LLC U.S. Micro-Cap fund Kern Capital Management LLC The current 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. For their services under the Portfolio Management Agreements, the Advisor 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, payable monthly: Bond Fund: .25% to Pacific Investment Management Company Real Estate Securities Fund 0.50% to Kensington Investment Group International Small Cap Fund: Acadian Asset Management, Inc.: .75% on the first $50 million .65% on the next $50 million .50% on the next $100 million .40% on assets in excess of $200 million U.S. Small Cap Fund: 0.65% to Kern Capital Management LLC Emerging Markets Fund: .50% to Nicholas Applegate Capital Management (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 .75% on assets in excess of $100 million For the fiscal year ended October 31, 1997, Pacific Investment Management Company, Sit Investment Associates, Inc., Morgan Grenfell Capital Management, Inc., Kern Capitla Management LLC and Nicholas-Applegate Capital Management received from the Advisor (not the Funds) subadvisory fees (net of voluntary fee waivers) of $189,286, $11,699, $835,014, $359,873, and $15,039 respectively. For the fiscal year ended October 31, 1996, Pacific Investment Management Company, Sit Investment Associates, Inc., and Morgan Grenfell Capital Management, Inc. received from the Advisor (not the Funds) subadvisory fees (net of voluntary fee waivers) of $198,574, $81,991, and $364,583, respectively. Acadian Asset Management, Inc. waived its subadvisory fees for the fiscal year ended October 31, 1997 and 1996. For the fiscal year ended October 31, 1995, Pacific Investment Management Company, Sit Investment Associates, Inc., and Sit/Kim International Investment Associates, Inc. received from the Advisor subadvisory fees (net of voluntary waivers) of $181,386, $57,522 and $165,172, respectively. Acadian Asset Management, Inc. and Morgan Grenfell Capital Management, Inc. each waived its subadvisory fees for the fiscal year ended October 31, 1995. The Portfolio Management Agreements for each Fund continue 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, 1998 for services as Distributor. Transfer Agent. The Advisor is the Funds transfer Agent and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. The Custodian is not involved in determining investment policies of the Fund or its portfolio securities transactions. Its services do not protect shareholders against possible depreciation of their assets. The fees of State Street Bank and Trust Company are paid by the Fund and thus borne by the Fund's shareholders. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. Administrator. The Advisor has retained Investment Company Administration Corporation (the "Sub-Administrator"), with offices at 2025 East Financial Way, Suite 101, 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, periodic financial reports, prospectuses, statements of additional information, marketing materials, shareholder reports and other regulatory reports or filings required of the Fund; prepare all required filings necessary to maintain the Fund's notice filings to sell shares in all states where the Fund currently does, or intends to do, business; 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 its services, the Advisor (not the Fund) pays the Sub-Administrator an annual fee equal to .02% of the first $1 billion of the Fund's average daily net assets, 0.015% thereafter, subject to a minimum annual fee of $20,000. PLAN OF DISTRIBUTION (U.S. SMALL CAP FUND, REAL ESTATE SECURTIES FUND, SELECT 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 the 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 who have executed a distribution or service agreement with the Underwriter. The Plan expressly permits payments in any fiscal year up to a maximum of .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 the Funds. 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 the Funds 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 its 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 its 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. EXECUTION OF PORTFOLIO TRANSACTIONS There are occasions on 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 International Small Cap Fund, the Select 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 International Small Cap Fund, the Select 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 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, ---------------------------------------------- 1997 1996 1995 ---- ---- ---- Bond Fund $ 6,238 $ 11,855 $ 17,243 Global Fund 457,345,985 1,069,049 1,545,310 Growth Fund 133,423,420 141,414 102,857 International Growth Fund 68,701,854 344,243 99,089 International Small Cap Fund 11,444,571 8,854 11,850 U.S. Small Cap Fund 1,642,365 -- -- Emerging Markets Fund 27,789,638 20,196 -- U.S. Micro-Cap Fund 93,816,069 68,850 4,326 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 Investment Company Act of 1940 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, 1997, 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: Goldman, Sachs & Co. - $4,990,000, J.P. Morgan & Co. - $4,981,000 and Merrill Lynch & Co., Inc. -$4,879,000. As of October 31, 1997, 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: Salomon, Inc. - $3,501,000 and Morgan Stanley - $1,012,000. As of October 31, 1997, 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: Merrill Lynch & Co., Inc. - $4,998,000, Lehman Brothers - $3,059,000, Salomon, Inc. - $3,021,000 and HSBC Holdings PLC - $2,938,000. As of October 31, 1997, 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: J.P. Morgan & Co., Inc. - $889,000. As of October 31, 1997, 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: Merrill Lynch & Co., Inc. - $1,899,000. 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 International Small Cap Fund's, the Select 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 International Small Cap Fund, Fremont Select 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 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 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: It is the Money Market Fund's policy to use its best efforts to maintain a constant per share price for the Money Market Fund equal to $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 ("SEC"). 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 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 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 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 be made payable to Fremont Mutual Funds. Third party checks, credit cards and cash will not be accepted. All investment checks are subject to a ten day holding period. 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. The Investment Company 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 Investment Company until it has been confirmed in writing by the Sub-Transfer Agent (or other arrangements made with the Investment Company, in the case of orders utilizing wire transfer of funds) and payment has been received. To protect existing shareholders, the Investment Company reserves the right to reject any offer for a purchase of shares by any individual. Redemption in Kind. The Investment Company may elect to redeem shares in assets other than cash but must pay in cash 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. The Investment Company may suspend redemption privileges with respect to any Fund 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." Each Fund will be treated under 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 of the Code. 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 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 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 intends 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. 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. The maximum federal capital gains rate for individuals is 28% with respect to capital assets held for more than 12 months, but not more than 18 months, and 20% with respect to capital assets held more than 18 months. The maximum capital gains for corporate shareholders is the same as the maximum tax rate for ordinary income. Net Capital Gains. Any distributions designated as being made from a Fund's net capital gains will be taxable as long-term capital gains or mid-term capital gains, as the case may be, regardless of the holding period of the shareholders of that Fund's shares. 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. 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 Code Section 1256, 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. Code Section 988 may also apply to currency transactions. Under Section 988, 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, special provisions determine the character and timing of any income, gain, or loss. The Funds will attempt to monitor Section 988 transactions 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, the International Small Cap 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, the International Small Cap 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. 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. The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60675, acts as Custodian for the Investment Company's assets, and as such safekeeps 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 auditors are Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105. Coopers & Lybrand L.L.P. 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, 1997 incorporated herein by reference are audited. Such financial statements are included herein in reliance on the opinion of Coopers & Lybrand L.L.P. 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 thirteen 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 February 19,1998 - ---- -------------- ---------------- Money Market Fund Bechtel Mast Trust for Qualifed Employees 51.83% P.O. Box 1742 Church St. Station New York, NY 10008-1742 Sequoia Ventures, Inc. 11.72% 50 Fremont Streeet, Ste 3600 San Francisco, Ca 94105-2239 Bond Fund Bechtel Mast Trust for Qualifed Employees 76.01% P.O. Box 1742 Church St. Station New York, NY 10008-1742 Sequoia Ventures, Inc. 5.32% 50 Fremont Streeet, Ste 3600 San Francisco, Ca 94105-2239 Real Estate Charles Schwab & Co., Inc. 40.22% Securities Fund 101 Montgomery Street San Francisco, CA 94104-4122 National Financial Services Corp 14.42% FBO Sal Vella 200 Liberty Street New York, NY 10281-1003 Donald Lufkin & Jenrette 12.52% Mutual Funds, 7th Floor 1 Pershing Plaza Jersey City, NJ 07399-0001 Fremont Investment Advisors, Inc. 10.00% 333 Market Street, Ste. 2600 San Francisco, Ca 94105-2127 Global Fund Bechtel Mast Trust for Qualifed Employees 43.33% P.O. Box 1742 Church St. Station New York, NY 10008-1742 BF Fund Limited 6.05% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 Growth Fund BF Fund Limited 54.01% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 International Growth BF Fund Limited 71.50% Fund 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 Fremont Investors, Inc. 5.11% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239
International Small Charles Schwab & Co., Inc. 18.72% Cap Fund 101 Montgomery Street San Francisco, CA 94104-4122 Fremont Investors, Inc. 15.92% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 Fremont Investment Advisors, Inc. 14.29% 333 Market Street, Ste. 2600 San Francisco, Ca 94105-2127 Fremont Group 11.31% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 Gary L. Bergstrom 8.21% 303 Marsh Street Belmont MA 02178-1733 Select Fund Fremont Investors, Inc. 96.72% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 U.S. Small Cap Fund Fremont Investors, Inc. 83.23% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 Emerging Markets Charles Schwab & Co., Inc. 21.99% Fund 101 Montgomery Street San Francisco, CA 94104-4122 Fremont Investors, Inc. 15.04% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 Fremont Investment Advisors, Inc. 13.38% 333 Market Street, Ste. 2600 San Francisco, Ca 94105-2127 Fremont Group 10.69% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 U.S. Micro-Cap Fund Charles Schwab & Co., Inc. 29.36% 101 Montgomery Street San Francisco, CA 94104-4122 Goodness Limited 12.73% P.O. Box N-7776 Nassau, Bahamas National Financial Services Corp 7.45% FBO Sal Vella 200 Liberty Street New York, NY 10281-1003 Donald Lufkin & Jenrette 6.32% Mutual Funds, 7th Floor 1 Pershing Plaza Jersey City, NJ 07399-0001
California BF Fund Limited 71.44% Intermediate Tax- 50 Fremont Street, Ste. 3600 Free Fund San Francisco, CA 94105-2239 Charles Schwab & Co., Inc. 13.02% 101 Montgomery Street San Francisco, CA 94104-4122 Willis S. Slusser and Marion B. Slusser 5.86% 200 Deer Valley Road, #1D San Rafael, CA 94903-5513
Other Investment Information. The Advisor directs the management of over $4.7 billion of assets and internally manages over $1.9 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, Australia 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; (5) Money Market Securities: 1980-1986, 90 day U.S. Treasury Bill rate: 1987-1997 Donoghue 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 1996 are as follows (source: Fremont Investment Advisors, Inc.):
Money Foreign Intermediate Foreign Market U.S. Stocks Stock 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%
The Bond Fund, the Real Estate Securities Fund, the Global Fund, the Growth Fund, the International Growth Fund, the International Small Cap Fund, the Select 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. 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, 1997, the seven-day current yield for the Money Market Fund was 5.33%. 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, 1997, the effective yield for the Money Market Fund was 5.47%. With respect to the Bond Fund, the Global Fund, the Growth Fund, the International Growth Fund, the International Small Cap 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 $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. 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. The average annual total returns of the Funds for the periods ended October 31, 1997 are as follows: Since 1 Year 5 Years Inception Money Market Fund 5.39% 4.54% 5.51% Bond Fund 9.54% -- 7.54% Global Fund 13.01% 11.62% 10.44% Growth Fund 29.26% 18.25% 17.96% International Growth Fund (0.01)% -- 2.55% International Small Cap Fund (14.56)% -- (3.71)% U.S. Small Cap Fund -- -- (4.06)%* Emerging Markets Fund 12.55% -- 6.61% U.S. Micro-Cap Fund 28.80% -- 33.43% *Unannualized The Bond Fund may 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, 1997 was 5.94%. 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 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, Australia 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. (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) Donoghue 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 Investors Service, 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. 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, 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 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 591/2has 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). 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. 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. FREMONT INVESTMENT ADVISORS Innovative Investment Management and Advisory Services A subsidiary of Fremont Investors, Inc. THE FREMONT GROUP The Fremont Group manages over $6 billion in four key business areas. Fremont Investment Advisors, Inc. (FIA), is a subsidiary of Fremont Investments, Inc., which is affiliated with The Fremont Group. Fremont Investors, Inc. employs over 200 professionals in offices throughout the United States and manages over $6 billion in four key business areas. Direct Investments - Fremont holds significant equity positions in companies from a broad range of industries including: o Crown Pacific -- timber/lumber o Petro Shopping Centers -- full-service truck stops o Trinity Ventures -- venture capital Real Estate - Fremont Properties, Inc., a subsidiary of Fremont Investors, Inc. acquires and develops commercial, retail and industrial real estate. Fremont Properties also manages over 6 million square feet of real estate in 29 properties across the U.S. Energy - Activities of The Fremont Group's energy affiliate, Fremont Energy L.P., include oil and natural gas exploration and development Securities Management - Through its affiliated company, Fremont Investment Advisors, The Fremont Group manages over $4.7 billion in global investment portfolios. FREMONT INVESTMENT ADVISORS Fremont Investment Advisors provides investment management services to both institutional and individual clients. Originally organized to manage the marketable securities of Bechtel, Fremont Investment Advisors' professional staff operated for many years within Bechtel's treasury area. In 1986, FIA became a separate organization. FIA is a registered investment advisor which provides investment management and advisory services to a variety of clients including: -- defined benefit plans -- defined contribution plans -- foundations and trusts -- high net worth individuals Major clients include the Bechtel Retirement Plan which has over 15,000 participants and was recently rated as one of the ten best corporate retirement plans in the U.S. by Worth Magazine. FREMONT MUTUAL FUNDS The Fremont Funds offer investors eleven no-load mutual funds in a wide variety of investment areas. Fremont Investment Advisors formed the Fremont Mutual Funds in 1988 in response to retiring Bechtel employees who were taking their retirement savings out of the Bechtel Retirement Plan. These employees were looking for low cost mutual fund options for their personal investments and retirement plan distributions. The Fremont Family of Funds includes eleven no-load mutual funds in a variety of investment disciplines. From conservative bond and money market funds to aggressive U.S. micro-cap and international small cap stock funds, Fremont Mutual Funds offer investors a full range of investment options. INNOVATIVE INVESTMENT MANAGEMENT Fremont Investment Advisors utilizes both internal and external investment management expertise. Fremont Investment Advisors is innovative in its approach to investment management. By combining the talents of both internal and external investment managers, FIA offers the highest quality management in each investment discipline. This "hybrid" approach allows FIA to concentrate resources in investment areas where its investment professionals excel. These areas include global asset allocation, economic analysis and the municipal bond market. For other specialty investment disciplines, FIA selects external or "outside" managers with excellent long-term performance track records within the institutional marketplace. This close partnership provides smaller institutional and individual investors with access to the investment management expertise usually reserved only for the largest institutional investors. FIA's current team of external managers includes: International Stock Investments --Acadian Asset Management --Nicholas Applegate Capital Management (Hong Kong) LLC Bond Investments --Pacific Investment Management Company (PIMCO) -- U.S. Micro-Cap and Small Cap Investment Kern Capital Management LLC (KCM) For more information about Fremont or the Fremont Funds, please call 800-548-4539 (press 1). THE FREMONT GROUP ORGANIZATION | | | | | | | | | | | | Direct Investments | | | | | | | Real Estate | | | | | Energy | | Securities Management | | Fremont Fremont Investment -- Mutual Advisors Funds APPENDIX A: DESCRIPTION OF RATINGS Description of Commercial Paper Ratings: Moody's Investors Service, Inc. employs the designation "Prime-1" to indicate commercial paper having the highest capacity for timely repayment. Issuers rated Prime-1 "have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protections; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity." Standard & Poor's Ratings Group's ratings of commercial paper are graded into four categories ranging from "A" for the highest quality obligations to "D" for the lowest. Issues assigned the highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 - "This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation." Fitch Investors Services, Inc.'s short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1+ - "Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment." F-1 - "Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+." Duff & Phelps Credit Rating Co. employs the designation "D-1" to indicate high-grade short-term debt. D-1+ - "Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources or funds, is outstanding, and safety is just below risk-free U.S. Treasury short-term obligations." Appendix-1 D-1 - "Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor." D-1- - "High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small." IBCA Limited's short-term ratings range from "A1" for the highest quality obligation to "C" for the lowest. A1 - "Obligations supported by the highest capacity for timely repayment. Where issues possess a particularly strong credit feature, a rating of 'A1+' is assigned." Thomson BankWatch assigns short-term debt ratings ranging from "TBW-1" to "TBW-4." Important factors that may influence its assessment are the overall financial health of the particular company, and the probability that the government will come to the aid of a troubled institution in order to avoid a default or failure. TBW-1 - "The highest category; indicates a very high likelihood that principal and interest will be paid on a timely basis." Description of Bond Ratings: Moody's Investors Service, Inc. rates the long-term debt securities issued by various entities from "Aaa" to "C." The ratings from "Aa" through "B" may be modified by the addition of 1, 2 or 3 to show relative standing within the major rating categories. Investment ratings are as follows: Aaa - Best quality. These securities "carry the smallest degree of investment risk and are generally referred to as 'gilt edge.' Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." Aa - High quality by all standards. "They are rated lower than the best bond because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat greater." A - Upper medium grade obligations. These bonds possess many favorable investment attributes. "Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." Appendix-2 Baa - Medium grade obligations. "Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." Ba - "Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class." B - "Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small." Standard & Poor's Ratings Group rates the long-term debt securities of various entities in categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - Highest rating. "Capacity to pay interest and repay principal is extremely strong." AA - High grade. "Very strong capacity to pay interest and repay principal." A - "Strong capacity to pay interest and repay principal," although "somewhat more susceptible to the adverse effects of change in circumstances and economic conditions than debt in higher rated categories." BBB - "Adequate capacity to pay interest and repay principal." These bonds normally exhibit adequate protection parameters, but "adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for debt in higher rated categories." BB, B, CCC, CC - "Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions." Appendix-3 Fitch Investors Services, Inc. rates the long-term debt securities of various entities in categories ranging from "AAA" to "D." The ratings from "AA" through "C" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events." AA - "Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA.' Because bonds are rated 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'." A - "Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings." BBB - "Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings." BB - "Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements." B - "Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue." Duff & Phelps Credit Rating Co. rates the long-term debt securities of various entities in categories ranging from "AAA" to "DD." The ratings from "AA" through "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt." Appendix-4 AA - "High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions." A - "Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress." BBB - "Below average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles." BB - "Below investment grade but deemed likely to meet obligations when due. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category." B - "Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in the rating within this category or into a higher or lower rating grade." IBCA Limited rates the long-term debt securities of various entities in categories ranging from "AAA" to "C." The ratings below "AAA" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Obligations for which there is the lowest expectation of investment risk. Capacity for timely repayment of principal and interest is substantial, such that adverse changes in business, economic or financial conditions are unlikely to increase investment risk substantially." AA - "Obligations for which there is a very low expectation of investment risk. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business, economic or financial conditions may increase investment risk, albeit not very significantly." A - "Obligations for which there is a low expectation of investment risk. Capacity for timely repayment of principal and interest is strong, although adverse changes in business, economic or financial conditions may lead to increased investment risk." BBB - "Obligations for which there is currently a low expectation of investment risk. Capacity for timely repayment of principal and interest is adequate, although adverse changes in business, economic or financial conditions are more likely to lead to increased investment risk than for obligations in other categories." Appendix-5 BB - "Obligations for which there is a possibility of investment risk developing. Capacity for timely repayment of principal and interest exists, but is susceptible over time to adverse changes in business, economic or financial conditions." B - "Obligations for which investment risk exists. Timely repayment of principal and interest is not sufficiently protected against adverse changes in business, economic or financial conditions." Thomson BankWatch rates the long-term debt securities of various entities in categories ranging from "AAA" to "D." The ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Indicates that the ability to repay principal and interest on a timely basis is extremely high." AA - "Indicates a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to issues rated in the highest category." A - "Indicates the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings." BBB - "The lowest investment-grade category; indicates an acceptable capacity to repay principal and interest. BBB issues are more vulnerable to adverse developments (both internal and external) than obligations with higher ratings." BB - "While not investment grade, the BB rating suggests that the likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations." B - "Issues rated B show a higher degree of uncertainty and therefore greater likelihood of default than higher-rated issues. Adverse developments could negatively affect the payment of interest and principal on a timely basis." Appendix-6 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 for the Investment Company. This Statement supplements the Prospectus for the Fremont Institutional U.S. Micro-Cap Fund (the "Fund") dated March 1, 1998 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 March 1, 1998. TABLE OF CONTENTS Page Investment Objective, Policies, And Risk Considerations............................................................ x Investment Restrictions..................................................... xx Investment Company Directors And Officers................................... xx Investment Advisory And Other Services...................................... xx Execution Of Portfolio Transactions......................................... xx How To Invest............................................................... xx Other Investment And Redemption Services.................................... xx Taxes - Mutual Funds........................................................ xx Additional Information...................................................... xx Investment Results.......................................................... xx Information About Fremont Investment Advisors................................xx Appendix A: Description Of Ratings.......................................... xx INVESTMENT OBJECTIVE, POLICIES, AND RISK CONSIDERATIONS The descriptions below are intended to supplement the material in the Prospectus under "Investment Objective, Policies, and Risk Considerations" and "General Investment Policies." 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 Fremont Investment Advisors, Inc. (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 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 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 retains 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 security or currency covering the call will be maintained in a separate account by the Fund's custodian. 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. The premium received is the market value of an option. The premium the Fund will receive from writing a call option will reflect, 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, 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 writing 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. Federal Income Tax Treatment of Covered Call Options. Expiration of an option or entry into a closing purchase transaction will result in capital gain or loss. If the option was "in-the-money" (i.e., the option strike price was less than the market value of the security or currency covering the option) at the time it was written, any gain or loss realized as a result of the closing purchase transaction will be long-term capital gain or loss if the security or currency covering the option was held for more than 18 months prior to the writing of the option. The holding period of the securities or currencies covering an "in-the-money" option will not include the period of time the option is outstanding. If the option is exercised, the Fund will realize a gain or loss from the sale of the security or currency covering the call option, and in determining such gain or loss the premium will be included in the proceeds of the sale. If the Fund writes options other than "qualified covered call options," as defined in the Internal Revenue Code of 1986, as amended (the "Code"), any losses on such options transactions, to the extent they do not exceed the unrealized gains on the securities or currencies covering the options, may be subject to deferral until the securities or currencies covering the options have been sold. In addition, any options written against securities other than bonds or currencies will be considered to have been closed out at the end of the Fund's fiscal year, and any gains or losses will be recognized for tax purposes at that time. Under Code Section 1256, such gains or losses would be characterized as 60% long-term capital gain or loss and 40% short-term capital gain or loss. Code Section 988 may also apply to currency transactions. Under Section 988, 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, special provisions determine the character and timing of any income, gain, or loss. The Fund will attempt to monitor Section 988 transactions to avoid an adverse tax impact. Writing Covered Put Options. The Fund may write covered put options. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period. So long as the obligation of the writer continues, 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 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 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. 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. 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 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. 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 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. A public market exists in Futures Contracts covering foreign financial instruments such as U.K. Pound, Japanese Yen, and German Mark, 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. 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 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 the Fund. In computing daily 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. 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 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, Futures trading 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 United States Futures exchanges 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 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. Federal Tax Treatment of Futures Contracts. Except for transactions the Fund identified as hedging transactions, the Fund is required for federal income tax purposes to recognize as income for each taxable year its net unrealized gains and losses on Futures Contracts as of the end of the year as well as those actually realized during the year. Identified hedging transactions would not be subject to the mark to market rules and would result in the recognition of ordinary gain or loss. Otherwise, unless transactions in Futures Contracts are classified as part of a "mixed straddle," any gain or loss recognized with respect to a Futures Contract is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the Contract. In the case of a Futures transaction classified as a "mixed straddle," the recognition of losses may be deferred to a later taxable year. Sales of Futures Contracts which are intended to hedge against a change in the value of securities or currencies held by the Fund may affect the holding period of such securities or currencies and, consequently, the nature of the gain or loss on such securities or currencies upon disposition. In order for the Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or currencies. It is anticipated that any net gain realized from the closing out of Futures Contracts will be considered gain from the sale of securities or currencies and therefore be qualifying income for purposes of the 90% requirement. The Fund will distribute to shareholders annually any net long-term capital gains which have been recognized for federal income tax purposes (including unrealized gains at the end of the Investment Company's fiscal year) on Futures transactions. Such distributions will be combined with distributions of capital gains realized on the Fund's other investments and shareholders will be advised of the nature of the payments. 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 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 believes that daily valuation for such option is readily obtainable. Diversification. The 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 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 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 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, 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 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 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. 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 will cause the Fund to enter into swap agreements only with counterparties that would be eligible for 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. 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. 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 will consider such fees in determining whether to invest in other mutual funds. The Fund will invest only in investment companies which do not charge a sales load; however, the Fund may invest in such companies with distribution plans and fees, and may pay customary brokerage commissions to buy and sell shares of closed-end investment companies. The return on the Fund's investments in investment companies will be reduced by the operating expenses, including investment advisory and administrative fees, of such companies. The Fund's investment in a closed-end investment company may require the payment of a premium above the net asset value of the investment company's shares, and the market price of the investment company thereafter may decline without any change in the value of the investment company's assets. The Fund, however, will not invest in any investment company or trust unless it is believed that the potential benefits of such investment are sufficient to warrant the payment of any such premium. As an exception to the above, the Fund has the authority to invest all of its assets in the securities of a single open-end investment company with substantially the same fundamental investment objectives, restrictions, and policies as that of the Fund. The Fund will notify its shareholders prior to initiating such an arrangement. Illiquid 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). 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. 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. 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 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. 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: 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. 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. 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 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. Othercurrent 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: 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 the Fund's net assets. 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. 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.
Principal Occupations Date of and Business Experience Name and Address Birth Positions Held for Past Five Years David L. Redo(1)(2)(4) 9-1-37 Chairman, Chief Executive President and Director, Fremont Fremont Investment, Advisors, Inc. Officer and Director Investment Advisors, Inc.; 333 Market Street, 26th Floor Managing Director, Fremont San Francisco, CA 94105 Group, 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 Fremont Investment Advisors, Inc. Senior Vice President and 333 Market Street, 26th Floor Director, Fremont Investment San Francisco, CA 94105 Advisors, Inc. 10/77 - 7/96 Senior Vice 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 Albert W. Kirschbaum(4) 8-17-38 Senior Vice President Senior Vice President and Fremont Investment Advisors, Inc. Director, Fremont Investment 333 Market Street, 26th Floor Advisors, Inc. San Francisco, CA 94105 Peter F. Landini(4) 5-10-51 Executive Vice President, Executive Vice President, COO and Fremont Investment Advisors, Inc. Treasurer and Director Director, Fremont Investment 333 Market Street, 26th Floor Advisors, Inc. San Francisco, CA 94105 Director, J.P. Morgan Securities, Asia John Kosecoff 10-29-51 Vice President 10/96 - Present Fremont Investment Advisors, Inc. Vice President, Fremont 333 Market Street, 26th Floor Investment Advisors, Inc. San Francisco, CA 94105 12/93 - 9/96 Senior Analyst and Portfolio Manager, RCM Capital Management 11/92 - 12/93 Hedge Fund Analyst and Portfolio Manager, Omega Advisors
William M. Feeney 3-27-56 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26th Floor San Francisco, CA 94105 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 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 Robert J. Haddick(4) 2-26-60 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26th Floor San Francisco, CA 94105 Tina Thomas 8-7-49 Vice President, Secretary, and 6/96 - Present Vice President, Secretaru Fremont Investment Advisors, Inc. Chief Compliance Officer and Chief Compliance Officer, 333 Market Street, 26th Floor Fremont Investment Advisors, Inc. San Francisco, CA 94105 9/88 - 5/96 Chief Compliance Officer and Vice President, Bailard, Biehl & Kaiser, Inc.; Treasurer, Bailard, Biehl & Kaiser International Fund Group, Inc. and Bailard, Biehl & Kaiser 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 Gretchen Hollstein 3-23-67 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26h Floor San Francisco, CA 94105 Allyn Hughes 6-12-60 Vice President Vice President, Fremont Fremont Investment Advisors, Inc. Investment Advisors, Inc. 333 Market Street, 26th Floor San Francisco, CA 94105 Greg Hand 10-9-61 Assistant Treasurer Assistant Treasurer. Fremont 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 Investmetnt Avisors, Inc. Controller Controller, Fremont Investment 333 Market Street, 26th Floor Advisors, Inc.; 11/95-10/97, Chief San Francisco, CA 94105 Financial Officer and Treauruer , Sife, Inc.;6/91-6/95, Controller, Concord General Corp.
Dean Boebinger 11-21-55 Vice President 12/95 - Present Fremont Investment Advisors, Inc. National Sales Manager, 3000 Post Oak Blvd., Suite 100 Fremont Investment Houston, TX 77056 Advisors, Inc. 8/94 - 12/95 Regional Sales Manager 3/92 - 7/94 Certified Financial Planner and Account Executive, GNA, Inc.
(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, 1997, Richard E. Holmes, William W. Jahnke, and David L. Egan each received $13,500 and Donald C. Luchessa received $12,000 for serving as directors of the Investment Company. As of _______, 1998, 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. 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 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. The Advisor generally seeks reimbursement for the oldest reductions before payment by the Fund for fees and expenses for the current year. 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 directors of the Advisor are David L. Redo, Jon S. Higgins, Peter F. Landini, Michael H. Kosich and Albert W. Kirschbaum. 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 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). 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 will be overseen by the members of the Fremont Investment Committee. See "Investment Company Directors and Officers." The Portfolio Management Agreement will provide 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 .75% of the Fund's average net assets. 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 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. 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, 1998 for services as Distributor. Transfer Agent. The Advisor is the Fund's transfer agent and has engaged State Street Bank and Trust Company, c/o NFDS, P.O. Box 419343, Kansas City, Missouri, 64141, to serve as Sub-Transfer and Dividend Disbursing Agent and shareholder service agent. The Custodian is not involved in determining investment policies of the Fund or its portfolio securities transactions. Its services do not protect shareholders against possible depreciation of their assets. The fees of State Street Bank and Trust Company are paid by the Fund and thus borne by the Fund's shareholders. State Street Bank and Trust Company has contracted with National Financial Data Services to serve as shareholder servicing agent. A depository account has been established at United Missouri Bank of Kansas City ("United Missouri Bank") through which all payments for the funds will be processed. Administrator. The Advisor has retained Investment Company Administration Corporation (the "Sub-Administrator"), with offices at 2025 East Financial Way, Suite 101, 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, periodic financial reports, prospectuses, statements of additional information, marketing materials, shareholder reports and other regulatory reports or filings required of the Fund; prepare all required filings necessary to maintain the Fund's notice filings to sell shares in all states where the Fund currently does, or intends to do, business; 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 its services, the Advisor (not the Fund) pays the Sub-Administrator an annual fee equal to .02% of the first $1 billion of the Fund's average daily net assets, 0.015% thereafter, subject to a minimum annual fee of $20,000. EXECUTION OF PORTFOLIO TRANSACTIONS There are occasions on 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 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 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. Subject to the requirement of seeking the best available prices and executions, the 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 for the benefit of the Fund and/or other accounts served by the 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 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. 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. 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 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. 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. All investment checks are subject to a 10-day holding period. 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. The Investment Company 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 Investment Company until it has been confirmed in writing by the Sub-Transfer Agent (or other arrangements made with the Investment Company, in the case of orders utilizing wire transfer of funds) and payment has been received. To protect existing shareholders, the Investment Company reserves the right to reject any offer for a purchase of shares by any individual. Redemption in Kind. The Investment Company may elect to redeem shares in assets other than cash but must pay in cash 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 Investment Company may suspend redemption privileges with respect to the Fund 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 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. Even though the Fund intends 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. 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. 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. The maximum federal capital gains rate for individuals 28% with respect to capital assets held for more than 12 months, but not more than 18 months, and 20% with respect to capital assets held more than 18 months. The maximum capital gains rate for corporate shareholders is the same as the maximum tax rate for ordinary income. Net Capital Gains. Any distributions designated as being made from the Fund's net capital gains will be taxable as long-term capital gains or mid-term capital gains, as the case may be, regardless of the holding period of the shareholders of the Fund's shares. 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-dividend 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. 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. 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 Code Section 1256, 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, 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, special provisions determine the character and timing of any income, gain, or loss. The Fund will attempt to monitor Section 988 transactions 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. 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. The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60675, 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 auditors are Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105. Coopers & Lybrand L.L.P. 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 Coopers & lybrand L.L.P. 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 ten 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 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 February 19,1998 -------------- ---------------- Bechtel Mast Trust for Qualifed Employees 70.85% P.O. Box 1742 Church St. Station New York, NY 10008-1742 Charles Schwab & Co. 11.26% 101 Montgomery Street San Francisco, Ca 94104-4122 BF Fund Limited 6.37% 50 Fremont Street, Ste. 3600 San Francisco, CA 94105-2239 Other Investment Information. The Advisor directs the management of over $4.7 billion of assets and internally manages over $1.9 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, Australia 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: 1987-1992 Donoghue First Tier Money Market Fund Average. The total returns for the above indices for the years 1980 through 1996 are as follows (source: Fremont Investment Advisors, Inc.): U.S. Foreign Intmdte 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% 1996 23.0% 6.1% 4.1% 4.5% 4.8% 1997 33.4% 1.8% 7.9% (4.3)% 5.0% 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: (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 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 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, Australia 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. (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) Donoghue 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. (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 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 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. 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 Fund may own the securities of these companies. 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. 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 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 Fund. The Fund 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. 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 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. 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 1/2has 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). 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 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: 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. 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 may make reference to or discuss its products, services, and accomplishments. Such accomplishments do not provide any assurance that the Fund's investment objective will be achieved. FREMONT INVESTMENT ADVISORS Innovative Investment Management and Advisory Services A subsidiary of Fremont Investors, Inc. THE FREMONT GROUP The Fremont Group manages over $6 billion in four key business areas. Fremont Investment Advisors, Inc. (FIA), is a subsidiary of Fremont Investments, Inc., which is affiliated with The Fremont Group. Fremont Investors, Inc. employs over 200 professionals in offices throughout the United States and manages over $6 billion in four key business areas. Direct Investments - Fremont holds significant equity positions in companies from a broad range of industries including: o Crown Pacific -- timber/lumber o Petro Shopping Centers -- full-service truck stops o Trinity Ventures -- venture capital Real Estate - Fremont Properties, Inc., a subsidiary of Fremont Investors, Inc. acquires and develops commercial, retail and industrial real estate. Fremont Properties also manages over 6 million square feet of real estate in 29 properties across the U.S. Energy - Activities of The Fremont Group's energy affiliate, Fremont Energy L.P., include oil and natural gas exploration and development Securities Management - Through its affiliated company, Fremont Investment Advisors, The Fremont Group manages over $4.7 billion in global investment portfolios. FREMONT INVESTMENT ADVISORS Fremont Investment Advisors provides investment management services to both institutional and individual clients. Originally organized to manage the marketable securities of Bechtel, Fremont Investment Advisors' professional staff operated for many years within Bechtel's treasury area. In 1986, FIA became a separate organization. FIA is a registered investment advisor which provides investment management and advisory services to a variety of clients including: -- defined benefit plans -- defined contribution plans -- foundations and trusts -- high net worth individuals Major clients include the Bechtel Retirement Plan which has over 15,000 participants and was recently rated as one of the ten best corporate retirement plans in the U.S. by Worth Magazine. FREMONT MUTUAL FUNDS The Fremont Funds offer investors nine no-load mutual funds in a wide variety of investment areas. Fremont Investment Advisors formed the Fremont Mutual Funds in 1988 in response to retiring Bechtel employees who were taking their retirement savings out of the Bechtel Retirement Plan. These employees were looking for low cost mutual fund options for their personal investments and retirement plan distributions. The Fremont Family of Funds includes nine no-load mutual funds in a variety of investment disciplines. From conservative bond and money market funds to aggressive U.S. micro-cap and international small cap stock funds, Fremont Mutual Funds offer investors a full range of investment options. INNOVATIVE INVESTMENT MANAGEMENT Fremont Investment Advisors utilizes both internal and external investment management expertise. Fremont Investment Advisors is innovative in its approach to investment management. By combining the talents of both internal and external investment managers, FIA offers the highest quality management in each investment discipline. This "hybrid" approach allows FIA to concentrate resources in investment areas where its investment professionals excel. These areas include global asset allocation, economic analysis and the municipal bond market. For other specialty investment disciplines, FIA selects external or "outside" managers with excellent long-term performance track records within the institutional marketplace. This close partnership provides smaller institutional and individual investors with access to the investment management expertise usually reserved only for the largest institutional investors. FIA's current team of external managers includes: International Stock Investments --Acadian Asset Management Nicholas Applegate Capital Management (Hong Kong) LLC Bond Investments --Pacific Investment Management Company (PIMCO) -- U.S. Micro-Cap and Small Cap Investment Kern Capital Management LLC (KCM) For more information about Fremont or the Fremont Funds, please call 800-548-4539 (press 1). THE FREMONT GROUP ORGANIZATION | | | | | | | | | | | | Direct Investments | | | | | | Real Estate | | | | Energy | | Securities Management | | Fremont Fremont Investment -- Mutual Advisors Funds APPENDIX A: DESCRIPTION OF RATINGS Description of Commercial Paper Ratings: Moody's Investors Service, Inc. employs the designation "Prime-1" to indicate commercial paper having the highest capacity for timely repayment. Issuers rated Prime-1 "have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protections; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity." Standard & Poor's Ratings Group's ratings of commercial paper are graded into four categories ranging from "A" for the highest quality obligations to "D" for the lowest. Issues assigned the highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 - "This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation." Fitch Investors Services, Inc.'s short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1+ - "Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment." F-1 - "Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+." Duff & Phelps Credit Rating Co. employs the designation "D-1" to indicate high-grade short-term debt. D-1+ - "Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources or funds, is outstanding, and safety is just below risk-free U.S. Treasury short-term obligations." Appendix-1 D-1 - "Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor." D-1- - "High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small." IBCA Limited's short-term ratings range from "A1" for the highest quality obligation to "C" for the lowest. A1 - "Obligations supported by the highest capacity for timely repayment. Where issues possess a particularly strong credit feature, a rating of 'A1+' is assigned." Thomson BankWatch assigns short-term debt ratings ranging from "TBW-1" to "TBW-4." Important factors that may influence its assessment are the overall financial health of the particular company, and the probability that the government will come to the aid of a troubled institution in order to avoid a default or failure. TBW-1 - "The highest category; indicates a very high likelihood that principal and interest will be paid on a timely basis." Description of Bond Ratings: Moody's Investors Service, Inc. rates the long-term debt securities issued by various entities from "Aaa" to "C." The ratings from "Aa" through "B" may be modified by the addition of 1, 2 or 3 to show relative standing within the major rating categories. Investment ratings are as follows: Aaa - Best quality. These securities "carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues." Aa - High quality by all standards. "They are rated lower than the best bond because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat greater." A - Upper medium grade obligations. These bonds possess many favorable investment attributes. "Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future." Appendix-2 Baa - Medium grade obligations. "Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well." Standard & Poor's Ratings Group rates the long-term debt securities of various entities in categories ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - Highest rating. "Capacity to pay interest and repay principal is extremely strong." AA - High grade. "Very strong capacity to pay interest and repay principal." A - "Strong capacity to pay interest and repay principal," although "somewhat more susceptible to the adverse effects of change in circumstances and economic conditions than debt in higher rated categories." BBB - "Adequate capacity to pay interest and repay principal." These bonds normally exhibit adequate protection parameters, but "adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for debt in higher rated categories." Fitch Investors Services, Inc. rates the long-term debt securities of various entities in categories ranging from "AAA" to "D." The ratings from "AA" through "C" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events." AA - "Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds are rated "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+"." A - "Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings." Appendix-3 BBB - "Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings." Duff & Phelps Credit Rating Co. rates the long-term debt securities of various entities in categories ranging from "AAA" to "DD." The ratings from "AA" through "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt." AA - "High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions." A - "Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress." BBB - "Below average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles." IBCA Limited rates the long-term debt securities of various entities in categories ranging from "AAA" to "C." The ratings below "AAA" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Obligations for which there is the lowest expectation of investment risk. Capacity for timely repayment of principal and interest is substantial, such that adverse changes in business, economic or financial conditions are unlikely to increase investment risk substantially." AA - "Obligations for which there is a very low expectation of investment risk. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business, economic or financial conditions may increase investment risk, albeit not very significantly." A - "Obligations for which there is a low expectation of investment risk. Capacity for timely repayment of principal and interest is strong, although adverse changes in business, economic or financial conditions may lead to increased investment risk." Appendix-4 BBB - "Obligations for which there is currently a low expectation of investment risk. Capacity for timely repayment of principal and interest is adequate, although adverse changes in business, economic or financial conditions are more likely to lead to increased investment risk than for obligations in other categories." Thomson BankWatch rates the long-term debt securities of various entities in categories ranging from "AAA" to "D." The ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Investment ratings are as follows: AAA - "Indicates that the ability to repay principal and interest on a timely basis is extremely high." AA - "Indicates a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to issues rated in the highest category." A - " Indicates the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings." BBB - "The lowest investment-grade category; indicates an acceptable capacity to repay principal and interest. BBB issues are more vulnerable to adverse developments (both internal and external) than obligations with higher ratings." Appendix-5 FREMONT MUTUAL FUNDS, INC. PART C; OTHER INFORMATION Item 24. FINANCIAL STATEMENTS (a) Financial Statements: (1) Investment Portfolio as of a October 31, 1997; Statement of Assets and Liabilities as October 31, 1997; Statement of Operations for the year ended October 31, 1997; Statement of Changes in Net Assets for the years ended October 31, 1997 and 1996; Condensed Financial Information - Financial Highlight for the years ended October 31, 1993 through October 31, 1997; related notes; and the Report of Independent Certified Public Accountants for the Fremont Mutual Funds, Inc. (the "Funds") dated October 31, 1997 are incorporated by reference to the Annual Report to Shareholders of the Fund for the fiscal year ended October 31, 1997. (b) Exhibits -- Exhibits required by Part C, Item 24 of Form N-1A (1) (a) Articles of Incorporation -- on file (File No. 811-5632) (b) Articles of Amendment -- on file (File No. 811-5632) (c) Articles of Amendment changing name -- on file (File No. 811-5632) (d) Articles Supplementary relating to shares of International Growth Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 16 filed December 29, 1993) (e) Articles Supplementary for Income Fund, changing name to Bond Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (f) Articles Supplementary relating to shares of the International Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (g) Articles Supplementary relating to shares of the U.S. Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (h) Articles Supplementary relating to shares of the Emerging Markets Fund -- on file (File No. 811- 5632 under Post-Effective Amendment No. 22 filed April 10, 1996) (i) Articles Supplementary relating to shares of the Institutional U.S. Micro Cap Fund (filed herewith) (j) Articles Supplementary relating to shares of the U.S. Small Cap Fund (filed herewith) (k) Articles Supplementary relating to shares of the Real Estate Securities Funds (filed herewith) (l) Articles Supplementary relating to shares of the Select Fund (filed herewith) (2) Bylaws -- on file (File No. 811-5632 under Post-Effective Amendment No. 21 filed January 20, 1996) (3) None (4) Forms of specimen stock certificate -- shares are issued in uncertificated form only (5) (a) Amended and Restated Investment Advisory and Administrative Services Agreement relating to Money Market Fund, Global Fund, California Intermediate Tax-Free Fund, Bond Fund, Growth Fund and Emerging Markets Fund -- on file (File No. 811-5632) (b) Investment Advisory and Administrative Services Agreement relating to International Growth Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (c) Investment Advisory and Administrative Services Agreement relating to International Small-Cap Fund and U.S. Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 19 filed August 1, 1994) (d) Portfolio Management Agreement with Pacific Investment Management Co. and Fremont Investment Advisors, Inc. for Bond (formerly Income) Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (e) Portfolio Management Agreement with Acadian Asset Management, Inc. and Fremont Investment Advisors, Inc. for International Small Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (f) Form of Portfolio Management Agreement with Credit Lyonnais International Asset Management (HK) Limited for Emerging Markets Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 22 filed April 10, 1996) (g) Investment Advisory and Administrative Services Agreement relating to Institutional U.S. Micro Cap Fund -- (filed herewith) (h) Investment Advisory and Administrative Services Agreement relating to U.S. Small Cap Fund -- (filed herewith) (i) Investment Advisory and Administrative Services Agreement relating to Real Estate Securities Fund -- (filed herewith) (j) Investment Advisory and Administrative Services Agreement relating to Select Fund -- (filed herewith) (h) Portfolio Management Agreement with Kern Capital Management LLC and Fremont Investment Advisors, Inc. for U.S. Micro-Cap Fund (filed herewith) (i) Portfolio Management Agreement with Kern Capital Management LLC and Fremont Investment Advisors, Inc. for Institutional U.S. Micro-Cap Fund (filed herewith) (j) Portfolio Management Agreement with Kern Capital Management LLC and Fremont Investment Advisors, Inc. for U.S. Small-Cap Fund (filed herewith) (k) Portfolio Management Agreement with Kensington Investment Group and Fremont Investment Advisors, Inc. for Real Estate Securities Fund (filed herewith) (6) Distribution Agreement with First Fund Distributors, Inc. -- on file (File No. 811-5632 under Post-Effective Amendment No. 28 filed October 17, 1997) (7) None (8) Custodian Agreement with The Northern Trust Company -- on file (File No. 811-5632 under Post-Effective Amendment No. 21 filed January 20, 1996) (9) (a) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency Agreement with Fremont Investment Advisors, Inc. -- on file (File No. 811-5632 under Post-Effective Amendment No. 23 filed February 28, 1997) (b) Sub-Transfer Agency Agreement with Countrywide Fund Services, Inc. -- on file (File No. 811-5632 under Post-Effective Amendment No. 23 filed February 28, 1997) (c) Administration Agreement with Investment Company Administration Corporation (File No. 811-5632 under Post-Effective Amendment No. 28 filed October 17, 1997) (d) License Agreement relating to the Mark "Fremont" with Fremont Investment Advisors, Inc. -- on file (File No. 811-5632) (e) Investment Accounting Agreement between Investors Fiduciary Trust Company and Fremont Mutual Funds, Inc. -- on file (File No. 811-5632 under Post-Effective Amendment No. 17 filed March 1, 1994) (f) Sub-Transfer Agency Agreement with National Financial Data Services, Inc. - (filed herewith) (10) (a) Opinion and Consent of Counsel -- on file (File No. 811-5632) (b) Opinion and Consent of Counsel for Institutional US Micro-Cap Fund, U.S. Small Cap Fund, Real Estate Securities Fund, and Select Fund -- (filed herewith) (11) Consent of Independent Public Accountants (filed herewith) (12) Inapplicable (13) (a) Subscription Agreement with initial shareholders -- on file (File No. 811-5632 under Post-Effective Amendment filed May 11, 1992) (b) Subscription Agreement with initial shareholders of International Growth Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 16 filed December 29, 1993) (c) Subscription Agreement with initial shareholders of International Small-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (d) Subscription Agreement with initial shareholders of U.S. Micro-Cap Fund -- on file (File No. 811-5632 under Post-Effective Amendment No. 18 filed April 22, 1994) (14) Retirement Plans -- on file (File No. 811-5632) (15) Form of Plan of Distribution Pursuant to Rule 12b-1 -- (filed herewith) (16) Inapplicable (17) Inapplicable (18) Inapplicable Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT Stephen D. Bechtel, Jr. and members of his family, including trusts for family members, would be considered controlling persons under applicable Securities and Exchange Commission regulations, on account of their shareholdings in the Funds. Item 26. NUMBER OF HOLDERS OF SECURITIES Number of Record Holders as of TITLE OF CLASS February 24, 1998 Capital Stock -- Money Market Fund 1,705 Capital Stock -- Global Fund 3,442 Capital Stock -- California Intermediate 169 Tax-Free Fund Capital Stock -- Bond Fund 505 Capital Stock -- Growth Fund 2,178 Capital Stock -- International Growth Fund 220 Capital Stock -- International Small Cap Fund 233 Capital Stock -- U.S. Micro-Cap Fund 6,635 Capital Stock -- Emerging Markets Fund 430 Capital Stock -- Institutional U.S. Micro- 16 Cap Fund Capital Stock -- U.S. Small Cap Fund 94 Capital Stock -- Real Estate Securities Fund 264 Capital Stock -- Select Fund 30 Item 27. INDEMNIFICATION Article VII(g) of the Articles of Incorporation, filed as Exhibit (1), Item 24(b), provides for indemnification of certain persons acting on behalf of the Funds. The Funds and the Advisor are jointly insured under an errors and omissions policy issued by American International Specialty Lines Insurance Company. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons by the Registrant's charter and bylaws, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in said Act, and is, therefore, unenforceable. In particular, the Articles of the Company provide certain limitations on liability of officers and directors. In the event that a claim for indemnification against such liabilities (other than the payment by the Series of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR The information required by this item is contained in the Form Adv of the following entities and is incorporated herein by reference: Name of investment advisor File No. -------------------------- ---------------- Kern Capital Management LLC 801-44964 Pacific Investment Management Company 801-48187 Nicholas-Applegate Capital Mgmt. (HK) LLC 801-54681 Kensington Investment Group 801-44964 Item 29. Principal Underwriter. (a) First Fund Distributors, Inc. is the principal underwriter for the following investment companies or series thereof: Advisors Series Trust - American Trust Allegiance Fund - InformationTech 100(R) Fund - Kaminski Poland Fund - Rockhaven Funds (The) Fleming Capital Mutual Fund Group, Inc. Fremont Mutual Funds, Inc. Jurika & Voyles Fund Group RNC Mutual Fund Group, Inc. PIC Investment Trust Professionally Managed Portfolios - Avondale Total Return Fund - Perkins Opportunity Fund - Osterweis Fund - Pacific Gemini Partners Fund Group - ProConscience Women's Equity Mutual Fund - Academy Value Fund - Kayne, Anderson Rising Dividends Fund - Trent Equity Fund - Leonetti Balanced Fund - Lighthouse Growth Fund - U.S. Global Leaders Growth Fund - Boston Managed Growth Fund - Harris Bretall Sullivan & Smith Growth Fund - Insightful Investor Growth Fund - Hodges Fund - Penza Growth Fund - Titan Investment Fund Purisima Total Return Fund Rainier Investment Management (b) The following information is furnished with respect to the officers of First Fund Distributors, Inc.: Name and Principal Position and Offices with First Positions and Offices Business Address* Fund Distributors, Inc. with Registrant - ----------------- ----------------------- --------------------- Robert H. Wadsworth President and Treasurer Assistant Secretary Steven J. Paggioli Vice President and Secretary None Eric M. Banhazl Vice President Assistant Treasurer * The principal business address of persons and entities listed is 4455 E. Camelback Road, Suite 261E, Phoenix, AZ 85018. (c) The distributor receives and annual fee of $50,000 per year. Item 30. LOCATION OF ACCOUNTS AND RECORDS Accounts, books, and other records required by Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended, are maintained and held in the offices of the Registrant and its investment manager, Fremont Investment Advisors, Inc., 333 Market Street, 26th Floor, San Francisco, California 94105. Other books and records will be maintained by the sub-advisers to the Funds. Records covering stockholder accounts and portfolio transactions are also maintained and kept by the Funds' Sub-Transfer Agent, National Financial Data Services, Inc., and by the Custodian, The Northern Trust Company. Item 31. MANAGEMENT SERVICES None Item 32. UNDERTAKINGS (a) Inapplicable (b) The Registrant undertakes to file a Post-Effective Amendment, using financial statements of the Fremont Real Estate Securities Fund and the Fremont Select Fund which need not be certified, within four to six months from the effective date of such Fund. (c) The information required by part 5A of the Form N-1A is or will be contained in the latest annual report to shareholders, and Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. (d) The Registrant undertakes that within five business days after receipt of a written application by shareholders holding in the aggregate at least 1% of the shares then outstanding or shares then having a net asset value of $25,000, which is less, each of whom shall have been a shareholder for at least six months prior to the date of application (hereinafter the "Petitioning Shareholders"), requesting to communicate with other shareholders with a view to obtaining signatures to a request for a meeting for the purpose of voting upon removal of any Director of the Registrant, which application shall be accompanied by a form of communication and request which such Petitioning Shareholders wish to transmit, Registrant will: (i) provide such Petitioning Shareholders with access to a list of the names and addresses of all shareholders of the Registrant; or (ii) inform such Petitioning Shareholders of the approximate number of shareholders and the estimated costs of mailing such communication, and to undertake such mailing promptly after tender by such Petitioning Shareholders to the Registrant of the material to be mailed and the reasonable expenses of such mailing. SIGNATURE OF THE REGISTRANT Pursuant to the requirements of the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post- Effective Amendment pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of San Francisco, and the State of California, on the 26th day of February, 1998. FREMONT MUTUAL FUNDS, INC. By: /S/ DAVID L. REDO ---------------------------------- DAVID L. REDO Chairman Pursuant to the requirements of the Securities Act of 1933 this Amendment to the Registration Statement has been signed below by the following persons in the capacities listed, and each on February 26, 1998. PRINCIPAL EXECUTIVE OFFICER: /S/ David L. Redo Chairman and Chief - --------------------------------- Executive Officer David L. Redo PRINCIPAL ACCOUNTING OFFICER: /S/ Jack Gee Vice President - --------------------------------- and Controller Jack Gee DIRECTORS: /S/ RICHARD E. HOLMES* Director - --------------------------------- Richard E. Holmes /S/ DONALD C. LUCHESSA* Director - --------------------------------- Donald C. Luchessa /S/ DAVID L. EGAN* Director - --------------------------------- David L. Egan /S/ PETER F. LANDINI Director - --------------------------------- Peter F. Landini /S/ DAVID L. REDO Director - --------------------------------- David L. Redo /S/ MICHAEL H. KOSICH Director - --------------------------------- Michael H. Kosich *By:/s/ Robert M. Slotky - --------------------------------- Robert M. Slotky Pursuant to Power of Attorney (filed herewith) EX-1.A 2 FREMONT FUNDS FREMONT MUTUAL FUNDS, INC.-REGISTERED TRADEMARK- ANNUAL REPORT [GRAPHIC] OCTOBER 31, 1997 FREMONT FUNDS-Registered Trademark- [LOGO] FREMONT FUNDS A MESSAGE FROM MICHAEL H. KOSICH, PRESIDENT OF FREMONT MUTUAL FUNDS [PHOTO OF MIKE KOSICH] MIKE KOSICH Dear Fellow Shareholder: Fiscal 1997 was an exciting year for Fremont Funds. We introduced one new Fund, Fremont U.S. Small Cap Fund, under the leadership of David Kern of Kern Capital Management LLC. If the name sounds familiar, it is because David is the son of Bob Kern, who has done such an outstanding job managing Fremont U.S. Micro-Cap Fund. David's credentials as a small cap equities analyst and portfolio manager are impressive with 11 years' professional experience for companies like Founders Asset Management and Delaware Management. We believe this is a terrific addition to the Fremont Mutual Funds family. We are also in the final developmental stage for two new funds to be offered in the next couple of months. The Fremont Real Estate Securities Fund will invest primarily in Real Estate Investment Trusts (REIT) with the guidance of sub-advisor Kensington Investment Group. The Fremont Select Fund will invest in domestic mid-cap stocks with Fremont Investment Advisors' John Kosecoff and Debra McNeill serving as co-portfolio managers. Both are seasoned investment professionals, having teamed up previously at RCM Capital Management. Once again, we are pleased to report that six of nine Fremont Funds in operation for all of second-half fiscal 1997 exceeded their index benchmarks. We tip our hats to Fremont Growth Fund's Ken Copa, Fremont Emerging Markets Fund's Henry Thornton, and Fremont Bond Fund's Bill Gross for particularly good performance relative to their respective benchmarks and peer groups. Fremont Funds has also made progress on the shareholder services front. Our new transfer agent, National Financial Data Services, and our tele-services vendor, Boston Financial Data Services, are providing new and improved shareholder statements, easier access to account information, and more efficient exchange and transfer services. We are in the process of scheduling seminars and publishing brochures explaining the changes in IRA regulations that will be in effect in 1998. We believe the new Roth and Education IRAs will offer many of our shareholders an even better way to save for retirement. In closing, because of the dramatic corrections in global stock markets in late October, some perspective on our general investment philosophy is in order. As you can probably tell from the gray hair in my photograph, I have been in the investment business for a long time. Fremont Funds' portfolio managers and research analysts have as well. We have seen markets go up and we have seen them go down. We evaluate risk as aggressively as we evaluate return potential. We are ever mindful of our mandate to preserve and enhance the hard-earned assets you have entrusted to us. Sincerely, /s/Michael H. Kosich Michael H. Kosich December 10, 1997 FREMONT FUNDS TABLE OF CONTENTS FUND PROFILES AND LETTERS TO SHAREHOLDERS Fremont Global Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Fremont International Growth Fund. . . . . . . . . . . . . . . . . . . . . . 5 Fremont International Small Cap Fund . . . . . . . . . . . . . . . . . . . . 8 Fremont Emerging Markets Fund. . . . . . . . . . . . . . . . . . . . . . . .10 Fremont U.S. Micro-Cap Fund. . . . . . . . . . . . . . . . . . . . . . . . .13 Fremont U.S. Small Cap Fund. . . . . . . . . . . . . . . . . . . . . . . . .15 Fremont Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Fremont Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Fremont Money Market Fund. . . . . . . . . . . . . . . . . . . . . . . . . .21 Fremont California Intermediate Tax-Free Fund. . . . . . . . . . . . . . . .23 Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . .25 STATEMENTS OF INVESTMENTS Fremont Global Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Fremont International Growth Fund. . . . . . . . . . . . . . . . . . . . . .30 Fremont International Small Cap Fund . . . . . . . . . . . . . . . . . . . .32 Fremont Emerging Markets Fund. . . . . . . . . . . . . . . . . . . . . . . .35 Fremont U.S. Micro-Cap Fund. . . . . . . . . . . . . . . . . . . . . . . . .36 Fremont U.S. Small Cap Fund. . . . . . . . . . . . . . . . . . . . . . . . .38 Fremont Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Fremont Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Fremont Money Market Fund. . . . . . . . . . . . . . . . . . . . . . . . . .43 Fremont California Intermediate Tax-Free Fund. . . . . . . . . . . . . . . .45 Country Diversification and Portfolio & Currency Abbreviations . . . . . . .47 COMBINED FINANCIAL STATEMENTS Statements of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .48 Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .50 Statements of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .52 FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . .61 1 FREMONT FUNDS FREMONT GLOBAL FUND THE FREMONT ASSET ALLOCATION COMMITTEE, PORTFOLIO MANAGERS FOR FREMONT GLOBAL FUND DAVE REDO, PETE LANDINI, BOB HADDICK, SANDIE KINCHEN, AL KIRSCHBAUM FUND PROFILE FREMONT GLOBAL FUND OFFERS CONSERVATIVE INVESTORS A BALANCED APPROACH TO GLOBAL INVESTING. THE FUND MANAGEMENT TEAM UNDERSTANDS THE REWARD POTENTIAL AND PERHAPS MORE IMPORTANTLY, THE RISKS IN GLOBAL FINANCIAL MARKETS. THROUGH COUNTRY DIVERSIFICATION, PRUDENT ALLOCATION BETWEEN STOCKS, BONDS AND CASH, AND DISCIPLINED SECURITIES SELECTION, THE FUND SEEKS LONG-TERM TOTAL RETURNS EQUALING AT LEAST 80% OF THE GLOBAL EQUITIES MARKETS WITH ONLY HALF THE DOWNSIDE RISK AS MEASURED BY PORTFOLIO BETA. THE FUND'S FIVE-MEMBER PORTFOLIO MANAGEMENT TEAM EMPLOYS A THREE-STEP INVESTMENT PROCESS. FIRST, ECONOMIC GROWTH, INFLATION, AND INTEREST RATE FORECASTS ARE DEVELOPED TO IDENTIFY THOSE REGIONS AND INDIVIDUAL COUNTRIES OFFERING THE BEST INVESTMENT OPPORTUNITIES. SECOND, FINANCIAL MARKET DATA IS EXAMINED TO DETERMINE THE MOST ADVANTAGEOUS MIX OF STOCKS, BONDS AND CASH. FINALLY, INDIVIDUAL SECURITIES ARE SELECTED BASED ON INTENSIVE QUANTITATIVE AND FUNDAMENTAL ANALYSIS. ON THE EQUITIES SIDE, FUND MANAGEMENT FAVORS LARGE COMPANIES WITH STRONG BALANCE SHEETS AND CONSISTENT EARNINGS RECORDS. INDIVIDUAL BONDS ARE CHOSEN BASED ON CREDIT QUALITY AND OPPORTUNISTIC PRICING. [PHOTO OF DAVE REDO, PETE LANDINI, AL KIRSCHBAUM, BOB HADDICK AND SANDIE KINCHEN] THE FREMONT ASSET ALLOCATION COMMITTEE (CLOCKWISE FROM TOP LEFT) DAVE REDO, PETE LANDINI, AL KIRSCHBAUM, BOB HADDICK, SANDIE KINCHEN TO OUR SHAREHOLDERS For the six months ended October 31, 1997, Fremont Global Fund returned 6.24% xcompared to the Lipper Global Flexible Fund Average's 8.31%. For full fiscal year 1997 ended on the same date, the Fund returned 13.01% versus the benchmark index's 14.42%. FREMONT GLOBAL FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF GRAPH] 11/18/88- 10/31/89* +13.71% 11/01/89- 10/31/90 -2.64% 11/01/90- 10/31/91 +18.38% 11/01/91- 10/31/92 +7.10% 11/01/92- 10/31/93 +17.51% 11/01/93- 10/31/94 +1.74% 11/01/94- 10/31/95 +12.78% 11/01/95- 10/31/96 +13.72% 11/01/96- 10/31/97 +13.01% AVERAGE +10.44% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 5 SINCE INCEPTION YEAR YEARS 11/18/88 13.01% 11.62% 10.44% FREMONT GLOBAL FUND S&P500 EAFE INDEX 100% HEDGED-4638 18-NOV-88 $10,000 $10,000 $10,000 $10,000 $10,000 30-NOV-88 $10,040 $10,281 $9,966 $10,161 $10,004 31-DEC-88 $10,123 $10,467 $9,975 $10,218 $10,084 31-JAN-89 $10,415 $11,223 $10,080 $10,398 $10,141 28-FEB-89 $10,325 $10,944 $10,037 $10,451 $10,055 31-MAR-89 $10,506 $11,201 $10,081 $10,246 $10,125 30-APR-89 $10,677 $11,777 $10,282 $10,341 $10,223 31-MAY-89 $10,828 $12,254 $10,486 $9,779 $10,228 30-JUN-89 $10,878 $12,187 $10,750 $9,614 $10,317 31-JUL-89 $11,391 $13,281 $10,970 $10,822 $10,542 31-AUG-89 $11,512 $13,538 $10,829 $10,335 $10,551 30-SEP-89 $11,462 $13,485 $10,880 $10,806 $10,495 31-OCT-89 $11,371 $13,167 $11,110 $10,371 $10,489 30-NOV-89 $11,519 $13,439 $11,216 $10,893 $10,465 31-DEC-89 $11,735 $13,758 $11,247 $11,295 $10,500 31-JAN-90 $11,373 $12,835 $11,175 $10,874 $10,292 28-FEB-90 $11,331 $13,000 $11,217 $10,116 $10,138 31-MAR-90 $11,373 $13,341 $11,231 $9,062 $10,133 30-APR-90 $11,203 $13,010 $11,192 $8,990 $10,125 31-MAY-90 $11,810 $14,278 $11,438 $10,016 $10,376 30-JUN-90 $11,842 $14,180 $11,591 $9,928 $10,430 31-JUL-90 $11,927 $14,134 $11,753 $10,068 $10,471 31-AUG-90 $11,341 $12,857 $11,704 $9,090 $10,330 30-SEP-90 $10,873 $12,224 $11,795 $7,823 $10,272 31-OCT-90 $11,070 $12,179 $11,931 $9,042 $10,567 30-NOV-90 $11,349 $12,961 $12,112 $8,509 $10,740 31-DEC-90 $11,527 $13,318 $12,278 $8,647 $10,847 31-JAN-91 $11,797 $13,907 $12,403 $8,926 $11,053 28-FEB-91 $12,270 $14,902 $12,501 $9,883 $11,216 31-MAR-91 $12,315 $15,255 $12,586 $9,290 $11,221 30-APR-91 $12,371 $15,297 $12,724 $9,381 $11,276 31-MAY-91 $12,607 $15,955 $12,802 $9,479 $11,343 30-JUN-91 $12,258 $15,228 $12,811 $8,782 $11,282 31-JUL-91 $12,596 $15,940 $12,954 $9,213 $11,384 31-AUG-91 $12,810 $16,315 $13,202 $9,026 $11,531 30-SEP-91 $12,911 $16,046 $13,429 $9,535 $11,719 31-OCT-91 $13,105 $16,259 $13,582 $9,671 $11,802 30-NOV-91 $12,872 $15,604 $13,738 $9,219 $11,840 31-DEC-91 $13,676 $17,386 $14,073 $9,695 $12,051 31-JAN-92 $13,595 $17,064 $13,946 $9,488 $12,152 29-FEB-92 $13,747 $17,282 $14,001 $9,148 $12,192 31-MAR-92 $13,466 $16,945 $13,946 $8,544 $12,123 30-APR-92 $13,501 $17,440 $14,068 $8,585 $12,160 31-MAY-92 $13,773 $17,533 $14,286 $9,160 $12,292 30-JUN-92 $13,655 $17,277 $14,498 $8,726 $12,342 31-JUL-92 $13,808 $17,975 $14,786 $8,502 $12,428 31-AUG-92 $13,844 $17,612 $14,934 $9,035 $12,468 30-SEP-92 $13,964 $17,815 $15,138 $8,856 $12,673 31-OCT-92 $14,035 $17,879 $14,941 $8,392 $12,889 30-NOV-92 $14,218 $18,482 $14,884 $8,471 $12,895 31-DEC-92 $14,389 $18,722 $15,083 $8,515 $13,017 31-JAN-93 $14,450 $18,858 $15,375 $8,514 $13,154 28-FEB-93 $14,609 $19,115 $15,618 $8,771 $13,395 31-MAR-93 $14,916 $19,527 $15,681 $9,536 $13,358 30-APR-93 $14,940 $19,049 $15,806 $10,441 $13,351 31-MAY-93 $15,089 $19,558 $15,771 $10,662 $13,416 30-JUN-93 $15,212 $19,623 $16,019 $10,495 $13,666 31-JUL-93 $15,423 $19,526 $16,058 $10,863 $13,819 31-AUG-93 $15,896 $20,263 $16,313 $11,449 $14,091 30-SEP-93 $16,095 $20,114 $16,381 $11,192 $14,185 31-OCT-93 $16,493 $20,527 $16,425 $11,536 $14,369 30-NOV-93 $16,330 $20,342 $16,333 $10,528 $14,490 31-DEC-93 $17,209 $20,592 $16,408 $11,288 $14,763 31-JAN-94 $17,436 $21,284 $16,590 $12,242 $14,650 28-FEB-94 $16,944 $20,707 $16,344 $12,208 $14,362 31-MAR-94 $16,249 $19,808 $16,075 $11,683 $14,273 30-APR-94 $16,312 $20,064 $15,965 $12,178 $14,194 31-MAY-94 $16,375 $20,392 $15,976 $12,108 $14,084 30-JUN-94 $16,198 $19,887 $15,978 $12,279 $13,930 31-JUL-94 $16,514 $20,545 $16,208 $12,397 $14,026 31-AUG-94 $16,982 $21,381 $16,259 $12,691 $13,893 30-SEP-94 $16,615 $20,864 $16,109 $12,291 $13,934 31-OCT-94 $16,780 $21,344 $16,108 $12,700 $13,982 30-NOV-94 $16,447 $20,560 $16,035 $12,089 $14,163 31-DEC-94 $16,491 $20,862 $16,091 $12,166 $14,169 31-JAN-95 $16,310 $21,403 $16,362 $11,699 $14,319 28-FEB-95 $16,516 $22,231 $16,700 $11,665 $14,501 31-MAR-95 $16,877 $22,889 $16,795 $12,392 $14,821 30-APR-95 $17,238 $23,564 $17,004 $12,858 $15,059 31-MAY-95 $17,851 $24,498 $17,517 $12,705 $15,540 30-JUN-95 $18,060 $25,073 $17,635 $12,483 $15,517 31-JUL-95 $18,608 $25,908 $17,636 $13,261 $15,702 31-AUG-95 $18,568 $25,968 $17,797 $12,756 $15,813 30-SEP-95 $18,858 $27,051 $17,925 $13,004 $16,073 31-OCT-95 $18,924 $26,975 $18,124 $12,654 $16,240 30-NOV-95 $19,204 $28,161 $18,361 $13,006 $16,571 31-DEC-95 $19,669 $28,683 $18,554 $13,530 $16,710 31-JAN-96 $20,294 $29,669 $18,714 $13,586 $16,896 29-FEB-96 $20,225 $29,955 $18,495 $13,632 $16,707 31-MAR-96 $20,294 $30,244 $18,401 $13,921 $16,869 30-APR-96 $20,725 $30,688 $18,336 $14,326 $17,034 31-MAY-96 $20,865 $31,480 $18,321 $14,063 $17,162 30-JUN-96 $21,006 $31,599 $18,516 $14,141 $17,304 31-JUL-96 $20,458 $30,203 $18,571 $13,728 $17,420 31-AUG-96 $20,727 $30,840 $18,586 $13,759 $17,662 30-SEP-96 $21,392 $32,576 $18,844 $14,125 $18,019 31-OCT-96 $21,520 $33,474 $19,178 $13,980 $18,314 30-NOV-96 $22,474 $36,005 $19,431 $14,536 $18,655 31-DEC-96 $22,416 $35,291 $19,307 $14,349 $18,685 31-JAN-97 $22,856 $37,497 $19,382 $13,847 $18,913 28-FEB-97 $23,019 $37,790 $19,419 $14,074 $19,034 31-MAR-97 $22,498 $36,236 $19,285 $14,125 $18,964 30-APR-97 $22,892 $38,400 $19,512 $14,200 $19,146 31-MAY-97 $23,876 $40,739 $19,674 $15,124 $19,236 30-JUN-97 $24,615 $42,564 $19,853 $15,958 $19,557 31-JUL-97 $25,872 $45,951 $20,256 $16,216 $19,854 31-AUG-97 $24,631 $43,376 $20,155 $15,005 $19,896 30-SEP-97 $25,624 $45,752 $20,389 $15,845 $20,226 31-OCT-97 $24,319 $44,224 $20,615 $14,627 $20,366 S&P 500 INDEX ($44,224) FREMONT GLOBAL FUND ($24,319) LEHMAN BROS. INTERMEDIATE GOVT./ CORP. BOND INDEX ($20,615) SALOMON NON-U.S. GOVT. BOND INDEX (CURRENCY HEDGED) ($20,336) MSCI EAFE INDEX ($14,627) * Unannualized + Assumes initial investment of $10,000 on inception date, November 18, 1988. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the S&P 500 Index, the Morgan Stanley Capital International EAFE Index, the Salomon Non-U.S. Government Bond Index (currency hedged), or the Lehman Bros. Intermediate Government/Corporate Bond Index. 2 FREMONT FUNDS FREMONT GLOBAL FUND GEOGRAPHIC DIVERSIFICATION AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF MAP] CANADA 2.7% EUROPE 19.6% JAPAN 3.6% UNITED STATES 63.6% PACIFIC RIM 6.5% EMERGING MARKETS - LATIN AMERICA 1.4% EMERGING MARKETS - OTHER 2.6% In second fiscal half 1997, the Fund's bias toward U.S. equities proved helpful as the Standard & Poor's 500 Index outperformed most of its global counterparts. Within the U.S. stock market, our overweighting in value sectors like financial services, energy and utilities, and underweighting in more richly priced growth sectors like technology and consumer non-durables also helped returns, particularly during the market's late October correction. Our decision in late summer to eliminate positions in Latin American Brady Bonds at a handsome profit also proved timely as these bonds were hit hard in October when currency turmoil in Southeast Asia unsettled Latin American debt markets. On the negative side, remaining emerging markets stock and bond positions gave back much of the gains achieved earlier in the second fiscal half. As is shown by the Fund's fully invested status, (as of October 31, cash reserves are just 2%), our favorable outlook for global financial markets has not changed since we last wrote you in our 1997 Semi-Annual Report. Most global economies continue to grow at moderate and sustainable rates. Inflation is low and perhaps, heading lower. Corporate earnings are generally good. In short, the positive economic backdrop for global financial assets remains intact. The currency crisis in Southeast Asia that rattled global financial markets in late October is likely to restrain economic growth in the region and hurt sales and earnings of American and European companies doing a lot of business there. However, we expect the U.S. economy to remain quite healthy and for developed European economies to gain momentum in the year ahead. In addition, the economic slowdown in Southeast Asia is likely to further reduce global inflation and encourage even more favorable monetary policies throughout the world--a plus for stocks and bonds. In the U.S. stock market, we remain biased toward financial services, energy and utility stocks. Demographics point to increasing savings and investment rates, which should continue to propel earnings for insurance and stock brokerage/asset management companies. We still use more energy globally than we produce, indicating a favorable long-term trend for energy prices and energy company profits. Utilities, one of the few sectors of the U.S. stock market still offering investors attractive yields, should perform better as concern over deregulation wanes with financially strong, well-managed utility companies demonstrating they can prosper in the new competitive environment. (CONTINUED ON PAGE 4) 3 FREMONT FUNDS THE CHANGING FREMONT GLOBAL FUND ASSET MIX ASSET MIX ASSET MIX ASSET MIX 10/31/97 10/31/96 10/31/95 ASSET CLASS STOCKS U.S. 48% 30% 35% FOREIGN 21% 22% 35% ---- ---- ---- TOTAL STOCKS 69% 52% 70% ---- ---- ---- BONDS U.S. 14% 6% 10% FOREIGN 15% 16% 15% ---- ---- ---- TOTAL BONDS 29% 22% 25% ---- ---- ---- CASH RESERVES 2% 26% 5% - - -------------------------------------------------------------------------- TOTAL 100% 100% 100% In Europe, we like the German, U.K. and Nordic markets, and have been focusing on dominant market share companies that can preserve profit margins and meet or exceed earnings projections. In Southeast Asia, we are concentrated in Hong Kong and Singapore, with modest positions in Malaysia, Indonesia and the Philippines. We are almost out of Thailand entirely. We remain underweighted in Japan, whose own internal economic problems are likely to be compounded by those of its smaller regional neighbors. Our exposure in Latin America and Eastern Europe remains very small, a reflection of our reluctance to invest in unseasoned and highly volatile stock markets. On the fixed income side, we remain overweighted in "Anglo" bonds, (U.S., Canada, the U.K. and Australia), which have high "real rates" of return, (the spread between yield and prevailing inflation rates). As mentioned before, we sold our Latin American Brady bond positions preserving some substantial profits that would have otherwise been eroded by the sharp sell-off in October. We believe our remaining Latin American bond positions, primarily shorter duration Mexican government and corporate debt, will serve us well in the year ahead. Since we continue to like U.S. stocks, and in particular the financial services sector, we will briefly discuss a couple of current portfolio holdings in this sector. Bear in mind, we may change our perspective on these securities if they become more fully valued or fail to live up to our fundamental expectations. TRAVELERS GROUP, INC., the big insurance and stock brokerage/asset management company, just got bigger with its recent acquisition of Salomon Brothers, the blue chip Wall Street investment firm. The combination of Salomon Brothers and Travelers[caad 136]O other investment operation, Smith Barney, makes the company the number two player behind Merrill Lynch in what we believe will be the fastest-growing segment of the financial services industry. We are projecting a 15% average annual earnings growth rate over the next five years. If these projections prove accurate, Travelers Group stock should continue to provide generous returns to shareholders. AHMANSON, a large California-based savings and loan, is now in third place in the California bank deposit market and in second place in Southern California. The California economy and real estate markets are thriving, helping to improve Ahmanson's asset quality. As it consolidates its branch system and improves operating efficiencies, financial results should improve. We are projecting five-year average annualized earnings growth of about 12%--a good growth rate for a savings and loan. Also, with so much merger and acquisition activity in the banking and thrift industries nationwide, Ahmanson may be an attractive target for some of the giants in the business. In closing, the global financial market retreat in late October has some investors questioning the prospects for financial assets going forward. We believe the dominant economic forces driving the financial markets--inflation, interest rates and corporate earnings--remain quite favorable. It may be a bumpy ride in the year ahead. However, we are confident the Fund can continue to move forward to meet our goals. Sincerely, /s/ Dave Redo /s/ Pete Landini /s/ Bob Haddick /s/ Sandie Kinchen /s/ Al Kirschbaum The Fremont Asset Allocation Committee Portfolio Managers, Fremont Global Fund 4 FREMONT FUNDS FREMONT INTERNATIONAL GROWTH FUND ANDREW L. PANG, PORTFOLIO MANAGER FREMONT INVESTMENT ADVISORS, INC. [PHOTO OF ANDREW PANG] ANDREW PANG FUND PROFILE FREMONT INTERNATIONAL GROWTH FUND INVESTS IN INTERNATIONAL STOCKS WITH SUPERIOR EARNINGS GROWTH POTENTIAL. FUND MANAGEMENT EMPLOYS A TOP-DOWN APPROACH--FACTORING IN ECONOMIC GROWTH POTENTIAL, CORPORATE EARNINGS OUTLOOK, MARKET VALUATIONS, POLITICAL AND CURRENCY STABILITY, AND INFLATION AND INTEREST RATE TRENDS--TO MAKE COUNTRY ASSET ALLOCATION DECISIONS. THEN, WITHIN EACH COUNTRY, THE FUND FOCUSES ON THOSE INDUSTRY GROUPS PROVIDING ESSENTIAL PRODUCTS AND SERVICES--CONSUMER BASICS, BANKING, TELECOMMUNICATIONS, INFORMATION TECHNOLOGY, POWER GENERATION, HEALTH CARE AND INFRASTRUCTURE. IN THE STOCK SELECTION PROCESS, THE FUND FAVORS DOMINANT MARKET SHARE COMPANIES (IN SOME CASES MONOPOLIES) MOST LIKELY TO PRODUCE CONSISTENT EARNINGS GROWTH. PORTFOLIO MANAGER ANDREW L. PANG TRAVELS GLOBALLY ON A REGULAR BASIS TO MEET WITH RESEARCH ANALYSTS AND CORPORATE MANAGEMENTS TO IDENTIFY INVESTMENT OPPORTUNITIES. TO OUR SHAREHOLDERS, For the six months ended October 31, 1997, the Fremont International Growth Fund declined 3.98% compared to the Morgan Stanley Capital International Europe, Australia, and Far East (EAFE) Index's 3.01% gain. For the twelve months ended on the same date, the Fund declined 0.01% versus the benchmark index's 4.63% return. In second half fiscal 1997, the Fund benefited from its overweighting in Europe, (56% of assets as of October 31, 1997) and its underweighting in Japan (21% at fiscal year end). Our exodus from the Latin American markets (approximately 6% of the portfolio in mid-summer), before the late October meltdown allowed us to preserve earlier gains from investments in the region. Although we had reduced the Fund's exposure in Southeast Asia in first half fiscal 1997, our remaining positions caused a substantial drag on performance as these markets trended lower through late summer/early fall, and collapsed in late October. (CONTINUED ON PAGE 6) FREMONT INTERNATIONAL GROWTH FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF GRAPH] 3/1/94- 10/31/94* +2.30% 11/01/94- 10/31/95 +0.13% 11/01/95- 10/31/96 +7.07% 11/01/96- 10/31/97 -0.01% AVERAGE +2.55% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 3 SINCE INCEPTION YEAR YEARS 3/1/94 - - -0.01% 2.34% 2.55% [EDGAR REPRESENTATION OF CHART] FREMONT INT'L GROWTH FUND EAFE 01-MAR-94 $10,000 $10,000 31-MAR-94 $9,634 $9,569 30-APR-94 $9,666 $9,975 31-MAY-94 $9,676 $9,918 30-JUN-94 $9,488 $10,058 31-JUL-94 $9,718 $10,155 31-AUG-94 $10,178 $10,395 30-SEP-94 $10,031 $10,068 31-OCT-94 $10,230 $10,403 30-NOV-94 $9,739 $9,903 31-DEC-94 $9,689 $9,965 31-JAN-95 $9,020 $9,582 28-FEB-95 $9,198 $9,555 31-MAR-95 $9,386 $10,151 30-APR-95 $9,699 $10,533 31-MAY-95 $9,950 $10,407 30-JUN-95 $10,159 $10,225 31-JUL-95 $10,734 $10,862 31-AUG-95 $10,473 $10,448 30-SEP-95 $10,546 $10,652 31-OCT-95 $10,243 $10,366 30-NOV-95 $10,148 $10,654 31-DEC-95 $10,387 $11,083 31-JAN-96 $10,746 $11,129 29-FEB-96 $10,915 $11,166 31-MAR-96 $10,999 $11,403 30-APR-96 $11,431 $11,735 31-MAY-96 $11,326 $11,519 30-JUN-96 $11,516 $11,584 31-JUL-96 $10,915 $11,245 31-AUG-96 $11,104 $11,270 30-SEP-96 $11,368 $11,570 31-OCT-96 $10,967 $11,451 30-NOV-96 $11,516 $11,907 31-DEC-96 $11,738 $11,754 31-JAN-97 $11,749 $11,342 28-FEB-97 $11,770 $11,528 31-MAR-97 $11,527 $11,570 30-APR-97 $11,421 $11,631 31-MAY-97 $12,098 $12,388 30-JUN-97 $12,542 $13,071 31-JUL-97 $13,124 $13,283 31-AUG-97 $11,717 $12,291 30-SEP-97 $12,161 $12,979 31-OCT-97 $10,966 $11,982 MSCI EAFE INDEX ($11,982) FREMONT INTERNATIONAL GROWTH FUND ($10,966) * Unannualized + Assumes initial investment of $10,000 on inception date, March 1, 1994. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the Morgan Stanley Capital International EAFE Index. 5 FREMONT FUNDS FREMONT INTERNATIONAL GROWTH FUND GEOGRAPHIC DIVERSIFICATION AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF MAP] UNITED KINGDOM 8.6% CONTINENTAL EUROPE 46.9% UNITED STATES 12.6% JAPAN 21.0% HONG KONG/ SINGAPORE/MALAYSIA 4.6% AUSTRALIA 1.1% OTHER EMERGING MARKETS: INCLUDING INDONESIA, TAIWAN, SOUTH KOREA AND THE PHILIPPINES 5.2% Arguably the most critical issue confronting international investors today is the impact of the currency crisis in Southeast Asia on regional economies, Japan and Europe. Longer term, we are bullish on Southeast Asia, which has weathered prior economic storms in the early and late 1980s and in 1993-94. Southeast Asia still has an enormous low-cost labor pool, high savings and investment rates, and a talented and experienced business community. Unfortunately, it also has grossly inflated property values, more fragile banking systems, and governments who remain in a state of denial over fiscal and monetary policies that contributed to the current economic malaise. We believe it will take 18-24 months before these economies will begin turning around. These nations will have to digest currency devaluation or high interest rates, both of which will slow economic growth. When the speculative excesses are finally purged, the "Asian Tigers" will use their traditional strength--low cost manufacturing of a wide range of products--to export their way out of the economic doldrums. We have eliminated many of our positions in the region, keeping those which we believe have the least downside risk and best long-term potential. We may do even more cutting and paring in the months ahead. Looking out toward late 1998, we may increase our exposure to the region if we gain confidence these economies can rebound in 1999. Japan is a bigger conundrum. The Japanese economy's modest export-driven recovery is threatened by the economic problems of its regional trading partners and 1998 GDP growth projections are being reduced from about 2.5% to zero by Wall Street economists. There isn't much the government can do to help. Interest rates are already negligible. The fragile banking system is likely to become even more fragile as a result of loans to its struggling Asian neighbors. We are considerably more upbeat about Europe. We don't believe the economic problems in Southeast Asia will materially slow the momentum we are seeing in European economies. Corporate earnings are likely to be quite healthy in 1998, and in my opinion, these markets can continue to trend higher over the next several years. Our current favorites are the German, U.K. and Nordic markets. We will add a note of long-term caution. Right now investors feel good about the prospect of the new Economic Union. We think it will happen in May 1998 with 6 FREMONT FUNDS wannabes like Spain and Italy being invited in. However, this political victory will then become an economic battle with the likelihood of some bloodshed as the new policies are implemented. One of the European stocks we currently favor is the UK's COMPASS GROUP, one of the world's largest contract caterers. Compass provides food services to businesses, hospitals and prisons. The company's revenues should continue to grow due to the cost efficiency of outsourcing these services. Compass Group stock has been somewhat depressed recently as a result of what we believe are temporary earnings and return on equity disappointments as the company has digested recent acquisitions. Management has announced that it has no further acquisition plans for the time being and will be focusing on increasing the profitability of its existing businesses. We believe it will succeed, and in the process, create value for its shareholders. In closing, a difficult year for international investing became even more difficult with the global market correction in October. Early gains were largely wiped out as equities investors around the world took a big step back to contemplate the future. In the year ahead, we are counting on the Fund's European holdings to help propel returns. Longer term, we believe the "Asian Miracle" will be resurrected providing added momentum for international equities investors. Sincerely, /s/ Andrew L. Pang Andrew L. Pang Portfolio Manager Fremont International Growth Fund FREMONT INTERNATIONAL GROWTH FUND SECTOR ALLOCATION AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF CHART] SHORT TERM SECURITIES (12.8%) CONSUMER DURABLES (16.6%) OTHER (4.4%) CONSUMER SERVICES (3.3%) TECHNOLOGY (EQUIPMENT) (11.7%) RAW MATERIALS (4.8%) TRANSPORTATION (5.3%) HEALTH CARE (5.8%) FINANCIAL SERVICES (11.1%) UTILITIES (6.7%) TECHNOLOGY (SOFTWARE) (9.9%) CAPITAL GOODS (7.6%) 7 FREMONT FUNDS FREMONT INTERNATIONAL SMALL CAP FUND DR. GARY L. BERGSTROM, PORTFOLIO MANAGER ACADIAN ASSET MANAGEMENT, INC. [PHOTO OF GARY BERGSTROM] GARY BERGSTROM FUND PROFILE FREMONT INTERNATIONAL SMALL CAP FUND'S INVESTMENT THESIS IS SIMPLE: EXTENSIVE STATISTICAL EVIDENCE SHOWS THAT SUPERIOR LONG-TERM RETURNS CAN BE ACHIEVED BY INVESTING IN FUNDAMENTALLY UNDERVALUED SMALL COMPANY STOCKS. THE FUND'S SUB-ADVISOR, ACADIAN ASSET MANAGEMENT, INC., HAS A UNIQUE FINANCIAL DATABASE OF OVER 20,000 COMPANIES IN OVER 50 COUNTRIES. THIS DATABASE INCLUDES UP TO 25 YEARS OF HISTORICAL EARNINGS, DIVIDENDS, BOOK VALUES, STOCK PRICES, COUNTRY INDICES, AND INFLATION AND INTEREST RATE STATISTICS FOR INDIVIDUAL COUNTRIES. AFTER ANALYZING THE STOCKS IN THIS EXTENSIVE GLOBAL UNIVERSE USING NUMEROUS FUNDAMENTAL VALUATION MODELS, COUNTRY AND CURRENCY VALUATION IS FACTORED IN, PRODUCING A RELATIVE ATTRACTIVENESS RANKING ("ALPHA RANKING") FOR ALL STOCKS. THE FUND INVESTS IN THOSE HIGHLY RANKED STOCKS JUDGED TO HAVE ABOVE AVERAGE PERFORMANCE POTENTIAL. APPROPRIATE PORTFOLIO DIVERSIFICATION IS MAINTAINED TO REDUCE RISK. PORTFOLIO MANAGER DR. GARY L. BERGSTROM, PRESIDENT AND CHIEF INVESTMENT OFFICER OF THE FUND'S SUB-ADVISOR, ACADIAN ASSET MANAGEMENT, INC., HAS MORE THAN 25 YEARS OF PROFESSIONAL INVESTMENT EXPERIENCE IN GLOBAL EQUITY MARKETS. HE HAS PERSONALLY DEVELOPED MANY OF THE QUANTITATIVE TECHNIQUES EMPLOYED IN ACADIAN'S VALUATION MODELS. TO OUR SHAREHOLDERS, For the six months ended October 31, 1997, Fremont International Small Cap Fund declined 12.56% compared to Salomon Brothers Extended Market Index of Europe and Pacific Countries' (EMI EPAC) 0.80% loss. For the twelve months ended on the same date, the Fund declined 14.56% versus EMI EPAC's 4.57% loss. Over the last seven years, international small cap stocks have materially underperformed international large cap stocks and the U.S. equities markets. One of the few bright spots in the otherwise gloomy scenario has been the periodically superior performance of emerging markets equities. In fiscal 1996 and the first half of fiscal 1997, the Fund's commitment to emerg- FREMONT INTERNATIONAL SMALL CAP FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF CHART] 6/30/94- 10/31/94* -1.40% 11/01/94- 10/31/95 -7.96% 11/01/95- 10/31/96 +13.69% 11/01/96- 10/31/97 -14.56% AVERAGE -3.71% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 3 SINCE INCEPTION YEAR YEARS 6/30/94 - - -14.56% -3.66% -3.71% [EDGAR REPRESENTATION OF CHART] FREMONT INTERNATIONAL SMALL CAP FUND SOLOMON EMI INDEX 30-JUN-94 $10,000 $10,000 31-JUL-94 $10,130 $10,114 31-AUG-94 $10,370 $10,221 30-SEP-94 $9,920 $9,929 31-OCT-94 $9,860 $10,109 30-NOV-94 $9,310 $9,478 31-DEC-94 $9,020 $9,605 31-JAN-95 $8,540 $9,293 28-FEB-95 $8,460 $9,157 31-MAR-95 $8,650 $9,546 30-APR-95 $8,950 $9,833 31-MAY-95 $9,180 $9,660 30-JUN-95 $9,090 $9,542 31-JUL-95 $9,600 $10,098 31-AUG-95 $9,390 $9,842 30-SEP-95 $9,430 $9,919 31-OCT-95 $9,075 $9,634 30-NOV-95 $9,004 $9,736 31-DEC-95 $9,270 $10,109 31-JAN-96 $9,870 $10,288 29-FEB-96 $10,043 $10,449 31-MAR-96 $10,236 $10,689 30-APR-96 $10,450 $11,252 31-MAY-96 $10,460 $11,160 30-JUN-96 $10,338 $11,162 31-JUL-96 $10,043 $10,740 31-AUG-96 $10,165 $10,848 30-SEP-96 $10,216 $10,909 31-OCT-96 $10,317 $10,866 30-NOV-96 $10,480 $11,045 31-DEC-96 $10,396 $10,841 31-JAN-97 $10,449 $10,607 28-FEB-97 $10,731 $10,785 31-MAR-97 $10,334 $10,642 30-APR-97 $10,082 $10,483 31-MAY-97 $10,700 $11,155 30-JUN-97 $10,983 $11,407 31-JUL-97 $10,888 $11,235 31-AUG-97 $10,313 $10,755 30-SEP-97 $10,061 $10,947 31-OCT-97 $8,815 $10,514 SALOMON BROTHERS EMI INDEX ($10,514) FREMONT INTERNATIONAL SMALL CAP FUND ($8,815) * Unannualized + Assumes initial investment of $10,000 on inception date, June 30, 1994. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the Salomon Brothers Extended Market Index. 8 FREMONT FUNDS FREMONT INTERNATIONAL SMALL CAP FUND GEOGRAPHIC DIVERSIFICATION AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF MAP] CANADA 5.3% UNITED KINGDOM 10.1% CONTINENTAL EUROPE 14.6% UNITED STATES 1.5% IRELAND 1.0% JAPAN 14.1% HONG KONG/ SINGAPORE/MALAYSIA 8.6% EMERGING MARKETS: LATIN AMERICA 9.8% OTHER EMERGING MARKETS: INCLUDING PORTUGAL, THAILAND, SOUTH KOREA, TURKEY, GREECE AND OTHERS 27.6% AUSTRALIA/ NEW ZEALAND 7.4% ing market stocks helped us outperform the EMI EPAC benchmark. In second half fiscal 1997 it was our undoing. The investment outlook for international small caps has not changed since our last report. The group continues to lag both international large cap stocks and the U.S. equities markets. One of the things value-oriented investors must grudgingly accept is that undervalued stocks can sometimes remain undervalued for a considerable amount of time. We have certainly experienced this in the international small cap stock sector. The issue is what will happen to change that. Our extensive research indicates that international small cap stocks generally perform better during periods of strong global economic expansion. While the U.S. economy has been growing at decent rates for the last five years, economies in Europe and Japan have been quite sluggish. This is changing. We expect renewed economic momentum to come from developed Europe and the emerging markets in Latin America and Eastern Europe. We believe a fresh wind of global economic growth will help pull international small cap stocks out of the doldrums. As is our custom, we will mention one of the Fund's portfolio holdings that demonstrates our investment discipline. Be reminded that we reserve the right to change our opinion on any stock in the portfolio if warranted. CHARGEURS, a cloth manufacturer, is the kind of small consumer-oriented company that stands to benefit from France's increasing economic prosperity. The stock is very attractively valued with price/book and price/earnings ratios less than half that of the French stock market. The trend in analysts' earnings estimates is up, reflecting optimism that improving demand domestically and overseas will support enhanced profitability in the near future. In closing, it has been a very difficult time for international small cap equities. This has been compounded by the sharp corrections experienced in the emerging markets. We believe global economic momentum will soon begin to attract investment attention to international small cap stocks and that at current valuations, the upside potential is considerable. We thank you for your loyalty and going forward, hope to more fully justify your faith in our investment process. Sincerely, /s/ Gary L. Bergstrom Dr. Gary L. Bergstrom Portfolio Manager Fremont International Small Cap Fund 9 FREMONT FUNDS FREMONT EMERGING MARKETS FUND HENRY L. THORNTON, PORTFOLIO MANAGER NICHOLAS-APPLEGATE CAPITAL MANAGEMENT (HONG KONG) LLC [PHOTO OF HENRY THORNTON] HENRY THORNTON FUND PROFILE AROUND THE GLOBE, COUNTRIES THAT ONCE RELIED ON AGRICULTURE, NATURAL RESOURCES OR LOW-LEVEL MANUFACTURING ARE DEVELOPING SOPHISTICATED, HIGH-GROWTH, EXPORT-DRIVEN INDUSTRIAL ECONOMIES. THESE EMERGING MARKET COUNTRIES OFFER A WEALTH OF OPPORTUNITY FOR EXPERIENCED PROFESSIONAL INVESTORS. FREMONT EMERGING MARKETS FUND EMPLOYS A BOTTOM-UP STOCK PICKING APPROACH IN BUILDING A DIVERSIFIED PORTFOLIO OF EMERGING MARKET COMPANIES. THE FUND FOCUSES ON THE STOCKS OF COMPANIES WITH RAPID, SUSTAINABLE EARNINGS GROWTH TRADING AT REASONABLE MARKET VALUATIONS. PORTFOLIO RISK IS FURTHER REDUCED BY COUNTRY DIVERSIFICATION. FUND MANAGEMENT ESTABLISHES A COUNTRY ALLOCATION POLICY AND EACH REGIONAL INVESTMENT TEAM CONDUCTS RIGOROUS FUNDAMENTAL RESEARCH, INCLUDING COMPANY VISITS, TO SELECT INDIVIDUAL STOCKS WITHIN EACH MARKET. LIQUIDITY IS ALSO CAREFULLY MONITORED. PORTFOLIO MANAGER HENRY THORNTON, INVESTMENT DIRECTOR OF FUND SUB-ADVISOR NICHOLAS-APPLEGATE, IS WIDELY RECOGNIZED AS AN EXPERT IN EMERGING MARKET INVESTING. BASED IN LONDON, HENRY DRAWS ON NICHOLAS-APPLEGATE'S EXPERIENCED TEAM OF ANALYSTS IN LONDON, HONG KONG, SINGAPORE, SAN DIEGO AND HOUSTON. TO OUR SHAREHOLDERS, For the six months ended October 31, 1997, the Fremont Emerging Markets Fund declined 3.32% compared to the Morgan Stanley Capital International Emerging Markets Free (MSCI-EMF) Index's loss of 17.53% and the IFC Investable Index's 17.98% loss. For the twelve months ended on the same date, the Fund gained 12.55% versus the MSCI-EMF loss of 8.48% and the IFC Investable's 9.99% loss. The biblical adage, "The Lord Giveth and The Lord Taketh Away" was visited upon emerging markets investors in second-half fiscal 1997. Strong early gains were wiped out in one difficult week in October. The currency crisis and market meltdowns in Southeast Asia combined with a one-day firestorm on Wall Street that fanned the flames from FREMONT EMERGING MARKETS FUND INVESTMENT RETURNS RETURNS [EDGAR REPRESENTATION OF CHART] 6/24/96- 10/31/96* -3.12% 11/1/96- 10/31/97 +12.55% AVERAGE +6.61% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 SINCE INCEPTION YEAR 6/24/96 12.55% 6.61% [EDGAR REPRESENTATION OF CHART] FREMONT EMERGING MARKETS FUND 30-JUN-96 $10,000 $10,000 31-JUL-96 $9,560 $9,317 31-AUG-96 $9,760 $9,555 30-SEP-96 $9,920 $9,638 31-OCT-96 $9,688 $9,381 30-NOV-96 $9,920 $9,538 31-DEC-96 $9,901 $9,581 31-JAN-97 $10,803 $10,235 28-FEB-97 $11,167 $10,673 31-MAR-97 $10,995 $10,393 30-APR-97 $11,279 $10,411 31-MAY-97 $11,705 $10,709 30-JUN-97 $12,383 $11,282 31-JUL-97 $12,931 $11,451 31-AUG-97 $11,917 $9,994 30-SEP-97 $12,475 $10,270 31-OCT-97 $10,904 $8,585 FREMONT EMERGING MARKETS FUND ($10,904) MSCI EMERGING MARKETS FREE INDEX ($8,535) *Unannualized +Assumes initial investment of $10,000 on inception date, June 24, 1996. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the MSCI Emerging Markets Free Index. 10 FREMONT EMERGING MARKETS FUND GEOGRAPHIC DIVERSIFICATION AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF MAP] UNITED STATES 21.5% PACIFIC RIM: INCLUDING HONG KONG, MALAYSIA, AND TAIWAN 20.9% LATIN AMERICA 32.8% EMERGING MARKETS: INCLUDING INDIA, RUSSIA, POLAND, TURKEY AND OTHERS 24.8% Hong Kong to Russia to Brazil, left emerging markets investors praying for relief. Before we sort through the emerging market ashes, let's review the fiscal year prior to the October fire. At the close of first half fiscal 1997, 48.7% of the Fund's assets were in Asia, 27.8% in Latin America, and 4.5% in Eastern Europe. We had about 19% in cash reserves. This asset allocation had worked relatively well for us and the Fund had solid returns and a substantial lead over its benchmark indices at the end of April. In late summer, finding fewer opportunities in Asia and anticipating pressure on these markets, we reduced our exposure to the region to approximately 24% of the portfolio, with the remaining positions concentrated in Hong Kong, Taiwanese and Indonesian exporters that could actually benefit from weaker currencies. We increased the Fund's investment in Eastern Europe to about 26% of total assets, bumped up Latin America to about 35%, and kept about 15% in cash reserves. This asset mix also worked well until late October, when all the emerging markets got torched. At the close of fiscal 1997, the Fund has approximately 21% of its assets in Asia, 33% in Latin America, 25% in Eastern Europe and 21% in cash. Our Asian investments remain concentrated in low-cost (CONTINUED ON PAGE 12) CHANGES TO THE ASSET ALLOCATION OF THE EMERGING MARKETS FUND (PERCENT OF PORTFOLIO) ASIA LATIN AMERICA EASTERN EUROPE CASH APRIL 30, 1997 48.7% 27.8% 4.5% 19.0% SEPTEMBER 15, 1997 24.0% 35.0% 26.0% 15.0% OCTOBER 31, 1997 20.9% 32.8% 24.8% 21.5% 11 FREMONT FUNDS exporters. In Latin America, investing in privatizations of essential services companies continues to be our theme. These companies, which came to market at reasonable valuations relative to assets and the prospects of improving profitability in private sector hands, are back to being very cheap again. In Eastern Europe, we are focusing on established companies in the energy, utilities and infrastructure industries. We are beginning to nibble at consumer durable companies we believe can grow revenues and earnings as the Russian and other regional economies gain momentum in 1998. A good example is AMICA, a Polish manufacturer of cookers and refrigerators. The company has excellent margins on its domestic sales and has proved highly competitive exporting to the German market. Looking forward, we see strong demand from the Russian market driving rapid sales growth. Amica has spent heavily modernizing plant and equipment and is well positioned to grow sales by 20-30% annually over the next few years. We are expecting net income to grow nearly 40% per annum this year and next. We reserve the right to sell Amica if the stock becomes more fully valued or earnings do not live up to our expectations. Presently, we think it has an excellent opportunity to participate in the economic revival in Eastern Europe. Of course, the question of the day is when will it be safe to increase our exposure in Southeast Asia. With the exception of the banking and property sectors, whose problems will take some time to resolve, stocks look cheap. The severely beaten down "Red Chips," (Hong Kong- and Taiwan-based companies doing most of their business in China), are getting very tempting. There are few inflationary pressures in the Chinese economy and the recent reduction in interest rates may foreshadow an increase in credit quotas which will stimulate growth. This is a very positive environment for companies serving China, and we are in the process of prudently rebuilding positions in the "Red Chips." In closing, although we are disappointed at having given back our early gains in second half fiscal 1997, we are pleased to have closed fiscal 1997 with a solid 12.55% return compared to losses for our benchmark indices. With emerging market equities valuations now approaching levels seen at previous market bottoms, we are encouraged by the prospects in the year ahead and will be working diligently to take advantage of long-term investment opportunities. Sincerely, /s/ Henry Thornton Henry Thornton Portfolio Manager Fremont Emerging Markets Fund 12 FREMONT FUNDS FREMONT U.S. MICRO-CAP FUND ROBERT E. KERN, PORTFOLIO MANAGER KERN CAPITAL MANAGEMENT LLC [PHOTO OF ROBERT E. KERN] ROBERT E. KERN FUND PROFILE THE U.S. MICRO-CAP STOCK MARKET (STOCKS WITH MARKET CAPITALIZATIONS IN THE BOTTOM 5% OF THE EQUITIES MARKET) IS A BREEDING GROUND FOR ENTREPRENEURIALLY MANAGED COMPANIES WITH EXCEPTIONAL GROWTH PROSPECTS. WITH MINIMAL WALL STREET RESEARCH COVERAGE AND LOW INSTITUTIONAL OWNERSHIP, MICRO-CAP STOCKS REPRESENT THE LEAST EFFICIENT SECTOR OF THE DOMESTIC EQUITIES MARKET. THIS INEFFICIENCY CREATES ATTRACTIVE INVESTMENT OPPORTUNITIES FOR THE RESEARCH-DRIVEN STOCK PICKERS MANAGING THE FREMONT U.S. MICRO-CAP FUND. SINCE THE INVESTMENT POTENTIAL OF MICRO-CAP STOCKS IS LARGELY DETERMINED BY THE BUSINESS PROSPECTS FOR INDIVIDUAL COMPANIES RATHER THAN MACRO-ECONOMIC TRENDS, THE FUND'S FOCUS IS ON BOTTOM-UP STOCK SELECTION. FUND MANAGEMENT ANALYZES FINANCIAL STATEMENTS, THE COMPANY'S COMPETITIVE POSITION, AND MEETS WITH KEY CORPORATE DECISION MAKERS TO DISCUSS STRATEGIES FOR FUTURE GROWTH. THE FUND'S GOAL IS TO FIND "WINNERS" EARLY IN THEIR GROWTH CYCLE AND, IMPORTANTLY, TO MINIMIZE FUNDAMENTAL INVESTMENT MISTAKES. SUCCESSFUL MICRO-CAP INVESTING ALSO INVOLVES MINIMIZING TRANSACTION COSTS. THE FUND'S DEDICATED TRADERS WORK HAND-IN-HAND WITH THE PORTFOLIO MANAGEMENT TEAM ON EXECUTION STRATEGIES TO ENHANCE THE FUND'S PERFORMANCE. ROBERT E. KERN, PRESIDENT OF FUND SUB-ADVISOR KERN CAPITAL MANAGE MENT LLC, IS NATIONALLY RECOGNIZED AS A PIONEER AND LEADING PRACTITIONER OF MICRO-CAP RESEARCH AND PORTFOLIO MANAGEMENT. TO OUR SHAREHOLDERS, For the six months ended October 31, 1997, the Fremont U.S. Micro-Cap Fund returned 28.10% compared to the Russell 2000's 27.29%. For the twelve months ended on the same date, the Fund gained 28.80% versus the benchmark index's 29.33%. At the conclusion of my letter to you in the 1997 Semi-Annual Report I said, "Unless we have one (CONTINUED ON PAGE 14) FREMONT U.S. MICRO-CAP FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF CHART] 6/30/94- 10/31/94* +3.60% 11/01/94- 10/31/95 +38.68% 11/01/95- 10/31/96 +41.46% 11/01/96- 10/31/97 +28.80% AVERAGE +33.43% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 3 SINCE INCEPTION YEAR YEARS 6/30/94 28.80% 36.20% 33.43% [EDGAR REPRESENTATION OF CHART] FREMONT U.S. MICRO-CAP FUND RUSSELL 2000 INDEX 30-JUN-94 $10,000 $10,000 31-JUL-94 $10,220 $10,164 31-AUG-94 $10,320 $10,730 30-SEP-94 $10,470 $10,694 31-OCT-94 $10,360 $10,651 30-NOV-94 $10,000 $10,221 31-DEC-94 $10,150 $10,494 31-JAN-95 $10,350 $10,362 28-FEB-95 $10,671 $10,793 31-MAR-95 $11,122 $10,978 30-APR-95 $11,392 $11,222 31-MAY-95 $11,913 $11,415 30-JUN-95 $12,495 $12,007 31-JUL-95 $13,346 $12,699 31-AUG-95 $14,188 $12,961 30-SEP-95 $14,549 $13,193 31-OCT-95 $14,368 $12,602 30-NOV-95 $15,020 $13,132 31-DEC-95 $15,635 $13,479 31-JAN-96 $16,174 $13,465 29-FEB-96 $17,250 $13,884 31-MAR-96 $17,810 $14,167 30-APR-96 $19,839 $14,925 31-MAY-96 $21,506 $15,513 30-JUN-96 $20,699 $14,876 31-JUL-96 $18,897 $13,577 31-AUG-96 $20,057 $14,365 30-SEP-96 $21,009 $14,926 31-OCT-96 $20,326 $14,696 30-NOV-96 $21,755 $15,302 31-DEC-96 $23,250 $15,701 31-JAN-97 $24,428 $16,016 28-FEB-97 $23,012 $15,627 31-MAR-97 $21,011 $14,889 30-APR-97 $20,438 $14,931 31-MAY-97 $22,979 $16,592 30-JUN-97 $24,547 $17,304 31-JUL-97 $25,466 $18,109 31-AUG-97 $26,451 $18,523 30-SEP-97 $28,559 $19,878 31-OCT-97 $26,180 $19,005 FREMONT U.S. MICRO-CAP FUND ($26,180) RUSSELL 2000 INDEX ($19,005) *Unannualized +Assumes initial investment of $10,000 on inception date, June 30, 1994. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the Russell 2000 Index. 13 FREMONT FUNDS terrific fiscal second half 1997, our returns will be more modest than the Fund's returns in each of the last two fiscal years." We did have a very good second half, and although we didn't quite match fiscal 1995 and 1996's 40% plus returns, we were relatively pleased with the Fund's 28.8% full fiscal year gain after the flat first half. Some comments on the events of late October are in order. Although longer term, we believe the Fund's micro-cap stocks will succeed or fail based on their own individual fundamental merits, they are not immune to sharp short-term market swings on the up or down side. Our portfolio was not a particularly safe haven in late October, when the U.S. stock market and especially the technology group was hit by emotional selling sparked by currency and market turmoil in Southeast Asia. We are not sure how long emerging markets will remain under pressure, however, recent events will probably cause global investors to refocus on U.S. equities, and in particular successful smaller companies. Over the last six months, we have deployed what we referred to in a September 8, 1997 Barron's article as a "no-name offense"--investing in companies flying well below most analysts' radar screens. By and large, these companies have not had spectacular earnings growth over the last year or so, but in our opinion, are well positioned to accelerate earnings down the road. As the Fund's second fiscal half performance demonstrates, our "no names" did well on an absolute basis. They did trail more widely followed micro-cap stocks that really took off when the market turned in late April. Going forward, we believe our patience and perseverance will pay off in good absolute and relative returns. CHANNELL COMMERCIAL, a Temecula, California-based manufacturer of environmental enclosures for broadband telecommunications and cable television infrastructure, is one of our "no names." Due to reduced capital spending in the cable television industry, Channell's revenue and earnings growth have slowed in recent years. However, with Microsoft's Bill Gates investing some very serious money in the cable TV industry, (which he appears to believe will ultimately be the most efficient internet access highway), capital spending should increase substantially in the years ahead. With telephone companies competing with cable operators for the internet transmission supremacy, Channell Commercial's markets should experience strong growth. As a market share leader in its business, Channell is expected to achieve its growth goals through a combination of internal new product development and acquisitions. We must add the caveat that we reserve the right to change our investment opinion on this and all other stocks in the portfolio if warranted. Since this is the first time I am writing to you as a principal in the Fund's new sub-advisory firm Kern Capital Management LLC, I would like to talk a little bit about our firm's focus on small company investing. I have had the support of many talented people over my more than 30-year professional investment career. However, this is the first time I have been surrounded by a team of investment professionals who have dedicated their careers to micro-cap and small cap investing. Everyone on our team, co-managers Judy Finger and my son, David; analysts Greg Weaver and Ted Graham; and trader Mike Murphy are small company investment specialists. We all look forward to serving you in the years ahead. In closing, our team thanks you for your support. We believe selected U.S. micro-cap stocks will continue to provide attractive long-term investment returns. Sincerely, /s/ Robert E. Kern Robert E. Kern Portfolio Manager Fremont U.S. Micro-Cap Fund 14 FREMONT FUNDS FREMONT U.S. SMALL CAP FUND DAVID G. KERN, CFA, PORTFOLIO MANAGER KERN CAPITAL MANAGEMENT LLC [PHOTO OF DAVID KERN] DAVID KERN FUND PROFILE U.S. SMALL CAP STOCKS OFFER TREMENDOUS OPPORTUNITY FOR PROFESSIONAL INVESTORS DEDICATED TO HANDS-ON FUNDAMENTAL RESEARCH. THROUGH RIGOROUS FUNDAMENTAL ANALYSIS, INCLUDING VISITS WITH CORPORATE MANAGEMENTS, THEIR SUPPLIERS, CUSTOMERS AND COMPETITORS, FUND MANAGEMENT STRIVES TO IDENTIFY SMALL, RELATIVELY UNKNOWN COMPANIES WITH THE POTENTIAL TO BECOME LARGER AND MORE SUCCESSFUL OVER TIME. RESEARCH IS CONCENTRATED IN INDUSTRIES WITH THE GREATEST LEVEL OF INNOVATION SUCH AS TECHNOLOGY, HEALTH CARE, CONSUMER PRODUCTS, AND SERVICES. THE RESEARCH PROCESS FOCUSES ON ANSWERING THREE BASIC QUESTIONS: HOW GOOD IS A COMPANY'S TARGET MARKET; DOES MANAGEMENT HAVE AN EFFECTIVE STRATEGY TO CAPITALIZE ON MARKET OPPORTUNITIES; AND HOW MUCH IS THE COMPANY WORTH TODAY AND WHAT WILL IT BE WORTH TOMORROW? PORTFOLIO MANAGER DAVID G. KERN INHERITS HIS ENTHUSIASM AND APTITUDE FOR SMALL CAP INVESTING FROM HIS FATHER AND FELLOW PRINCIPAL IN KERN CAPITAL MANAGEMENT LLC, ROBERT E. KERN, ONE OF THE MOST RESPECTED SMALL COMPANY INVESTORS IN THE BUSINESS. DAVID HAS SPENT THE LAST ELEVEN YEARS HONING HIS SKILLS AS A SMALL CAP STOCK ANALYST AND PORTFOLIO MANAGER, MOST RECENTLY SERVING AS VICE PRESIDENT WITH FOUNDERS ASSET MANAGEMENT, INC. WELCOME TO OUR NEW SHAREHOLDERS, From inception on September 24, 1997 through October 31, 1997, the Fremont U.S. Small Cap Fund declined 4.06% versus the Russell 2000 Index's 3.46% loss. With the Fund beginning operations in the last week of September, performance comparisons through fiscal year end 1997 don't mean very much. A discussion of our investment strategy over this brief period is more illuminating. Given the very strong performance of small caps off the April lows, we began investing the Fund slowly. As market volatility increased in October, presenting more attractively priced opportunities, we picked up the pace. The technology sector, one of our areas of (CONTINUED ON PAGE 16) FREMONT U.S. SMALL CAP FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF CHART] 9/24/97- 10/31/97* -4.06% GROWTH OF $10,000+ RETURN FOR PERIODS ENDED 10/31/97 SINCE INCEPTION 9/24/97 - - -4.06% [EDGAR REPRESENTATION OF CHART] FREMONT U.S. SMALL CAP FUND RUSSELL 2000 INDEX 23-SEP-97 $10,000 $10,000 30-SEP-97 $10,060 $10,103 31-OCT-97 $9,594 $9,659 RUSSELL 2000 INDEX ($9,659) FREMONT SMALL CAP FUND ($9,594) *Unannualized +Assumes initial investment of $10,000 on inception date, September 24, 1997. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the Russell 2000 Index. 15 FREMONT FUNDS expertise, got hit particularly hard during the downdraft, allowing us to accumulate a number of excellent companies at very reasonable prices. With 18% in cash reserves at the close of fiscal 1997, the Fund is well positioned to take advantage of additional market volatility. To better acquaint you with our investment discipline, some background on Kern Capital Management LLC is required. The firm is comprised of investment specialists who have dedicated their careers to small and micro-cap investing. We work as a team, dividing research and portfolio management responsibilities along the lines of industry expertise. I focus on the software sector within the technology group and the health care industry. My father, Bob Kern, who you probably already know as the Portfolio Manager of the Fremont U.S. Micro-Cap Fund, covers the semi-conductor, communications and technology hardware sectors. Judy Finger, who joined us from Delaware Management, is responsible for our consumer investments. All three of us evaluate opportunities in the various services industries. We are supported by two experienced and talented analysts, Greg Weaver and Ted Graham. Once our research team uncovers an attractive investment idea, we develop an execution strategy with our trader Mike Murphy, who has over 20 years' experience buying and selling small stocks, to build portfolio positions. In short, we have an extremely experienced and dedicated team searching for tomorrow's most successful companies. We believe Kern Capital Management has another advantage in the small cap investing arena. Due to our extensive research in the micro-cap stock universe, we often have a research history on successful companies that have grown from being micro-cap stocks to small cap investment candidates. We know the management teams. We know the companies' markets. We are not starting from scratch in our research efforts, but rather continuing a process that has often begun at a company's initial public offering. Now, let's review the research process. We begin by examining financial statements. Revenue growth is important. Gross margins give us a feel for the value of a company's products and services to its clients. Operating earnings tell us how much cash the company is generating before variable non-operating expenses like interest payments and taxes are taken out. On the balance sheet side, analysis of cash, accounts receivable, inventories and debt help us measure a company's financial health and staying power. As important as they are, financial statements only tell you about what has happened in the past. To evaluate the company's future prospects, we need to know management's plans for the future and to assess their ability to execute their plans. For this, we have to sit across the table from them at our offices, conferences or ideally at their own corporate headquarters, and get answers to some hard questions. We don't rely exclusively on management's comments. We make it a point to talk to their customers, suppliers, and competitors to further evaluate a company's strengths and weaknesses. One of the companies that passed our rigorous research examination is P-COM, a manufacturer of equipment used in the wireless communications networks around the world. I have followed P-Com since its initial public offering in January 1995. P-Com has executed well on its business strategy and has grown from a micro-cap to small cap company with a market capitalization of around $870 million. The tremendous growth of wireless networks, especially in developing countries where it is less expensive to build wireless systems than putting wire in the ground, should continue well into the future. The U.S. should also become a growth market for P-Com as Personal Communications Systems (PCS) begin to get built out over the next several years. In short, P-Com is a leader in a market with exceptional growth potential. After the recent market sell-off, P-Com is trading at $19, at about 28 times our 1998 earning projections of $0.65-$0.70 per share. With a projected annual earnings growth rate of 50%, we believe that is reasonable price to pay. Obviously, if fundamentals change, our opinion may change as well. In closing, I hope I have effectively articulated our investment discipline. We thank our shareholders for their confidence in our investment abilities and look forward to diligently applying them in the year ahead. Sincerely, /s/ David G. Kern David G. Kern Portfolio Manager Fremont U.S. Small Cap Fund 16 FREMONT FUNDS FREMONT GROWTH FUND W. KENT COPA, CFA, PORTFOLIO MANAGER FREMONT INVESTMENT ADVISORS, INC. [PHOTO OF KEN COPA] KEN COPA FUND PROFILE FREMONT GROWTH FUND INVESTS PRINCIPALLY IN LARGE CAPITALIZATION U.S. STOCKS WITH SUPERIOR EARNINGS GROWTH PROSPECTS. THE GOAL IS TO CONSISTENTLY OUTPERFORM THE STANDARD & POOR'S 500 INDEX. EXTENSIVE STATISTICAL EVIDENCE REVEALS A DIRECT RELATIONSHIP BETWEEN THE PERFORMANCE OF STOCKS IN SELECTED INDUSTRY GROUPS DURING THE VARYING STAGES OF THE ECONOMIC CYCLE. FOR EXAMPLE, FOOD, HOUSEHOLD PRODUCT, AND DRUG STOCKS, WHICH GENERALLY PRODUCE CONSISTENT EARNINGS GROWTH THROUGHOUT THE BUSINESS CYCLE, TEND TO PERFORM WELL IN A SLUGGISH ECONOMY. AUTO, ENERGY AND BANKING COMPANY EARNINGS AND STOCK PRICES TEND TO GROW FASTER WHEN THE ECONOMY GAINS MOMENTUM. FREMONT GROWTH FUND UTILIZES SOPHISTICATED QUANTITATIVE MODELS TO FORECAST MACRO-ECONOMIC TRENDS AND TO IDENTIFY THOSE INDUSTRY GROUPS PROVIDING THE BEST RELATIVE POTENTIAL. THE STOCK SELECTION PROCESS FOCUSES ON LEADING COMPANIES IN EACH INDUSTRY GROUP WITH CONSISTENT EARNINGS GROWTH RECORDS AND REASONABLE VALUATIONS. TO OUR SHAREHOLDERS, For the six-month period ended October 31, 1997, the Fremont Growth Fund returned 16.31% compared to the Standard & Poor's 500 Index's 15.16%. For the 12-month period ended on the same date, the Fund gained 29.26% versus the S&P 500's 32.11%. Fremont Growth Fund's 12-month gain materially exceeded the Lipper Growth Fund Average's 27.28% advance. The Fund's overweighting in financial services, energy and utilities stocks and underweighting in technology and consumer non-durables hurt relative performance in first fiscal half 1997, but helped us outperform the S&P 500 benchmark in the second half, particularly during the severe market correction in October. While we are not market timers, some comment on the events of late October are in order. We believe the U.S. stock market over-reacted to the Southeast Asian currency crisis. With 30% of U.S. exports going to the Pacific Rim, an economic slow-(CONTINUED ON PAGE 18) FREMONT GROWTH FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF CHART] 8/14/92- 10/31/92* +2.00% 11/01/92- 10/31/93 +12.80% 11/01/93- 10/31/94 +1.72% 11/01/94- 10/31/95 +28.12% 11/01/95- 10/31/96 +22.06% 11/01/96- 10/31/97 +29.26% AVERAGE +17.96% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 5 SINCE INCEPTION YEAR YEARS 8/14/92 29.26% 18.25% 17.96% [EDGAR REPRESENTATION OF CHART] FREMONT GROWTH FUND S&P 500 14-AUG-92 $10,000 $10,000 31-AUG-92 $9,899 $9,873 30-SEP-92 $10,091 $9,987 31-OCT-92 $10,200 $10,023 30-NOV-92 $10,655 $10,361 31-DEC-92 $10,822 $10,495 31-JAN-93 $10,954 $10,572 28-FEB-93 $10,843 $10,716 31-MAR-93 $11,005 $10,947 30-APR-93 $10,609 $10,679 31-MAY-93 $10,863 $10,964 30-JUN-93 $10,945 $11,000 31-JUL-93 $10,935 $10,946 31-AUG-93 $11,302 $11,359 30-SEP-93 $11,414 $11,276 31-OCT-93 $11,506 $11,507 30-NOV-93 $11,270 $11,404 31-DEC-93 $11,516 $11,544 31-JAN-94 $11,907 $11,932 28-FEB-94 $11,536 $11,608 31-MAR-94 $10,929 $11,104 30-APR-94 $11,052 $11,248 31-MAY-94 $11,093 $11,432 30-JUN-94 $10,722 $11,149 31-JUL-94 $11,155 $11,518 31-AUG-94 $11,724 $11,986 30-SEP-94 $11,476 $11,696 31-OCT-94 $11,704 $11,965 30-NOV-94 $11,335 $11,526 31-DEC-94 $11,563 $11,695 31-JAN-95 $11,609 $11,998 28-FEB-95 $11,987 $12,463 31-MAR-95 $12,307 $12,832 30-APR-95 $12,570 $13,210 31-MAY-95 $12,982 $13,733 30-JUN-95 $13,622 $14,056 31-JUL-95 $14,228 $14,524 31-AUG-95 $14,423 $14,558 30-SEP-95 $14,983 $15,164 31-OCT-95 $14,995 $15,122 30-NOV-95 $15,477 $15,787 31-DEC-95 $15,449 $16,079 31-JAN-96 $15,898 $16,633 29-FEB-96 $16,092 $16,793 31-MAR-96 $16,032 $16,954 30-APR-96 $16,517 $17,204 31-MAY-96 $17,087 $17,647 30-JUN-96 $17,184 $17,714 31-JUL-96 $16,347 $16,932 31-AUG-96 $16,638 $17,289 30-SEP-96 $17,852 $18,262 31-OCT-96 $18,303 $18,766 30-NOV-96 $19,631 $20,184 31-DEC-96 $19,326 $19,784 31-JAN-97 $20,204 $21,021 28-FEB-97 $20,326 $21,185 31-MAR-97 $19,614 $20,314 30-APR-97 $20,341 $21,527 31-MAY-97 $21,507 $22,838 30-JUN-97 $22,279 $23,861 31-JUL-97 $24,218 $25,760 31-AUG-97 $23,218 $24,317 30-SEP-97 $24,521 $25,648 31-OCT-97 $23,658 $24,792 S&P 500 INDEX ($24,792) FREMONT GROWTH FUND ($23,658) *Unannualized +Assumes initial investment of $10,000 on inception date, August 14, 1992. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the S&P 500 Index. 17 FREMONT FUNDS FREMONT GROWTH FUND SECTOR DIVERSIFICATION AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF CHART] SHORT TERM SECURITIES (4.7%) ENERGY (17.4%) OTHER (22.3%) UTILITIES (13.4%) RETAIL (4.3%) CONSUMER SERVICES (4.9%) FINANCIAL SERVICES (BANKS) (12.8%) FINANCIAL SERVICES (OTHER) (9.2%) TECHNOLOGY (11.0%) down in the region will have an impact on corporate earnings going forward, particularly for U.S.-based multi-nationals. However, our domestic economy and the economies of our other major trading partners remain in very good shape. There are no signs of inflation and interest rates remain at levels that can support further economic growth. Consequently, we expect the U.S. stock market to stabilize and then trend higher over the next year. We are not looking for the kind of price/earnings multiple expansion that resulted in such strong gains from 1995 through first half 1997. But, we think earnings progress will help push the market along. We continue to be overweighted in financial services companies (22.0% versus the S&P 500's 15.0%), energy stocks (17.4% versus 9.0%), and utilities (13.4% versus 9.5%). In the financial services arena, we are biased toward insurance companies and stock brokerage/asset management firms. We do not believe October's market turmoil will diminish the very favorable outlook for these businesses. The "baby boomers" are in their peak earnings, savings and investment years. This means a lot of money should continue to flow into savings and investment products. In our view, energy stocks also represent great value. The short-term earnings prospects may be diminished by slowing economies in Southeast Asia, but with economic growth accelerating in Europe and Latin America, energy prices and energy company earnings should trend higher. Utilities stocks have been lackluster performers primarily due to uncertainty over deregulation in the industry. In our opinion, competition will energize the industry, and financially strong utility companies will flourish in this new competitive environment. SCHLUMBERGER LTD. is best known as one of the world's largest oil service companies. With energy prices now at levels that economically justify more exploration and drilling activity, this business is doing quite well. Schlumberger has also diversified into other industries with excellent growth potential. For example, the company recently signed contracts with AFE Testing, Inc., SiliconWare Corp, and United Micro Electronics of Japan to supply mixed signal semiconductor testing systems for multimedia, audio and entertainment products. If Schlumberger can duplicate its success in the oil services business in its foray into new industries, earnings could grow even faster than our current 19.6% five year average annual return forecasts. While we reserve the right to change our investment opinions on all the stocks in the portfolio, we are currently very comfortable with this holding. In closing, we believe the U.S. stock market will trend higher over the next several years. Volatility may continue with periodic corrections that will test investors' resolve. We will remain focused on what we believe will continue to be a healthy economy and on those sectors and individual stocks likely to excel. Sincerely, /s/ Ken Copa W. Kent Copa Portfolio Manager Fremont Growth Fund 18 FREMONT FUNDS FREMONT BOND FUND BILL GROSS, FOUNDER AND MANAGING DIRECTOR PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO) [PHOTO OF BILL GROSS] BILL GROSS FUND PROFILE FREMONT BOND FUND INVESTS IN HIGH QUALITY CORPORATE, MORTGAGE-BACKED, HEDGED INTERNATIONAL, AND GOVERNMENT BONDS. THE FUND'S GOAL IS TO CONSISTENTLY PROVIDE ATTRACTIVE RISK-ADJUSTED RETURNS RELATIVE TO THE BROAD FIXED-INCOME MARKET. THE FUND'S INVESTMENT PHILOSOPHY EMBODIES THREE KEY PRINCIPLES. FIRST, PORTFOLIO STRATEGY IS DRIVEN BY LONGER-TERM TRENDS IN INTEREST RATES. THREE- TO FIVE-YEAR ECONOMIC, DEMOGRAPHIC, AND POLITICAL FORECASTS ARE UPDATED ANNUALLY TO IDENTIFY THE LONG-TERM INTEREST RATE TREND, WHICH DETERMINES THE MOST APPROPRIATE MATURITY/DURATION (INTEREST RATE SENSITIVITY) RANGE FOR THE PORTFOLIO. SECOND, CONSISTENT PERFORMANCE IS ACHIEVED BY AVOIDING EXTREME SWINGS IN PORTFOLIO MATURITY/DURATION. BY OPERATING WITHIN A MODERATE DURATION RANGE RELATIVE TO THE BROAD FIXED-INCOME MARKET, THE FUND LIMITS DOWNSIDE RISK DURING SHORT-LIVED, BUT PERIODICALLY VIOLENT INTEREST RATE FLUCTUATIONS. FINALLY, EMPHASIS IS PLACED ON ADDING VALUE THROUGH THE ANALYSIS OF TRADITIONAL VARIABLES SUCH AS SECTOR, COUPON, AND QUALITY. PORTFOLIO MANAGER BILL GROSS, FOUNDER AND MANAGING DIRECTOR OF PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO), HAS 26 YEARS OF PROFESSIONAL FIXED-INCOME INVESTMENT EXPERIENCE. IN ADDITION TO SERVING AS THE SUB-ADVISOR TO THE FREMONT BOND FUND, PIMCO MANAGES $105 BILLION IN FIXED INCOME INVESTMENTS FOR INSTITUTIONAL CLIENTS. TO OUR SHAREHOLDERS For the six-month period ended October 31, 1997, the Fremont Bond Fund returned 7.12% compared to the 7.09% return for the Lehman Brothers Aggregate Bond Index. For the year ended October 31, 1997, the Fremont Bond Fund posted strong gains. The Fund's performance exceeded the benchmark by 62 basis points (0.62%), returning 9.54% versus 8.92% for the Lehman Brothers Aggregate Index. The strong returns of the Fund were achieved through a variety of portfolio strategies. First, the bond market provided an attractive environment as interest rates declined by approximately 0.4%. We (CONTINUED ON PAGE 20) FREMONT BOND FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF CHART] 4/30/93- 10/31/93* +5.15% 11/01/93- 10/31/94 -4.42% 11/01/94- 10/31/95 +16.49% 11/01/95- 10/31/96 +8.18% 11/01/96- 10/31/97 +9.54% AVERAGE +7.54% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 3 SINCE INCEPTION YEAR YEARS 4/30/93 9.54% 11.34% 7.54% FREMONT BOND FUND LEHMAN BROS AGGREGATE BOND INDEX 30-APR-93 $10,000 $10,000 31-MAY-93 $9,963 $10,013 30-JUN-93 $10,182 $10,194 31-JUL-93 $10,198 $10,252 31-AUG-93 $10,415 $10,432 30-SEP-93 $10,481 $10,460 31-OCT-93 $10,515 $10,499 30-NOV-93 $10,366 $10,410 31-DEC-93 $10,437 $10,466 31-JAN-94 $10,585 $10,607 28-FEB-94 $10,388 $10,423 31-MAR-94 $10,147 $10,166 30-APR-94 $10,049 $10,085 31-MAY-94 $9,959 $10,083 30-JUN-94 $10,025 $10,061 31-JUL-94 $10,205 $10,261 31-AUG-94 $10,230 $10,274 30-SEP-94 $10,106 $10,123 31-OCT-94 $10,050 $10,114 30-NOV-94 $10,020 $10,091 31-DEC-94 $10,018 $10,161 31-JAN-95 $10,242 $10,362 28-FEB-95 $10,522 $10,609 31-MAR-95 $10,621 $10,674 30-APR-95 $10,823 $10,823 31-MAY-95 $11,228 $11,242 30-JUN-95 $11,299 $11,324 31-JUL-95 $11,263 $11,299 31-AUG-95 $11,397 $11,436 30-SEP-95 $11,530 $11,547 31-OCT-95 $11,707 $11,697 30-NOV-95 $11,954 $11,872 31-DEC-95 $12,146 $12,038 31-JAN-96 $12,269 $12,118 29-FEB-96 $11,935 $11,907 31-MAR-96 $11,893 $11,824 30-APR-96 $11,840 $11,757 31-MAY-96 $11,765 $11,734 30-JUN-96 $11,964 $11,891 31-JUL-96 $11,973 $11,923 31-AUG-96 $11,997 $11,903 30-SEP-96 $12,313 $12,110 31-OCT-96 $12,664 $12,379 30-NOV-96 $12,878 $12,591 31-DEC-96 $12,781 $12,474 31-JAN-97 $12,801 $12,512 28-FEB-97 $12,816 $12,543 31-MAR-97 $12,698 $12,404 30-APR-97 $12,951 $12,590 31-MAY-97 $13,075 $12,710 30-JUN-97 $13,247 $12,861 31-JUL-97 $13,650 $13,208 31-AUG-97 $13,495 $13,096 30-SEP-97 $13,695 $13,290 31-OCT-97 $13,873 $13,483 FREMONT BOND FUND ($13,873) LEHMAN BROS. AGGREGATE BOND INDEX ($13,483) *Unannualized +Assumes initial investment of $10,000 on inception date, April 30, 1993. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the Lehman Bros. Aggregate Bond Index. 19 FREMONT FUNDS maintained a relatively long average maturity in the portfolio, which had the effect of accentuating the positive price gains that occurred as rates declined. We also had a number of sector strategies in place which had a strong positive impact overall. Throughout the year, we maintained an emphasis on the mortgage sector. Mortgages perform very well if interest rates remain in a narrow band, as they did in fiscal year 1997. As a result, mortgages turned in strong performances and our emphasis on the sector boosted performance. Corporate bonds also performed strongly. We had little exposure to this sector, but the corporate bonds we did own were on the lower end of the investment-grade spectrum (BBB rated) and these issues outperformed their higher-rated counterparts. Lastly, our modest allocation to non-U.S. bonds also proved positive. Looking forward, we expect a continued healthy expansion of the U.S. economy and mild inflation for the next several quarters. The consumer represents the largest force in our economy, and we expect consumer spending to remain strong due to steady payroll growth, high confidence levels and gains on financial assets. Businesses will continue rapid investment in response to competitive pressures. Advanced technology in particular remains critical for capturing needed efficiency gains. For exports, the negatives of a strong dollar and slowing Asian economies will be balanced by firm demand for U.S. products in Canada, Mexico and perhaps Europe. Steady productivity gains allow for modest increases in wages without inflation. If wages do rise in excess of productivity, a lack of pricing power for most businesses will cut into profit margins and pressure corporate earnings. A strong dollar and high import penetration into the U.S. depress domestic prices, both directly through weakness in import prices, and indirectly via the competition of low-cost imports with domestically produced goods. In this environment of healthy growth with low inflation, we expect interest rates to continue their downward trend. Therefore, we will continue to manage the portfolio with a relatively long average maturity. We plan to reallocate some of the more pre-payment sensitive mortgage positions into long maturity Treasuries. While corporate bonds in general are not attractively valued, opportunities remain in select issues. In markets abroad, we see value in currency-hedged bonds in Australia, New Zealand, Sweden and Finland. We thank you for your continued support of our investing efforts and are confident that we can continue to uncover excellent investment opportunities for our shareholders. Sincerely, /s/ Bill Gross Bill Gross Portfolio Manager Fremont Bond Fund PORTFOLIO CREDIT QUALITY OF FREMONT BOND FUND AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF CHART] A (3%) BBB (12%) BB (2%) AAA (83%) 20 FREMONT FUNDS FREMONT MONEY MARKET FUND NORMAN GEE, PORTFOLIO MANAGER FREMONT INVESTMENT ADVISORS, INC. [PHOTO OF NORMAN GEE] NORMAN GEE FREMONT MONEY MARKET FUND INVESTS PRIMARILY IN HIGH-QUALITY SHORT-TERM DEBT SECURITIES (COMMERCIAL PAPER) ISSUED BY U.S. CORPORATIONS AND U.S. SUBSIDIARIES OF FOREIGN CORPORATIONS. THE FUND WILL ALSO TAKE SMALL POSITIONS IN OTHER INVESTMENT-GRADE SHORT-TERM DEBT INSTRUMENTS SUCH AS YANKEE CDS (DOLLAR DENOMINATED CERTIFICATES OF DEPOSIT IN FOREIGN BANKS). PORTFOLIO MANAGER NORMAN GEE STRIVES TO ADD VALUE THROUGH PRICE-SENSITIVE TRADING AND BY IDENTIFYING UNDERVALUED HIGH QUALITY MONEY MARKET SECURITIES. HE WILL ALSO MAKE CONSERVATIVE ADJUSTMENTS TO THE PORTFOLIO'S AVERAGE MATURITY RELATIVE TO THE MARKET IN ATTEMPTING TO ENHANCE TOTAL PORTFOLIO YIELD. TO OUR SHAREHOLDERS, For the six months ended October 31, 1997, the Fremont Money Market Fund returned 2.72% compared to the IBC Money Market First Tier Taxable Average's 2.44%. For the twelve months ended on the same date, the Fund returned 5.39% versus the IBC's 4.88%. The Fremont Money Market Fund once again finished in the top ten percent of comparable funds in the IBC money market fund universe. Down 10-20 basis points (0.1-0.2%) from their peaks in March, short-term interest rates closed fiscal 1997 about where they started a year ago. The portfolio's higher-than-market average maturity throughout this one year time period worked modestly in our favor. Currently, the Fund's average maturity is around 67 days compared the benchmark index's 55 days. We expect short-term interest rates to remain relatively flat until late first quarter 1998, at which point we believe the Federal Reserve will hike short term rates by 25 basis points (0.25%) in response to rising wage pressure. Toward the end of 1997, we will probably lengthen the Fund's average maturity to take advantage of a seasonal phenomena in the money markets called "playing the turn." Near the close of every calendar (CONTINUED ON PAGE 22) FREMONT MONEY MARKET FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF CHART] 11/18/88- 10/31/89* +8.52% 11/01/89- 10/31/90 +7.99% 11/01/90- 10/31/91 +6.51% 11/01/91- 10/31/92 +3.73% 11/01/92- 10/31/93 +2.66% 11/01/93- 10/31/94 +3.49% 11/01/95- 10/31/96 +5.34% 11/01/94- 10/31/95 +5.84% 11/01/96- 10/31/97 +5.39% AVERAGE +5.51% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 5 SINCE INCEPTION YEAR YEARS 11/18/88 5.39% 4.54% 5.51% [EDGAR REPRESENTATION OF CHART] FREMONT MONEY MARKET FUND 90 DAY US T-BILLS IBC FIRST TIER TAXABLE PRIME AVG. 18-NOV-88 $10,000 $10,000 $10,000 30-NOV-88 $10,027 $10,026 $10,025 31-DEC-88 $10,096 $10,093 $10,090 31-JAN-89 $10,170 $10,163 $10,159 28-FEB-89 $10,237 $10,236 $10,228 31-MAR-89 $10,315 $10,311 $10,300 30-APR-89 $10,389 $10,383 $10,377 31-MAY-89 $10,475 $10,457 $10,452 30-JUN-89 $10,552 $10,526 $10,528 31-JUL-89 $10,630 $10,592 $10,600 31-AUG-89 $10,705 $10,661 $10,670 30-SEP-89 $10,775 $10,731 $10,741 31-OCT-89 $10,852 $10,813 $10,812 30-NOV-89 $10,924 $10,887 $10,881 31-DEC-89 $10,993 $10,955 $10,949 31-JAN-90 $11,067 $11,027 $11,017 28-FEB-90 $11,132 $11,093 $11,084 31-MAR-90 $11,202 $11,168 $11,152 30-APR-90 $11,276 $11,240 $11,221 31-MAY-90 $11,350 $11,317 $11,291 30-JUN-90 $11,420 $11,390 $11,360 31-JUL-90 $11,498 $11,465 $11,429 31-AUG-90 $11,573 $11,540 $11,498 30-SEP-90 $11,640 $11,610 $11,567 31-OCT-90 $11,719 $11,682 $11,636 30-NOV-90 $11,792 $11,751 $11,704 31-DEC-90 $11,867 $11,821 $11,773 31-JAN-91 $11,941 $11,888 $11,839 28-FEB-91 $12,005 $11,946 $11,901 31-MAR-91 $12,065 $12,008 $11,959 30-APR-91 $12,134 $12,066 $12,015 31-MAY-91 $12,195 $12,124 $12,068 30-JUN-91 $12,249 $12,180 $12,121 31-JUL-91 $12,312 $12,238 $12,174 31-AUG-91 $12,369 $12,296 $12,227 30-SEP-91 $12,427 $12,350 $12,278 31-OCT-91 $12,482 $12,404 $12,328 30-NOV-91 $12,531 $12,454 $12,375 31-DEC-91 $12,584 $12,500 $12,422 31-JAN-92 $12,630 $12,543 $12,464 29-FEB-92 $12,668 $12,582 $12,502 31-MAR-92 $12,708 $12,625 $12,540 30-APR-92 $12,744 $12,666 $12,576 31-MAY-92 $12,779 $12,707 $12,612 30-JUN-92 $12,817 $12,745 $12,647 31-JUL-92 $12,852 $12,784 $12,680 31-AUG-92 $12,885 $12,819 $12,711 30-SEP-92 $12,917 $12,852 $12,741 31-OCT-92 $12,947 $12,884 $12,769 30-NOV-92 $12,978 $12,916 $12,798 31-DEC-92 $13,008 $12,951 $12,828 31-JAN-93 $13,036 $12,986 $12,857 28-FEB-93 $13,062 $13,016 $12,885 31-MAR-93 $13,093 $13,048 $12,912 30-APR-93 $13,122 $13,080 $12,939 31-MAY-93 $13,148 $13,113 $12,967 30-JUN-93 $13,178 $13,147 $12,994 31-JUL-93 $13,208 $13,181 $13,021 31-AUG-93 $13,235 $13,215 $13,049 30-SEP-93 $13,263 $13,248 $13,076 31-OCT-93 $13,291 $13,282 $13,104 30-NOV-93 $13,320 $13,315 $13,132 31-DEC-93 $13,351 $13,351 $13,161 31-JAN-94 $13,379 $13,385 $13,189 28-FEB-94 $13,406 $13,418 $13,218 31-MAR-94 $13,437 $13,455 $13,248 30-APR-94 $13,470 $13,496 $13,281 31-MAY-94 $13,512 $13,540 $13,317 30-JUN-94 $13,556 $13,586 $13,356 31-JUL-94 $13,603 $13,636 $13,397 31-AUG-94 $13,651 $13,687 $13,439 30-SEP-94 $13,701 $13,737 $13,485 31-OCT-94 $13,755 $13,794 $13,532 30-NOV-94 $13,812 $13,852 $13,582 31-DEC-94 $13,880 $13,915 $13,636 31-JAN-95 $13,943 $13,979 $13,694 28-FEB-95 $14,006 $14,041 $13,754 31-MAR-95 $14,081 $14,110 $13,816 30-APR-95 $14,145 $14,177 $13,877 31-MAY-95 $14,216 $14,247 $13,939 30-JUN-95 $14,289 $14,314 $14,000 31-JUL-95 $14,355 $14,384 $14,060 31-AUG-95 $14,423 $14,452 $14,120 30-SEP-95 $14,492 $14,517 $14,180 31-OCT-95 $14,558 $14,583 $14,239 30-NOV-95 $14,624 $14,652 $14,299 31-DEC-95 $14,695 $14,732 $14,359 31-JAN-96 $14,760 $14,800 $14,418 29-FEB-96 $14,821 $14,859 $14,474 31-MAR-96 $14,885 $14,913 $14,529 30-APR-96 $14,947 $14,977 $14,584 31-MAY-96 $15,015 $15,043 $14,640 30-JUN-96 $15,073 $15,105 $14,695 31-JUL-96 $15,139 $15,173 $14,752 31-AUG-96 $15,209 $15,242 $14,809 30-SEP-96 $15,269 $15,313 $14,867 31-OCT-96 $15,336 $15,379 $14,929 30-NOV-96 $15,403 $15,444 $14,987 31-DEC-96 $15,470 $15,513 $15,045 31-JAN-97 $15,540 $15,584 $15,104 28-FEB-97 $15,602 $15,644 $15,162 31-MAR-97 $15,666 $15,710 $15,221 30-APR-97 $15,734 $15,785 $15,286 31-MAY-97 $15,808 $15,866 $15,347 30-JUN-97 $15,875 $15,925 $15,409 31-JUL-97 $15,948 $15,996 $15,471 31-AUG-97 $16,022 $16,064 $15,533 30-SEP-97 $16,089 $16,138 $15,595 31-OCT-97 $16,162 $16,207 $15,658 U.S. 91-DAY T-BILL INDEX ($16,207) FREMONT MONEY MARKET FUND ($16,162) IBC FIRST TIER TAXABLE AVERAGE ($15,658) *Unannualized +Assumes initial investment of $10,000 on inception date, November 18, 1988. Performance data illustrated is historical. Past performance is not predictive of future performance. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the U.S. 91-Day T-Bill Index. An investment in the Fund is neither insured nor guaranteed by the U.S. Government. The Fund seeks to maintain a stable $1.00 share price although there is no assurance that it will be able to do so. 21 FREMONT FUNDS year, corporations generally do a little financial window dressing by issuing commercial paper to add cash to their balance sheets. To encourage buyers, they bump up yields on paper maturing early in the next calendar year. In late December, many money market funds will take advantage of this little Christmas present by buying commercial paper maturing in early January. This is reflected in the modest increase in money market yields at the turn of every year. If we anticipate flat or declining rates, we will buy paper maturing a little later, in the process locking in higher yields for a bit longer. This year, we will be looking to buy commercial paper maturing in late March. When it matures, we expect to be able to roll this paper over into higher yielding issues spawned by the Fed rate hike we anticipate toward the end of first quarter 1998. We are always hunting for special situations in the money markets: opportunities like the commercial paper issued by the U.S. subsidiary of CHINA LIGHT & POWER, a Hong Kong-based utility providing electrical power to mainland China. The company's commercial paper financings are generally small and therefore, not suitable for big money market buyers who would have to take the entire issue for it to have any material impact on their portfolios. However, it is the kind of opportunity a Fund like ours can take advantage of. This paper comes at very short maturities, so interest rate risk is minimized. It yields about 10 basis points more than comparable single A rated issues. This is one of the ways we Davids can beat the Goliaths in the money market fund industry. In closing, we are pleased the Fund has once again exceeded its benchmark index and finished near the top of its taxable money market fund class. We look forward to adding more chapters to this superior performance history. Sincerely, /s/ Norman Gee Norman Gee Portfolio Manager Fremont Money Market Fund 22 FREMONT FUNDS FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND WILLIAM M. FEENEY, PORTFOLIO MANAGER FREMONT INVESTMENT ADVISORS, INC. [PHOTO OF WILLIAM FEENEY] WILLIAM FEENEY FUND PROFILE FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND INVESTS IN CALIFORNIA MUNICIPAL BONDS. ESSENTIAL SERVICE BONDS (WATER, SEWER, ELECTRIC, GAS, ETC.) AND GENERAL OBLIGATION BONDS (SECURED BY THE FULL FAITH AND CREDIT OF THE GOVERNMENT ISSUER) ARE EMPHASIZED IN THIS CONSERVATIVELY MANAGED PORTFOLIO. INCOME FROM THE FUND IS FREE FROM BOTH FEDERAL AND STATE TAXES FOR CALIFORNIA RESIDENTS. THE DIRECTION OF INTEREST RATES IMPACTS THE TOTAL RETURN POTENTIAL OF BONDS. WHEN INTEREST RATES DECLINE, LONGER MATURITIES AND HIGHER DURATIONS (A MEASURE OF INTEREST RATE SENSITIVITY) ARE ADVANTAGEOUS. WHEN INTEREST RATES RISE, THE REVERSE IS TRUE. THROUGH THE ANALYSIS OF MACRO-ECONOMIC, POLITICAL, AND MARKET FACTORS, FUND MANAGEMENT STRIVES TO IDENTIFY THE DOMINANT INTEREST RATE TREND. THE FUND MANAGER'S STRATEGY IS SIMPLY TO POSITION THE PORTFOLIO'S MATURITY/DURATION TO TAKE ADVANTAGE OF THE DOMINANT INTEREST RATE TREND RATHER THAN TRADING ON LARGELY UNPREDICTABLE TEMPORARY INTEREST RATE FLUCTUATIONS. THE FUND INVESTS ALMOST EXCLUSIVELY IN THE HIGHEST INVESTMENT GRADE CREDITS AND CURRENTLY DOES NOT INVEST IN ANY BOND BELOW A BBB RATING. FUND MANAGEMENT ALSO STRIVES TO IDENTIFY "SPECIAL SITUATION" OPPOR TUNITIES CREATED BY INCOMPLETE CREDIT ANALYSIS, INVESTOR MISPERCEPTION, AND MARKET CONDITIONS. TO OUR SHAREHOLDERS, For the six-month period ended October 31, 1997, the Fremont California Intermediate Tax-Free Fund returned 5.14% compared to the Lehman Brothers Municipal 5-Year State General Obligation (GO) Index's 4.84%. For the twelve months ended on the same date, the Fund gained 6.75% versus the benchmark index's 6.31%. In second-half fiscal 1997, the portfolio's nine-year average maturity (compared to approximately 7 years for our benchmark index) worked in our (CONTINUED ON PAGE 24) FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND INVESTMENT RETURNS ANNUAL RETURNS [EDGAR REPRESENTATION OF CHART] 11/16/90- 10/31/91* +9.36% 11/01/91- 10/31/92 +7.37% 11/01/92- 10/31/93 +11.37% 11/01/93- 10/31/94 -3.94% 11/01/94- 10/31/95 +12.77% 11/01/95- 10/31/96 +4.63% 11/01/96- 10/31/97 +6.75% AVERAGE +6.82% ANNUAL (SINCE INCEPTION) GROWTH OF $10,000+ AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/97 1 5 SINCE INCEPTION YEAR YEARS 11/16/90 6.75% 6.15% 6.82% [EDGAR REPRESENTATION OF CHART] FREMONT CA INTER TAX-FREE FUND LEHMAN MUNI 5 YR STATE G.O. INDEX 16-NOV-90 $10,000 $10,000 30-NOV-90 $10,064 $10,067 0.95% 31-DEC-90 $10,105 $10,102 31-JAN-91 $10,273 $10,250 28-FEB-91 $10,364 $10,340 31-MAR-91 $10,370 $10,313 30-APR-91 $10,467 $10,456 31-MAY-91 $10,530 $10,508 30-JUN-91 $10,496 $10,493 31-JUL-91 $10,603 $10,598 31-AUG-91 $10,737 $10,731 30-SEP-91 $10,881 $10,860 31-OCT-91 $10,936 $10,945 30-NOV-91 $10,953 $10,979 31-DEC-91 $11,187 $11,226 31-JAN-92 $11,218 $11,246 29-FEB-92 $11,222 $11,253 31-MAR-92 $11,188 $11,211 30-APR-92 $11,270 $11,306 31-MAY-92 $11,373 $11,413 30-JUN-92 $11,535 $11,572 31-JUL-92 $11,871 $11,876 31-AUG-92 $11,747 $11,787 30-SEP-92 $11,831 $11,862 31-OCT-92 $11,741 $11,821 30-NOV-92 $11,906 $11,962 31-DEC-92 $12,004 $12,049 31-JAN-93 $12,155 $12,180 28-FEB-93 $12,518 $12,495 31-MAR-93 $12,325 $12,357 30-APR-93 $12,434 $12,432 31-MAY-93 $12,460 $12,475 30-JUN-93 $12,666 $12,641 31-JUL-93 $12,629 $12,642 31-AUG-93 $12,889 $12,817 30-SEP-93 $13,069 $12,915 31-OCT-93 $13,076 $12,930 30-NOV-93 $12,964 $12,899 31-DEC-93 $13,198 $13,078 31-JAN-94 $13,354 $13,202 28-FEB-94 $13,007 $12,943 31-MAR-94 $12,664 $12,653 30-APR-94 $12,717 $12,779 31-MAY-94 $12,795 $12,854 30-JUN-94 $12,714 $12,820 31-JUL-94 $12,915 $12,954 31-AUG-94 $12,945 $13,016 30-SEP-94 $12,765 $12,920 31-OCT-94 $12,561 $12,847 30-NOV-94 $12,354 $12,750 31-DEC-94 $12,552 $12,866 31-JAN-95 $12,830 $13,001 28-FEB-95 $13,208 $13,195 31-MAR-95 $13,356 $13,323 30-APR-95 $13,382 $13,356 31-MAY-95 $13,745 $13,646 30-JUN-95 $13,652 $13,665 31-JUL-95 $13,771 $13,856 31-AUG-95 $13,920 $13,979 30-SEP-95 $13,978 $14,023 31-OCT-95 $14,165 $14,081 30-NOV-95 $14,313 $14,204 31-DEC-95 $14,421 $14,285 31-JAN-96 $14,583 $14,464 29-FEB-96 $14,519 $14,412 31-MAR-96 $14,326 $14,326 30-APR-96 $14,330 $14,299 31-MAY-96 $14,313 $14,280 30-JUN-96 $14,394 $14,366 31-JUL-96 $14,575 $14,470 31-AUG-96 $14,557 $14,489 30-SEP-96 $14,665 $14,589 31-OCT-96 $14,820 $14,732 30-NOV-96 $15,044 $14,941 31-DEC-96 $15,005 $14,906 31-JAN-97 $15,013 $14,944 28-FEB-97 $15,110 $15,050 31-MAR-97 $14,973 $14,879 30-APR-97 $15,046 $14,938 31-MAY-97 $15,279 $15,119 30-JUN-97 $15,408 $15,245 31-JUL-97 $15,738 $15,498 31-AUG-97 $15,616 $15,422 30-SEP-97 $15,787 $15,568 31-OCT-97 $15,820 $15,662 FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND ($15,820) LEHMAN BROS. 5-YEAR STATE G.O. INDEX ($15,662) *Unannualized +Assumes initial investment of $10,000 on inception date, November 16, 1990. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the Lehman Bros. 5-Year State G.O. Index. 23 FREMONT FUNDS PORTFOLIO CREDIT QUALITY OF FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND AS OF OCTOBER 31, 1997 [EDGAR REPRESENTATION OF CHART] AA (24.9%) A (9.8%) AAA (65.3%) favor as intermediate interest rates declined by approximately 50 basis points (0.5%). Our utilities holdings performed particularly well, as fixed-income investors recognized that deregulation was not likely to have as negative an impact as initially perceived. With California General Obligations Bonds being upgraded from A- to AA+ by Fitch IBCA, one of the major debt rating services, and placed on a "positive credit watch" by Moody's, we would have liked to have owned more GOs. However, supply in the marketplace was quite limited, and the one new issue brought to market this year, was in our opinion, a little richly priced. The California economy continues to improve. Year-end 1998 employment growth is expected to come in at 3.5%, personal income growth at a robust 5.5%, and unemployment at just 6.2%. If you ignore mandated incremental payments to public school systems (as some economists do), the State is technically running a surplus. In general, this is good news for California municipal bonds. Sacramento may deliver on its promise to modestly reduce state income taxes. A significant reduction in state (or federal) income tax rates would hurt munis. However, the proposed 1-2% reduction in state income tax rates would hardly diminish the attractiveness of double tax-free yields to most municipal bond investors. Going forward, we expect interest rates to trend modestly lower and bonds modestly higher in the year ahead. Consequently, we are maintaining the portfolio's relatively high average maturity. Over the short term, supply/demand factors may have as great an impact on municipal bonds as economic trends. Bond prices have been rising on days when nervous investors are dumping stocks and buying bonds in "a flight to quality," and then declining when investors sell bonds to jump back into the stock market. With new issuance down 20% this year, supply in the California municipal bond market has been constrained. However, with the stock market rising until quite recently, demand has been slack as well. If investors do stampede out of stocks for more than just a day or two, demand should rise, creating a favorable longer term supply/demand profile for bonds, including California municipals. In closing, we are pleased to have once again exceeded our benchmark index. We believe favorable interest rate trends and the possibility of increasing demand for California municipal securities will benefit the Fund in the year ahead. Sincerely, /s/ William M. Feeney William M. Feeney Portfolio Manager Fremont California Intermediate Tax-Free Fund 24 FREMONT MUTUAL FUNDS, INC. Report of Independent Accountants - -------------------------------------------------------------------------------- TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF FREMONT MUTUAL FUNDS, INC.: We have audited the accompanying statements of assets and liabilities of each of the ten funds of Fremont Mutual Funds, Inc. (the Funds), including each Fund's statement of investments in securities and net assets, as of October 31, 1997, and the related statements of operations, the statements of changes in net assets, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the ten funds of Fremont Mutual Funds, Inc., as of October 31, 1997, the results of their operations, the changes in their net assets, and their financial highlights for each of the periods presented in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. San Francisco, California December 9, 1997 25 FREMONT GLOBAL FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 69.1% BUSINESS EQUIPMENT & SERVICES 2.9% 2,800 Sodexho Alliance SA FR $ 1,391,908 143,000 Kyowa Exeo Corp. JP 1,236,551 600,000 Informatics Holdings Ltd. SG 247,540 200,000 Compass Group PLC UK 2,102,690 120,000 Hays PLC UK 1,401,346 100,000 Siebe PLC UK 1,911,688 * 103,100 American Business Information, Inc. (Class B) US 1,340,300 67,300 Diebold, Inc. US 2,965,406 * 35,600 Federal Express Corp. US 2,376,300 59,700 First Data Corp. US 1,735,031 122,200 Waste Management, Inc. US 2,856,425 ------------ 19,565,185 ------------ CAPITAL GOODS 2.1% 50,000 Larsen & Toubro Ltd., GDR IN 525,000 12,000 Kyocera Corp. JP 687,453 8,400 Kyocera Corp., ADR JP 979,650 60,000 Cemex SA (Class B), ADR MX 521,610 370,000 IJM Corp. Berhad MY 198,244 110,000 Cycle & Carriage Ltd. SG 481,752 20 Zardoya-Otis SP 2,396 132,000 Sandvik AB (Series B) SW 4,009,592 40,200 Caterpillar, Inc. US 2,060,250 49,300 Emerson Electric Co. US 2,585,169 58,500 Hughes Supply, Inc. US 2,040,187 ------------ 14,091,303 ------------ CONSUMER DURABLES 5.4% 33,600 Daimler-Benz AG GM 2,280,899 26,300 Daimler-Benz AG, ADR GM 1,799,906 1,000,000 PT Astra International, Inc. ID 742,025 33,000 Murata Manufacturing Co. Ltd. JP 1,338,987 33,000 Sony Corp., ADR JP 2,784,375 50,000 Philips Electronics NV NL 3,900,436 40,000 Philips Electronics NV (New York Shares) NL 3,135,000 27,000 Autoliv, Inc. SW 1,064,812 80,000 Autoliv, Inc., SDR SW 3,202,771 51,100 Chrysler Corp. US 1,801,275 30,000 Eaton Corp. US 2,898,750 72,200 Ford Motor Co. US 3,154,237 44,800 General Motors Corp. US 2,875,600 83,300 Sturm, Ruger & Co., Inc. US 1,567,081 51,800 Whirlpool Corp. US 3,140,375 ------------ 35,686,529 ------------ CONSUMER NON-DURABLES 2.4% 5,760 LVMH FR 975,352 440 LVMH, ADR FR 14,960 20,000 Societe BIC SA FR 1,363,640 250,000 PT Hanjaya Mandala Sampoerna ID 435,159 76,000 Cerebos Pacific Ltd. SG 193,919 108,000 Fraser & Neave Ltd. SG 541,542 * 70,777 President Enterprises, GDR TW 778,552 300,000 Unilever PLC UK 2,226,673 67,400 American Greetings Corp. (Class A) US 2,337,937 * 25,500 Blyth Industries, Inc. US 634,312 46,800 Campbell Soup Co. US 2,413,125 * 35,200 Owens-Illinois, Inc. US 1,214,400 30,200 VF Corp. US 2,699,125 ------------ 15,828,696 ------------ CONSUMER SERVICES 3.3% 22,000 News Corp. Ltd., ADR AU 419,375 197,274 Village Roadshow Ltd. (Preferred) AU 366,806 * 30,000 ProSieben Media AG (Preferred) GM 1,484,418 35,000 Secom Co. JP 2,264,072 20,000 Sega Enterprises Ltd. JP 492,226 10,000 Sega Enterprises Ltd., ADR JP 61,528 265,000 Genting Berhad MY 741,479 70,600 Elsevier NV NL 1,105,106 7,902 Wolters Kluwer NV NL 966,814 9,953 Wolters Kluwer NV, ADR NL 1,222,633 280,000 Helicopter Line Ltd. (The) NZ 313,664 360,000 Rentokil Initial PLC UK 1,441,557 75,300 Disney (Walt) Co. US 6,193,425 * 34,900 ITT Corp. US 2,606,594 44,600 The Times Mirror Co. (Class A) US 2,413,975 ------------ 22,093,672 ------------ ENERGY 9.1% 45,700 Amoco Corp. US 4,190,119 38,200 Atlantic Richfield Co. US 3,144,337 158,100 Chesapeake Energy Corp. US 1,551,356 59,200 Chevron Corp. US 4,909,900 80,400 Devon Energy Corp. US 3,597,900 68,500 Dresser Industries, Inc. US 2,885,562 31,900 ENSCO International, Inc. US 1,341,794 117,700 Exxon Corp. US 7,231,194 * 31,800 Falcon Drilling Co., Inc. US 1,156,725 36,800 Kerr-McGee Corp. US 2,486,300 70,000 Mobil Corp. US 5,096,875 134,700 Occidental Petroleum Corp. US 3,754,762 * 69,900 Oryx Energy Co. US 1,926,619 50,900 Phillips Petroleum Co. US 2,462,287 * 151,300 Santa Fe Energy Resources, Inc. US 1,976,356 65,800 Texaco, Inc. US 3,746,487 28,900 Tidewater, Inc. US 1,898,369 * 115,500 Ulster Petroleums Ltd. US 1,147,826 68,800 USX-Marathon Group US 2,459,600 73,700 Williams Cos., Inc. US 3,754,094 ------------ 60,718,462 ------------ FINANCIAL SERVICES (BANKS) 8.1% 90,000 Banco de Galicia y Buenos Aires SA de CV, ADR AR 2,181,096 200,000 Westpac Banking Corp. Ltd. AU 1,161,932 1,320,000 PT Bank Bira ID 183,079 2,905,500 PT Lippo Bank ID 805,964 150,000 Instituto Mobiliare Italiano SPA IT 1,338,638 400,000 Commerce Asset Holding Berhad MY 309,570 160,000 Malayan Banking Berhad MY 614,377 50,288 ING Groep NV NL 2,103,399 300,000 Overseas Union Bank Ltd. (Foreign Registered) SG 999,683 * NON-INCOME PRODUCING SECURITIES THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 26 FREMONT GLOBAL FUND October 31, 1997 - -------------------------------------------------------------------------------- COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- FINANCIAL SERVICES (BANKS) (CONTINUED) 217,478 Overseas-Chinese Banking Corp. Ltd. (Foreign Registered) SG $ 1,207,829 214,899 United Overseas Bank Ltd. (Foreign Registered) SG 1,186,686 6,300 Housing & Commercial Bank, Korea SK 69,202 * 24,285 Thai Farmers Bank (Warrants 09/15/02) (Foreign Registered) TH 8,598 129,790 HSBC Holdings PLC (Hong Kong Shares) UK 2,938,325 59,300 Ahmanson (H.F.) & Co. US 3,498,700 57,000 Banc One Corp. US 2,971,125 60,600 BankAmerica Corp. US 4,332,900 30,300 Bankers Trust New York Corp. US 3,575,400 36,000 Citicorp US 4,502,250 40,900 First Chicago NBD Corp. US 2,975,475 59,600 First Union Corp. US 2,924,125 43,200 Fleet Financial Group, Inc. US 2,778,300 59,600 NationsBank Corp. US 3,568,550 102,800 Norwest Corp. US 3,296,025 30,800 Republic New York Corp. US 3,259,025 28,000 Zions Bancorporation US 1,088,500 ------------ 53,878,753 ------------ FINANCIAL SERVICES (OTHER) 5.1% 62,859 Lend Lease Corp. Ltd. AU 1,284,338 1,000,000 JCG Holdings Ltd. HK 443,079 10,000 Nichiei Co. Ltd. (Kyoto) JP 1,097,531 34,579 Aegon NV (New York Shares) NL 2,749,057 40,000 Credicorp Ltd. PE 717,500 130 Samsung Fire & Marine Insurance SK 34,352 49,700 Allstate Corp. US 4,121,994 67,900 American General Corp. US 3,462,900 13,900 Cigna Corp. US 2,157,975 22,300 CMAC Investment Corp. US 1,219,531 84,400 Federal Home Loan Mortgage Corp. US 3,196,650 22,700 Horace Mann Educators Corp. US 1,276,875 * 45,100 Imperial Credit Industries, Inc. US 1,133,137 52,000 Mercury General Corp. US 2,206,750 55,100 Morgan Stanley, Dean Witter, Discover and Co. US 2,699,900 70,700 TIG Holdings, Inc. US 2,394,963 54,100 Travelers Group, Inc. US 3,787,000 ------------ 33,983,532 ------------ HEALTH CARE 4.1% * 62,500 Fresenius Medical Care AG, ADR GM 1,472,656 200,500 PT Dankos Laboratories ID 100,111 96,500 Grupo Casa Autrey SA de CV, ADR MX 1,652,563 1,386 Novartis AG (Registered Shares) SZ 2,162,805 260 Roche Holding AG SZ 2,276,515 75,000 Glaxo Wellcome PLC UK 1,603,406 29,300 Aetna, Inc. US 2,082,131 43,000 Baxter International, Inc. US 1,988,750 * 36,000 Biogen, Inc. US 1,206,000 72,300 Columbia HCA Healthcare Corp. US 2,042,475 * 23,400 HealthCare COMPARE Corp. US 1,257,750 * 68,600 Marquette Medical Systems, Inc. US 1,766,450 53,000 Medtronic, Inc. US 2,305,500 * 106,900 Pharmaceutical Product Development, Inc. US 1,897,475 * 20,000 Safeskin Corp. US 907,500 33,000 United Healthcare Corp. US 1,528,313 9,300 Warner-Lambert Co. US 1,331,644 ------------ 27,582,044 ------------ MULTI-INDUSTRY 2.2% 3,085 Viag AG GM 1,437,209 770,000 Citic Pacific Ltd. HK 3,685,640 280,000 Hutchison Whampoa HK 1,937,904 1,240,000 Renong Berhad MY 1,129,454 248,000 Renong Berhad (Convertible Loan Stock 05/21/01) MY 50,198 * 155,000 Renong Berhad (Warrants Exp. 11/21/00) MY 27,683 400,000 Sime Darby Berhad MY 571,514 1,000,000 Tan Chong Motor Holdings Berhad MY 568,537 22,500 Minnesota Mining & Manufacturing Co. US 2,058,750 53,000 TRW, Inc. US 3,034,250 ------------ 14,501,139 ------------ RAW MATERIALS 3.1% 132,800 Broken Hill Proprietary Co. Ltd., ADR AU 2,672,600 54,000 BASF AG GM 1,854,741 61,000 Bayer AG GM 2,188,721 28,645 Hansol Paper Ltd., GDR SK 186,193 * 933 Hansol Paper Ltd., GDR SK 6,065 * 1,386 Ciba Specialty Chemicals AG (Registered Shares) SZ 135,607 44,600 Aluminum Co. of America US 3,255,800 * 29,300 Buckeye Cellulose Corp. US 1,215,950 128,400 Calgon Carbon Corp. US 1,516,725 30,600 Dow Chemical Co. US 2,776,950 129,900 Engelhard Corp. US 2,257,013 52,900 Goodrich (B.F.) Co. US 2,357,356 ------------ 20,423,721 ------------ RETAIL 2.7% 2,000 Carrefour SA FR 1,040,182 13,050 Hermes International FR 877,148 29,000 Ito-Yokado Co. Ltd. JP 1,441,922 24,461 Cifra SA de CV (Series A) MX 44,395 200,000 Cifra SA de CV (Series C) MX 353,433 * 59,100 Grupo Elektra SA de CV, GDR MX 1,621,556 * 26,700 Consolidated Stores Corp. US 1,064,663 * 66,400 Federated Department Stores, Inc. US 2,921,600 73,600 Hannaford Brothers Co. US 2,783,000 47,600 McDonalds Corp. US 2,133,075 65,500 Pier 1 Imports, Inc. US 1,195,375 64,200 Sears, Roebuck and Co. US 2,688,375 ------------ 18,164,724 ------------ * NON-INCOME PRODUCING SECURITIES THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 27 FREMONT GLOBAL FUND October 31, 1997 - -------------------------------------------------------------------------------- COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- SHELTER 1.2% 140,000 Kimberly-Clark de Mexico SA MX $ 603,463 3,200,000 C & P Homes, Inc. PH 239,887 500,000 DBS Land Ltd. SG 850,524 37,000 Armstrong World Industries, Inc. US 2,462,813 43,000 Kimberly-Clark Corp. US 2,233,313 * 38,900 Triangle Pacific Corp. US 1,273,975 ------------ 7,663,975 ------------ TECHNOLOGY 8.9% 50,000 Nokia AB, ADR FI 4,412,500 6,000 SAP AG, ADR GM 593,625 110,000 Canon, Inc. JP 2,670,658 18,900 Hirose Electronics JP 1,233,599 40,000 Hoya Corp. JP 1,390,205 14,000 TDK Corp. JP 1,161,719 55,000 Tokyo Electron Ltd. JP 2,743,826 40,531 Samsung Electronics Ltd., GDS (1/2 Non-Voting) SK 395,177 * 5,575 Samsung Electronics Ltd., GDS (1/2 Voting) SK 112,894 4,210 Sungmi Telecom Electronics SK 205,026 * 80,000 Synnex Technology International Corp., GDR TW 1,396,000 44,400 AMP, Inc. US 1,998,000 * 40,800 Applied Materials, Inc. US 1,361,700 * 46,100 Aspect Telecommunications Corp. US 1,106,400 35,700 Avnet, Inc. US 2,246,869 61,700 Boeing Co. US 2,953,888 83,400 Hewlett-Packard Co. US 5,144,738 74,600 International Business Machines Corp. US 7,315,463 * 83,600 Iomega Corp. US 2,241,525 * 59,700 Komag, Inc. US 1,033,556 58,700 Motorola, Inc. US 3,624,725 * 31,800 Parametric Technology Corp. US 1,403,175 * 31,600 Storage Technology Corp. US 1,854,525 14,800 Thiokol Corp. US 1,355,125 * 90,200 Ultratech Stepper, Inc. US 2,457,950 21,800 United Technologies Corp. US 1,526,000 23,200 Xerox Corp. US 1,840,050 * 98,600 Xilinx, Inc. US 3,364,725 ------------ 59,143,643 ------------ TRANSPORTATION 1.1% 836,000 Comfort Group Ltd. SG 421,847 166,875 Keppel Corp. SG 527,475 * 9,770 Korean Air SK 76,844 240,000 British Airways PLC UK 2,342,279 43,300 Burlington Northern Sante Fe US 4,113,500 ------------ 7,481,945 ------------ UTILITIES 7.4% 42,500 Compania de Telecomunicaciones de Chile SA, ADR CL 1,179,375 15,000 Enersis SA, ADR CL 495,000 60,570 Hong Kong & China Gas Co. Ltd. HK 114,401 17,500 PT Indosat, ADR ID 414,531 1,020,000 Telecom Italia Mobile SPA IT 3,775,774 255 Nippon Telegraph & Telephone JP 2,162,634 400,000 Tenaga Nasional Berhad MY 857,270 44,200 Telecom of New Zealand, ADR NZ 1,721,038 97,766 Manila Electric Co. (Class B) PH 298,692 14,900 Philippine Long Distance Telephone Co. PH 368,812 50,000 Philippine Long Distance Telephone Co., ADR PH 1,212,500 70,000 Korea Electric Power Corp., ADR SK 573,125 62,830 Korea Mobile Telecommunications, ADR SK 345,565 * 118,100 AirTouch Communications, Inc. US 4,561,613 21,400 Ameritech Corp. US 1,391,000 64,900 Bell Atlantic Corp. US 5,183,888 78,900 BellSouth Corp. US 3,732,956 38,500 Coastal Corp. US 2,314,813 47,300 Consolidated Edison Co. of New York, Inc. US 1,620,025 100,300 Entergy Corp. US 2,451,081 25,300 GTE Corp. US 1,073,669 133,300 PG&E Corp. US 3,407,481 65,800 Texas Utilities Co. US 2,360,575 120,300 Unicom Corp. US 3,368,400 * 130,200 WorldCom, Inc. US 4,377,975 ------------ 49,362,193 ------------ TOTAL STOCKS (COST $407,520,777) 460,169,516 ------------ FACE AMOUNT/ISSUER/COUPON RATE/STATED MATURITY - -------------------------------------------------------------------------------- BONDS 28.0% CORPORATE BONDS 7.4% US$ 3,000,000 AES China Generating Co., 10.125%, 12/15/06 3,028,409 2,000,000 Asia Pulp & Paper International Finance, 10.250%, 10/01/00 2,005,000 3,000,000 Bank of America, 6.625%, 10/15/07 3,009,210 3,000,000 Cemex SA de CV, 10.750%, 07/15/00 3,159,375 3,000,000 China Light and Power Co. Ltd., 7.500%, 04/15/06 3,167,130 4,000,000 Export-Import Bank of Korea, 7.100%, 03/15/07 3,812,920 3,000,000 Ford Brasil LTDA, 9.250%, 01/22/07 3,056,250 3,000,000 Ford Motor Credit Corp., 6.800%, 04/23/01 3,051,060 2,500,000 General Electric Capital Corp., 8.850%, 03/01/07 2,919,100 3,000,000 General Motors Acceptance Corp., 7.500%, 07/24/00 3,097,980 3,000,000 Grupo Televisa (Callable 05/15/01@106.625), 0.00% to 05/15/01, 13.250% thereafter, 05/15/08 2,175,000 3,000,000 Guangdong Enterprises, 8.875%, 05/22/07 2,955,960 1,500,000 Korea Development Bank, 5.875%, 12/01/98 1,491,540 3,000,000 Lehman Brothers, 7.125%, 09/15/03 3,059,310 2,000,000 Perez Companc SA, 8.125%, 07/15/07 1,851,568 2,000,000 Pohang Iron & Steel Co. Ltd., 7.375%, 05/15/05 2,005,640 3,000,000 Salomon, Inc., 6.500%, 03/01/00 3,020,910 2,000,000 Wharf International Finance, 7.625%, 03/13/07 2,046,360 ------------ 48,912,722 ------------ MORTGAGE-BACKED SECURITIES 0.2% 1,084,116 FNMA CMO, 1992-137BA REMIC, 3.500%, 01/25/17 1,053,956 ------------ 1,053,956 ------------ * NON-INCOME PRODUCING SECURITIES 28 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT GLOBAL FUND October 31, 1997 - -------------------------------------------------------------------------------- FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY - -------------------------------------------------------------------------------- U.S. GOVERNMENT BONDS 3.5% US$ 5,000,000 FHLMC, 7.115%, 11/05/12 $ 5,054,700 4,000,000 FNMA, 6.500%, 02/25/02 4,004,360 U.S. Treasury Notes 5,000,000 6.250%, 08/15/23 5,017,950 5,000,000 6.500%, 10/15/06 5,200,800 4,000,000 6.625%, 05/15/07 4,211,880 ------------ 23,489,690 ------------ FOREIGN BONDS 16.9% European Bank for Reconstruction and Development AUS$ 4,000,000 9.000%, 10/15/02 3,192,508 Government of Australia AUS$ 4,000,000 7.500%, 07/15/05 3,091,161 AUS$ 4,000,000 8.750%, 01/15/01 3,090,067 Morgan Guaranty Trust Co. AUS$ 4,500,000 8.000%, 04/18/01 3,376,471 European Investment Bank CAN$ 4,000,000 7.750%, 04/22/03 3,131,761 Government of Canada CAN$ 4,000,000 6.000%, 06/01/08 2,931,357 CAN$ 4,000,000 8.000%, 06/01/23 3,566,590 Japan Highway Public Corp. CAN$ 2,000,000 7.875%, 09/27/02 1,564,107 Oesterreichische Kontrollbank (Republic of Austria) CAN$ 2,000,000 9.000%, 06/19/02 1,626,175 Republic of Finland CAN$ 2,000,000 9.500%, 09/15/04 1,722,823 Toyko Electric Power CAN$ 2,000,000 10.500%, 06/14/01 1,654,549 Federal Republic of Germany DM 3,000,000 6.750%, 04/22/03 1,863,943 DM 4,500,000 6.875%, 05/12/05 2,826,905 Treuhandanstalt DM 3,000,000 7.750%, 10/01/02 1,933,737 United Mexican States DM 6,000,000 8.125%, 09/10/04 3,559,131 World Bank DM 3,000,000 6.125%, 09/27/02 1,807,344 Government of Spain ESP 480,000,000 7.900%, 02/28/02 3,595,809 ESP 500,000,000 8.400%, 04/30/01 3,768,406 ESP 480,000,000 10.300%, 06/15/02 3,924,224 Government of France FF 20,000,000 8.500%, 11/25/02 3,980,337 Government of Ireland IEP 2,000,000 6.500%, 10/18/01 3,109,086 IEP 2,000,000 8.000%, 08/18/06 3,388,589 Government of Netherlands NLG 6,000,000 6.500%, 04/15/03 3,273,287 Government of Sweden SEK 40,000,000 6.000%, 02/09/05 5,260,325 SEK 25,000,000 10.250%, 05/05/03 3,978,517 United Mexican States L 2,000,000 12.250%, 12/03/98 3,459,804 U.K. Treasury L 2,500,000 7.250%, 12/07/07 4,399,365 L 2,500,000 7.500%, 12/07/06 4,445,178 L 2,000,000 8.500%, 12/07/05 3,741,489 L 2,000,000 9.000%, 07/12/11 4,060,872 L 2,000,000 9.750%, 08/27/02 3,755,102 Ministry Finance Russia US$ 3,000,000 9.250%, 11/27/01 2,835,003 Peoples Republic of China US$ 3,000,000 6.625%, 10/28/02 2,964,419 Republic of Kazakhstan US$ 2,000,000 8.375%, 10/02/02 1,779,666 US$ 2,000,000 9.250%, 12/20/99 1,958,536 United Mexican States US$ 4,000,000 11.500%, 05/15/26 4,170,000 ------------ 112,786,643 ------------ TOTAL BONDS (COST $184,948,466) 186,243,011 ------------ FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY - -------------------------------------------------------------------------------- SHORT TERM SECURITIES 4.2% ** 5,000,000 Allianz of America Finance Corp., CP, 5.770%, 11/03/97 4,998,397 8,000,000 Caisse d'Amortissement de la Dette Sociale, CP, 5.600%, 11/03/97 7,997,511 5,000,000 Merrill Lynch & Co., Inc., CP, 5.550%, 11/03/97 4,998,458 10,000,000 Xerox Corp., CP, 5.700%, 11/03/97 9,996,834 ------------ TOTAL SHORT TERM SECURITIES (COST $27,991,200) 27,991,200 ------------ TOTAL INVESTMENTS (COST $620,460,443), 101.3% 674,403,727 OTHER ASSETS AND LIABILITIES, NET, (1.3)% (8,656,346) ------------ NET ASSETS, 100.0% $665,747,381 ------------ ------------ **THESE SECURITIES ARE GENERALLY ISSUED TO INSTITUTIONAL INVESTORS. ANY RESALE MUST BE IN AN EXEMPT TRANSACTION PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 29 FREMONT INTERNATIONAL GROWTH FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 87.2% BUSINESS EQUIPMENT & SERVICES 2.9% 825 Sodexho Alliance SA FR $ 410,116 600,000 Informatics Holdings Ltd. SG 247,540 45,000 Compass Group PLC UK 473,105 ------------ 1,130,761 ------------ CAPITAL GOODS 7.6% 3,000,000 PT Dynaplast ID 686,546 13,000 Kyocera Corp. JP 744,741 6,000 Mabuchi Motors Co. JP 334,248 35,000 ABB AB (Series B) SW 403,344 14,000 Sandvik AB (Series B) SW 425,260 15,000 SKF AB (Series B) SW 347,722 ------------ 2,941,861 ------------ CONSUMER DURABLES 16.6% 1,450 Rexel SA FR 383,329 1,200 Volkswagen AG GM 710,437 28,000 Alpine Electronics, Inc. JP 316,621 15,000 Matsushita-Kotobuki Electronics JP 466,450 41,000 Murata Manufacturing Co. Ltd. JP 1,663,590 6,000 Sony Corp. JP 498,379 10,000 Philips Electronics NV (New York Shares) NL 783,750 40,000 Autoliv, Inc. SW 1,577,501 ------------ 6,400,057 ------------ CONSUMER SERVICES 3.3% * 15,000 ProSieben Media AG (Preferred) GM 742,209 8,000 Secom Co. JP 517,502 ------------ 1,259,711 ------------ FINANCIAL SERVICES 11.1% 167,618 Reinsurance Australia Corp. Ltd. AU 432,802 100,000 Dao Heng Bank Group Ltd. HK 230,272 1,000,000 JCG Holdings Ltd. HK 443,079 880,000 PT Bank Bira ID 122,053 5,000 Nichiei Co. Ltd. (Kyoto) JP 548,765 14,843 Aegon NV (New York Shares) NL 1,180,025 11,288 ING Groep NV NL 472,144 72,000 Overseas Union Bank Ltd. (Foreign Registered) SG 239,924 60,271 Overseas-Chinese Banking Corp. Ltd. (Foreign Registered) SG 334,733 40,000 United Overseas Bank Ltd. (Foreign Registered) SG 220,882 8,645 Kookmin Bank SK 69,876 * 3,750 Thai Farmers Bank (Warrants 09/15/02 - Foreign Registered) TH 1,327 ------------ 4,295,882 ------------ HEALTH CARE 5.8% * 12,500 Fresenius Medical Care AG, ADR GM 294,531 2,000 Santen Pharmaceutical Co. JP 35,420 319 Novartis AG (Registered Shares) SZ 497,788 73 Roche Holding AG SZ 639,175 18,000 Glaxo Wellcome PLC, ADR UK 770,626 ------------ 2,237,540 ------------ MULTI-INDUSTRY 0.1% 72,000 Renong Berhad (Convertible Loan Stock, 4.000%, 05/21/01) MY 14,574 * 45,000 Renong Berhad (Warrants Exp. 11/21/00) MY 8,037 ------------ 22,611 ------------ RAW MATERIALS 4.8% 9,723 Compagnie de Saint-Gobain FR 1,391,052 13,000 BASF AG GM 446,512 * 319 Ciba Specialty Chemicals AG (Registered Shares) SZ 31,211 ------------ 1,868,775 ------------ RETAIL 1.1% 2,200 Ito Yokado Co. Ltd., ADR JP 436,975 ------------ 436,975 ------------ SHELTER 0.3% 1,500,000 C & P Homes, Inc. PH 112,447 ------------ 112,447 ------------ TECHNOLOGY (EQUIPMENT) 11.7% 25,000 Nokia AB, ADR FI 2,206,250 1,100 Advantest Corp. JP 91,004 5,500 Canon, Inc., ADR JP 674,438 17,000 Hoya Corp. JP 590,837 5,658 Samsung Electronics Ltd., GDS (1/2 Non-Voting) SK 55,166 * 169 Samsung Electronics Ltd., GDS (1/2 Voting) SK 3,422 3,961 Sungmi Telecom Electronics SK 192,926 * 40,000 Synnex Technology International Corp., GDR TW 698,000 ------------ 4,512,043 ------------ TECHNOLOGY (SOFTWARE) 9.9% 10,000 TT Tieto OY (Class B) FI 1,118,094 5,500 SAP AG (Preferred) GM 1,637,634 16 NTT Data Communications Systems Co. JP 764,946 20,000 Enator AB SW 317,080 ------------ 3,837,754 ------------ TRANSPORTATION 5.3% 211,000 British Airways PLC UK 2,059,254 ------------ 2,059,254 ------------ UTILITIES 6.7% 333,334 Telecom Italia SPA IT 2,084,688 51 Nippon Telegraph & Telephone JP 432,527 22,598 Manila Electric Co. (Class B) PH 69,037 ------------ 2,586,252 ------------ TOTAL STOCKS (COST $31,464,694) 33,701,923 ------------ * NON-INCOME PRODUCING SECURITIES 30 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT INTERNATIONAL GROWTH FUND October 31, 1997 - -------------------------------------------------------------------------------- VALUE SHARES/FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY (NOTE 1) - -------------------------------------------------------------------------------- SHORT TERM SECURITIES 12.6% 1,070,825 Benchmark Diversified Assets Fund $ 1,070,825 $1,900,000 Merrill Lynch & Co., Inc., CP, 5.670%, 11/04/97 1,899,102 1,900,000 Unilever Capital Corp., CP, 5.680%, 11/03/97 1,899,401 ------------ TOTAL SHORT TERM SECURITIES (COST $4,869,328) 4,869,328 ------------ TOTAL INVESTMENTS (COST $36,334,022), 99.8% 38,571,251 OTHER ASSETS AND LIABILITIES, NET, 0.2% 71,698 ------------ NET ASSETS, 100.0% $ 38,642,949 ------------ ------------ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 31 FREMONT INTERNATIONAL SMALL CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 97.1% BUSINESS EQUIPMENT & SERVICES 2.5% 6,000 Kyudenko Co. Ltd. JP $ 38,463 4,000 Sanki Engineering JP 33,259 5,000 Toenec Corp. JP 18,666 * 54,200 Siam Makro Public Co. Ltd. (Foreign Registered) TH 71,369 8,933 Cowie Group PLC UK 53,357 ------------ 215,114 ------------ CAPITAL GOODS 11.2% 5,400 Metal Manufactures Ltd. AU 7,578 7,980,000 Companhia de Acos Especiais Itabira-Acesita BR 10,857 6,400,000 Companhia Siderurgica de Tubarao (Preferred B) BR 81,270 18,400 Stelco, Inc. CN 141,614 * 356 Skoda Telecom Plzen AS CZ 9,252 5,300 Rautaruukki OY FI 49,553 5,000 Aida Engineering Ltd. JP 23,073 7,000 Bunka Shutter Co. Ltd. JP 25,900 10,000 Eagle Industry Co. JP 32,427 1,000 Inaba Denkisangyo Co. JP 11,225 41,000 NHK Spring Co. Ltd. JP 131,246 13,000 Pacific Industrial JP 59,558 3,000 Seirei Industry JP 7,683 2,000 Yokogawa Bridge Corp. JP 8,331 2,700 Koninklijke Hoogovens NV NL 123,326 13,400 Steel & Tube Holdings Ltd. NZ 27,520 36,000 Van Der Horst Ltd. SG 31,533 8,000 Dongkuk Steel Mill Co. SK 124,352 7,000 Poongsan Corp. SK 44,974 ------------ 951,272 ------------ CONSUMER DURABLES 2.7% 11,615 Ciadea Transportation SA AR 22,894 100,000 Brasmotor SA (Preferred) BR 14,059 2,500 Sommer-Allibert FR 84,234 14,400 Johnson Electric Holdings Ltd. HK 39,307 36,000 Semi-Tech (Global) Ltd. HK 26,779 4,100 Toyota South Africa Ltd. SA 25,548 900 American Standard Sanitaryware Public Co. Ltd. (Foreign Registered) TH 3,354 131,980 Arcelik AS TU 14,736 ------------ 230,911 ------------ CONSUMER NON-DURABLES 7.5% 24,300 National Foods Ltd. AU 34,953 9,780 Rothmans Holdings Ltd. AU 48,172 5,590,000 Bombril SA (Preferred) BR 46,241 8,700,000 Ceval Alimentos SA (Preferred) BR 69,363 9,800,000 Perdigao SA (Preferred) BR 17,333 68,200 Sadia-Concordia SA Industria e Comercio (Preferred) BR 50,725 100,000 Sao Paulo Alpargatas SA (Preferred) BR 4,345 107 Cokoladovny AS CZ 15,375 250 Deveaux SA FR 24,622 50 Fromageries Bel SA FR 35,836 1,320 Delta Dairy SA (Preferred) GR 14,211 1,100 Hellenic Sugar Industry SA GR 8,056 7,000 Lai Sun Garment (International) Ltd. HK 4,256 17,000 PT Japfa Comfeed Indonesia ID 2,829 4,000 Daito Gyorui Co. Ltd. JP 6,552 10,000 Ezaki Glico JP 70,342 * 6,000 Marudai Food Co. Ltd. JP 15,665 6,000 Guinness Anchor Berhad MY 7,037 35,000 Yeo Hiap Seng Berhad MY 33,338 400 Unicer-Uniao Cervejeira SA (Registered Shares) PT 6,570 1,346 Foodcorp Ltd. SA 7,688 11,000 GP Batteries International Ltd. (U.S. Dollar Shares) SG 32,117 * 2,000 Dongwon Industries Co. SK 16,166 3,410 LG International Corp. SK 18,410 3,060 Sam Yang Co. Ltd. SK 36,783 9,100 Saha Pathana Inter-Holding Public Co. Ltd. (Foreign Registered) TH 14,017 ------------ 641,002 ------------ CONSUMER SERVICES 1.2% 33,800 PMP Communications Ltd. AU 69,962 18,200 Sydney Harbour Casino Holdings Ltd. AU 18,517 2,600 Grammy Entertainment Public Co. Ltd. (Foreign Registered) TH 15,374 ------------ 103,853 ------------ ENERGY 5.3% 20,100 Caltex Australia Ltd. AU 59,092 4,500,000 Distribuidora de Produtos de Petroleo Ipiranga SA (Preferred) BR 75,918 5,300,000 Petrobras Distribuidora SA (Preferred) BR 93,741 350 ESSO SA FR 31,689 2,000 Itochu Fuel Co. Ltd. JP 7,317 2,000 Kamei Corp. JP 17,793 46,300 Bangchak Petroleum Public Co. Ltd. (Foreign Registered) TH 10,123 155,551 Petrol Ofisi AS TU 29,229 566,736 Turcas Petroculuk AS TU 16,669 112,200 Premier Oil PLC UK 90,703 12,700 Save Group PLC UK 23,406 ------------ 455,680 ------------ FINANCIAL SERVICES (BANKS) 15.6% 19,400 Bank of Western Australia Ltd. AU 36,480 5,600 Westpac Banking Corp. Ltd. AU 32,534 17,200 National Bank of Canada CN 244,625 15,300 Banco Industrial Colombiano CO 54,789 14,600 Investicni A Postovni Banka CZ 87,355 500 Compagnie Financiere de CIC et de l'Union Europeenne FR 36,372 2,198 Alpha Credit Bank (Registered Shares) GR 144,840 * 170 National Bank of Greece SA (Registered Shares) GR 17,742 34 National Bank of Greece SA (Registered Shares) (Rights) GR 685 * 24,696 Union Bank of the Philippines PH 12,575 6,800 Banco Pinto & Sotto Mayor SA (Registered Shares) PT 95,905 * NON-INCOME PRODUCING SECURITIES 32 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT INTERNATIONAL SMALL CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- FINANCIAL SERVICES (BANKS) (CONTINUED) 2,100 Banco Totta & Acores SA (Registered Shares) PT $ 40,442 16,644 BPI-SGPS SA (Registered Shares) PT 372,852 * 45,000 Bangkok Bank of Commerce Public Co. Ltd. (Foreign Registered) TH 5,925 18,000 First Bangkok City Bank Public Co. Ltd. (Foreign Registered) TH 6,932 21,300 Krung Thai Bank Public Co. Ltd. (Foreign Registered) TH 7,409 119,300 Siam City Bank Public Co. Ltd. (Foreign Registered) TH 25,787 72,400 Thai Military Bank Public Co. Ltd. (Foreign Registered) TH 28,780 1,504,443 Turkiye Garanti Bankasi AS TU 77,844 ------------ 1,329,873 ------------ FINANCIAL SERVICES (OTHER) 7.4% 95,400 FAI Insurances Ltd. AU 38,824 2,400 London Insurance Group, Inc. CN 57,797 1,900 Suramericana de Seguros SA CO 42,450 2,750 Credit National FR 153,954 90,000 Liu Chong Hing Investment Ltd. HK 84,411 7,100 Irish Permanent PLC IR 67,749 13,000 Nippon Shinpan Co. JP 27,239 14,000 Datuk Keramat Holdings Berhad MY 9,168 6,000 MBF Capital Berhad MY 3,501 300 KAS Associatie NV NL 22,017 2,800 Phatra Thanakit Public Co. Ltd. (Foreign Registered) TH 2,435 4,200 Jardine Lloyd Thompson Group PLC UK 11,963 31,700 Man (E D & F) Group PLC UK 109,676 ------------ 631,184 ------------ HEALTH CARE 0.3% 5,000 Kaken Pharmaceutical JP 16,255 1,979 South African Druggists Ltd. SA 12,392 ------------ 28,647 ------------ MULTI-INDUSTRY 4.5% 250 Chargeurs International SA FR 16,674 1,950 IVG Holding AG GM 54,394 28,000 Sime Darby (Hong Kong) Ltd. HK 19,922 9,700 Crean (James) PLC (Units) IR 18,949 19,000 Daido Hoxan, Inc. JP 48,973 2,000 Suntelephone Co. Ltd. JP 8,148 4,000 Toyota Tsusho Corp. JP 15,332 1,640 Internatio-Muller NV NL 51,931 12,000 Malbak Ltd. SA 14,008 10,000 Daewoo Corp. SK 65,285 8,900 Goode Durrant PLC UK 74,558 ------------ 388,174 ------------ RAW MATERIALS 13.0% 14,560 Aluar Aluminio Argentina SA (Class B) AR 61,187 1,400,000 Companhia Petroquimica de Sul BR 50,159 9,300,000 Fertilizantes Fosfatados SA (Preferred) BR 36,272 * 37,500 Uniao de Industrias Petroquimicas SA (Preferred B) BR 11,565 292,000 Shanghai Petrochemical Co. Ltd. (Hong Kong Shares) CH 78,383 232,000 Yizheng Chemical Fibre Co. Ltd. (Hong Kong Shares) CH 69,780 * 221 Synthesia AS CZ 1,168 400 Hellas Can Packaging SA GR 5,566 20,000 PT Chareon Pokphand Indonesia ID 2,913 31,000 Chuetsu Pulp & Paper Co. Ltd. JP 69,851 13,000 Daiken Corp. JP 51,343 5,000 Daio Paper Corp. JP 34,173 25,000 Dowa Mining Co. JP 78,781 10,000 Nippon Kayaku Co. Ltd. JP 43,901 21,000 Tokai Carbon Co. Ltd. JP 54,128 * 36,000 Empaques Ponderosa SA de CV (Series B) MX 25,791 200 DSM NV NL 17,993 1,300 Gamma Holding NV NL 69,387 49,500 Dewan Salman Fibre Ltd. PK 33,745 7,897 Avgold Ltd. SA 5,413 6,700 Trans-Natal Coal Corp. Ltd. SA 26,441 2,050 Sunkyong Ltd. SK 16,889 5,100 Lanna Lignite Public Co. Ltd. (Foreign Registered) TH 17,993 4,500 National Petrochemical Public Co. Ltd. (Foreign Registered) TH 2,404 152,600 Thai Petrochemical Industry Public Co. Ltd. (Foreign Registered) TH 26,160 62,300 Tipco Asphalt Public Co. Ltd. (Foreign Registered) TH 140,852 43,209 Cimentas Izmir Cimento Fabrikasi Turk AS TU 5,472 134,000 Petkim Petrokimya Holdings AS TU 75,174 ------------ 1,112,884 ------------ RETAIL 8.6% 167,100 David Jones Ltd. AU 211,042 78,100 Davids Ltd. AU 35,071 36,000 Jardine International Motor Holdings Ltd. HK 26,080 2,000 Oak & Co. JP 6,003 42,000 Controladora Comercial Mexicana SA de CV (Units) MX 41,624 2,300 Macintosh NV NL 49,577 1,674 Ellerine Holdings Ltd. SA 12,691 4,532 New Clicks Holdings Ltd. SA 5,930 12,700 East Asiatic Public Co. Ltd. (Local Shares) TH 4,102 42,100 Kwik Save Group PLC UK 218,310 1,600 Lex Service PLC UK 11,259 35,600 Somerfield PLC UK 115,415 ------------ 737,104 ------------ SHELTER 10.5% 700 Bau Holdings AG (Preferred) AS 34,675 5,000 Brasilit SA BR 11,202 * 616 Inzenyrske a Prumyslove Stavby AS CZ 4,207 265,500 Century City International Holdings Ltd. HK 60,794 147,400 Hon Kwok Land Investment Ltd. HK 31,654 89,000 Kumagai Gumi Ltd. HK 81,746 88,000 Lai Sun Development Co. Ltd. HK 36,429 281,500 Tai Cheung Holdings Ltd. HK 136,562 100 Daito Trust Construction Co. Ltd. JP 890 * NON-INCOME PRODUCING SECURITIES THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 33 FREMONT INTERNATIONAL SMALL CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- SHELTER (CONTINUED) 4,400 Kawasho Gecoss Corp. JP $ 19,024 11,000 Misawa Homes JP 42,163 6,000 Mitsui Wood Systems, Inc. JP 27,189 8,000 SXL Corp. JP 29,933 70,000 Bandar Raya Developments Berhad MY 30,630 1,127 Koninklijke BAM Groep NV NL 70,853 3,900 NBM-Amstelland NV NL 108,483 1,100 Volker Wessels Stevin NV NL 33,308 880 Sungwon Construction Co. SK 5,180 17,700 Ch. Karnchang Public Company Ltd. (Foreign Registered) TH 23,747 29,900 Persimmon PLC UK 106,203 ------------ 894,872 ------------ TECHNOLOGY 1.2% 400 Kiekert AG GM 16,737 * 42,000 Nippon Carbon Co. Ltd. JP 81,018 * 1,100 Alphatec Electronics Public Co. Ltd. (Foreign Registered) TH 553 ------------ 98,308 ------------ TRANSPORTATION 1.9% 1,000 Compagnie Maritime Belge SA BE 76,302 5,000 Nippon Konpo Unyu Soko JP 32,011 25,000 Hai Sun Hup Group Ltd. SG 11,108 37,000 Neptune Orient Lines Ltd. SG 22,310 * 2,000 Hanjin Shipping Co. SK 16,788 ------------ 158,519 ------------ UTILITIES 3.7% * 741 Ceske Energeticke Zavody AS CZ 23,512 * 322 SPT Telecom AS CZ 36,977 92,000 Pakistan Telecom Corp. (Class A) PK 75,576 1,200 Electricas Reunidas de Zaragoza SA SP 45,202 29,600 Jasmine International Public Co. Ltd. (Foreign Registered) TH 16,546 * 99,500 Thai Telephone & Communication Public Co. Ltd. (Foreign Registered) TH 20,271 32,300 United Communication Industry Public Co. Ltd. (Foreign Registered) TH 53,766 4,860 Wessex Water PLC UK 40,917 ------------ 312,767 ------------ TOTAL STOCKS (COST $9,959,931) 8,290,164 ------------ SHORT TERM SECURITIES 1.9% 157,222 Benchmark Diversified Assets Fund US $ 157,222 ------------ TOTAL SHORT TERM SECURITIES (COST $157,222) 157,222 ------------ TOTAL INVESTMENTS (COST $10,117,153), 99.0% 8,447,386 OTHER ASSETS AND LIABILITIES, NET, 1.0% 86,521 ------------ NET ASSETS, 100.0% $ 8,533,907 ------------ ------------ * NON-INCOME PRODUCING SECURITIES 34 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT EMERGING MARKETS FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS COUNTRY VALUE SHARES SECURITY DESCRIPTION CODE (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 78.4% CAPITAL GOODS 4.2% 107,000 Cheung Kong Infrastructure Holding Ltd. HK $ 276,844 22,000 Mahindra & Mahindra Ltd., GDR IN 231,000 ------------ 507,844 ------------ CONSUMER NON-DURABLES 3.6% 184,000 China Foods Holdings Ltd. HK 80,931 275,000 PT Daya Guna Samudera ID 354,716 ------------ 435,647 ------------ CONSUMER SERVICES 9.0% * 12,000 Danubius Hotel and Spa Co. HU 375,221 481,500 PT Sonas Topas Tourism ID 153,599 * 95,000 Corporacion Interamericana de Entretenimiento SA (Series B) MX 563,761 ------------ 1,092,581 ------------ ENERGY 5.7% 3,800 Lukoil Holding, ADR RU 323,238 38,000 Surgutneftegaz, ADR RU 376,325 ------------ 699,563 ------------ FINANCIAL SERVICES 9.8% 13,500 Banco de Galicia y Buenos Aires SA de CV, ADR AR 327,164 11,000 Banco Frances del Rio de la Plata SA, ADR AR 270,875 * 410,000 Regent Pacific Group Ltd. HK 133,926 * 15,800 Bank Handlowy W. Warszawie PO 212,178 * 177,100 ChinaTrust Commercial Bank TW 243,763 ------------ 1,187,906 ------------ HEALTH CARE 2.6% 13,900 Ranbaxy Laboratories Ltd., GDR IN 316,920 ------------ 316,920 ------------ MISCELLANEOUS 4.5% * 7,400 Polish National Investment Fund PO 276,040 * 30,500 Saudi Arabia Investment Fund SR 274,500 ------------ 550,540 ------------ MULTI-INDUSTRY 4.1% 57,000 ALFA SA de CV (Class A) MX 418,567 6,200 Sasol Ltd. SA 74,691 ------------ 493,258 ------------ RAW MATERIALS 9.2% * 18,500 Reliance Industries Ltd., GDR IN 388,500 35,000 Vitro SA, ADR MX 417,813 3,600,000 Aksa Akrilik Kimya Sanayii AS TU 308,824 ------------ 1,115,137 ------------ RETAIL 2.8% * 18,375 Amica Wronki SA PO 345,355 ------------ 345,355 ------------ SHELTER 0.7% 177,600 MBK Properties and Development Public Co. Ltd. (Foreign Shares) TH 65,083 * 18,250 Kingdom Construction Co. Ltd. TW 24,117 ------------ 89,200 ------------ TECHNOLOGY 3.3% * 770,000 Netas Northern Electric Telekomunikasyon A.S. TU 230,665 * 10,000 Asustek Computer, Inc. TW 125,363 * 700 Compal Electronics TW 1,595 * 10,800 Hon Hai Precision Industry TW 45,712 ------------ 403,335 ------------ TRANSPORTATION 0.6% * 170,000 China Southern Airlines Company Ltd. CH 75,324 ------------ 75,324 ------------ UTILITIES 18.3% 17,000 Centrais Electricas Brasileiras SA, ADR BR 370,083 1,366,000 Companhia de Saneamento Basico do Estado de Sao Paulo BR 241,605 5,000 Telecomunicacoes Brasileiras SA, ADR BR 507,500 1,580,504 Telecomunicacoes de Sao Paulo SA (Preferred) BR 421,468 7,200 Compania de Telecomunicaciones de Chile SA, ADR CL 199,800 7,500 Enersis SA, ADR CL 247,500 * 7,600 Unified Energy Systems, GDR RU 237,500 ------------ 2,225,456 ------------ TOTAL STOCKS (COST $10,933,797) 9,538,066 ------------ SHARES/FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY - ------------------------------------------------------------------------------- SHORT TERM SECURITIES 15.6% 103,472 Benchmark Diversified Assets Fund US 103,472 $1,800,000 Federal Home Loan Bank, AN, 5.550%, 11/03/97 US 1,799,445 ------------ TOTAL SHORT TERM SECURITIES (COST $1,902,917) 1,902,917 ------------ TOTAL INVESTMENTS (COST $12,836,714), 94.0% 11,440,983 OTHER ASSETS AND LIABILITIES, NET, 6.0% 734,490 ------------ NET ASSETS, 100.0% $ 12,175,473 ------------ ------------ * NON-INCOME PRODUCING SECURITIES THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 35 FREMONT U.S. MICRO-CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS VALUE SHARES SECURITY DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 91.1% BUSINESS EQUIPMENT & SERVICES 12.6% * 70,000 AmeriLink Corp. $ 1,837,500 * 190,500 Armor Holdings, Inc. 2,095,500 * 71,000 Diversified Corporate Resources, Inc. 639,000 * 177,900 First Aviation Services, Inc. 1,378,725 * 17,000 Hospitality Worldwide Services 197,625 * 119,400 International Total Services, Inc. 1,746,225 * 280,600 NuCO2, Inc. 3,647,800 * 47,800 Rental Service Corp. 1,278,650 * 455,500 Richey Electronics, Inc.(a) 4,441,125 * 8,700 RWD Technologies, Inc. 195,750 * 265,700 Specialty Teleconstructors, Inc. 4,217,987 ----------- 21,675,887 ----------- CAPITAL GOODS 9.8% * 229,000 Adept Technology, Inc. 3,120,125 * 146,250 AFC Cable Systems, Inc. 4,149,844 * 124,000 AVTEAM, Inc. 1,052,063 * 244,300 Channell Commercial Corp. 3,023,213 34,700 Furon Co. 1,322,938 * 102,100 Gradall Industries, Inc. 1,595,312 * 226,300 IMPCO Technologies, Inc. 2,517,588 ----------- 16,781,083 ----------- CONSUMER NON-DURABLES 2.1% * 38,000 Authentic Specialty Foods, Inc. 470,250 11,000 Culp, Inc. 209,000 * 119,600 Royal Appliance Manufacturing Co. 941,850 * 46,000 Tefron Ltd. 882,624 * 130,000 Toymax International, Inc. 1,170,000 ----------- 3,673,724 ----------- CONSUMER SERVICES 11.7% * 65,000 Cinar Films, Inc. (Class B) 2,526,875 * 165,000 Damark International, Inc. (Class A) 1,918,125 * 44,000 Family Golf Centers, Inc. 1,177,000 * 274,012 Saga Communications, Inc. (Class A) 5,548,743 * 111,000 Servico, Inc. 1,769,062 * 122,000 UOL Publishing, Inc. 2,623,000 * 369,000 Warrantech Corp. 4,428,000 ----------- 19,990,805 ----------- ENERGY 2.2% * 28,000 KTI, Inc. 406,000 * 80,000 Offshore Logistics, Inc. 1,680,000 38,100 RPC, Inc. 1,143,000 * 28,000 Willbros Group, Inc. 546,000 ----------- 3,775,000 ----------- FINANCIAL SERVICES 2.7% 33,100 PennFed Financial Services, Inc. 993,000 182,160 R&G Financial Corp. (Class B) 3,620,429 ----------- 4,613,429 ----------- HEALTH CARE 12.6% * 199,850 Advance Paradigm, Inc. $ 5,096,175 * 95,400 DAOU Systems, Inc. 2,516,175 * 230,700 Del Global Technologies Corp. 2,335,838 * 248,000 Genelabs Technologies, Inc. 961,000 * 73,000 Interpore International 684,375 * 59,000 Monarch Dental Corp. 1,069,375 * 25,500 Oacis Healthcare Holdings Corp. 146,625 * 66,600 Perclose, Inc. 1,631,700 * 86,000 PMR Corp. 1,978,000 * 37,400 ResMed, Inc. 1,047,200 * 102,600 Wesley Jessen VisionCare, Inc. 3,001,050 * 96,000 ZymeTx, Inc. 1,074,000 ----------- 21,541,513 ----------- MULTI-INDUSTRY 1.0% * 113,400 Metals USA, Inc. 1,672,650 ----------- 1,672,650 ----------- RAW MATERIALS 0.9% 155,600 Northern Technologies International 1,594,900 ----------- 1,594,900 ----------- RETAIL 6.8% * 59,000 Audio Book Club, Inc. 449,875 * 90,200 Cross-Continent Auto Retailers, Inc. 890,725 * 33,000 DM Management Co. 495,000 * 238,100 Garden Ridge Corp. 3,184,588 * 206,100 Genesco, Inc. 2,614,894 * 158,800 New West Eyeworks, Inc. 1,429,200 * 20,000 S & K Famous Brands, Inc. 275,000 * 81,000 Showbiz Pizza Time, Inc. 1,721,250 * 28,000 Star Buffet, Inc. 400,750 * 26,300 Successories, Inc. 175,881 ----------- 11,637,163 ----------- TECHNOLOGY (COMPONENTS) 8.6% * 394,300 Ceradyne, Inc. 2,020,788 * 320,200 Interlink Electronics, Inc.(a) 2,441,525 * 50,000 Micrel, Inc. 1,793,750 * 146,800 Orckit Communications Ltd. 2,605,700 * 64,900 PCD, Inc. 1,314,225 * 108,000 Pericom Semiconductor Corp. 985,500 * 160,900 Semiconductor Packaging Materials Co., Inc. 1,528,550 * 256,000 Southwall Technologies, Inc. 1,984,000 ----------- 14,674,038 ----------- TECHNOLOGY (EQUIPMENT) 4.4% * 143,000 Andrea Electronics Corp. 3,003,000 * 35,100 Innova Corp. 754,650 * 40,800 PRI Automation, Inc. 1,560,600 * 65,100 Schmitt Industries, Inc. 724,238 * 151,200 Thermedics Detection, Inc. 1,587,600 ----------- 7,630,088 ----------- * NON-INCOME PRODUCING SECURITIES (a) REPRESENTS OWNERSHIP OF AT LEAST 5% OF THE VOTING SECURITIES OF THE ISSUER AND IS, THEREFORE, AN AFFILIATE AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940; SEE NOTE 2 OF "NOTES TO FINANCIAL STATEMENTS. 36 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT U.S. MICRO-CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- VALUE SHARES SECURITY DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- TECHNOLOGY (SOFTWARE) 14.8% * 176,600 Credit Management Solutions, Inc. $ 2,538,624 * 244,700 Geoworks Corp. 3,119,925 * 314,800 ISG International Software Group Ltd. 3,935,000 * 317,700 MDSI Mobile Data Solutions, Inc. 5,480,325 * 164,500 OrCAD, Inc. 1,449,656 * 357,000 Peerless Systems Corp. 4,641,000 * 129,900 Template Software, Inc. 1,396,425 * 681,400 V-One Corp.(a) 2,725,600 ----------- 25,286,555 ----------- TRANSPORTATION 0.9% * 120,000 Smithway Motor Express Corp. (Class A) 1,620,000 ----------- 1,620,000 ----------- TOTAL STOCKS (COST $144,555,136) 156,166,835 ----------- FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY - -------------------------------------------------------------------------------- SHORT TERM SECURITIES 9.3% **$5,000,000 Allianz of America Finance Corp., CP, 5.770%, 11/03/97 4,998,397 6,000,000 Caisse d'Amortissement de la Dette Sociale, CP, 5.750%, 11/03/97 5,998,083 5,000,000 Unilever Capital Corp., CP, 5.680%, 11/03/97 4,998,422 ----------- TOTAL SHORT TERM SECURITIES (COST $15,994,902) 15,994,902 ----------- TOTAL INVESTMENTS (COST $160,550,038), 100.4% 172,161,737 OTHER ASSETS AND LIABILITIES, NET, (0.4)% (654,683) ----------- NET ASSETS, 100.0% $171,507,054 ----------- ----------- * NON-INCOME PRODUCING SECURITIES ** THESE SECURITIES ARE GENERALLY ISSUED TO INSTITUTIONAL INVESTORS. ANY RESALE MUST BE IN AN EXEMPT TRANSACTION PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933. (a)REPRESENTS OWNERSHIP OF AT LEAST 5% OF THE VOTING SECURITIES OF THE ISSUER AND IS, THEREFORE, AN AFFILIATE AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940; SEE NOTE 2 OF "NOTES TO FINANCIAL STATEMENTS." THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 37 FREMONT U.S. SMALL CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS VALUE SHARES SECURITY DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 82.2% BUSINESS EQUIPMENT & SERVICES 11.6% * 1,300 CSG Systems International, Inc. $ 50,944 * 4,500 National Data Corp. 166,219 * 8,000 NuCO2, Inc. 104,000 * 5,000 Philip Services Corp. 87,500 * 3,300 Rental Service Corp. 88,275 * 4,500 Superior Services, Inc. 120,375 ----------- 617,313 ----------- CAPITAL GOODS 4.5% * 9,000 Channell Commercial Corp. 111,375 * 1,800 Ionics, Inc. 68,963 * 3,000 Willbros Group, Inc. 58,500 ----------- 238,838 ----------- CONSUMER NON-DURABLES 2.4% * 4,000 Chicago Miniature Lamp, Inc. 128,000 ----------- 128,000 ----------- CONSUMER SERVICES 4.9% * 1,900 Cinar Films, Inc. (Class B) 73,862 * 3,500 Coach USA, Inc. 104,125 * 5,400 Servico, Inc. 86,063 ----------- 264,050 ----------- ENERGY 2.0% 3,000 McDermott International, Inc. 108,937 ----------- 108,937 ----------- FINANCIAL SERVICES 2.7% 2,200 Executive Risk, Inc. 144,925 ----------- 144,925 ----------- HEALTH CARE 11.8% * 5,400 Henry Schein, Inc. 177,525 4,000 Jones Medical Industries, Inc. 120,500 * 3,500 NCS HealthCare, Inc. (Class A) 81,813 * 8,500 Orthodontic Centers of America, Inc. 147,156 * 3,500 Wesley Jessen VisionCare, Inc. 102,375 ----------- 629,369 ----------- RETAIL 5.7% * 3,500 Outback Steakhouse, Inc. 94,719 * 5,000 Showbiz Pizza Time, Inc. 106,250 * 4,000 The Dress Barn, Inc. 101,500 ----------- 302,469 ----------- TECHNOLOGY (COMPONENTS) 15.8% * 6,000 HMT Technology Corp. $ 101,250 4,500 Level One Communications, Inc. 202,500 * 3,000 Micrel, Inc. 107,625 * 5,300 MMC Networks, Inc. 115,938 * 7,000 PMC-Sierra, Inc. 184,625 * 4,000 Sawtek, Inc. 136,000 ----------- 847,938 ----------- TECHNOLOGY (EQUIPMENT) 11.2% * 3,000 Andrea Electronics Corp. 63,000 * 5,500 Electromagnetic Sciences, Inc. 104,156 * 3,200 Innova Corp. 68,800 * 3,100 Integrated Process Equipment Corp. 68,781 * 6,000 P-COM, Inc. 120,750 * 3,200 PRI Automation, Inc. 122,400 * 1,400 Speedfam International, Inc. 51,975 ----------- 599,862 ----------- TECHNOLOGY (SOFTWARE) 9.6% * 4,500 Avant! Corp. 118,125 * 9,600 Geoworks Corp. 122,400 * 10,200 ISG International Software Group Ltd. 127,500 * 5,000 OrCAD, Inc. 44,062 * 8,000 Peerless Systems Corp. 104,000 ----------- 516,087 ----------- TOTAL STOCKS (COST $4,644,627) 4,397,788 ----------- SHARES/FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY - -------------------------------------------------------------------------------- SHORT TERM SECURITIES 30.5% 33,148 Benchmark Diversified Assets Fund 33,148 $1,600,000 Federal Home Loan Bank, AN, 5.550%, 11/03/97 1,599,507 ----------- TOTAL SHORT TERM SECURITIES (COST $1,632,655) 1,632,655 ----------- TOTAL INVESTMENTS (COST $6,277,282), 112.7% 6,030,443 OTHER ASSETS AND LIABILITIES, NET, (12.7)% (680,420) ----------- NET ASSETS, 100.0% $ 5,350,023 ----------- ----------- * NON-INCOME PRODUCING SECURITIES 38 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT GROWTH FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS VALUE SHARES SECURITY DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 95.3% BUSINESS EQUIPMENT & SERVICES 0.9% * 19,400 American Business Information, Inc. (Class B) $ 252,200 45,600 Waste Management, Inc. 1,065,900 ----------- 1,318,100 ----------- CAPITAL GOODS 3.7% 22,600 Caterpillar, Inc. 1,158,250 25,400 Emerson Electric Co. 1,331,913 21,300 Hughes Supply, Inc. 742,838 26,200 PACCAR, Inc. 1,180,638 12,500 W.W. Grainger, Inc. 1,092,969 ----------- 5,506,608 ----------- CONSUMER DURABLES 3.4% 34,000 Ford Motor Co. 1,485,375 25,400 General Motors Corp. 1,630,363 23,100 Goodyear Tire & Rubber Co. 1,446,637 26,400 Sturm, Ruger & Co., Inc. 496,650 ----------- 5,059,025 ----------- CONSUMER NON-DURABLES 1.4% 14,900 Campbell Soup Co. 768,281 * 10,200 Owens-Illinois, Inc. 351,900 18,000 Quaker Oats Co. 861,750 ----------- 1,981,931 ----------- CONSUMER SERVICES 4.9% 28,900 Disney (Walt) Co. 2,377,025 24,200 Gannett Co., Inc. 1,272,013 * 17,400 ITT Corp. 1,299,563 18,100 The Times Mirror Co. (Class A) 979,662 23,200 Tribune Co. 1,278,900 ----------- 7,207,163 ----------- ENERGY 17.4% 20,900 Amoco Corp. 1,916,269 15,900 Atlantic Richfield Co. 1,308,769 18,800 Chesapeake Energy Corp. 184,475 32,000 Chevron Corp. 2,654,000 17,200 Devon Energy Corp. 769,700 7,600 ENSCO International, Inc. 319,675 61,400 Exxon Corp. 3,772,262 * 8,400 Falcon Drilling Company, Inc. 305,550 19,200 Kerr-McGee Corp. 1,297,200 36,800 Mobil Corp. 2,679,500 43,800 Occidental Petroleum Corp. 1,220,925 * 21,500 Oryx Energy Co. 592,594 21,600 Phillips Petroleum Co. 1,044,900 * 47,900 Santa Fe Energy Resources, Inc. 625,694 12,000 Schlumberger Ltd. 1,050,000 26,900 Tenneco, Inc. 1,208,819 34,200 Texaco, Inc. 1,947,262 9,200 Tidewater, Inc. 604,325 * 8,400 Ulster Petroleums Ltd. 83,478 22,800 Unocal Corp. 940,500 32,100 USX-Marathon Group 1,147,575 ----------- 25,673,472 ----------- FINANCIAL SERVICES (BANKS) 12.8% 24,800 Ahmanson (H.F.) & Co. $ 1,463,200 19,700 Banc One Corp. 1,026,862 24,800 BankAmerica Corp. 1,773,200 10,000 Bankers Trust New York Corp. 1,180,000 15,700 Citicorp 1,963,481 16,700 First Chicago NBD Corp. 1,214,925 32,100 First Hawaiian, Inc. 1,251,900 22,000 First Union Corp. 1,079,375 22,800 Mellon Bank Corp. 1,175,625 8,100 Morgan (J.P.) & Co., Inc. 888,975 24,600 NationsBank Corp. 1,472,925 36,800 Norwest Corp. 1,179,900 12,800 Republic New York Corp. 1,354,400 22,600 Suntrust Banks, Inc. 1,464,763 8,900 Zions Bancorporation 345,988 ----------- 18,835,519 ----------- FINANCIAL SERVICES (OTHER) 9.2% 23,100 Allstate Corp. 1,915,856 29,775 American General Corp. 1,518,525 16,200 Chubb Corp. 1,073,250 7,100 CMAC Investment Corp. 388,281 40,700 Federal Home Loan Mortgage Corp. 1,541,512 8,100 General Re Corp. 1,597,219 7,300 Horace Mann Educators Corp. 410,625 * 12,000 Imperial Credit Industries, Inc. 301,500 14,600 Mercury General Corp. 619,588 27,200 Morgan Stanley, Dean Witter, Discover and Co. 1,332,800 23,000 TIG Holdings, Inc. 779,125 29,300 Travelers Group, Inc. 2,051,000 ----------- 13,529,281 ----------- HEALTH CARE 3.4% 15,200 Aetna, Inc. 1,080,150 18,400 Baxter International, Inc. 851,000 * 9,600 Biogen, Inc. 321,600 38,300 Columbia HCA Healthcare Corp. 1,081,975 * 5,500 HealthCare COMPARE Corp. 295,625 * 21,700 Marquette Medical Systems, Inc. 558,775 7,000 Medtronic, Inc. 304,500 * 31,400 Pharmaceutical Product Development, Inc. 557,350 ----------- 5,050,975 ----------- MULTI-INDUSTRY 1.2% 7,500 Minnesota Mining & Manufacturing Co. 686,250 19,400 TRW, Inc. 1,110,650 ----------- 1,796,900 ----------- RAW MATERIALS 4.0% 19,100 Aluminum Co. of America 1,394,300 * 7,800 Buckeye Cellulose Corp. 323,700 40,700 Calgon Carbon Corp. 480,769 15,700 Dow Chemical Co. 1,424,775 60,100 Engelhard Corp. 1,044,238 26,000 Goodrich (B.F.) Co. 1,158,625 ----------- 5,826,407 ----------- * NON-INCOME PRODUCING SECURITIES THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 39 FREMONT GROWTH FUND October 31, 1997 - -------------------------------------------------------------------------------- VALUE SHARES SECURITY DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- RETAIL 4.3% * 10,000 Consolidated Stores Corp. $ 398,750 * 30,700 Federated Department Stores, Inc. 1,350,800 16,200 Hannaford Brothers Co. 612,563 28,700 Penney (J.C.), Inc. 1,684,331 20,750 Pier 1 Imports, Inc. 378,688 27,400 Sears, Roebuck and Co. 1,147,375 * 24,600 Toys 'R' Us, Inc. 837,938 ----------- 6,410,445 ----------- SHELTER 1.4% 16,400 Armstrong World Industries, Inc. 1,091,625 19,400 Kimberly-Clark Corp. 1,007,588 ----------- 2,099,213 ----------- TECHNOLOGY 11.0% 31,100 AMP, Inc. 1,399,500 * 4,100 Applied Materials, Inc. 136,837 36,300 Boeing Co. 1,737,863 41,300 Hewlett-Packard Co. 2,547,694 35,600 International Business Machines Corp. 3,491,025 * 19,900 Iomega Corp. 533,569 * 18,700 Komag, Inc. 323,744 27,800 Motorola, Inc. 1,716,650 * 8,400 Storage Technology Corp. 492,975 5,300 Thiokol Corp. 485,281 * 30,000 Ultratech Stepper, Inc. 817,500 11,500 United Technologies Corp. 805,000 15,300 Xerox Corp. 1,213,481 * 15,600 Xilinx, Inc. 532,350 ----------- 16,233,469 ----------- TRANSPORTATION 2.9% * 16,300 AMR Corp. 1,897,931 14,600 Burlington Northern Sante Fe 1,387,000 17,000 Union Pacific Corp. 1,041,250 ----------- 4,326,181 ----------- UTILITIES 13.4% * 85,300 AirTouch Communications, Inc. 3,294,713 40,600 AT&T Corp. 1,986,863 40,824 Bell Atlantic Corp. 3,260,817 39,600 BellSouth Corp. 1,873,574 20,000 Coastal Corp. 1,202,500 48,300 Entergy Corp. 1,180,330 39,900 GPU, Inc. 1,443,880 51,500 PG&E Corp. 1,316,468 28,300 Texas Utilities Co. 1,015,262 54,000 Unicom Corp. 1,512,000 * 51,000 WorldCom, Inc. 1,714,874 ----------- 19,801,281 ----------- TOTAL STOCKS (COST $116,954,511) 140,655,970 ----------- SHORT TERM SECURITIES 4.3% 238,048 Benchmark Diversified Assets Fund $ 238,048 $5,900,000 Caisse d'Amortissement de la Dette Sociale, CP, 5.750%, 11/03/97 5,898,115 + 20,000 U.S. Treasury Bill, 4.440%, 12/18/97 19,884 + 170,000 U.S. Treasury Bill, 4.925%, 12/18/97 168,895 ----------- TOTAL SHORT TERM SECURITIES (COST $6,324,942) 6,324,942 ----------- TOTAL INVESTMENTS (COST $123,279,453), 99.6% 146,980,912 OTHER ASSETS AND LIABILITIES, NET, 0.4% 660,497 ----------- NET ASSETS, 100.0% $147,641,409 ----------- ----------- * NON-INCOME PRODUCING SECURITIES + ON DEPOSIT WITH BROKER FOR INITIAL MARGIN ON FUTURES CONTRACTS (NOTE 1). 40 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT BOND FUND October 31, 1997
- ------------------------------------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS COUPON MATURITY VALUE FACE AMOUNT ISSUER RATE DATE (NOTE 1) - ------------------------------------------------------------------------------------------------------------- BONDS 89.6% FIXED RATE AND ADJUSTABLE RATE MORTGAGE SECURITIES 41.9% $ 425,115 FHLMC. . . . . . . . . . . . . . . . . . . . . . .6.500% 01/01/26 $ 419,138 191,502 FHLMC. . . . . . . . . . . . . . . . . . . . . . .6.500% 03/01/26 188,809 231,493 FHLMC. . . . . . . . . . . . . . . . . . . . . . .6.500% 04/01/26 228,238 278,283 FHLMC. . . . . . . . . . . . . . . . . . . . . . .6.500% 04/01/26 274,371 547,262 FHLMC. . . . . . . . . . . . . . . . . . . . . . .6.500% 04/01/26 539,568 200,621 FHLMC. . . . . . . . . . . . . . . . . . . . . . .6.500% 05/01/26 197,801 547,279 FHLMC. . . . . . . . . . . . . . . . . . . . . . .8.250% 08/01/17 575,896 4,000,000 FHLMC Gold TBA . . . . . . . . . . . . . . . . . .6.500% 12/11/27 3,932,500 796,360 FNMA ARM . . . . . . . . . . . . . . . . . . . . .7.974% 11/01/23 834,689 640,855 FNMA . . . . . . . . . . . . . . . . . . . . . . .8.500% 05/01/25 671,892 1,818,486 GNMA . . . . . . . . . . . . . . . . . . . . . . .6.000% 01/15/24 1,754,275 4,173,004 GNMA . . . . . . . . . . . . . . . . . . . . . . .6.000% 01/15/24 4,025,655 44,992 GNMA . . . . . . . . . . . . . . . . . . . . . . .6.500% 02/15/24 44,458 906,044 GNMA . . . . . . . . . . . . . . . . . . . . . . .6.500% 03/15/24 895,285 38,964 GNMA . . . . . . . . . . . . . . . . . . . . . . .6.500% 06/15/24 38,501 5,000,000 GNMA I TBA . . . . . . . . . . . . . . . . . . . .8.000% 11/19/27 5,189,844 3,500,000 GNMA I TBA . . . . . . . . . . . . . . . . . . . .8.500% 11/19/27 3,670,625 2,925,582 GNMA II ARM. . . . . . . . . . . . . . . . . . . .6.000% 11/20/26 2,989,286 2,531,543 GNMA II ARM. . . . . . . . . . . . . . . . . . . .6.500% 10/20/25 2,606,849 344,233 GNMA II ARM. . . . . . . . . . . . . . . . . . . .6.875% 11/20/24 353,292 1,444,042 GNMA II ARM. . . . . . . . . . . . . . . . . . . .7.000% 03/20/24 1,486,085 3,693,808 GNMA II ARM. . . . . . . . . . . . . . . . . . . .7.000% 08/20/25 3,786,090 3,038,071 GNMA II ARM. . . . . . . . . . . . . . . . . . . .7.125% 08/20/23 3,129,543 ----------- 37,832,690 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS 26.6% 542,470 Collateralized Mortgage Securities Corp. CMO, J-5Z, REMIC . . . . . . . . . . . . . . . .7.985% 05/01/17 553,525 1,620,541 FHLMC CMO, 1018 0Z, PAC-1 (11) REMIC . . . . . . .7.000% 11/15/20 1,641,950 211,951 FNMA CMO, 1990-53G, PAC REMIC. . . . . . . . . . .8.000% 12/25/18 212,877 15,000,000 FNMA CMO, 1992-131KA, PAC(11) REMIC. . . . . . . .8.000% 01/25/22 16,204,650 200,000 FNMA CMO, 1993-11J, PAC REMIC. . . . . . . . . . .7.500% 02/25/08 210,932 1,000,000 Morgan Stanley Mortgage Trust CMO, 40-8, PAC (11) REMIC . . . . . . . . . . . . . . . . .7.000% 07/20/21 1,011,596 236,725 Resolution Trust Corp. CMO, 1992-M4 A1 REMIC . . .8.000% 09/25/21 238,242 621,501 Ryland Mortgage Securities Corp. CMO, 1993-8-A, REMIC. . . . . . . . . . . . . . . . .8.082% 09/25/23 636,456 339,404 Saxon Mortgage Securities Corp. CMO, 1992-1 A1, ARM REMIC. . . . . . . . . . . . . . . . . . . .8.056% 09/25/22 347,889 3,000,000 Securitized Asset Sales, lnc. CMO, 1993-2A9, PAC (11) REMIC . . . . . . . . . . . . . . . . .6.200% 07/25/08 2,972,790 ------------ 24,030,907 ------------ CORPORATE BONDS 14.0% ** 829,000 Delta Air Lines, Inc. (Sinking Fund Bond). . . . .9.450% 02/14/06 938,320 ** 1,667,000 Delta Air Lines, Inc. (Sinking Fund Bond). . . . .9.450% 02/26/06 1,863,206 2,000,000 Imperial Chemical PLC (callable 09-05-98 @ 100). .5.781% 12/05/98 1,958,600 3,000,000 Salomon, Inc., FRN . . . . . . . . . . . . . . . .5.799% 08/04/98 2,999,808 500,000 Salomon, Inc.. . . . . . . . . . . . . . . . . . .6.625% 02/17/98 500,700 2,000,000 Time Warner, Inc.. . . . . . . . . . . . . . . . .7.450% 02/01/98 2,005,700 225,000 Time Warner, Inc.. . . . . . . . . . . . . . . . .7.975% 08/15/04 238,815 450,000 Time Warner, Inc.. . . . . . . . . . . . . . . . .8.110% 08/15/06 484,439 450,000 Time Warner, Inc.. . . . . . . . . . . . . . . . .8.180% 08/15/07 491,769 1,000,000 United Airlines. . . . . . . . . . . . . . . . . 10.670% 05/01/04 1,191,308 ----------- 12,672,665 ----------- FOREIGN BONDS 3.9% NZ$ 1,500,000 Government of New Zealand. . . . . . . . . . . . .8.000% 04/15/04 997,471 NZ$ 1,300,000 Government of New Zealand. . . . . . . . . . . . 10.000% 03/15/02 906,142 US$ 1,920,000 Republic of Argentina, FRN (Callable Semiannually in March or September @ 100) . . . . . . . . . . . . . . . .6.688% 03/31/05 1,636,800 ----------- 3,540,413 -----------
** THESE SECURITIES ARE GENERALLY ISSUED TO INSTITUTIONAL INVESTORS. ANY RESALE MUST BE IN AN EXEMPT TRANSACTION PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 41 FREMONT BOND FUND October 31, 1997
- ------------------------------------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS SHARES/ COUPON MATURITY VALUE FACE AMOUNT ISSUER RATE DATE (NOTE 1) - ------------------------------------------------------------------------------------------------------------- STRIPPED MORTGAGE SECURITIES 0.1% $ 1,987,564 FNMA Interest Only, 1994-27WB, PAC-1 REMIC. . . . . . .6.500% 06/25/14 $ 70,199 1,536 FNMA Principal Only, G93-12B, PAC (11) REMIC. . . . . .0.000% 02/25/23 1,528 ----------- 71,727 ----------- U.S. GOVERNMENT BONDS 3.1% 2,750,000 U.S. Treasury Bond. . . . . . . . . . . . . . . . . . .6.250% 08/15/23 2,759,872 ----------- 2,759,872 ----------- TOTAL BONDS (COST $78,319,624) 80,908,274 ----------- OTHER SECURITIES 0.6% 20,000 Long Island Lighting Co. (Convertible Preferred Stock). 499,375 ----------- 499,375 ----------- TOTAL OTHER SECURITIES (COST $486,000) 499,375 -----------
- ------------------------------------------------------------------------------------------------------------- DISCOUNT SHARES/FACE AMOUNT ISSUER RATE - ------------------------------------------------------------------------------------------------------------- SHORT TERM SECURITIES 22.9% 787,174 Benchmark Diversified Assets Fund . . . . . . . . . . . 787,174 $ 600,000 Du Pont (E.I.) de Nemours & Co.,CP. . . . . . . . . . .5.500% 11/24/97 597,892 #2,000,000 FHLMC, AN . . . . . . . . . . . . . . . . . . . . . . .5.950% 06/19/98 1,999,395 1,800,000 FHLMC, DN . . . . . . . . . . . . . . . . . . . . . . .5.500% 12/17/97 1,787,350 2,300,000 International Business Machines Credit Corp.,CP . . . .5.500% 11/19/97 2,293,675 1,800,000 KFW International Finance, CP . . . . . . . . . . . . .5.500% 12/15/97 1,787,900 3,500,000 National Rural Utilities Cooperative Finance Corp.,CP .5.490% 11/14/97 3,493,061 300,000 Procter & Gamble, CP. . . . . . . . . . . . . . . . . .5.500% 12/22/97 297,663 1,100,000 Procter & Gamble, CP. . . . . . . . . . . . . . . . . .5.520% 11/18/97 1,097,133 1,400,000 Queensland Treasury Corp., CP . . . . . . . . . . . . .5.520% 11/03/97 1,399,571 1,100,000 Sweden, Kingdom of, CP. . . . . . . . . . . . . . . . .5.480% 11/25/97 1,095,981 **2,000,000 Tampa Electric Company, CP. . . . . . . . . . . . . . .5.500% 11/19/97 1,994,500 1,800,000 Wisconsin Electric Power Co., CP. . . . . . . . . . . .5.500% 11/06/97 1,798,625 + 100,000 U.S. Treasury Bill. . . . . . . . . . . . . . . . . . .4.940% 02/05/98 98,683 + 185,000 U.S. Treasury Bill. . . . . . . . . . . . . . . . . . .5.020% 02/05/98 182,522 ----------- TOTAL SHORT TERM SECURITIES (COST $20,711,125) 20,711,125 ----------- TOTAL INVESTMENTS (COST $99,516,749), 113.1% 102,118,774 OTHER ASSETS AND LIABILITIES, NET, (13.1)% (11,816,809) ----------- NET ASSETS, 100.0% $90,301,965 ----------- -----------
** THESE SECURITIES ARE GENERALLY ISSUED TO INSTITUTIONAL INVESTORS. ANY RESALE MUST BE IN AN EXEMPT TRANSACTION PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933. # THE RATE INDICATED FOR THESE SECURITIES IS THE STATED COUPON RATE. + ON DEPOSIT WITH BROKER FOR INITIAL MARGIN ON FUTURES CONTRACTS (NOTE 1). 42 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT MONEY MARKET FUND October 31, 1997
- ------------------------------------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS DISCOUNT MATURITY VALUE FACE AMOUNT ISSUER RATE DATE (NOTE 1) - ------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER 84.8% $ 5,000,000 A.I. Credit Corp. . . . . . . . . . . . . . . . . . . .5.480% 01/06/98 $ 4,949,767 5,000,000 Abbey National North America Corp.. . . . . . . . . . .5.540% 01/14/98 4,943,061 5,000,000 Abbott Laboratories . . . . . . . . . . . . . . . . . .5.480% 12/31/97 4,954,333 5,000,000 Air Products and Chemicals, Inc.. . . . . . . . . . . .5.520% 11/10/97 4,993,100 5,000,000 Akzo Nobel, Inc.. . . . . . . . . . . . . . . . . . . .5.500% 12/01/97 4,977,083 **5,000,000 Allianz of America Finance Corp.. . . . . . . . . . . .5.520% 12/10/97 4,970,100 5,000,000 American Express Credit Corp. . . . . . . . . . . . . .5.500% 12/22/97 4,961,042 5,000,000 American General Finance Corp.. . . . . . . . . . . . .5.510% 11/20/97 4,985,460 5,000,000 Ameritech Capital Funding . . . . . . . . . . . . . . .5.500% 12/18/97 4,964,097 5,000,000 Archer Daniels Midland Co.. . . . . . . . . . . . . . .5.520% 12/18/97 4,963,967 5,000,000 Associates Corp. of North America . . . . . . . . . . .5.510% 11/18/97 4,986,990 5,000,000 AT&T Corp.. . . . . . . . . . . . . . . . . . . . . . .5.470% 02/13/98 4,920,989 5,000,000 B.B.V. Finance (Delaware), Inc. . . . . . . . . . . . .5.500% 11/05/97 4,996,944 **5,000,000 Banc One Corp.. . . . . . . . . . . . . . . . . . . . .5.540% 12/15/97 4,966,144 5,000,000 Bell Atlantic Financial Corp. . . . . . . . . . . . . .5.480% 11/24/97 4,982,494 5,000,000 Boral Industries, Inc.. . . . . . . . . . . . . . . . .5.510% 11/17/97 4,987,756 5,000,000 British Columbia, Province of . . . . . . . . . . . . .5.470% 11/25/97 4,981,767 **1,780,000 BTR Dunlop Finance, Inc.. . . . . . . . . . . . . . . .5.570% 12/02/97 1,771,462 **3,220,000 BTR Dunlop Finance, Inc.. . . . . . . . . . . . . . . .5.550% 12/04/97 3,203,618 5,000,000 C.I.T. Group Holdings, Inc. . . . . . . . . . . . . . .5.530% 03/20/98 4,893,240 5,000,000 Caisse d'Amortissement de la Dette Sociale. . . . . . .5.480% 12/19/97 4,963,467 5,000,000 Canadian Wheat Board. . . . . . . . . . . . . . . . . .5.460% 11/20/97 4,985,592 **5,000,000 Cargill Financial Services Corp.. . . . . . . . . . . .5.500% 03/11/98 4,900,694 5,000,000 Chevron UK Investment PLC . . . . . . . . . . . . . . .5.510% 11/21/97 4,984,694 **5,000,000 China Light & Power Company Ltd.. . . . . . . . . . . .5.550% 11/06/97 4,996,146 5,000,000 Columbia University, Trustees of. . . . . . . . . . . .5.540% 02/18/98 4,916,131 5,000,000 Consolidation Coal Co.. . . . . . . . . . . . . . . . .5.520% 11/20/97 4,985,433 5,000,000 Deutsche Bank Financial, Inc. . . . . . . . . . . . . .5.500% 11/10/97 4,993,125 5,000,000 Disney (Walt) Co. . . . . . . . . . . . . . . . . . . .5.500% 12/22/97 4,961,042 5,000,000 Eastman Kodak . . . . . . . . . . . . . . . . . . . . .5.600% 11/20/97 4,985,222 5,000,000 Electricite de France . . . . . . . . . . . . . . . . .5.460% 11/17/97 4,987,867 5,000,000 Electricity Corp. of New Zealand Ltd. . . . . . . . . .5.530% 02/11/98 4,921,658 5,000,000 Ford Motor Credit Corp. . . . . . . . . . . . . . . . .5.500% 11/06/97 4,996,181 5,000,000 General Electric Capital Corp.. . . . . . . . . . . . .5.550% 02/09/98 4,922,917 5,000,000 Golden Peanut Co. . . . . . . . . . . . . . . . . . . .5.510% 11/21/97 4,984,694 5,000,000 Goldman Sachs & Co. . . . . . . . . . . . . . . . . . .5.680% 11/14/97 4,989,744 **5,000,000 Guinness PLC. . . . . . . . . . . . . . . . . . . . . .5.510% 12/11/97 4,969,389 **5,000,000 Hancock, John Capital Corp. . . . . . . . . . . . . . .5.480% 11/07/97 4,995,433 5,000,000 Heinz (H.J.) & Co.. . . . . . . . . . . . . . . . . . .5.520% 12/05/97 4,973,933 5,000,000 Hitachi America Ltd.. . . . . . . . . . . . . . . . . .5.540% 01/20/98 4,938,444 5,000,000 International Business Machines Credit Corp.. . . . . .5.480% 11/18/97 4,987,061 5,000,000 John Deere Capital Corp.. . . . . . . . . . . . . . . .5.480% 11/12/97 4,991,628 5,000,000 Lucent Technologies, Inc. . . . . . . . . . . . . . . .5.470% 11/04/97 4,997,721 5,000,000 McCormick & Co. Inc.. . . . . . . . . . . . . . . . . .5.490% 11/07/97 4,995,425 5,000,000 MEC Finance USA, Inc. . . . . . . . . . . . . . . . . .5.550% 11/07/97 4,995,375 5,000,000 Merrill Lynch & Co., Inc. . . . . . . . . . . . . . . .5.590% 04/06/98 4,878,883 5,000,000 MetLife Funding, Inc. . . . . . . . . . . . . . . . . .5.540% 11/21/97 4,984,611 5,000,000 Mitsubishi Electric Finance America, Inc. . . . . . . .5.580% 01/14/98 4,942,650 5,000,000 Mitsubishi International Corp.. . . . . . . . . . . . .5.500% 11/04/97 4,997,708 5,000,000 Mitsui & Co. (U.S.A.), Inc. . . . . . . . . . . . . . .5.560% 01/09/98 4,946,717 5,000,000 Morgan (J.P.) & Co., Inc. . . . . . . . . . . . . . . .5.660% 11/25/97 4,981,133 5,000,000 Novartis Finance Corp.. . . . . . . . . . . . . . . . .5.500% 11/10/97 4,993,125 5,000,000 PACCAR Financial Corp.. . . . . . . . . . . . . . . . .5.500% 11/21/97 4,984,722 **5,000,000 Panasonic Finance, Inc. . . . . . . . . . . . . . . . .5.550% 03/06/98 4,903,646 5,000,000 Penney (J.C.) Funding Corp. . . . . . . . . . . . . . .5.500% 12/04/97 4,974,792 **5,000,000 Queen's Health Systems. . . . . . . . . . . . . . . . .5.550% 02/12/98 4,920,604 5,000,000 Rabobank Nederland. . . . . . . . . . . . . . . . . . .5.500% 11/03/97 4,998,472 **5,000,000 Rexam PLC . . . . . . . . . . . . . . . . . . . . . . .5.510% 11/19/97 4,986,225
** THESE SECURITIES ARE GENERALLY ISSUED TO INSTITUTIONAL INVESTORS. ANY RESALE MUST BE IN AN EXEMPT TRANSACTION PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 43 FREMONT MONEY MARKET FUND October 31, 1997
- ------------------------------------------------------------------------------------------------------------- DISCOUNT MATURITY VALUE FACE AMOUNT ISSUER RATE DATE (NOTE 1) - ------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (CONTINUED) $ 5,000,000 Sharp Electronics Corp. . . . . . . . . . . . . . . . .5.620% 12/19/97 $ 4,962,533 5,000,000 Sonoco Products Co. . . . . . . . . . . . . . . . . . .5.500% 01/06/98 4,949,583 **5,000,000 Sony Capital Corp.. . . . . . . . . . . . . . . . . . .5.500% 11/03/97 4,998,472 **5,000,000 Southern Co.. . . . . . . . . . . . . . . . . . . . . .5.500% 12/16/97 4,965,625 **5,000,000 St. Paul Cos., Inc. . . . . . . . . . . . . . . . . . .5.480% 12/18/97 4,964,228 5,000,000 Stanford, Leland Junior University. . . . . . . . . . .5.480% 04/07/98 4,880,506 5,000,000 Sweden, Kingdom of. . . . . . . . . . . . . . . . . . .5.550% 04/02/98 4,882,833 5,000,000 Swedish Export Credit Corp. . . . . . . . . . . . . . .5.530% 01/07/98 4,948,540 5,000,000 Swiss Re Financial Products . . . . . . . . . . . . . .5.550% 01/27/98 4,932,938 5,000,000 Toronto Dominion Holdings USA, Inc. . . . . . . . . . .5.500% 11/13/97 4,990,833 5,000,000 Toshiba International Finance PLC (UK). . . . . . . . .5.530% 11/26/97 4,980,799 5,000,000 Toyota Motor Credit Corp. . . . . . . . . . . . . . . .5.480% 11/14/97 4,990,106 5,000,000 Unilever Capital Corp.. . . . . . . . . . . . . . . . .5.680% 11/03/97 4,998,422 5,000,000 USAA Capital Corp.. . . . . . . . . . . . . . . . . . .5.540% 03/18/98 4,894,586 5,000,000 Wool International. . . . . . . . . . . . . . . . . . .5.480% 02/10/98 4,923,128 5,000,000 Xerox Corp. . . . . . . . . . . . . . . . . . . . . . .5.500% 12/10/97 4,970,207 5,000,000 Yale University . . . . . . . . . . . . . . . . . . . .5.550% 01/15/98 4,942,187 ----------- TOTAL COMMERCIAL PAPER (COST $367,341,244) 367,341,244 -----------
- ------------------------------------------------------------------------------------------------------------- COUPON SHARES/FACE AMOUNT ISSUER RATE - ------------------------------------------------------------------------------------------------------------- OTHER SHORT TERM SECURITIES 15.1% 484,824 Benchmark Diversified Assets Fund . . . . . . . . . . . . . . .. . . . . . . . . . 484,824 $ 5,000,000 Bayerische Landesbank Girozentrale, Eurodollar Note . .7.750% 12/19/97 5,012,100 5,000,000 Bayerische Vereinsbank Aktiengesellschaft, YCD. . . . .5.820% 11/12/97 5,000,046 5,000,000 Berliner Handels-und Frankfurt Bank, Eurodollar TD. . .5.875% 11/24/97 5,000,000 5,000,000 Federal Farm Credit Banks Funding Corp., AN . . . . . .5.900% 04/01/98 4,994,527 10,000,000 Federal Home Loan Bank, AN. . . . . . . . . . . . . . .5.805% 08/20/98 9,998,126 10,000,000 Federal Home Loan Bank, AN. . . . . . . . . . . . . . .5.893% 10/02/98 10,000,000 10,000,000 Federal Home Loan Bank, AN. . . . . . . . . . . . . . .5.700% 02/25/98 10,000,000 5,000,000 Royal Bank of Canada, YCD . . . . . . . . . . . . . . .5.780% 12/11/97 5,000,533 5,000,000 Student Loan Marketing Association, AN. . . . . . . . .5.630% 12/24/97 5,000,000 5,000,000 Swiss Bank Corp., YCD . . . . . . . . . . . . . . . . .5.730% 03/17/98 5,000,719 ----------- TOTAL OTHER SHORT TERM SECURITIES (COST $65,490,875) 65,490,875 ----------- TOTAL INVESTMENTS (COST $432,832,119), 99.9% 432,832,119 OTHER ASSETS AND LIABILITIES, NET, 0.1% 320,038 ----------- NET ASSETS, 100.0% $433,152,157 ----------- -----------
** THESE SECURITIES ARE GENERALLY ISSUED TO INSTITUTIONAL INVESTORS. ANY RESALE MUST BE IN AN EXEMPT TRANSACTION PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT OF 1933. 44 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND October 31, 1997
- ------------------------------------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS COUPON MATURITY VALUE FACE AMOUNT ISSUER RATE DATE (NOTE 1) - ------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS 91.1% $ 1,000,000 City of Anaheim, Public Finance Authority Revenue Bond, Anaheim Electric Utility Projects . . . . . . .5.600% 10/01/16 $ 1,022,330 1,000,000 California State Dept. of Veterans Affairs, Home Purchase Revenue 1991 Ser. A . . . . . . . . . .6.450% 08/01/00 1,041,210 500,000 California State Dept. of Water Resources, Central Valley Project Revenue. . . . . . . . . . . .4.800% 12/01/07 506,450 1,000,000 California State Dept. of Water Resources, Central Valley Project Revenue Ser. H . . . . . . . .6.400% 12/01/00 1,073,250 1,000,000 California State Public Works Board, Lease Revenue Dept. of Corrections, Prison D. . . . . . . . . . . .5.100% 06/01/06 1,031,340 1,000,000 California State Public Works Board, Lease Revenue Refunding, Trustees of The California State University, 1995 Ser. B . . . . . . . . . . . .5.600% 04/01/06 1,068,730 1,000,000 Contra Costa Transportation Authority, Sales Tax Revenue 1991 Ser. A . . . . . . . . . . . . . . . . .6.400% 03/01/01 1,073,000 1,000,000 Contra Costa Water Authority, Water Treatment Revenue Refunding 1993 Ser. A (FGIC Insured). . . . .5.300% 10/01/05 1,051,310 1,000,000 Contra Costa Water District, Water Revenue Ser. F (FGIC Insured). . . . . . . . . . . . . . . . . . . .5.250% 10/01/08 1,035,700 1,000,000 East Bay CA MUD, Water System Subordinated Revenue Ser. 1994 . . . . . . . . . . . . . . . . . .8.500% 06/01/98 1,027,410 1,000,000 City of Fairfield, Water Revenue (AMBAC Insured). . . .5.250% 04/01/14 1,008,750 1,225,000 City of Industry, Urban Development Agency Tax Allocation (MBIA Insured) . . . . . . . . . . . . . .5.250% 05/01/12 1,249,463 1,000,000 City of Irvine, Assessment District No. 89-10, Limited Obligation Refunding Improvement (MBIA Insured). . . . . . . . . . . . . . . . . . . .4.200% 09/02/05 971,190 1,000,000 City of Los Angeles, 1990 Solid Waste Collection Project COP Revenue . . . . . . . . . . . . . . . . .6.400% 11/01/97 1,000,000 1,000,000 City of Los Angeles, Convention & Exhibition Center Authority, Lease Revenue Bonds Refunding Ser. A . . .5.200% 08/15/09 1,026,320 1,500,000 City of Los Angeles, Wastewater System Revenue Ser. A (MBIA Insured) . . . . . . . . . . . . . . . .5.000% 12/01/11 1,510,770 1,000,000 City of Los Angeles, Wastewater System Revenue Ser. B (MBIA Insured) . . . . . . . . . . . . . . . .5.700% 06/01/23 1,024,030 1,000,000 Los Angeles County Public Works Finance Authority, Lease Revenue Ser. B (MBIA Insured) . . . . . . . . .5.250% 09/01/09 1,039,320 750,000 Los Angeles County Sanitation District Finance Authority, 1993 Ser. A. . . . . . . . . . . . . . . .5.250% 10/01/06 786,578 1,000,000 Los Angeles Dept. of Water & Power, Electric Plant Revenue . . . . . . . . . . . . . . . . . . . .4.700% 10/15/06 1,009,370 1,000,000 Los Angeles Dept. of Water & Power, Electric Plant Revenue Refunding . . . . . . . . . . . . . . .5.500% 09/01/07 1,059,240 1,000,000 Los Angeles Dept. of Water & Power, Waterworks Revenue Refunding . . . . . . . . . . . . . . . . . .5.625% 04/15/08 1,058,230 1,000,000 Metropolitan Water District of Southern California, Waterworks GO Refunding 1993 Ser. A . . . . . . . . .5.250% 03/01/05 1,053,360 1,000,000 Modesto High School District, 1993 GO Refunding (FGIC Insured). . . . . . . . . . . . . . . . . . . .5.300% 08/01/04 1,054,390 1,000,000 Modesto Irrigation District Finance Authority, Domestic Water Project Revenue 1992 Ser. A (AMBAC Insured) . . . . . . . . . . . . . . . . . . .5.650% 09/01/03 1,071,060 1,000,000 M-S-R Public Power Agency, San Juan Project Revenue Ser. F. . . . . . . . . . . . . . . . . . . .5.650% 07/01/03 1,069,260 1,000,000 Northern California Power Agency, Geothermal Project #3 Revenue Ser. A . . . . . . . . . . . . . .5.600% 07/01/06 1,040,280 1,000,000 Orange County Transportation Authority, Measure M Sales Tax Revenue First Ser. 1992 . . . . .6.000% 02/15/06 1,098,390 1,000,000 Orange County Transportation Authority, Measure M Sales Tax Revenue Second Senior Ser. 1994 (FGIC Insured) . . . . . . . . . . . . . . . . .5.000% 02/15/08 1,031,600 500,000 Orange County Water District, COP 1990 Project A. . . .6.500% 08/15/98 510,615 500,000 City of Pasadena, Electric Works Revenue Ser. 1990. . .6.500% 08/01/99 522,440 500,000 City of Pasadena, GO Refunding Police and Jail Building 1993 . . . . . . . . . . . . . . . . . . . .5.000% 06/01/07 509,805 1,000,000 Rancho Cucamonga RDA, 1994 Tax Allocation Refunding (MBIA Insured). . . . . . . . . . . . . . . . . . . .5.000% 09/01/07 1,027,990 1,000,000 City of Riverside, Electric Revenue 1991. . . . . . . .6.100% 10/01/00 1,056,100 1,000,000 City of Riverside, Electric Revenue Refunding 1993. . .5.000% 10/01/06 1,028,930 1,000,000 City of Riverside, Electric Revenue Refunding 1993 (AMBAC Insured) . . . . . . . . . . . . . . . . . . .5.000% 10/01/13 991,300 1,000,000 Sacramento County Sanitation District Finance Authority, Revenue Bond (MBIA Insured). . . . . . . .5.000% 12/01/08 1,019,940 1,000,000 Sacramento County Sanitation District Finance Authority, Revenue Bond (MBIA Insured). . . . . . . .5.125% 12/01/13 997,240
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 45 FREMONT CALIFORNIA INTERMEDIATE TAX-FREE FUND October 31, 1997
- ------------------------------------------------------------------------------------------------------------- SHARES/ COUPON MATURITY VALUE FACE AMOUNT ISSUER RATE DATE (NOTE 1) - ------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) $ 1,000,000 Sacramento MUD, Electric Revenue 1991 Ser. Y. . . . . .6.250% 09/01/00 $ 1,060,740 2,000,000 Sacramento MUD, Electric Revenue 1997 Ser. L. . . . . .5.125% 07/01/15 1,998,240 1,000,000 San Bernardino County Transportation Authority, Sales Tax Revenue 1992 Ser. A (FGIC Insured). . . . .6.000% 03/01/03 1,082,170 1,000,000 City and County of San Francisco International Airport, Revenue Second Ser. Issue 1 (AMBAC Insured) . . . . . . . . . . . . . . . . . . .6.100% 05/01/03 1,089,380 1,000,000 City and County of San Francisco RDA, Lease Revenue Ser. 1991 (George R. Moscone Convention Center) (AMBAC Insured) . . . . . . . . . . . . . . . . . . .6.200% 10/01/00 1,061,520 1,000,000 City and County of San Francisco RDA, Tax Allocation 1997 Ser. B . . . . . . . . . . . . . . .5.700% 08/01/14 1,019,160 1,000,000 City and County of San Francisco Sewer, Revenue Refunding Ser. 1992 (AMBAC Insured) . . . . .5.800% 10/01/05 1,076,020 1,000,000 City of San Jose, Finance Authority (Convention Center Refunding Project) 1993 Ser. C (MBIA Insured). . . . . . . . . . . . . . . . . . . .5.750% 09/01/03 1,063,460 1,000,000 Santa Margarita/Dana Point Authority Orange County, Revenue Bond Ser. A . . . . . . . . . . . . . . . . .5.375% 08/01/04 1,056,930 1,000,000 Santa Monica-Malibu Unified School District, Public School Facilities Reconstruction Projects. . .5.500% 08/01/18 1,000,530 1,000,000 Southern California Public Power Authority, Mead-Phoenix Project Revenue 1994 Ser. A (AMBAC Insured) . . . . . . . . . . . . . . . . . . .4.750% 07/01/09 995,510 1,000,000 Southern California Public Power Authority, Mead-Phoenix Project Revenue 1994 Ser. A (AMBAC Insured) . . . . . . . . . . . . . . . . . . .4.750% 07/01/08 1,004,170 1,000,000 Southern California Public Power Authority, Palo Verde Power Projects Revenue 1993 Ser. A . . . .5.100% 07/01/06 1,055,980 500,000 City of Stockton, 1990 Wastewater System Project COP (AMBAC Insured) . . . . . . . . . . . . . . . . .6.700% 09/01/98 512,020 500,000 City of Stockton, 1990 Wastewater System Project COP (AMBAC Insured) . . . . . . . . . . . . . . . . .6.800% 09/01/99 517,275 1,000,000 University of California, Housing System Revenue 1993 Ser. A (MBIA Insured). . . . . . . . . . . . . .5.500% 11/01/08 1,055,560 500,000 University of California, Research Facilities Revenue 1995 Ser. C (AMBAC Insured) . . . . . . . . .5.100% 09/01/07 517,255 1,000,000 West & Central Basin Finance Authority, West Basin Water Revenue Refunding Project (AMBAC Insured) . . . . . . . . . . . . . . . . . . .5.125% 08/01/06 1,039,780 1,000,000 City of Whittier, Solid Waste Revenue Ser. A (AMBAC Insured) . . . . . . . . . . . . . . . . . . .5.375% 08/01/14 1,012,790 1,500,000 Yucaipa School Facilities Finance Authority, 1995 Sweetwater Refunding (MBIA Insured). . . . . . .6.000% 09/01/10 1,587,240 ----------- TOTAL MUNICIPAL BONDS (COST $55,820,663) 58,562,421 ----------- SHORT TERM SECURITIES 7.7% 2,863,529 Provident Institutional Fund: Municipal Fund for California Investors. . . . . . . . . . . . . . . 2,863,529 $ 2,100,000 Marin County, Tax and Revenue Anticipation Notes, 1997 Ser. L . . . . . . . . . . . . . . . . . . . . .4.500% 07/31/98 2,112,137 ----------- TOTAL SHORT TERM SECURITIES (COST $4,973,903) 4,975,666 ----------- TOTAL INVESTMENTS (COST $60,794,566), 98.8% 63,538,087 OTHER ASSETS AND LIABILITIES, NET, 1.2% 771,347 ----------- NET ASSETS, 100.0% $ 64,309,434 ----------- -----------
46 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT MUTUAL FUNDS, INC. Country Diversification, Portfolio Abbreviations and Currency Abbreviations
- ------------------------------------------------------------------------------------------------------------------------------- COUNTRY DIVERSIFICATION COUNTRY COUNTRY INT'L INT'L EMERGING U.S. U.S. MONEY CALIF CODE NAME GLOBAL GROWTH SMALL CAP MARKETS MICRO-CAP SMALL CAP GROWTH BOND MARKET TAX-FREE - ------------------------------------------------------------------------------------------------------------------------------- AR ARGENTINA 0.3% - 1.0% 4.9% - - - - - - AS AUSTRIA - - 0.4% - - - - - - - AU AUSTRALIA 2.9% 1.1% 7.1% - - - - - - - BE BELGIUM - - 0.9% - - - - - - - BR BRAZIL - - 6.8% 12.7% - - - - - - CH CHINA - - 1.7% - - - - - - - CL CHILE 0.3% - - 3.7% - - - - - - CN CANADA 2.7% - 5.3% - - - - - - - CO COLOMBIA - - 1.2% - - - - - - - CZ CZECH REPUBLIC - - 2.2% - - - - - - - FI FINLAND 0.7% 8.6% 0.6% - - - - - - - FR FRANCE 1.5% 5.7% 4.6% - - - - - - - GM GERMANY 3.6% 9.9% 0.8% - - - - - - - GR GREECE - - 2.3% - - - - - - - HK HONG KONG 0.9% 1.8% 6.4% 4.7% - - - - - - HU HUNGARY - - - 3.1% - - - - - - ID INDONESIA 0.4% 2.1% 0.1% 4.2% - - - - - - IN INDIA 0.1% - - 7.7% - - - - - - IR IRELAND 1.0% - 1.0% - - - - - - - IT ITALY 0.8% 5.4% - - - - - - - - JP JAPAN 3.6% 21.0% 14.1% - - - - - - - MX MEXICO 0.7% - 0.8% 11.5% - - - - - - MY MALAYSIA 0.8% 0.1% 1.0% - - - - - - - NL NETHERLANDS 2.8% 6.3% 6.5% - - - - - - - NO NORWAY - - - - - - - - - - NZ NEW ZEALAND 0.3% - 0.3% - - - - 2.2% - - PE PERU 0.1% - - - - - - - - - PH PHILIPPINES 0.3% 0.5% 0.2% - - - - - - - PK PAKISTAN - - 1.3% - - - - - - - PO POLAND - - - 6.8% - - - - - - PT PORTUGAL - - 6.0% - - - - - - - RU RUSSIA - - - 7.7% - - - - - - SA SOUTH AFRICA - - 1.3% 0.6% - - - - - - SG SINGAPORE 1.0% 2.7% 1.2% - - - - - - - SK SOUTH KOREA 0.3% 0.8% 4.1% - - - - - - - SP SPAIN 1.8% - 0.8% - - - - - - - SR SAUDI ARABIA - - - 2.2% - - - - - - SW SWEDEN 2.6% 8.0% - - - - - - - - SZ SWITZERLAND 0.7% 3.0% - - - - - - - - TH THAILAND - - 5.8% 0.6% - - - - - - TU TURKEY - - 2.6% 4.4% - - - - - - TW TAIWAN 0.3% 1.8% - 3.7% - - - - - - UK UNITED KINGDOM 5.9% 8.6% 10.1% - - - - - - - US UNITED STATES 63.6% 12.6% 1.5% 21.5% 100.0% 100.0% 100.0% 97.8% 100.0% 100.0% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
PORTFOLIO ABBREVIATIONS ADR American Depository Receipt AMBAC American Municipal Bond Assurance Corp. AN Agency Note ARM Adjustable Rate Mortgage CMO Collateralized Mortgage Obligation COP Certificates of Participation CP Commercial Paper DN Discount Note FGIC Financial Guaranty Insurance Corp. FHLMC Federal Home Loan Mortgage Corp. FNMA Federal National Mortgage Association FRN Floating Rate Note GDR Global Depository Receipt GDS Global Depository Shares GNMA Government National Mortgage Association GO General Obligation MBIA Municipal Bond Investor Assurance Corp. MUD Municipal Utility District PAC Planned Amortization Class RDA Redevelopment Agency REMIC Real Estate Mortgage Investment Conduit SDR Swedish Depository Receipt TBA To Be Announced TD Time Deposit YCD Yankee Certificate of Deposit CURRENCY ABBREVIATIONS AUS$ Australian Dollar CAN$ Canadian Dollar DM German Deutschemark ESP Spanish Peseta FF French Franc IEP Irish Punt NLG Netherlands Guilder NZ$ New Zealand Dollar SEK Swedish Krona L British Pound US$ US Dollar THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 47 FREMONT MUTUAL FUNDS, INC. October 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------ STATEMENT OF ASSETS AND LIABILITIES (ALL NUMBERS IN THOUSANDS EXCEPT NET ASSET VALUE PER SHARE) INTERNATIONAL INTERNATIONAL EMERGING GLOBAL SMALL CAP MARKETS GROWTH FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------ ASSETS: Investments in securities at cost $ 620,460 $ 36,334 $ 10,117 $ 12,837 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Investments in securities at value (Note 1) 674,404 38,571 8,447 11,441 Cash -- -- 71 91 Dividends and interest receivable 5,186 55 38 12 Receivable for securities sold 5,888 -- -- 500 Receivable from management company -- -- -- 26 Receivable from sale of fund shares 121 85 11 159 Variation margin receivable -- -- -- -- Unrealized appreciation on foreign currency contracts (Note 1) 818 -- -- -- Prepaid expense 3 -- -- -- Unamortized organization costs (Note 3) -- -- -- 14 ----------- ----------- ----------- ----------- TOTAL ASSETS 686,420 38,711 8,567 12,243 ----------- ----------- ----------- ----------- LIABILITIES: Bank overdraft 2,065 -- -- -- Liabilities for options written (Note 4) -- -- -- -- Dividends payable to shareholders 448 -- 17 19 Payable for securities purchased 14,191 -- -- -- Payable to management company -- -- -- -- Payable for fund shares redeemed 420 15 4 5 Unrealized depreciation on foreign currency contracts (Note 1) 2,952 -- -- 2 Accrued expenses: Investment advisory, administrative, distribution and shareholder servicing fees 458 53 12 21 Other 139 -- -- 21 ----------- ----------- ----------- ----------- TOTAL LIABILITIES 20,673 68 33 68 ----------- ----------- ----------- ----------- NET ASSETS $ 665,747 $ 38,643 $ 8,534 $ 12,175 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net assets consist of: Paid in capital $ 600,973 $ 36,067 $ 10,140 $ 13,425 Undistributed net investment income (loss) 2,452(50) 6 -- Unrealized appreciation (depreciation) on investments 53,943 2,237 (1,670) (1,396) Unrealized appreciation (depreciation) on foreign currency contracts and other assets and liabilities (2,088)(1) 3(9) Accumulated net realized gain 10,467 390 55 155 ----------- ----------- ----------- ----------- NET ASSETS $ 665,747 $ 38,643 $ 8,534 $ 12,175 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SHARES OF CAPITAL STOCK OUTSTANDING 47,023 3,725 1,037 1,271 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET ASSET VALUE PER SHARE $ 14.16 $ 10.37 $ 8.23 $ 9.58 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
48 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- ------------------------------------------------------------------------------------------------------------------- U.S. U.S. MICRO-CAP SMALL CAP GROWTH BOND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------- ASSETS: Investments in securities at cost $ 160,550 $6,277 $ 123,279 $ 99,517 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Investments in securities at value (Note 1) 172,162 6,030 146,981 102,119 Cash -- -- -- 25 Dividends and interest receivable 11 1 220 631 Receivable for securities sold 5,620 -- 99 4,891 Receivable from management company -- 10 1 -- Receivable from sale of fund shares 1,848 13 603 1,262 Variation margin receivable -- -- 84 33 Unrealized appreciation on foreign currency contracts (Note 1) -- -- -- 25 Prepaid expense -- -- 1 -- Unamortized organization costs (Note 3) -- 16 -- 1 ----------- ----------- ----------- ----------- TOTAL ASSETS 179,641 6,070 147,989 108,987 ----------- ----------- ----------- ----------- LIABILITIES: Bank overdraft 596 -- -- -- Liabilities for options written (Note 4) -- -- -- 1 Dividends payable to shareholders 1,336 -- 56 20 Payable for securities purchased 4,120 687 -- 18,514 Payable to management company -- 16 -- -- Payable for fund shares redeemed 1,774 -- 157 3 Unrealized depreciation on foreign currency contracts (Note 1) -- -- -- 65 Accrued expenses: Investment advisory, administrative, distribution and shareholder servicing fees 308 10 89 32 Other -- 7 46 50 ----------- ----------- ----------- ----------- TOTAL LIABILITIES 8,134 720 348 18,685 ----------- ----------- ----------- ----------- NET ASSETS $ 171,507 $5,350 $ 147,641 $ 90,302 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net assets consist of: Paid in capital $ 151,467 $5,595 $ 120,757 $ 86,604 Undistributed net investment income (loss) -- 2 69 198 Unrealized appreciation (depreciation) on investments 11,612 (247) 23,611 3,027 Unrealized appreciation (depreciation) on foreign currency contracts and other assets and liabilities -- -- -- (12) Accumulated net realized gain 8,428 -- 3,204 485 ----------- ----------- ----------- ----------- NET ASSETS $ 171,507 $5,350 $ 147,641 $ 90,302 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SHARES OF CAPITAL STOCK OUTSTANDING 7,558 559 9,868 8,824 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET ASSET VALUE PER SHARE $ 22.69 $ 9.57 $ 14.96 $ 10.23 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------ CALIFORNIA MONEY MARKET INTERMEDIATE FUND TAX-FREE FUND - ------------------------------------------------------------------------------------ ASSETS: Investments in securities at cost $ 432,832 $60,795 ----------- ----------- ----------- ----------- Investments in securities at value (Note 1) 432,832 63,538 Cash 500 34 Dividends and interest receivable 1,573 807 Receivable for securities sold -- -- Receivable from management company -- -- Receivable from sale of fund shares 195 11 Variation margin receivable -- -- Unrealized appreciation on foreign currency contracts (Note 1) -- -- Prepaid expense 20 -- Unamortized organization costs (Note 3) -- -- ----------- ----------- TOTAL ASSETS 435,120 64,390 ----------- ----------- ----------- ----------- LIABILITIES: Bank overdraft -- -- Liabilities for options written (Note 4) -- -- Dividends payable to shareholders 8 28 Payable for securities purchased -- -- Payable to management company -- -- Payable for fund shares redeemed 1,812 -- Unrealized depreciation on foreign currency -- -- contracts (Note 1) Accrued expenses: Investment advisory, administrative, distribution and shareholder servicing fees 84 19 Other 64 34 ----------- ----------- TOTAL LIABILITIES 1,968 81 ----------- ----------- NET ASSETS $ 433,152 $64,309 ----------- ----------- ----------- ----------- Net assets consist of: Paid in capital $ 433,152 $61,537 Undistributed net investment income (loss) -- -- Unrealized appreciation (depreciation) on investments -- 2,743 Unrealized appreciation (depreciation) on foreign currency contracts and other assets and liabilities -- -- Accumulated net realized gain -- 29 ----------- ----------- NET ASSETS $ 433,152 $64,309 ----------- ----------- ----------- ----------- SHARES OF CAPITAL STOCK OUTSTANDING 433,152 5,851 ----------- ----------- ----------- ----------- NET ASSET VALUE PER SHARE $ 1.00 $10.99 ----------- ----------- ----------- -----------
49 FREMONT MUTUAL FUNDS, INC. OCTOBER 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS (ALL NUMBERS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------- INTERNATIONAL INTERNATIONAL GLOBAL GROWTH SMALL CAP FUND FUND FUND - ---------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 14,116 $ 161 $ 18 Dividends 8,387 596 326 --------- --------- --------- TOTAL INCOME* 22,503 757 344 --------- --------- --------- EXPENSES: Investment advisory and administrative fees (Note 2) 4,812 618 149 Shareholder servicing fees (Note 2) 123 -- -- Custody fees 137 -- -- Distribution fees (Note 2) -- -- -- Accounting fees 166 -- -- Audit and legal fees 42 -- -- Directors' fees (Note 2) 8 -- -- Registration fees 64 -- -- Interest expense (Note 1) -- -- -- Other 96 -- -- --------- --------- --------- TOTAL EXPENSES BEFORE REDUCTIONS 5,448 618 149 Expenses waived and/or reimbursed by Advisor (Note 2) -- -- -- --------- --------- --------- TOTAL NET EXPENSES 5,448 618 149 --------- --------- --------- NET INVESTMENT INCOME (LOSS) 17,055 139 195 --------- --------- --------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) from: Investments 26,415 390 107 Transactions in written options -- -- -- Foreign currency transactions 7,073 (356) (4) Net unrealized appreciation (depreciation) on: Investments 26,358 (193) (1,782) Translation of assets and liabilities in foreign currencies (1,161) (1) 2 --------- --------- --------- Net realized and unrealized gain (loss) from investments and foreign currency 58,685 (160) (1,677) --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 75,740 $ (21) $ (1,482) --------- --------- --------- --------- --------- ---------
* Net of foreign taxes withheld of $374 for Fremont Global Fund, $67 for Fremont International Growth Fund, $29 for Fremont International Small Cap Fund and $11 for Fremont Emerging Markets Fund. # Period from September 24, 1997 (commencement of operations) to October 31, 1997. 50 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------------------------------------------- EMERGING U.S. U.S. MARKETS MICRO-CAP SMALL CAP GROWTH FUND FUND FUND# FUND - --------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 87 $1,755 $ 18 $ 259 Dividends 138 182 -- 2,511 --------- --------- --------- --------- TOTAL INCOME* 225 1,937 18 2,770 --------- --------- --------- --------- EXPENSES: Investment advisory and administrative fees (Note 2) 112 3,050 6 786 Shareholder servicing fees (Note 2) 31 -- 3 58 Custody fees 27 -- 1 21 Distribution fees (Note 2) 24 -- 1 -- Accounting fees 15 -- 1 35 Audit and legal fees 17 -- 2 64 Directors' fees (Note 2) 8 -- 1 8 Registration fees 15 -- 2 39 Interest expense (Note 1) -- -- -- -- Other 9 -- 1 17 --------- --------- --------- --------- TOTAL EXPENSES BEFORE REDUCTIONS 258 3,050 18 1,028 Expenses waived and/or reimbursed by Advisor (Note 2) (232) (32) (10) -- --------- --------- --------- --------- TOTAL NET EXPENSES 26 3,018 8 1,028 --------- --------- --------- --------- NET INVESTMENT INCOME (LOSS) 199 (1,081) 10 1,742 --------- --------- --------- --------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) from: Investments 1,568 20,401 5 8,013 Transactions in written options -- -- -- -- Foreign currency transactions (189) -- -- -- Net unrealized appreciation (depreciation) on: Investments (1,352) 11,176 (247) 19,122 Translation of assets and liabilities in foreign currencies (9) -- -- -- --------- --------- --------- --------- Net realized and unrealized gain (loss) from investments and foreign currency 18 31,577 (242) 27,135 --------- --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 217 $30,496 $ (232) $ 28,877 --------- --------- --------- --------- --------- --------- --------- ---------
- ---------------------------------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE BOND MONEY MARKET TAX-FREE FUND FUND FUND - ---------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 5,278 $21,922 $ 3,185 Dividends 35 -- -- --------- --------- --------- TOTAL INCOME* 5,313 21,922 3,185 --------- --------- --------- EXPENSES: Investment advisory and administrative fees (Note 2) 416 1,427 313 Shareholder servicing fees (Note 2) 31 80 29 Custody fees 25 32 8 Distribution fees (Note 2) -- -- -- Accounting fees 31 92 29 Audit and legal fees 24 24 26 Directors' fees (Note 2) 8 8 8 Registration fees 18 76 6 Interest expense (Note 1) 11 -- -- Other 11 29 3 --------- --------- --------- TOTAL EXPENSES BEFORE REDUCTIONS 575 1,768 422 Expenses waived and/or reimbursed by Advisor (Note 2) (114) (590) (126) --------- --------- --------- TOTAL NET EXPENSES 461 1,178 296 --------- --------- --------- NET INVESTMENT INCOME (LOSS) 4,852 20,744 2,889 --------- --------- --------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) from: Investments 1,197 -- 29 Transactions in written options 71 -- -- Foreign currency transactions 458 -- -- Net unrealized appreciation (depreciation) on: Investments 713 -- 1,043 Translation of assets and liabilities in foreign currencies (199) -- -- --------- --------- --------- Net realized and unrealized gain (loss) from investments and foreign currency 2,240 -- 1,072 --------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,092 $20,744 $ 3,961 --------- --------- ---------
51 FREMONT MUTUAL FUNDS, INC. OCTOBER 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS (ALL NUMBERS IN THOUSANDS)
GLOBAL INTERNATIONAL GROWTH FUND FUND ------------------------ -------------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 10/31/97 10/31/96 10/31/97 10/31/96 --------- --------- --------- --------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 17,055 $14,179 $ 139 $ (72) Net realized gain (loss) from investments and transactions in written options 26,415 66,431 390 2,386 Net realized gain (loss) from foreign currency transactions 7,073 3,714 (356) (123) Net unrealized appreciation (depreciation) on investments 26,358 (16,097) (193) 370 Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies (1,161) (967) (1) (1) --------- --------- --------- --------- Net increase (decrease) in net assets from operations 75,740 67,260 (21) 2,560 --------- --------- --------- --------- Distributions to shareholders from: Net investment income (22,567) (15,978) -- (25) Net realized gains (86,397) (19,405) (103) -- --------- --------- --------- --------- Total distributions to shareholders (108,964) (35,383) (103) (25) --------- --------- --------- --------- From capital share transactions: Proceeds from shares sold 381,253 86,354 18,693 7,454 Payments for shares redeemed (360,553) (62,547) (15,302) (6,897) Reinvested dividends 106,121 34,111 103 25 --------- --------- --------- --------- Net increase in net assets from capital share transactions 126,821 57,918 3,494 582 --------- --------- --------- --------- Net increase (decrease) in net assets 93,597 89,795 3,370 3,117 Net assets at beginning of period 572,150 482,355 35,273 32,156 --------- --------- --------- --------- NET ASSETS AT END OF PERIOD $ 665,747 $572,150 $ 38,643 $ 35,273 --------- --------- --------- --------- --------- --------- --------- --------- Undistributed net investment income (loss) included in net assets, end of period $ 2,452 $2,242 $ (50) $ -- --------- --------- --------- --------- --------- --------- --------- --------- CAPITAL TRANSACTIONS IN SHARES: Sold 25,640 5,890 1,654 728 Redeemed (24,185) (4,265) (1,330) (647) Reinvested dividends 7,698 2,372 9 2 --------- --------- --------- --------- Net increase from capital share transactions 9,153 3,997 333 83 --------- --------- --------- --------- --------- --------- --------- ---------
# Period from June 24, 1996 (commencement of operations) to October 31, 1996. * Period from September 24, 1997 (commencement of operations) to October 31, 1997. 52 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
INTERNATIONAL SMALLCAP EMERGING MARKETS FUND FUND ------------------------ ------------------------ YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 10/31/97 10/31/96 10/31/97 10/31/96# --------- --------- --------- --------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 195 $102 $ 199 $ 39 Net realized gain (loss) from investments and transactions in written options 107 273 1,568 (85) Net realized gain (loss) from foreign currency transactions (4) (72) (189) (5) Net unrealized appreciation (depreciation) on investments (1,782) 329 (1,352) (44) Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies 2 2 (9) -- --------- --------- --------- --------- Net increase (decrease) in net assets from operations (1,482) 634 217 (95) --------- --------- --------- --------- Distributions to shareholders from: Net investment income (212) (37) (24) (26) Net realized gains (257) -- (1,322) -- --------- --------- --------- --------- Total distributions to shareholders (469) (37) (1,346) (26) --------- --------- --------- --------- From capital share transactions: Proceeds from shares sold 4,033 5,840 19,897 3,982 Payments for shares redeemed (3,192) (1,489) (11,691) (115) Reinvested dividends 430 21 1,326 26 --------- --------- --------- --------- Net increase in net assets from capital share transactions 1,271 4,372 9,532 3,893 --------- --------- --------- --------- Net increase (decrease) in net assets (680) 4,969 8,403 3,772 Net assets at beginning of period 9,214 4,245 3,772 -- --------- --------- --------- --------- NET ASSETS AT END OF PERIOD $ 8,534 $9,214 $ 12,175 $ 3,772 --------- --------- --------- --------- --------- --------- --------- --------- Undistributed net investment income (loss) included in net assets, end of period $ 6 $ 27 $ -- $ 7 --------- --------- --------- --------- --------- --------- --------- --------- CAPITAL TRANSACTIONS IN SHARES: Sold 401 583 1,730 401 Redeemed (319) (149) (990) (12) Reinvested dividends 47 2 139 3 --------- --------- --------- --------- Net increase from capital share transactions 129 436 879 392 --------- --------- --------- --------- --------- --------- --------- ---------
U.S. MICRO-CAP U.S. SMALL CAP FUND FUND ----------------------- ---------- YEAR YEAR PERIOD ENDED ENDED ENDED 10/31/97 10/31/96 10/31/97* --------- --------- --------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ (1,081) $(233) $ 10 Net realized gain (loss) from investments and transactions in written options 20,401 5,347 5 Net realized gain (loss) from foreign currency transactions -- -- -- Net unrealized appreciation (depreciation) on investments 11,176 (512) (247) Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies -- -- -- --------- --------- --------- Net increase (decrease) in net assets from operations 30,496 4,602 (232) --------- --------- --------- Distributions to shareholders from: Net investment income -- -- (8) Net realized gains (16,002) (323) (5) --------- --------- --------- Total distributions to shareholders (16,002) (323) (13) --------- --------- --------- From capital share transactions: Proceeds from shares sold 410,139 162,320 5,582 Payments for shares redeemed (369,757) (72,224) -- Reinvested dividends 14,150 314 13 --------- --------- --------- Net increase in net assets from capital share transactions 54,532 90,410 5,595 --------- --------- --------- Net increase (decrease) in net assets 69,026 94,689 5,350 Net assets at beginning of period 102,481 7,792 -- --------- --------- --------- NET ASSETS AT END OF PERIOD $ 171,507 $102,481 $ 5,350 --------- --------- --------- --------- --------- --------- Undistributed net investment income (loss) included in net assets, end of period $ -- $ -- $ 2 --------- --------- --------- --------- --------- --------- CAPITAL TRANSACTIONS IN SHARES: Sold 18,493 8,425 558 Redeemed (16,801) (3,768) -- Reinvested dividends 644 21 1 --------- --------- --------- Net increase from capital share transactions 2,336 4,678 559 --------- --------- --------- --------- --------- ---------
53 FREMONT MUTUAL FUNDS, INC. OCTOBER 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS (ALL NUMBERS IN THOUSANDS)
GROWTH BOND FUND FUND -------------------- ------------------------ YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 10/31/97 10/31/96 10/31/97 10/31/96 --------- --------- --------- --------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income $ 1,742 $511 $ 4,852 $ 5,390 Net realized gain (loss) from investments and transactions in written options 8,013 17,602 1,268 (216) Net realized gain from foreign currency transactions -- -- 458 97 Net unrealized appreciation (depreciation) on investments 19,122 (4,559) 713 277 Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies -- -- (199) 170 --------- --------- --------- --------- Net increase in net assets from operations 28,877 13,554 7,092 5,718 --------- --------- --------- --------- Distributions to shareholders from: Net investment income (1,783) (409) (4,965) (5,648) Net realized gains (22,466) (3,509) (173) (1,968) --------- --------- --------- --------- Total distributions to shareholders (24,249) (3,918) (5,138) (7,616) From capital share transactions: Proceeds from shares sold 100,616 31,462 38,603 17,733 Payments for shares redeemed (60,351) (25,983) (25,784) (39,028) Reinvested dividends 24,124 3,877 4,952 7,427 --------- --------- --------- --------- Net increase (decrease) in net assets from capital share transactions 64,389 9,356 17,771 (13,868) --------- --------- --------- --------- Net increase (decrease) in net assets 69,017 18,992 19,725 (15,766) Net assets at beginning of period 78,624 59,632 70,577 86,343 --------- --------- --------- --------- NET ASSETS AT END OF PERIOD $ 147,641 $78,624 $ 90,302 $ 70,577 --------- --------- --------- --------- --------- --------- --------- --------- Undistributed net investment income included in net assets, end of period $ 69 $111 $ 198 $ 3 --------- --------- --------- --------- --------- --------- --------- --------- CAPITAL TRANSACTIONS IN SHARES: Sold 7,058 2,314 3,846 1,778 Redeemed (4,276) (1,945) (2,580) (3,985) Reinvested dividends 1,851 301 495 748 --------- --------- --------- --------- Net increase from capital share transactions 4,633 670 1,761 1,459 --------- --------- --------- --------- --------- --------- --------- ---------
54 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CALIFORNIA MONEY MARKET INTERMEDIATE FUND TAX-FREE FUND ----------------------- ------------------------ YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 10/31/97 10/31/96 10/31/97 10/31/96 --------- --------- --------- --------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income $ 20,744 $15,629 $ 2,889 $ 2,476 Net realized gain (loss) from investments and transactions in written options -- -- 29 45 Net realized gain from foreign currency transactions -- -- -- -- Net unrealized appreciation (depreciation) on investments -- -- 1,043 (192) Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies -- -- -- -- --------- --------- --------- --------- Net increase in net assets from operations 20,744 15,629 3,961 2,329 --------- --------- --------- --------- Distributions to shareholders from: Net investment income (20,744) (15,269) (2,889) (2,476) Net realized gains -- -- (45) (120) --------- --------- --------- --------- Total distributions to shareholders (20,744) (15,629) (2,934) (2,596) --------- --------- --------- --------- From capital share transactions: Proceeds from shares sold 872,518 308,477 15,727 2,286 Payments for shares redeemed (789,399) (293,546) (6,190) (3,403) Reinvested dividends 20,381 15,409 2,589 2,227 --------- --------- --------- --------- Net increase (decrease) in net assets from capital share transactions 103,500 30,340 12,126 1,110 --------- --------- --------- --------- Net increase (decrease) in net assets 103,500 30,340 13,153 843 Net assets at beginning of period 329,652 299,312 51,156 50,313 --------- --------- --------- --------- NET ASSETS AT END OF PERIOD $ 433,152 $329,652 $ 64,309 $ 51,156 --------- --------- --------- --------- --------- --------- --------- --------- Undistributed net investment income included in net assets, end of period $ -- $ -- $ -- $ -- --------- --------- --------- --------- --------- --------- --------- --------- CAPITAL TRANSACTIONS IN SHARES: Sold 872,518 308,477 1,446 210 Redeemed (789,399) (293,546) (568) (315) Reinvested dividends 20,381 15,409 238 206 --------- --------- --------- --------- Net increase from capital share transactions 103,500 30,340 1,116 101 --------- --------- --------- --------- --------- --------- --------- ---------
55 FREMONT MUTUAL FUNDS, INC. Financial Highlights - October 31, 1997
- -------------------------------------------------------------------------------------------------------------------- GLOBAL FUND YEAR ENDED OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------- SELECTED PER SHARE DATA 1997 1996 1995 1994 1993 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $15.11 $14.24 $13.13 $13.17 $11.52 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .45 .39 .40 .26 .32 Net realized and unrealized gain (loss) 1.31 1.49 1.24 (.03) 1.67 ------ ------ ------ ------ ------ Total investment operations 1.76 1.88 1.64 .23 1.99 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income (.52) (.44) (.50) (.14) (.26) From net realized gains (2.19) (.57) (.03) (.13) (.08) ------ ------ ------ ------ ------ Total distributions (2.71) (1.01) (.53) (.27) (.34) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $14.16 $15.11 $14.24 $13.13 $13.17 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 13.01% 13.72% 12.78% 1.74% 17.51% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $665,747 $572,150 $482,355 $453,623 $186,325 Ratio of expenses to average net assets .85% .87% .88% .95% .99% Ratio of net investment income to average net assets 2.66% 2.66% 2.98% 2.47% 2.89% Portfolio turnover rate 48% 71% 83% 52% 40% Average commission rate paid** $ .0149 $ .0238 -- -- --
* Annualized ** Disclosure not required for years prior to 1996.
- ------------------------------------------------------------------------------------------------------------------ INTERNATIONAL GROWTH FUND YEAR ENDED OCTOBER 31 PERIOD FROM - ------------------------------------------------------------------------------------------------------------------ MARCH 1, 1994 TO SELECTED PER SHARE DATA 1997 1996 1995 OCTOBER 31, 1994 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.40 $ 9.72 $ 9.79 $ 9.57 ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .02 (.02) .10 .02 Net realized and unrealized gain (loss) (.02) .71 (.09) .20 ------ ------ ------ ------ Total investment operations -- .69 .01 .22 ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income -- (.01) (.08) -- From net realized gains (.03) -- -- -- ------ ------ ------ ------ Total distributions (.03) (.01) (.08) -- ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.37 $10.40 $ 9.72 $ 9.79 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN (.01)% 7.07% 0.13% 2.30% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $38,643 $35,273 $32,156 $29,725 Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50%* Ratio of net investment income (loss) to average net assets .34% (.20)% 1.19% .35%* Portfolio turnover rate 95% 74% 32% 44%* Average commission rate paid** $.0173 $.0150 -- --
* Annualized ** Disclosure not required for years prior to 1996. 56 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT MUTUAL FUNDS, INC. Financial Highlights - October 31, 1997
- ------------------------------------------------------------------------------------------------------------------ INTERNATIONAL SMALL CAP FUND YEAR ENDED OCTOBER 31 PERIOD FROM - ------------------------------------------------------------------------------------------------------------------ MARCH 1, 1994 TO SELECTED PER SHARE DATA 1997 1996 1995 OCTOBER 31, 1994 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.15 $ 9.00 $ 9.86 $10.00 ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) .14 .14 .10 (.01) ------ ------ ------ ------ Net realized and unrealized gain (loss) (1.58) 1.08 (.88) (.13) ------ ------ ------ ------ Total investment operations (1.44) 1.22 (.78) (.14) ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income (.21) (.07) (.08) -- From net realized gains (.27) -- -- -- ------ ------ ------ ------ Total distributions (.48) (.07) (.08) -- ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 8.23 $10.15 $ 9.00 $ 9.86 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN (14.56)%13.69%# (7.96)%# (1.40)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 8,534 $9,214 $ 4,245 $ 1,768 Ratio of net expenses to average net assets(a) (b) 1.50% 1.81% 2.06% 2.50%* Ratio of gross expenses to average net assets(a) (b) 1.50% 2.50% 2.50% 2.50%* Ratio of net investment income (loss) to average net assets 1.97% 1.61% 1.67% (0.28)%* Portfolio turnover rate 56% 74% 96% -- Average commission rate paid** $ .0005 .0003 -- --
* Annualized ** Disclosure not required for years prior to 1996. (a) See Note 2 of "Notes to Financial Statements." (b) Management fees were voluntarily waived from February 1, 1995 to October 31, 1996. # Total return would have been lower had the advisor not waived expenses.
YEAR PERIOD FROM EMERGING MARKETS FUND ENDED JUNE 24, 1996 TO OCTOBER 31, 1997 OCTOBER 31, 1996 ---------------- ---------------- SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $10.00 ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .17 .10 Net realized and unrealized gain (loss) 1.03 (.41) ------ ------ Total investment operations 1.20 (.31) ------ ------ LESS DISTRIBUTIONS From net investment income (.06) (.07) From net realized gains (1.18) -- ------ ------ Total distributions (1.24) (.07) ------ ------ NET ASSET VALUE, END OF PERIOD $ 9.58 $ 9.62 ------ ------ ------ ------ TOTAL RETURN# 12.55% (3.12)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 12,175 $ 3,772 Ratio of net expenses to average net assets(a) .26% -- Ratio of gross expenses to average net assets(a) 2.63% 4.95%* Ratio of net investment income to average net assets 2.04% 3.32%* Portfolio turnover rate 208% 20%* Average commission rate paid $ .0038 $ .0063
* Annualized (a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived and/or reimbursed expenses. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 57 FREMONT MUTUAL FUNDS, INC. Financial Highlights - October 31, 1997 - --------------------------------------------------------------------------------
U.S. MICRO-CAP FUND YEAR ENDED OCTOBER 31 PERIOD FROM JUNE 30, 1994 TO SELECTED PER SHARE DATA 1997 1996 1995 OCTOBER 31, 1994 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.63 $14.34 $10.34 $10.00 ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (.10) (.04) (.05) .02 Net realized and unrealized gain 5.60 5.83 4.05 .34 ------ ------ ------ ------ Total investment operations 5.50 5.79 4.00 .36 ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income -- -- -- (.02) From net realized gains (2.44) (.50) -- -- ------ ------ ------ ------ Total distributions (2.44) (.50) -- (.02) ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $22.69 $19.63 $14.34 $10.34 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 28.80%# 41.46%# 38.68%# 3.60% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $171,507 $102,481 $ 7,792 $ 2,052 Ratio of net expenses to average net assets(a) 1.88% 1.96% 2.04% 2.50%* Ratio of gross expenses to average net assets(a) 1.90% 2.22% 2.50% 2.50%* Ratio of net investment income (loss) to average net assets (.67)% (.51)% (.67)% .68%* Portfolio turnover rate 125% 81% 144% 129%* Average commission rate paid** $.0505 $.0541 -- --
* Annualized ** Disclosure not required for years prior to 1996. (a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived expenses. PERIOD FROM SEPTEMBER 24, 1997 U.S. SMALL CAP FUND TO OCTOBER 31, 1997 ------------------- SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $10.00 ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .02 Net realized and unrealized loss (.42) ------ Total investment operations (.40) ------ LESS DISTRIBUTIONS From net investment income (.02) From net realized gains (.01) ------ Total distributions (.03) ------ NET ASSET VALUE, END OF PERIOD $ 9.57 ------ ------ TOTAL RETURN# (4.06)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 5,350 Ratio of net expenses to average net assets(a) 1.50%* Ratio of gross expenses to average net assets(a) 3.32%* Ratio of net investment income to average net assets 1.81%* Portfolio turnover rate 8% Average commission rate paid $ .0543 * Annualized (a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived and/or reimbursed expenses. 58 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT MUTUAL FUNDS, INC. Financial Highlights - October 31, 1997 - --------------------------------------------------------------------------------
GROWTH FUND YEAR ENDED OCTOBER 31 - --------------------------------------------------------------------------------------------------------------------------------- SELECTED PER SHARE DATA 1997 1996 1995 1994 1993 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $15.02 $13.06 $10.46 $11.25 $10.08 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .20 .10 .13 .21 .13 Net realized and unrealized gain (loss) 3.43 2.65 2.74 (.02) 1.16 ------ ------ ------ ------ ------ Total investment operations 3.63 2.75 2.87 .19 1.29 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income (.22) (.08) (.17) (.18) (.12) From net realized gains (3.47) (.71) (.10) (.80) -- ------ ------ ------ ------ ------ Total distributions (3.69) (.79) (.27) (.98) (.12) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $14.96 $15.02 $13.06 $10.46 $11.25 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 29.26% 22.06% 28.12%# 1.72%# 12.80%# RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 147,641 $78,624 $ 59,632 $ 27,244 $ 42,306 Ratio of net expenses to average net assets(a) .85% .92% .97% .94% .87% Ratio of gross expenses to average net assets(a) .85% .92% 1.01% 1.08% 1.02% Ratio of net investment income to average net assets 1.44% .75% 1.02% 1.31% 1.19% Portfolio turnover rate 48% 129% 108% 55% 44% Average commission rate paid** $.0467 $.0429 -- -- --
** Disclosure not required for years prior to 1996. (a) Administrative fees were voluntarily waived from August 14, 1992 to March 31, 1995. # Total return would have been lower had the advisor not waived expenses.
BOND FUND YEAR ENDED OCTOBER 31 PERIOD FROM APRIL 30, 1993 TO SELECTED PER SHARE DATA 1997 1996 1995 1994 OCTOBER 31, 1993 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---- ----------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $10.13 $ 9.29 $10.27 $10.04 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .67 .67 .65 .53 .27 Net realized and unrealized gain (loss) .25 .11 .83 (.98) .24 ------ ------ ------ ------ ------ Total investment operations .92 .78 1.48 (.45) .51 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income (.66) (.70) (.64) (.53) (.27) From net realized gains (.02) (.22) -- -- (.01) ------ ------ ------ ------ ------ Total distributions (.68) (.92) (.64) (.53) (.28) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.23 $ 9.99 $10.13 $ 9.29 $10.27 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN# 9.54% 8.18% 16.49% (4.42)% 5.15% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 90,302 $ 70,577 $ 86,343 $ 64,244 $ 11,738 Ratio of net expenses to average net assets(a) .61% .68% .60% .66% .50%* Ratio of gross expenses to average net assets(a) .76% .83% .75% 1.04% 1.23%* Ratio of net investment income to average net assets 6.40% 6.82% 6.69% 5.76% 5.35%* Portfolio turnover rate 191% 154% 21% 205% 13%*
* Annualized (a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived expenses. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 59 FREMONT MUTUAL FUNDS, INC. Financial Highlights - October 31, 1997 - --------------------------------------------------------------------------------
MONEY MARKET FUND YEAR ENDED OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------ SELECTED PER SHARE DATA 1997 1996 1995 1994 1993 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .05 .05 .06 .03 .03 ------ ------ ------ ------ ------ Total investment operations .05 .05 .06 .03 .03 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income (.05) (.05) (.06) (.03) (.03) ------ ------ ------ ------ ------ Total distributions (.05) (.05) (.06) (.03) (.03) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN# 5.39% 5.34% 5.84% 3.49% 2.66% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $433,152 $329,652 $299,312 $224,439 $24,207 Ratio of net expenses to average net assets(a) .30% .31% .30% .46% .67% Ratio of gross expenses to average net assets(a) .45% .46% .45% .61% .82% Ratio of net investment income to average net assets 5.26% 5.22% 5.70% 4.02% 2.62%
(a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived expenses.
CALIFORNIA INTERMEDIATE TAX-FREE FUND YEAR ENDED OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------ SELECTED PER SHARE DATA 1997 1996 1995 1994 1993 FOR ONE SHARE OUTSTANDING DURING THE PERIOD ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $10.80 $10.86 $10.13 $11.10 $10.55 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income .51 .52 .53 .53 .55 Net realized and unrealized gain (loss) .20 (.03) .73 (.97) .62 ------ ------ ------ ------ ------ Total investment operations .71 .49 1.26 (.44) 1.17 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS From net investment income (.51) (.52) (.53) (.53) (.55) From net realized gains (.01) (.03) -- -- (.07) ------ ------ ------ ------ ------ Total distributions (.52) (.55) (.53) (.53) (.62) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.99 $10.80 $10.86 $10.13 $11.10 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN# 6.75% 4.63% 12.77% (3.94)% 11.37% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 64,309 $51,156 $ 50,313 $ 58,305 $ 59,716 Ratio of net expenses to average net assets(a) .49% .51% .50% .51% .50% Ratio of gross expenses to average net assets(a) .69% .73% .72% .71% .71% Ratio of net investment income to average net assets 4.72% 4.86% 5.08% 4.94% 5.05% Portfolio turnover rate 6% 6% 18% 21% 26%
(a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived expenses. 60 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. FREMONT MUTUAL FUNDS, INC. Notes to Financial Statements - October 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES Fremont Mutual Funds, Inc. (the Corporation) is an open-end, diversified investment company authorized to issue ten billion shares of $.0001 par value capital stock. These shares are currently offered in eleven series, ten of which are covered by this report: - the GLOBAL FUND - the BOND FUND - the INTERNATIONAL GROWTH FUND - the MONEY MARKET FUND - the INTERNATIONAL SMALL CAP FUND - the CALIFORNIA INTERMEDIATE TAX-FREE FUND - the EMERGING MARKETS FUND (THE CALIFORNIA INTERMEDIATE TAX-FREE FUND IS AVAILABLE - the U.S. MICRO-CAP FUND ONLY TO RESIDENTS OF ARIZONA, CALIFORNIA, COLORADO, NEVADA, - the U.S. SMALL CAP FUND NEW MEXICO, OREGON, TEXAS, UTAH AND WASHINGTON) - the GROWTH FUND
Each of the Funds maintains a totally separate investment portfolio. Significant accounting policies followed by the Funds are summarized below. The policies are in conformity with generally accepted accounting principles for investment companies. A. SECURITY VALUATION Investments, including options, are stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the last reported bid and asked prices or at fair value as determined by the Board of Directors. Short-term notes and similar securities are included in investments at amortized cost, which approximates value. Securities which are primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges or the most recent price available where no closing value is available. Securities in the Money Market Fund have a remaining maturity of not more than 397 days and its entire portfolio has a weighted average maturity of not more than 90 days. As such, all of the Fund's securities are valued at amortized cost, which approximates value. If the Fund's portfolio had a remaining weighted average maturity of greater than 90 days the portfolio would be stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the bid and asked prices. B. SECURITY TRANSACTIONS Security transactions are accounted for as of trade date. Realized gains and losses on security transactions are determined on the basis of specific identification for both financial statement and federal income tax purposes. C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Dividends are recorded on the ex-dividend date, except that certain dividends from foreign securities in the Global Fund, the International Growth Fund, the International Small Cap Fund and the Emerging Markets Fund are recorded when the Fund is informed of the ex-dividend date. Interest income and estimated expenses are accrued daily. Bond discount and premium are amortized as required by the Internal Revenue Code as amended. Distributions to shareholders are recorded on the ex-dividend date. The Corporation accounts for the assets of each Fund separately and allocates general expenses of the Corporation to each Fund based upon the relative net assets of each Fund or the nature of the services performed and their applicability to each Fund. D. INCOME TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all taxable income and net capital gains, if any, to shareholders. Therefore, no income tax provision is required. Each Fund is treated as a separate entity in the determination of compliance with the Internal Revenue Code and distributes taxable income and net realized gains, if any, in accordance with schedules described in their respective Prospectuses. The portfolio of California Intermediate Tax-Free Fund is composed solely of issues that qualify for tax-exempt status for both federal and State of California income tax purposes. Income dividends and capital gain distributions paid to shareholders are determined in accordance with income tax regulations which may differ from generally accepted accounting principles and, therefore, may differ from the information presented in the financial statements. These differences are generally referred to as "book/tax" differences and are primarily due to differing treatments for foreign currency transactions, losses deferred due to wash sale rules, classification of gains/losses related to paydowns and certain futures and options transactions. Permanent book/tax differences causing payments to shareholders of income dividends which are in excess of the net investment income reported in the financial statements will result in reclassification of such excess to paid in capital from undistributed net investment income. Temporary book/tax differences, which will reverse in subsequent periods, will not be reclassified and will remain in undistributed net investment income. Any taxable income or gain remaining at fiscal year end is distributed in the following year. E. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. 61 FREMONT MUTUAL FUNDS, INC. Notes to Financial Statements - October 31, 1997 - -------------------------------------------------------------------------------- F. FOREIGN CURRENCY TRANSLATION The market values of foreign securities, currency holdings, and other assets and liabilities of the Global Fund, the International Growth Fund, the International Small Cap Fund, the Emerging Markets Fund and the Bond Fund are translated to U.S. dollars based on the daily exchange rates. Purchases and sales of securities, income and expenses are translated at the exchange rate on the transaction date. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. For those Funds which are allowed by the terms of their respective prospectuses to invest in securities and other transactions denominated in foreign currencies, currency gain (loss) will occur when such securities and transactions are translated into U.S. dollars. Certain transactions which result in realized currency gain (loss) are reported on the Statements of Operations as Net Realized Gain (Loss) from Foreign Currency Transactions. These are: currency gain (loss) from the sale or maturity of forward currency contracts and from the disposition of foreign currency; and the realization of currency fluctuations between trade and settlement dates on security transactions and between accrual and receipt dates on net investment income. Realized currency gain (loss) from the sale, maturity or disposition of foreign securities is not separately reported from the economic or market component of the gain (loss) and is included under the caption Net Realized Gain (Loss) from Investments. Activity related to foreign currency futures and options on foreign currency is, likewise, reported under this heading, as these instruments are used to hedge the foreign currency risks associated with investing in foreign securities. Consistent with the method of reporting realized currency gain (loss), unrealized currency gain (loss) on investments is not separately reported from the underlying economic or market component, but included under the caption Net Unrealized Appreciation (Depreciation) on Investments. Unrealized currency gain (loss) on other net assets is reported under Net Unrealized Appreciation (Depreciation) on Translation of Assets and Liabilities in Foreign Currencies. G. FORWARD FOREIGN CURRENCY CONTRACTS A forward foreign 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. These contracts are traded over-the-counter and not on organized commodities or securities exchanges. Losses may arise due to changes in the value of the foreign currencies or if the counterparty does not perform under the contract. The Funds may and do use forward foreign currency contracts to facilitate the settlement of foreign securities. A commitment by a Fund to purchase a currency forward allows the Fund to have the local currency on hand to settle foreign security purchases on the payment date. Likewise, a commitment to sell a currency forward allows the Fund to take the foreign currency proceeds from the sale of foreign securities and exchange it for U.S. dollars at a predetermined price. In addition, the Global Fund and the Bond Fund use such contracts to manage their respective currency exposure. Contracts to receive generally are used to acquire exposure to foreign currencies, while contracts to deliver are used to hedge a fund's investments against currency fluctuations. A contract to receive or deliver can also be used to offset a previous contract. When required, the Funds will segregate assets in an amount sufficient to cover obligations under the hedge contract. The market risk involved in these contracts is in excess of the amounts reflected in the Funds Statements of Assets and Liabilities since only the change in the underlying values is reflected (as an asset if appreciated or as a liability if depreciated) and not the actual underlying values. At October 31, 1997, the underlying values for open foreign currency contracts were as follows:
NET UNREALIZED FOREIGN SETTLEMENT TO RECEIVE INITIAL APPRECIATION CURRENCY DATE (TO DELIVER) VALUE CURRENT VALUE (DEPRECIATION) ----------- ------------------- ---------- ------------ -------------- ------------- GLOBAL FUND (18,000,000) Australian Dollar 11/17/97 $(13,105,800) $(12,625,740) $ 480,060 (22,500,000) Canadian Dollar 11/17/97 (16,323,273) (15,985,790) 337,483 (46,700,000) German Deutschemark 11/17/97 (25,819,650) (27,102,316) (1,282,666) (16,500,000) British Pound 11/17/97 (26,345,880) (27,596,250) (1,250,370) (4,300,000) Irish Punt 11/17/97 (6,412,160) (6,450,430) (38,270) (69,000,000) Swedish Krona 11/17/97 (8,804,389) (9,184,692) (380,303) ------------- $ (2,134,066) ------------- ------------- EMERGING MARKETS FUND (31,174,842,500) Turkish Lira 11/03/97 $ (337,312) $ (339,595) $ (2,283) ------------- $ (2,283) ------------- ------------- BOND FUND 1,130,000 Canadian Dollar 03/11/98 $ 831,494 $ 807,374 $ (24,120) (592,000) German Deutschemark 12/11/97 (329,255) (343,866) (14,611) 1,425,000 New Zealand Dollar 12/04/97 911,629 884,996 (26,633) (3,036,000) New Zealand Dollar 12/04/97 (1,910,859) (1,885,508) 25,351 ------------- $ (40,013) ------------- -------------
62 FREMONT MUTUAL FUNDS, INC. Notes to Financial Statements - October 31, 1997 - -------------------------------------------------------------------------------- H. FUTURES A futures contract is an agreement between two parties to buy or sell a security or financial interest at a set price on a future date and is standardized and exchange-traded. Upon entering into such a contract, the purchaser is required to pledge to the broker an amount of cash or securities equal to the minimum "initial margin" requirements of the exchange on which the contract is traded. Pursuant to the contract, the purchaser agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the purchaser as unrealized gains or losses. When the contract is closed, the purchaser records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The Funds use futures contracts to hedge against changes in prevailing levels of stock values and interest rate risks. At October 31, 1997, the underlying values for open futures contracts were as follows:
NET UNREALIZED CONTRACTS EXPIRATION INITIAL CURRENT APPRECIATION TO BUY DATE VALUE VALUE (DEPRECIATION) ------ ---- ----- ----- -------------- GROWTH FUND S&P 500 Index 6 Dec 97 $ 2,806,560 $ 2,772,000 $ (34,560) S&P 500 Index 2 Dec 97 980,270 924,000 (56,270) ------------- $ (90,830) ------------- ------------- BOND FUND 5 yr. U.S. Treasury Note 50 Dec 97 $ 5,323,438 $ 5,420,313 $ 96,875 5 yr. U.S. Treasury Note 20 Dec 97 2,130,625 2,168,125 37,500 10 yr. U.S. Treasury Note 25 Dec 97 2,725,000 2,793,750 68,750 30 yr. U.S. Treasury Bond 50 Dec 97 5,868,750 5,923,437 54,687 30 yr. U.S. Treasury Bond 40 Dec 97 4,611,250 4,738,750 127,500 ------------- $ 385,312 ------------- -------------
At October 31, 1997, $190,000 and $285,000 par value of U.S. Treasury Bills for the Growth Fund and Bond Fund, respectively, were held by brokers to satisfy the initial margin requirements related to these contracts. I. SECURITIES LENDING All the Funds are authorized to make loans of their portfolio securities to broker-dealers or to other institutional investors up to 33 1/3% of their respective net assets. The borrower must maintain with the Funds' custodian collateral consisting of cash, cash equivalents or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued but unpaid distributions. The collateral is invested in a money market fund that meets the criteria of Section 2(a)-7 of the 1940 Act. The Funds receive a portion of the income earned on the collateral which is included in interest income. For the year ended October 31, 1997, transactions in securities lending resulted in fee income to the Global Fund, the International Growth Fund, the International Small Cap Fund, the Emerging Markets Fund, the U.S. Micro-Cap Fund and the Growth Fund of $172,765, $27,157, $5,182, $1,227, $38,953 and $14,276, respectively. The market value of the securities on loan and the collateral balance held by the Funds as of October 31, 1997 were as follows: MARKET VALUE COLLATERAL VALUE ------------ ---------------- Global Fund $ 65,826,774 $ 67,203,049 International Growth Fund 2,274,124 2,410,019 International Small Cap Fund 618,343 649,158 Emerging Markets Fund 276,201 291,448 U.S. Micro-Cap Fund 22,174,524 22,183,435 Growth Fund 9,727,403 9,899,085 J. REVERSE REPURCHASE AGREEMENTS During the year ended October 31, 1997, the Bond Fund entered into reverse repurchase agreements with certain brokers. Reverse repurchase agreements involve the sale of a portfolio-eligible security by the Fund, coupled with an agreement to repurchase the security at a specified date and price. Reverse repurchase agreements involve the risk that the market value of securities pledged as collateral may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. Such transactions are accounted for as a borrowing by the Fund and are subject to the Fund's overall restriction on borrowing under which it must maintain asset coverage of at least 300%. The difference between the selling price and the repurchase price is accounted for as interest expense. 63 FREMONT MUTUAL FUNDS, INC. Notes to Financial Statements - October 31, 1997 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES INVESTMENT ADVISOR The Funds each have entered into an investment management agreement with Fremont Investment Advisors, Inc. (the Advisor), a wholly owned subsidiary of Fremont Investors, Inc. Under these agreements, the Advisor supervises and implements each Fund's investment activities and provides administrative services as necessary to conduct Fund business. For its advisory and administrative services, the Advisor receives a fee based on the average daily net assets of the Funds as described below. ADVISORY FEE ADMINISTRATIVE FEE Global Fund 0.60% on all net assets 0.15% on all net assets International Growth Fund 1.50% on all net assets -- International Small Cap Fund 1.50% on all net assets -- Emerging Markets Fund* 1.00% on all net assets 0.15% on all net assets U.S. Micro-Cap Fund* 2.50% on first $30 million -- 2.00% on next $70 million -- 1.50% on balance over $100 million -- U.S. Small Cap Fund* 1.00% on all net assets 0.15% on all net assets Growth Fund 0.50% on all net assets 0.15% on all net assets Bond Fund* 0.40% on all net assets 0.15% on all net assets Money Market Fund* 0.30% on first $50 million 0.15% on all net assets 0.20% on balance over $50 million -- California Intermediate Tax-Free Fund* 0.40% on first $25 million 0.15% on all net assets 0.35% on next $25 million -- 0.30% on next $50 million -- 0.25% on next $50 million -- 0.20% on balance over $150 million -- * The Advisor has voluntarily waived and/or reimbursed some of its fees for these Funds. Except for the U.S. Small Cap Fund, all fees waived in the past will not be recouped in the future. The waivers are voluntary and they may be changed in the future. For the Emerging Markets Fund, the Advisor voluntarily waived advisory, 12b-1 and administrative fees and reimbursed all other operating expenses from June 24, 1996 to September 18, 1997, after which the Advisor limited the total operating expenses to 1.50% of average net assets. For the year ended October 31, 1997, the Advisor waived and/or reimbursed fees and expenses of $231,939 for the Emerging Markets Fund. For the U.S. Micro-Cap Fund, the Advisor is voluntarily limiting the advisory fee to a reduced rate of no greater than 1.98% of average net assets. For the year ended October 31, 1997, the Advisor waived advisory fees of $32,138 for the U.S. Micro-Cap Fund. For the U.S. Small Cap Fund, the Advisor is voluntarily limiting the Funds total operating expenses to 1.50% of average net assets. The Fund may reimburse the Advisor for any reductions in the Advisor's fees 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 interests of the Fund. The Advisor generally seeks to reimburse the oldest reductions and waivers before payment of fees and expenses for the current year. 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 payment is probable. For the period ended October 31, 1997, the Advisor has reimbursed expenses subject to recoupment of $10,033. For the Bond Fund and the Money Market Fund, the Advisor is voluntarily waiving the administrative fee in its entirety. For the year ended October 31, 1997, the Advisor waived administrative fees of $113,536 and $590,176, respectively, for the Bond Fund and the Money Market Fund. For the California Intermediate Tax-Free Fund, the Advisor is voluntarily reducing the advisory and administrative fees to 0.30% and 0.005% of average net assets, respectively. For the year ended October 31, 1997, the Advisor waived advisory and administrative fees of $37,500 and $88,645, respectively, for the California Intermediate Tax-Free Fund. 64 FREMONT MUTUAL FUNDS, INC. Notes to Financial Statements - October 31, 1997 - -------------------------------------------------------------------------------- Ratios of expenses have been disclosed both before and after the impact of these various waivers and/or reimbursements under each Fund's Financial Highlights table. Under the terms of the Advisory agreements, the Advisor receives a single management fee (i.e., a unitary fee) from the International Growth Fund, the International Small Cap Fund and the U.S. Micro-Cap Fund, and is obligated to pay all expenses of these Funds except extraordinary expenses (as determined by a majority of the disinterested directors) and interest, brokerage commissions, and other transaction charges relating to the investing activities of those Funds. Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Emerging Markets Fund and the U.S. Small Cap Fund have adopted a plan of distribution under which the Funds may directly incur or reimburse the Advisor for certain distribution-related expenses. The maximum amount the Funds are obligated to pay the Advisor is 0.25% of their respective average net assets. Payments have been waived by the Advisor in their entirety for the Emerging Markets Fund through September 18 ,1997. Each Fund is also required to comply with the limitations set forth in the laws, regulations, and administrative interpretations of the states in which it is registered. For the year ended October 31, 1997, no reimbursements were required or made to any Fund by the Advisor to comply with these limitations. Under the terms of a shareholder services agreement with the Advisor, effective July 1, 1996, the Funds pay the Advisor for transfer agent services on a per shareholder account basis, subject to a monthly minimum per Fund as well as out-of-pocket expenses. Total costs incurred by the Funds in aggregate for the year ended October 31, 1997 were $321,205, excluding funds under a unitary fee arrangement. AFFILIATED COMPANY TRANSACTIONS Investments in portfolio companies, 5% or more of whose outstanding voting securities are held by a Fund, are defined in the Investment Act of 1940 as affiliated companies. The U.S. Micro-Cap Fund had investments in such affiliated companies. A summary of transactions for each issuer who is an affiliate during the year ended October 31, 1997, follows ($ in thousands):
SHARE AGGREGATE AGGREGATE NET SHARE BALANCE PURCHASE SALES REALIZED BALANCE VALUE ISSUER 10/31/96 COST COST (LOSS) INCOME 10/31/97 10/31/97 - -------- -------- --------- --------- --------- --------- -------- ---------- Interlink Electronics, Inc. - $ 2,592 $ 193 $(46) $ - 320,200 $ 2,442 Richey Electronics, Inc. 253,900 2,538 608 (146) - 455,500 4,441 V-One Corp. 140,000 3,515 - - - 681,400 2,726 --------- --------- --------- --------- ---------- $ 8,645 $ 801 $ (192) $ - $ 9,609 --------- --------- --------- --------- ---------- --------- --------- --------- --------- ----------
OTHER RELATED PARTIES At October 31, 1997, Fremont Investors, Inc. and its affiliated companies including their employee retirement plans, its principal shareholder and members of his family, including trusts, owned directly or indirectly the following approximate percentages of the various Funds: % OF SHARES OUTSTANDING ----------------------- Global Fund 61% International Growth Fund 85% International Small Cap Fund 30% Emerging Markets Fund 60% U.S. Micro-Cap Fund 6% U.S. Small Cap Fund 90% Growth Fund 61% Bond Fund 81% Money Market Fund 77% California Intermediate Tax-Free Fund 71% Certain officers and/or directors of the Funds are also officers and/or directors of the Advisor and/or Fremont Investors, Inc. None of the officers and/or directors so affiliated receive compensation for services as officers and/or directors of the Funds 3. ORGANIZATION COSTS Costs incurred by each Fund, if any, in connection with its organization have been deferred and are amortized on a straight-line basis over a period of five years (60 months). 65 FREMONT MUTUAL FUNDS, INC. Notes to Financial Statements - October 31, 1997 - -------------------------------------------------------------------------------- 4. PURCHASES AND SALES/MATURITIES OF INVESTMENT SECURITIES Aggregate purchases and aggregate proceeds from sales and maturities of securities for the year ended October 31, 1997 were as follows:
PURCHASES PROCEEDS ------------- ------------- LONG-TERM SECURITIES EXCLUDING U.S. GOVERNMENT SECURITIES: Global Fund $ 416,795,412 $ 259,359,299 International Growth Fund 36,033,006 36,534,258 International Small Cap Fund 6,273,213 5,366,978 Emerging Markets Fund 23,020,007 16,332,458 U.S. Micro-Cap Fund 195,696,968 159,824,287 U.S. Small Cap Fund 4,886,457 246,892 Growth Fund 92,019,628 55,147,560 Bond Fund 22,961,350 33,410,168 California Intermediate Tax-Free Fund 14,563,011 3,510,000 LONG-TERM U.S. GOVERNMENT SECURITIES: Global Fund $ 33,015,161 $ 17,595,127 Bond Fund 118,716,919 100,517,666
Transactions in written put and call options for the year ended October 31, 1997 for the Bond Fund were as follows:
AMOUNT OF PREMIUMS NUMBER OF CONTRACTS ------------------- ------------------- Options outstanding at October 31, 1996 $ 70,996 50 Options sold 41,625 50 Options cancelled in closing purchase transactions -- -- Options expired prior to exercise (70,996) (50) Options exercised -- -- --------- --------- Options outstanding at October 31, 1997 $ 41,625 50 --------- --------- --------- ---------
The following written options were outstanding at October 31, 1997:
NAME OF ISSUER NUMBER OF EXERCISE EXPIRATION -------------- CONTRACTS PRICE DATE VALUE -------------- --------- -------- ---------- PUT OPTIONS: Chicago Mercantile Exchange Dec 97 Eurodollar Futures 50 93.75 12/15/97 $ 625
The Bond Fund received premiums of $41,625 on these contracts and has an unrealized gain of $41,000. The total notional value underlying these contracts is $50,000,000. 5. PORTFOLIO CONCENTRATIONS Although each Fund has a diversified investment portfolio, there are certain investment concentrations of risk which may subject each Fund more significantly to economic changes occurring in certain segments or industries. 6. UNREALIZED APPRECIATION (DEPRECIATION) - TAXBASIS At October 31, 1997, the cost of securities for Federal income tax purposes and the gross aggregate unrealized appreciation and/or depreciation based on that cost were as follows:
GROSS AGGREGATE UNREALIZED ---------------------------------------------------------------------- COST APPRECIATION DEPRECIATION NET ------------- ------------ ------------- ------------ Global Fund $ 621,573,262 $ 90,046,031 $ (37,215,566) $ 52,830,465 International Growth Fund 36,383,619 6,641,580 (4,453,948) 2,187,632 International Small Cap Fund 10,308,150 905,015 (2,765,779) (1,860,764) Emerging Markets Fund 12,866,480 330,081 (1,755,578) (1,425,497) U.S. Micro-Cap Fund 160,714,159 23,553,625 (12,106,047) 11,447,578 U.S. Small Cap Fund 6,277,282 86,259 (333,098) (246,839) Growth Fund 123,319,987 26,395,779 (2,734,854) 23,660,925 Bond Fund 99,516,749 2,791,181 (189,156) 2,602,025 Money Market Fund 432,832,119 -- -- -- California Intermediate Tax-Free Fund 60,794,566 2,743,521 -- 2,743,521
66 EX-1.B 3 ANNUAL REPORT FREMONT MUTUAL FUNDS, INC.-Registered Trademark- INSTITUTIONAL U.S. MICRO-CAP ANNUAL REPORT [GRAPHIC] 1997 OCTOBER 31, 1997 [LOGO] - -------------------------------------------------------------------------------- FREMONT FUNDS - -------------------------------------------------------------------------------- TABLE OF CONTENTS FUND PROFILES AND LETTERS TO SHAREHOLDERS Fremont Institutional U.S. Micro-Cap Fund. . . . . . . . . . . . . . . . . . . 2 Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . 4 STATEMENT OF INVESTMENTS Fremont Institutional U.S. Micro-Cap Fund. . . . . . . . . . . . . . . . . . . 5 COMBINED FINANCIAL STATEMENTS Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . 7 Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . 9 FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 10 1 - -------------------------------------------------------------------------------- FREMONT FUNDS - -------------------------------------------------------------------------------- FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND ROBERT E. KERN, PORTFOLIO MANAGER KERN CAPITAL MANAGEMENT LLC [PHOTO] ROBERT E. KERN FUND PROFILE THE U.S. MICRO-CAP STOCK MARKET (STOCKS WITH MARKET CAPITALIZATIONS IN THE BOTTOM 5% OF THE EQUITIES MARKET) IS A BREEDING GROUND FOR ENTREPRENEURIALLY MANAGED COMPANIES WITH EXCEPTIONAL GROWTH PROSPECTS. WITH MINIMAL WALL STREET RESEARCH COVERAGE AND LOW INSTITUTIONAL OWNERSHIP, MICRO-CAP STOCKS REPRESENT THE LEAST EFFICIENT SECTOR OF THE DOMESTIC EQUITIES MARKET. THIS INEFFICIENCY CREATES ATTRACTIVE INVESTMENT OPPORTUNITIES FOR THE RESEARCH-DRIVEN STOCK PICKERS MANAGING THE FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND. SINCE THE INVESTMENT POTENTIAL OF MICRO-CAP STOCKS IS LARGELY DETERMINED BY THE BUSINESS PROSPECTS FOR INDIVIDUAL COMPANIES RATHER THAN MACRO-ECONOMIC TRENDS, THE FUND'S FOCUS IS ON BOTTOM-UP STOCK SELECTION. FUND MANAGEMENT ANALYZES FINANCIAL STATEMENTS, THE COMPANY'S COMPETITIVE POSITION, AND MEETS WITH KEY CORPORATE DECISION MAKERS TO DISCUSS STRATEGIES FOR FUTURE GROWTH. THE FUND'S GOAL IS TO FIND "WINNERS" EARLY IN THEIR GROWTH CYCLE AND, IMPORTANTLY, TO MINIMIZE FUNDAMENTAL INVESTMENT MISTAKES. SUCCESSFUL MICRO-CAP INVESTING ALSO INVOLVES MINIMIZING TRANSACTION COSTS. THE FUND'S DEDICATED TRADERS WORK HAND-IN-HAND WITH THE PORTFOLIO MANAGEMENT TEAM ON EXECUTION STRATEGIES TO ENHANCE THE FUND'S PERFORMANCE. ROBERT E. KERN IS NATIONALLY RECOGNIZED AS A PIONEER AND LEADING PRACTITIONER OF MICRO-CAP RESEARCH AND PORTFOLIO MANAGEMENT. TO OUR SHAREHOLDERS, From inception on August 4, 1997 through October 31, 1997, the Fund returned 0.90% compared to the Russell 2000's 4.62% gain over the same time period. With the Fund just getting started, performance comparisons at this stage are relatively meaningless. I am pleased to be managing a Fremont fund designed specifically for institutional investors. We opened this fund to provide the financial advisor FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND INVESTMENT RETURNS ANNUAL RETURNS [GRAPH] GROWTH OF $10,000+ [GRAPH] RETURNS FOR PERIODS ENDED 10/31/97 SINCE INCEPTION 8/4/97 +0.90%* FREMONT INSTITUTIONAL RUSSELL U.S. MICRO-CAP FUND 2000 INDEX ($10,090) ($10,462) 8/4/97 $10,000 $10,000 8/31/97 1.20% $10,120 1.97% $10,197 9/30/97 8.70% $11,000 7.32% $10,943 10/31/97 (8.27%) $10,090 (4.39%) $10,462 * Unannualized + Assumes initial investment of $10,000 on inception date, August 4, 1997. Performance data illustrated is historical. Past performance is not predictive of future performance. Share price and return will vary so that a gain or loss may be realized when shares are sold. All performance figures assume reinvestment of dividends. Management fees and other expenses are included in the Fund's performance; however, fees and expenses are not incorporated in the Russell 2000 Index. 2 - -------------------------------------------------------------------------------- FREMONT FUNDS - -------------------------------------------------------------------------------- community a way to invest in an institutionally priced micro-cap mutual fund, with a successful 10-year track record. We hope that this fund will be an important investment for you and your clients for many years to come. Since the Fund was introduced recently, we thought it appropriate to talk a little bit about the Fund's sub-advisory firm, Kern Capital Management LLC. Every member of Kern Capital's investment team has dedicated their career to small and micro-cap stock analysis and portfolio management. Co-managers Judy Finger and my son, David; analysts Greg Weaver and Ted Graham; and trader Mike Murphy are all small company investment specialists. We believe the key to success in this field is dedicated hands-on research. We are tire kickers. We don't just analyze financial statements. We go out and meet with corporate managements, review their business plans and evaluate whether these strategies will be effective. We talk to vendors, competitors, customers and other smart folks we've gotten to know in their industries. In other words, we try not to leave any stone unturned in an attempt to determine if these small companies have the realistic potential to grow into bigger, even more successful entities. Now that you know a little more about us, some comments on the events of late October are in order. Although longer term, we believe the Fund's micro-cap stocks will succeed or fail based on their own individual merits; they are not immune to sharp short-term market swings on the up or down side. Our portfolio was not a particularly safe haven in late October, when the U.S. stock market, and especially the technology group, was hit by emotional selling sparked by currency and market turmoil in Southeast Asia. We are not sure how long emerging markets will remain under pressure, however recent events will probably cause global investors to refocus on U.S. equities, and in particular, successful smaller companies. Since the Fund's inception, we have deployed what we referred to in a September 8, 1997 Barron's article as a "no-name offense"--investing in companies flying well below most analysts' radar screens. By and large, these companies have not had spectacular earnings growth over the last year or so, but in our opinion, are well-positioned to accelerate earnings down the road. CHANNELL COMMERCIAL, a Temecula, California-based manufacturer of environmental enclosures for broadband telecommunications and cable television infrastructure, is one of our "no-names." Due to reduced capital spending in the cable television industry, Channell's revenue and earnings growth has slowed in recent years. However, with Microsoft's Bill Gates investing some very serious money in the cable TV industry (which he appears to believe will ultimately be the most efficient internet access highway), capital spending should increase substantially in the years ahead. With telephone companies competing with cable operators for internet transmission supremacy, Channell Commercial's markets should experience strong growth. As a market-share leader in its business, Channell is expected to achieve its growth goals through a combination of internal new product development and acquisitions. We must add the caveat that we reserve the right to change our investment opinion on this and all other stocks in the portfolio if warranted. In closing, our team thanks you for your support. We believe selected U.S. micro-cap stocks will continue to provide us with attractive long-term investment returns. Sincerely, /s/ Robert E. Kern Robert E. Kern Portfolio Manager Fremont Institutional U.S. Micro-Cap Fund 3 - -------------------------------------------------------------------------------- FREMONT FUNDS - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF FREMONT MUTUAL FUNDS, INC.: We have audited the accompanying statement of assets and liabilities of the Fremont Institutional U.S. Micro-Cap Fund (the Fund) of Fremont Mutual Funds, Inc., including the statement of investments in securities and net assets, as of October 31, 1997, and the related statements of operations, changes in net assets, and the financial highlights for the period August 4, 1997 (date of inception) through October 31, 1997. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1997, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fremont Institutional U.S. Micro-Cap Fund of Fremont Mutual Funds, Inc., as of October 31, 1997, the results of its operation, the changes in its net assets, and its financial highlights for the period August 4, 1997 (date of inception) through October 31, 1997, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. San Francisco, California December 9, 1997 4 FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS VALUE SHARES SECURITY DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- STOCKS 85.8% BUSINESS EQUIPMENT & SERVICES 11.8% * 15,000 AmeriLink Corp. $ 393,750 * 45,600 Armor Holdings, Inc. 501,600 * 17,000 Diversified Corporate Resources, Inc. 153,000 * 27,700 First Aviation Services, Inc. 214,675 * 4,500 Hospitality Worldwide Services 52,313 * 27,300 International Total Services, Inc. 399,263 * 62,600 NuCO2, Inc. 813,800 * 10,000 Rental Service Corp. 267,500 * 107,000 Richey Electronics, Inc. 1,043,250 * 1,300 RWD Technologies, Inc. 29,250 * 56,600 Specialty Teleconstructors, Inc. 898,525 ----------- 4,766,926 ----------- CAPITAL GOODS 8.8% * 42,000 Adept Technology, Inc. 572,250 * 33,750 AFC Cable Systems, Inc. 957,656 * 23,500 AVTEAM, Inc. 199,382 * 55,000 Channell Commercial Corp. 680,625 6,200 Furon Co. 236,375 * 21,900 Gradall Industries, Inc. 342,188 * 51,300 IMPCO Technologies, Inc. 570,713 ----------- 3,559,189 ----------- CONSUMER NON-DURABLES 2.0% * 6,000 Authentic Specialty Foods, Inc. 74,250 * 24,000 Royal Appliance Manufacturing Co. 189,000 * 15,000 Tefron Ltd. 287,812 * 29,000 Toymax International, Inc. 261,000 ----------- 812,062 ----------- CONSUMER SERVICES 10.7% * 13,000 Cinar Films, Inc. (Class B) 505,375 * 37,200 Damark International, Inc. (Class A) 432,450 * 11,000 Family Golf Centers, Inc. 294,250 * 57,685 Saga Communications, Inc. (Class A) 1,168,121 * 19,400 Servico, Inc. 309,188 * 30,500 UOL Publishing, Inc. 655,750 * 80,000 Warrantech Corp. 960,000 ----------- 4,325,134 ----------- ENERGY 1.7% * 8,000 KTI, Inc. 116,000 * 10,000 Offshore Logistics, Inc. 210,000 8,600 RPC, Inc. 258,000 * 6,000 Willbros Group, Inc. 117,000 ----------- 701,000 ----------- FINANCIAL SERVICES 2.4% 6,300 PennFed Financial Services, Inc. 189,000 39,800 R&G Financial Corp. (Class B) 791,025 ----------- 980,025 ----------- HEALTH CARE 12.2% * 46,650 Advance Paradigm, Inc. $ 1,189,575 * 27,500 DAOU Systems, Inc. 725,313 * 46,500 Del Global Technologies Corp. 470,812 * 62,000 Genelabs Technologies, Inc. 240,250 * 14,800 Interpore International 138,750 * 13,000 Monarch Dental Corp. 235,625 * 10,500 Oacis Healthcare Holdings Corp. 60,375 * 15,000 Perclose, Inc. 367,500 * 17,000 PMR Corp. 391,000 * 8,000 ResMed, Inc. 224,000 * 23,000 Wesley Jessen VisionCare, Inc. 672,750 * 19,000 ZymeTx, Inc. 212,562 ----------- 4,928,512 ----------- MULTI-INDUSTRY 1.0% * 26,200 Metals USA, Inc. 386,450 ----------- 386,450 ----------- RAW MATERIALS 0.8% 33,300 Northern Technologies International 341,325 ----------- 341,325 ----------- RETAIL 6.9% * 11,500 Audio Book Club, Inc. 87,688 * 20,100 Cross-Continent Auto Retailers, Inc. 198,487 * 8,500 DM Management Co. 127,500 * 54,000 Garden Ridge Corp. 722,250 * 62,200 Genesco, Inc. 789,163 * 25,500 New West Eyeworks, Inc. 229,500 * 5,000 S & K Famous Brands, Inc. 68,750 * 17,000 Showbiz Pizza Time, Inc. 361,250 * 6,500 Star Buffet, Inc. 93,031 * 16,200 Successories, Inc. 108,338 ----------- 2,785,957 ----------- TECHNOLOGY (COMPONENTS) 8.6% * 78,900 Ceradyne, Inc. 404,363 * 70,700 Interlink Electronics, Inc. 539,088 * 13,000 Micrel, Inc. 466,375 * 35,500 Orckit Communications Ltd. 630,125 * 16,600 PCD, Inc. 336,150 * 29,000 Pericom Semiconductor Corp. 264,624 * 39,500 Semiconductor Packaging Materials Co., Inc. 375,250 * 62,700 Southwall Technologies, Inc. 485,925 ----------- 3,501,900 ----------- TECHNOLOGY (EQUIPMENT) 4.2% * 31,000 Andrea Electronics Corp. 651,000 * 11,400 Innova Corp. 245,100 * 8,800 PRI Automation, Inc. 336,600 * 15,900 Schmitt Industries, Inc. 176,888 * 27,600 Thermedics Detection, Inc. 289,800 ----------- 1,699,388 ----------- * Non-income producing securities The accompanying notes are an integral part of these financial statements. 5 FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- VALUE SHARES SECURITY DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- TECHNOLOGY (SOFTWARE) 13.7% * 41,000 Credit Management Solutions, Inc. $ 589,374 * 51,900 Geoworks Corp. 661,724 * 65,900 ISG International Software Group Ltd. 823,750 * 68,200 MDSI Mobile Data Solutions, Inc. 1,176,450 * 49,800 OrCAD, Inc. 438,862 * 73,000 Peerless Systems Corp. 949,000 * 31,600 Template Software, Inc. 339,700 * 147,200 V-One Corp. 588,800 ----------- 5,567,660 ----------- TRANSPORTATION 1.0% * 31,800 Smithway Motor Express Corp. (Class A) 429,301 ----------- 429,301 ----------- TOTAL STOCKS (Cost $30,501,113) 34,784,829 ----------- SHARES/FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY - -------------------------------------------------------------------------------- SHORT TERM SECURITIES 12.9% 43,740 Benchmark Diversified Assets Fund 43,740 $5,200,000 Federal Home Loan Bank, Agency Note, 5.550%, 11/03/97 5,198,397 ----------- TOTAL SHORT TERM SECURITIES (Cost $5,242,137) 5,242,137 ----------- TOTAL INVESTMENTS (Cost $35,743,250), 98.7% 40,026,966 OTHER ASSETS AND LIABILITIES, NET, 1.3% 518,397 ----------- NET ASSETS, 100.0% $40,545,363 =========== * Non-income producing securities The accompanying notes are an integral part of these financial statements. 6 FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES (ALL NUMBERS IN THOUSANDS EXCEPT NET ASSET VALUE PER SHARE) ASSETS: Investments in securities at cost $ 35,743 ----------- Investments in securities at value (Note 1) 40,027 Dividends and interest receivable 3 Receivable for securities sold 933 Receivable from management company 23 Receivable from sale of fund shares 563 Unamortized organization costs (Note 3) 24 ----------- TOTAL ASSETS 41,573 ----------- LIABILITIES: Dividends payable to shareholders 29 Payable for securities purchased 900 Payable to management company 26 Accrued expenses: Investment advisory, administrative and shareholder servicing fees 48 Other 25 ----------- TOTAL LIABILITIES 1,028 ----------- NET ASSETS $ 40,545 =========== Net assets consist of: Paid in capital $ 35,012 Unrealized appreciation on investments 4,284 Accumulated net realized gain 1,249 ----------- NET ASSETS $ 40,545 =========== SHARES OF CAPITAL STOCK OUTSTANDING 4,145 =========== NET ASSET VALUE PER SHARE $ 9.78 =========== The accompanying notes are an integral part of these financial statements. 7 FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS (FOR THE PERIOD AUGUST 4, 1997, DATE OF INCEPTION, THROUGH OCTOBER 31, 1997) (ALL NUMBERS IN THOUSANDS) INVESTMENT INCOME: Interest $ 97 Dividends 4 ----------- TOTAL INCOME 101 ----------- EXPENSES: Investment advisory and administrative fees (Note 2) 111 Shareholder servicing fees (Note 2) 7 Custody fees 4 Accounting fees 6 Audit and legal fees 4 Directors' fees (Note 2) 2 Registration fees 5 Other 5 ----------- TOTAL EXPENSES BEFORE REDUCTIONS 144 Expenses waived and/or reimbursed by Advisor (Note 2) (23) ----------- TOTAL NET EXPENSES 121 ----------- NET INVESTMENT LOSS (20) ----------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS: Net realized gain from investments 2,498 Net unrealized depreciation on investments (2,226) ----------- Net realized and unrealized gain from investments 272 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 252 =========== The accompanying notes are an integral part of these financial statements. 8 FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND October 31, 1997 - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS (FOR THE PERIOD AUGUST 4, 1997, DATE OF INCEPTION, THROUGH OCTOBER 31, 1997) (ALL NUMBERS IN THOUSANDS) INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment loss $ (20) Net realized gain from investments 2,498 Net unrealized depreciation on investments (2,226) ----------- Net increase in net assets from operations 252 ----------- Distributions to shareholders from: Net realized gains (1,229) ----------- Total distributions to shareholders (1,229) ----------- From capital share transactions: Proceeds from shares sold (Note 2) 40,322 Reinvested dividends 1,200 ----------- Net increase in net assets from capital share transactions 41,522 ----------- Net increase in net assets 40,545 Net assets at beginning of period -- ----------- NET ASSETS AT END OF PERIOD $ 40,545 =========== CAPITAL TRANSACTIONS IN SHARES: Sold (Note 2) 4,022 Reinvested dividends 123 ----------- Net increase from capital share transactions 4,145 =========== FINANCIAL HIGHLIGHTS (FOR THE PERIOD AUGUST 4, 1997, DATE OF INCEPTION, THROUGH OCTOBER 31, 1997) SELECTED PER SHARE DATA FOR ONE SHARE OUTSTANDING DURING THE PERIOD NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ----------- INCOME FROM INVESTMENT OPERATIONS Net realized and unrealized gain .09 ----------- Total investment operations .09 ----------- LESS DISTRIBUTIONS From net realized gains (.31) ----------- Total distributions (.31) ----------- NET ASSET VALUE, END OF PERIOD $ 9.78 =========== TOTAL RETURN# 0.90% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000s omitted) $ 40,545 Ratio of net expenses to average net assets(a) 1.25%* Ratio of gross expenses to average net assets(a) 1.49%* Ratio of net investment loss to average net assets(a) (0.21)%* Portfolio turnover rate 28% Average commission rate paid $ .0521 *Annualized (a) See Note 2 of "Notes to Financial Statements." # Total return would have been lower had the advisor not waived and/or reimbursed expenses. The accompanying notes are an integral part of these financial statements. 9 FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND Notes to Financial Statements - October 31, 1997 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Fremont Mutual Funds, Inc. (the Corporation) is an open-end, diversified investment company authorized to issue ten billion shares of $.0001 par value capital stock. These shares are currently offered in eleven series, one of which, the Institutional U.S. Micro-Cap Fund (the Fund), is covered by this report. The Fund has its own investment objective and policies and operates as a separate mutual fund. Significant accounting policies followed by the Fund are summarized below. The policies are in conformity with generally accepted accounting principles for investment companies. A. SECURITY VALUATION Investments, including options, are stated at value based on recorded closing sales on a national securities exchange or, in the absence of a recorded sale, at the mean between the last reported bid and asked prices or at fair value as determined by the Board of Directors. Short-term notes and similar securities are included in investments at amortized cost, which approximates value. Securities which are primarily traded on foreign exchanges are generally valued at the closing values of such securities on their respective exchanges or the most recent price available where no closing value is available. B. SECURITY TRANSACTIONS Security transactions are accounted for as of trade date. Realized gains and losses on security transactions are determined on the basis of specific identification for both financial statement and federal income tax purposes. C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Dividends are recorded on the ex-dividend date. Interest income and estimated expenses are accrued daily. Bond discount and premium are amortized as required by the Internal Revenue Code as amended. Distributions to shareholders are recorded on the ex-dividend date. The Corporation accounts for the assets of the Fund and allocates general expenses of the Corporation to the Fund based upon the relative net assets of the Fund or the nature of the services performed and their applicability to the Fund. D. INCOME TAXES The Fund's policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all taxable income and net capital gains, if any, to shareholders. Therefore, no income tax provision is required. The Fund is treated as a separate entity in the determination of compliance with the Internal Revenue Code and distributes taxable income and net realized gains, if any, in accordance with schedules described in the prospectus. Income dividends and capital gain distributions paid to shareholders are determined in accordance with income tax regulations which may differ from generally accepted accounting principles and, therefore, may differ from the information presented in the financial statements. These differences are generally referred to as "book/tax" differences and are primarily due to differing treatments for losses deferred due to wash sale rules, classification of gains/losses related to certain futures and options transactions. Permanent book/tax differences causing payments to shareholders of income dividends which are in excess of the net investment income reported in the financial statements will result in reclassification of such excess to paid in capital from undistributed net investment income. Temporary book/tax differences, which will reverse in subsequent periods, will not be reclassified and will remain in undistributed net investment income. Any taxable income or gain remaining at fiscal year end is distributed in the following year. E. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES INVESTMENT ADVISOR The Fund has entered into an investment management agreement with Fremont Investment Advisors, Inc. (the Advisor), a wholly owned subsidiary of Fremont Investors, Inc. Under this agreement, the Advisor supervises and implements the Fund's investment activities and provides administrative services as necessary to conduct Fund business. For its advisory and administrative services, the Advisor receives a fee based on the average daily net assets of the Fund at an annual rate of 1.15%. The Advisor has agreed to limit the Fund's total operating expenses to 1.25% of average daily net assets. The Fund may reimburse the Advisor for any reductions in the Advisor's fees 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 interests of the Fund. The Advisor generally seeks to reimburse the oldest reductions and waivers before payment of fees and expenses for the current year. 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 payment is probable. For the period ended October 31, 1997, the Advisor has reimbursed expenses subject to recoupment of $22,911. 10 FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND Notes to Financial Statements - October 31, 1997 - -------------------------------------------------------------------------------- Ratios of expenses have been disclosed both before and after the impact of these various waivers and/or reimbursements under the Fund's Financial Highlights table. The Fund is also required to comply with the limitations set forth in the laws, regulations, and administrative interpretations of the states in which it is registered. For the period ended October 31, 1997, no reimbursements were required or made to the Fund by the Advisor to comply with these limitations. Under the terms of a shareholder services agreement with the Advisor, the Fund pays the Advisor for transfer agent services on a per shareholder account basis, subject to a monthly minimum as well as out-of-pocket expenses. Total costs incurred by the Fund for the period ended October 31, 1997 were $2,168. OTHER RELATED PARTIES At October 31, 1997, Fremont Investors, Inc. and its affiliated companies including their employee retirement plans, its principal shareholder and members of his family, including trusts, owned directly or indirectly approximately 95% of the Fund. On August 4, 1997, the Fund commenced operations upon the transfer of assets from a separate account of an employee retirement plan. This transfer was accomplished by a tax-free exchange of 3,785,450 shares of the Fund for investments with a market value and cost of $37,854,505 and $31,344,942, respectively. Certain officers and/or directors of the Fund are also officers and/or directors of the Advisor and/or Fremont Investors, Inc. None of the officers and/or directors so affiliated receive compensation for services as officers and/or directors of the Fund. 3. ORGANIZATION COSTS Costs incurred by the Fund, if any, in connection with its organization have been deferred and are amortized on a straight-line basis over a period of five years (60 months). 4. PURCHASES AND SALES/MATURITIES OF INVESTMENT SECURITIES Aggregate purchases and aggregate proceeds from sales and maturities of securities for the period ended October 31, 1997 were as follows: PURCHASES PROCEEDS ----------- ---------- Long-term securities: $15,865,170 $9,390,886 5. PORTFOLIO CONCENTRATIONS Although the Fund has a diversified investment portfolio, there are certain investment concentrations of risk which may subject the Fund more significantly to economic changes occurring in certain segments or industries. 6. UNREALIZED APPRECIATION (DEPRECIATION) - TAX BASIS At October 31, 1997, the cost of securities for federal income tax purposes was $35,750,256, and the net unrealized appreciation based on that cost were as follows: Unrealized appreciation $ 6,775,990 Unrealized depreciation (2,499,280) ----------- Net unrealized appreciation $ 4,276,710 =========== 11 This page left blank intentionally. [LOGO] 50 Beale Street, Suite 100 San Francisco, CA 94105 EX-1 4 ARTICLES SUPPLEMENTARY FREMONT MUTUAL FUNDS, INC. ARTICLES SUPPLEMENTARY Fremont Mutual Funds, Inc., a Maryland corporation, having its principal office in Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article FIFTH of the Charter of the Corporation, the Board of Directors has duly classified 100,000,000 shares of the unissued shares of capital stock of the Corporation into a series designated the Fremont Institutional U.S. Micro-Cap Fund (the "Institutional U.S. Micro- Cap Fund") and has provided for the issuance of such series. The Board of Directors of the Corporation may from time to time increase or decrease the number of shares of capital stock so classified. All such shares are initially classified as "Class A Common Stock" of the Institutional U.S. Micro-Cap Fund. The Board of Directors may classify or reclassify any unissued shares of capital stock of the Institutional U.S. Micro-Cap Fund (whether or not such shares have been previously classified or reclassified) from time to time by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock. SECOND: A description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Institutional U.S. Micro-Cap Fund is as follows: (1) Assets Belonging to the Institutional U.S. Micro-Cap Fund Series. All consideration received by the Corporation from the issue or sale of shares of the Institutional U.S. Micro-Cap Fund, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the Institutional U.S. Micro-Cap Fund for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items allocated to the Institutional U.S. Micro-Cap Fund as provided in the following sentence, are herein referred to as "assets belonging to" the Institutional U.S. Micro-Cap Fund. If there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular class or series (collectively "General Items"), such General Items shall be allocated by or under the supervision of the Board of Directors to the -1- Institutional U.S. Micro-Cap Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable; and any General Items so allocated to the Institutional U.S. Micro-Cap Fund shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes. (2) Liabilities Of the Institutional U.S. Micro-Cap Fund Series. The assets belonging to the Institutional U.S. Micro-Cap Fund shall be charged with the liabilities of the Corporation in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as belonging to any particular class or series shall be allocated and charged by or under the supervision of the Board of Directors to the Institutional U.S. Micro-Cap Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to the Institutional U.S. Micro-Cap Fund are herein referred to as "liabilities belonging to" that series. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Directors shall be conclusive and binding for all purposes. (3) Income Belonging to the Institutional U.S. Micro-Cap Fund Series. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the Investment Company Act of 1940, as amended (the "1940 Act"), to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding. Income belonging to the Institutional U.S. Micro-Cap Fund includes all income, earnings and profits derived from assets belonging to the Institutional U.S. Micro-Cap Fund less any expenses, costs, charges or reserves belonging to the Institutional U.S. Micro-Cap Fund for the relevant time period, all determined in accordance with generally accepted accounting principles. (4) Dividends and Distributions. Dividends and distributions on shares of the Institutional U.S. Micro-Cap Fund may be paid with such frequency, in such form and in such amount as the Board of Directors may from time to time determine. Dividends may be daily or otherwise pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities belonging to the Institutional U.S. Micro-Cap Fund. All dividends on shares of the Institutional U.S. Micro-Cap Fund shall be paid only out of the income belonging to the Institutional U.S. Micro-Cap Fund and capital gains distributions on shares of the Institutional U.S. Micro-Cap Fund shall be paid only out of the capital gains belonging to the Institutional U.S. Micro-Cap Fund. Subject to subsection (12) below, all dividends and distributions on shares of the Institutional U.S. Micro-Cap Fund shall be distributed pro rata to the holders of the Institutional U.S. Micro-Cap Fund in proportion to the number of shares of the Institutional U.S. Micro-Cap Fund held by such holders at the date and -2- time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no dividend or distribution shall be payable on shares as to which the Shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. The Institutional U.S. Micro-Cap Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended, or any successor or comparable statute thereto, and regulations promulgated thereunder. Inasmuch as the computation of net income and gains for federal income tax purposes may vary from the computation thereof on the books of the Institutional U.S. Micro-Cap Fund, the Board of Directors shall have the power, in its sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Board of Directors, to enable the Institutional U.S. Micro-Cap Fund to qualify as a regulated investment company and to avoid liability of the Institutional U.S. Micro-Cap Fund for federal income tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Directors to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the Institutional U.S. Micro-Cap Fund for such tax. Dividends and distributions may be made in cash, property or additional shares of the Institutional U.S. Micro-Cap Fund or another class or series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by each Shareholder of the mode of the making of such dividend or distribution to that Shareholder. Any such dividend or distribution paid in shares will be paid at the net asset value thereof as defined in subsection (9) below. (5) Liquidation. In the event of the liquidation or dissolution of the Corporation, the shareholders of the Institutional U.S. Micro-Cap Fund shall be entitled to receive, as a series and in preference to any other series, when and as declared by the Board of Directors, the excess of the assets belonging to the Institutional U.S. Micro-Cap Fund over the liabilities belonging to that series and such shareholders shall not be entitled thereby to any distribution upon liquidation of any other class or series. The assets so distributable to the shareholders of the Institutional U.S. Micro-Cap Fund shall be distributed among such shareholders in proportion to the number of shares of that series held by them and recorded on the books of the Corporation. The liquidation of the Institutional U.S. Micro-Cap Fund may be authorized by vote of a majority of the Board of Directors then in office, subject to the approval of a majority of the outstanding securities of that series, as defined in the 1940 Act, and without the vote of the holders of any other class or series. The liquidation or dissolution of the Institutional U.S. Micro-Cap Fund may be accomplished, in whole or in part, by the transfer of assets of such series to another class or series or by the exchange of shares of such series for the shares of another class or series. (6) Voting. On each matter submitted to a vote of the shareholders of the Corporation, each holder of a share of the Institutional U.S. Micro-Cap Fund shall be entitled to -3- one vote for each share of the Institutional U.S. Micro-Cap Fund standing in his name on the books of the Corporation, and all shares of all classes or series shall vote as a single class or series ("Single Class Voting"); provided, however, that (a) as to any matter with respect to which a separate vote of the Institutional U.S. Micro-Cap Fund or of any class or classes thereof is required by the 1940 Act or by the Maryland General Corporation Law (including, without limitation, approval of any plan, agreement or other arrangement referred to in subsection (12)(b)(iii) below), such requirement as to a separate vote by the Institutional U.S. Micro-Cap Fund or of any class or classes thereof shall apply in lieu of Single Class Voting as described above; (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes of series, then, subject to (c) below, the shares of all other classes or series shall vote as a single class or series; and (c) as to any matter which does not affect the interest of the Institutional U.S. Micro-Cap Fund, or of any class or classes thereof, the holders of shares of the Institutional U.S. Micro-Cap Fund, or of any class or classes thereof, as the case may be, shall not be entitled to vote. As to any matter with respect to which a separate vote of the Institutional U.S. Micro-Cap Fund is required pursuant to proviso (a) above, notwithstanding any provision of law requiring any action on that matter to be taken or authorized by the holders of a greater proportion than a majority of the Institutional U.S. Micro-Cap Fund entitled to vote thereon, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of shares of the Institutional U.S. Micro-Cap Fund outstanding and entitled to vote thereon. (7) Redemption by Shareholder. Each holder of shares of the Institutional U.S. Micro-Cap Fund shall have the right at such times as may be permitted by the Corporation, but no less frequently than once each week, to require the Corporation to redeem all or any part of his shares of the Institutional U.S. Micro-Cap Fund at a redemption price per share equal to the net asset value per share of the Institutional U.S. Micro-Cap Fund next determined (in accordance with subsection (9)) after the Shares are properly tendered for redemption, less such redemption charge (which may, but is not required to be, the same for the shares of each class of the Institutional U.S. Micro-Cap Fund) as is determined by the Board of Directors. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may make payment wholly or partly in securities or other assets belonging to the Institutional U.S. Micro-Cap Fund at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of the Institutional U.S. Micro-Cap Fund to require the Corporation to redeem shares of that series during any period or at any time when and to the extent permissible under the 1940 Act. (8) Redemption by Corporation. The Board of Directors may cause the Corporation to redeem at net asset value the shares of the Institutional U.S. Micro-Cap Fund from a holder -4- who has had shares of that series having an aggregate net asset value (determined in accordance with subsection (9)) of an amount equal to $100 less than the minimum initial investment in or less in his account, provided that at least sixty (60) days' prior written notice of the proposed redemption has been given to such holder by postage paid mail to his last known address. Upon redemption of such shares pursuant to this subsection, the Corporation shall promptly cause payment of the full redemption price to be made to the holder of such shares so redeemed. (9) Net Asset Value Per Share. Subject to subsection (12) below, the net asset value per share of the Institutional U.S. Micro-Cap Fund shall be the quotient obtained by dividing the value of the net assets of that series (being the value of the assets belonging to that series less the liabilities belonging to that series) by the total number of shares of the Institutional U.S. Micro- Cap Fund outstanding, all determined by the Board of Directors in accordance with generally accepted accounting principles and not inconsistent with the 1940 Act. The Board of Directors may determine to maintain the net asset value per share of the Institutional U.S. Micro-Cap Fund at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that series as dividends payable in additional shares of the Institutional U.S. Micro-Cap Fund at the designated constant dollar amount and for the handling of any losses attributable to that series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to the Institutional U.S. Micro-Cap Fund his pro rata portion of the total number of shares required to be canceled in order to permit the net asset value per share of the Institutional U.S. Micro-Cap Fund to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the Institutional U.S. Micro-Cap Fund shall be deemed to have agreed, by his investment in such series, to make the contribution referred to in the preceding sentence in the event of any such loss. (10) Equality. Subject to subsection (12) below, all shares of the Institutional U.S. Micro-Cap Fund shall represent an equal proportionate interest in the assets belonging to the Institutional U.S. Micro-Cap Fund (subject to the liabilities belonging to that series), and each share of the Institutional U.S. Micro-Cap Fund shall be equal to each other share of that series. The Board of Directors may from time to time divide or combine the shares of the Institutional U.S. Micro-Cap Fund, or any class or classes thereof, into a greater or lesser number of shares of the Institutional U.S. Micro-Cap Fund or any class or classes thereof, as the case may be, without thereby changing the proportionate beneficial interest in the assets belonging to the Institutional U.S. Micro-Cap Fund or in any way affecting the rights of shares of the Institutional U.S. Micro- Cap Fund, or any class thereof. (11) Conversion or Exchange Rights. Subject to compliance with the requirements of the 1940 Act, the Board of Directors shall have the authority to provide that holders of shares of the Institutional U.S. Micro-Cap Fund shall have the right to convert or exchange said shares into -5- shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors. (12) Designation of Classes. (a) The Institutional U.S. Micro-Cap Fund of Common Stock may have such number of classes of Common Stock as shall be designated by the Board of Directors from time to time. Any class of Common Stock of the Institutional U.S. Micro-Cap Fund shall be referred to herein individually as a "Class" and collectively, together with any further class or classes of such Series from time to time established, as the "Classes." Each Class shall consist of, until further changed, such number of shares as shall be designated by the Board of Directors from time to time, provided that the total number of shares of all Classes of the Institutional U.S. Micro-Cap Fund shall not exceed the number of shares classified from time to time as capital stock of the Institutional U.S. Micro-Cap Fund. All such shares are initially classified as Class A Common Stock of the Institutional U.S. Micro-Cap Fund. Designations of shares among the Classes by the Board of Directors shall be effectuated through the filing from time to time of articles supplementary to the Corporation's Charter. (b) All Classes of the Institutional U.S. Micro-Cap Fund shall represent the same interest in the Corporation and have identical voting, dividend, liquidation, and other rights with any other shares of Common Stock of that Series; provided, however, that notwithstanding anything in the Charter of the Corporation or these Articles Supplementary to the contrary: (i) The shares of Class A Common Stock shall be sold without front-end sales loads; provided, however, if no other Class is at that time established, that the Board of Directors may in its discretion authorize the sale of Class A Common Stock with front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as are in accordance with the 1940 Act and applicable rules and regulations (if any) of the National Association of Securities Dealers, Inc. ("NASD"). (ii) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that shares of each additional Class may be subject to such no-load arrangements, front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as may be established from time to time by the Board of Directors in accordance with the 1940 Act and applicable rules and regulations (if any) of NASD. (iii) Expenses related solely to a particular Class (including, without limitation, distribution expenses under a 1940 Act Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated) shall be borne by that Class and shall be appropriately reflected (in the -6- manner determined by the Board of Directors) in the net asset value, dividends, distribution and liquidation rights of the shares of that Class. (iv) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that on an anniversary (as designated in such articles supplementary) of the first business day of the month following the month in which shares of a Class were purchased by a stockholder, such shares (as well as a pro rata portion of any shares purchased through the reinvestment of dividends and other distributions paid in respect of all shares of that Class held by such stockholder) may automatically convert to shares of Class A Common Stock or any other Class as may be designated in the articles supplementary; provided, however, that such conversion may be subject to the continuing availability of an opinion of counsel to the effect that the conversion of the shares of that Class does not constitute a taxable event under federal income tax law. The Board of Directors, in its sole discretion, may suspend the conversion of shares of that Class if such opinion is no longer available. (13) Fractional Shares. The Corporation may issue and sell fractions of shares of the Institutional U.S. Micro-Cap Fund, or any class or classes thereof, having pro rata all the rights of full shares of the Institutional U.S. Micro-Cap Fund, or any class thereof, including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the Articles or in the By-Laws, they shall be deemed to include fractions of shares of the Institutional U.S. Micro-Cap Fund, or any class or classes thereof, as the case may be, where the context does not clearly indicate that only full shares are intended. (14) Stock Certificates. The Corporation shall not be obligated to issue certificates representing shares of the Institutional U.S. Micro-Cap Fund, or any class or classes thereof, unless it shall receive a written request therefor from the record holder thereof in accordance with procedures established in the Bylaws or by the Board of Directors. IN WITNESS WHEREOF, Fremont Mutual Funds, Inc., has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Secretary on August 4, 1997. FREMONT MUTUAL FUNDS, INC. WITNESS: ____________________________ By:____________________________ Tina Thomas, Michael H. Kosich, Secretary President -7- THE UNDERSIGNED, President of Fremont Mutual Funds, Inc., who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. - ------------------------ Michael H. Kosich, President -8- EX-2 5 ARTICLES SUPPLEMENTARY FREMONT MUTUAL FUNDS, INC. ARTICLES SUPPLEMENTARY Fremont Mutual Funds, Inc., a Maryland corporation, having its principal office in Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article FIFTH of the Charter of the Corporation, the Board of Directors has duly classified 100,000,000 shares of the unissued shares of capital stock of the Corporation into a series designated the Fremont U.S. Small Cap Fund (the "U.S. Small Cap Fund") and has provided for the issuance of such series. The Board of Directors of the Corporation may from time to time increase or decrease the number of shares of capital stock so classified. All such shares are initially classified as "Class A Common Stock" of the U.S. Small Cap Fund. The Board of Directors may classify or reclassify any unissued shares of capital stock of the U.S. Small Cap Fund (whether or not such shares have been previously classified or reclassified) from time to time by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock. SECOND: A description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the U.S. Small Cap Fund is as follows: (1) Assets Belonging to the U.S. Small Cap Fund Series. All consideration received by the Corporation from the issue or sale of shares of the U.S. Small Cap Fund, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the U.S. Small Cap Fund for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items allocated to the U.S. Small Cap Fund as provided in the following sentence, are herein referred to as "assets belonging to" the U.S. Small Cap Fund. If there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular class or series (collectively "General Items"), such General Items shall be allocated by or under the supervision of the Board of Directors to the U.S. Small Cap Fund in such manner and on such basis as the Board of -1- Directors, in its sole discretion, deems fair and equitable; and any General Items so allocated to the U.S. Small Cap Fund shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes. (2) Liabilities Of the U.S. Small Cap Fund Series. The assets belonging to the U.S. Small Cap Fund shall be charged with the liabilities of the Corporation in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as belonging to any particular class or series shall be allocated and charged by or under the supervision of the Board of Directors to the U.S. Small Cap Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to the U.S. Small Cap Fund are herein referred to as "liabilities belonging to" that series. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Directors shall be conclusive and binding for all purposes. (3) Income Belonging to the U.S. Small Cap Fund Series. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the Investment Company Act of 1940, as amended (the "1940 Act"), to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding. Income belonging to the U.S. Small Cap Fund includes all income, earnings and profits derived from assets belonging to the U.S. Small Cap Fund less any expenses, costs, charges or reserves belonging to the U.S. Small Cap Fund for the relevant time period, all determined in accordance with generally accepted accounting principles. (4) Dividends and Distributions. Dividends and distributions on shares of the U.S. Small Cap Fund may be paid with such frequency, in such form and in such amount as the Board of Directors may from time to time determine. Dividends may be daily or otherwise pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities belonging to the U.S. Small Cap Fund. All dividends on shares of the U.S. Small Cap Fund shall be paid only out of the income belonging to the U.S. Small Cap Fund and capital gains distributions on shares of the U.S. Small Cap Fund shall be paid only out of the capital gains belonging to the U.S. Small Cap Fund. Subject to subsection (12) below, all dividends and distributions on shares of the U.S. Small Cap Fund shall be distributed pro rata to the holders of the U.S. Small Cap Fund in proportion to the number of shares of the U.S. Small Cap Fund held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no -2- dividend or distribution shall be payable on shares as to which the Shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. The U.S. Small Cap Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended, or any successor or comparable statute thereto, and regulations promulgated thereunder. Inasmuch as the computation of net income and gains for federal income tax purposes may vary from the computation thereof on the books of the U.S. Small Cap Fund, the Board of Directors shall have the power, in its sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Board of Directors, to enable the U.S. Small Cap Fund to qualify as a regulated investment company and to avoid liability of the U.S. Small Cap Fund for federal income tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Directors to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the U.S. Small Cap Fund for such tax. Dividends and distributions may be made in cash, property or additional shares of the U.S. Small Cap Fund or another class or series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by each Shareholder of the mode of the making of such dividend or distribution to that Shareholder. Any such dividend or distribution paid in shares will be paid at the net asset value thereof as defined in subsection (9) below. (5) Liquidation. In the event of the liquidation or dissolution of the Corporation, the shareholders of the U.S. Small Cap Fund shall be entitled to receive, as a series and in preference to any other series, when and as declared by the Board of Directors, the excess of the assets belonging to the U.S. Small Cap Fund over the liabilities belonging to that series and such shareholders shall not be entitled thereby to any distribution upon liquidation of any other class or series. The assets so distributable to the shareholders of the U.S. Small Cap Fund shall be distributed among such shareholders in proportion to the number of shares of that series held by them and recorded on the books of the Corporation. The liquidation of the U.S. Small Cap Fund may be authorized by vote of a majority of the Board of Directors then in office, subject to the approval of a majority of the outstanding securities of that series, as defined in the 1940 Act, and without the vote of the holders of any other class or series. The liquidation or dissolution of the U.S. Small Cap Fund may be accomplished, in whole or in part, by the transfer of assets of such series to another class or series or by the exchange of shares of such series for the shares of another class or series. (6) Voting. On each matter submitted to a vote of the shareholders of the Corporation, each holder of a share of the U.S. Small Cap Fund shall be entitled to one vote for each share of the U.S. Small Cap Fund standing in his name on the books of the Corporation, and all shares of all classes or series shall vote as a single class or series ("Single Class Voting"); provided, however, that (a) as to any matter with respect to which a separate vote of the U.S. -3- Small Cap Fund or of any class or classes thereof is required by the 1940 Act or by the Maryland General Corporation Law (including, without limitation, approval of any plan, agreement or other arrangement referred to in subsection (12)(b)(iii) below), such requirement as to a separate vote by the U.S. Small Cap Fund or of any class or classes thereof shall apply in lieu of Single Class Voting as described above; (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes of series, then, subject to (c) below, the shares of all other classes or series shall vote as a single class or series; and (c) as to any matter which does not affect the interest of the U.S. Small Cap Fund, or of any class or classes thereof, the holders of shares of the U.S. Small Cap Fund, or of any class or classes thereof, as the case may be, shall not be entitled to vote. As to any matter with respect to which a separate vote of the U.S. Small Cap Fund is required pursuant to proviso (a) above, notwithstanding any provision of law requiring any action on that matter to be taken or authorized by the holders of a greater proportion than a majority of the U.S. Small Cap Fund entitled to vote thereon, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of shares of the U.S. Small Cap Fund outstanding and entitled to vote thereon. (7) Redemption by Shareholder. Each holder of shares of the U.S. Small Cap Fund shall have the right at such times as may be permitted by the Corporation, but no less frequently than once each week, to require the Corporation to redeem all or any part of his shares of the U.S. Small Cap Fund at a redemption price per share equal to the net asset value per share of the U.S. Small Cap Fund next determined (in accordance with subsection (9)) after the Shares are properly tendered for redemption, less such redemption charge (which may, but is not required to be, the same for the shares of each class of the U.S. Small Cap Fund) as is determined by the Board of Directors. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may make payment wholly or partly in securities or other assets belonging to the U.S. Small Cap Fund at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of the U.S. Small Cap Fund to require the Corporation to redeem shares of that series during any period or at any time when and to the extent permissible under the 1940 Act. (8) Redemption by Corporation. The Board of Directors may cause the Corporation to redeem at net asset value the shares of the U.S. Small Cap Fund from a holder who has had shares of that series having an aggregate net asset value (determined in accordance with subsection (9)) of an amount equal to $100 less than the minimum initial investment in or less in his account, provided that at least sixty (60) days' prior written notice of the proposed redemption has been given to such holder by postage paid mail to his last known address. Upon redemption of such shares pursuant to this subsection, the Corporation shall promptly cause payment of the full redemption price to be made to the holder of such shares so redeemed. -4- (9) Net Asset Value Per Share. Subject to subsection (12) below, the net asset value per share of the U.S. Small Cap Fund shall be the quotient obtained by dividing the value of the net assets of that series (being the value of the assets belonging to that series less the liabilities belonging to that series) by the total number of shares of the U.S. Small Cap Fund outstanding, all determined by the Board of Directors in accordance with generally accepted accounting principles and not inconsistent with the 1940 Act. The Board of Directors may determine to maintain the net asset value per share of the U.S. Small Cap Fund at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that series as dividends payable in additional shares of the U.S. Small Cap Fund at the designated constant dollar amount and for the handling of any losses attributable to that series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to the U.S. Small Cap Fund his pro rata portion of the total number of shares required to be canceled in order to permit the net asset value per share of the U.S. Small Cap Fund to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the U.S. Small Cap Fund shall be deemed to have agreed, by his investment in such series, to make the contribution referred to in the preceding sentence in the event of any such loss. (10) Equality. Subject to subsection (12) below, all shares of the U.S. Small Cap Fund shall represent an equal proportionate interest in the assets belonging to the U.S. Small Cap Fund (subject to the liabilities belonging to that series), and each share of the U.S. Small Cap Fund shall be equal to each other share of that series. The Board of Directors may from time to time divide or combine the shares of the U.S. Small Cap Fund, or any class or classes thereof, into a greater or lesser number of shares of the U.S. Small Cap Fund or any class or classes thereof, as the case may be, without thereby changing the proportionate beneficial interest in the assets belonging to the U.S. Small Cap Fund or in any way affecting the rights of shares of the U.S. Small Cap Fund, or any class thereof. (11) Conversion or Exchange Rights. Subject to compliance with the requirements of the 1940 Act, the Board of Directors shall have the authority to provide that holders of shares of the U.S. Small Cap Fund shall have the right to convert or exchange said shares into shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors. (12) Designation of Classes. (a) The U.S. Small Cap Fund of Common Stock may have such number of classes of Common Stock as shall be designated by the Board of Directors from time to time. Any class of Common Stock of the U.S. Small Cap Fund shall be referred to herein individually as a "Class" and collectively, together with any further class or classes of such Series from time -5- to time established, as the "Classes." Each Class shall consist of, until further changed, such number of shares as shall be designated by the Board of Directors from time to time, provided that the total number of shares of all Classes of the U.S. Small Cap Fund shall not exceed the number of shares classified from time to time as capital stock of the U.S. Small Cap Fund. All such shares are initially classified as Class A Common Stock of the U.S. Small Cap Fund. Designations of shares among the Classes by the Board of Directors shall be effectuated through the filing from time to time of articles supplementary to the Corporation's Charter. (b) All Classes of the U.S. Small Cap Fund shall represent the same interest in the Corporation and have identical voting, dividend, liquidation, and other rights with any other shares of Common Stock of that Series; provided, however, that notwithstanding anything in the Charter of the Corporation or these Articles Supplementary to the contrary: (i) The shares of Class A Common Stock shall be sold without front-end sales loads; provided, however, if no other Class is at that time established, that the Board of Directors may in its discretion authorize the sale of Class A Common Stock with front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as are in accordance with the 1940 Act and applicable rules and regulations (if any) of the National Association of Securities Dealers, Inc. ("NASD"). (ii) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that shares of each additional Class may be subject to such no-load arrangements, front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as may be established from time to time by the Board of Directors in accordance with the 1940 Act and applicable rules and regulations (if any) of NASD. (iii) Expenses related solely to a particular Class (including, without limitation, distribution expenses under a 1940 Act Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated) shall be borne by that Class and shall be appropriately reflected (in the manner determined by the Board of Directors) in the net asset value, dividends, distribution and liquidation rights of the shares of that Class. (iv) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that on an anniversary (as designated in such articles supplementary) of the first business day of the month following the month in which shares of a Class were purchased by a stockholder, such shares (as well as a pro rata portion of any shares purchased through the reinvestment of dividends and other distributions paid in respect of all shares of that Class held by such stockholder) may automatically convert to shares of Class A Common Stock or any other Class as may be designated in the articles supplementary; provided, -6- however, that such conversion may be subject to the continuing availability of an opinion of counsel to the effect that the conversion of the shares of that Class does not constitute a taxable event under federal income tax law. The Board of Directors, in its sole discretion, may suspend the conversion of shares of that Class if such opinion is no longer available. (13) Fractional Shares. The Corporation may issue and sell fractions of shares of the U.S. Small Cap Fund, or any class or classes thereof, having pro rata all the rights of full shares of the U.S. Small Cap Fund, or any class thereof, including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the Articles or in the By-Laws, they shall be deemed to include fractions of shares of the U.S. Small Cap Fund, or any class or classes thereof, as the case may be, where the context does not clearly indicate that only full shares are intended. (14) Stock Certificates. The Corporation shall not be obligated to issue certificates representing shares of the U.S. Small Cap Fund, or any class or classes thereof, unless it shall receive a written request therefor from the record holder thereof in accordance with procedures established in the Bylaws or by the Board of Directors. IN WITNESS WHEREOF, Fremont Mutual Funds, Inc., has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Secretary on September 30, 1997. FREMONT MUTUAL FUNDS, INC. WITNESS: ____________________________ By:____________________________ Tina Thomas, Michael H. Kosich, Secretary President -7- THE UNDERSIGNED, President of Fremont Mutual Funds, Inc., who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. - ------------------------ Michael H. Kosich, President -8- EX-3 6 ARTICLES SUPPLEMENTARY FREMONT MUTUAL FUNDS, INC. ARTICLES SUPPLEMENTARY Fremont Mutual Funds, Inc., a Maryland corporation, having its principal office in Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article FIFTH of the Charter of the Corporation, the Board of Directors has duly classified 100,000,000 shares of the unissued shares of capital stock of the Corporation into a series designated the Fremont Real Estate Securities Fund (the "Real Estate Securities Fund") and has provided for the issuance of such series. The Board of Directors of the Corporation may from time to time increase or decrease the number of shares of capital stock so classified. All such shares are initially classified as "Class A Common Stock" of the Real Estate Securities Fund. The Board of Directors may classify or reclassify any unissued shares of capital stock of the Real Estate Securities Fund (whether or not such shares have been previously classified or reclassified) from time to time by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock. SECOND: A description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Real Estate Securities Fund is as follows: (1) Assets Belonging to the Real Estate Securities Fund Series. All consideration received by the Corporation from the issue or sale of shares of the Real Estate Securities Fund, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the Real Estate Securities Fund for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items allocated to the Real Estate Securities Fund as provided in the following sentence, are herein referred to as "assets belonging to" the Real Estate Securities Fund. If there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular class or series (collectively "General Items"), such General Items shall be allocated by or under the supervision of the Board of Directors to the Real Estate Securities Fund -1- in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable; and any General Items so allocated to the Real Estate Securities Fund shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes. (2) Liabilities Of the Real Estate Securities Fund Series. The assets belonging to the Real Estate Securities Fund shall be charged with the liabilities of the Corporation in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as belonging to any particular class or series shall be allocated and charged by or under the supervision of the Board of Directors to the Real Estate Securities Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to the Real Estate Securities Fund are herein referred to as "liabilities belonging to" that series. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Directors shall be conclusive and binding for all purposes. (3) Income Belonging to the Real Estate Securities Fund Series. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the Investment Company Act of 1940, as amended (the "1940 Act"), to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding. Income belonging to the Real Estate Securities Fund includes all income, earnings and profits derived from assets belonging to the Real Estate Securities Fund less any expenses, costs, charges or reserves belonging to the Real Estate Securities Fund for the relevant time period, all determined in accordance with generally accepted accounting principles. (4) Dividends and Distributions. Dividends and distributions on shares of the Real Estate Securities Fund may be paid with such frequency, in such form and in such amount as the Board of Directors may from time to time determine. Dividends may be daily or otherwise pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities belonging to the Real Estate Securities Fund. All dividends on shares of the Real Estate Securities Fund shall be paid only out of the income belonging to the Real Estate Securities Fund and capital gains distributions on shares of the Real Estate Securities Fund shall be paid only out of the capital gains belonging to the Real Estate Securities Fund. Subject to subsection (12) below, all dividends and distributions on shares of the Real Estate Securities Fund shall be distributed pro rata to the holders of the Real Estate Securities Fund in proportion to the number of shares of the Real Estate Securities Fund held by such holders at the date and time of record established for the payment of such dividends -2- or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no dividend or distribution shall be payable on shares as to which the Shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. The Real Estate Securities Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended, or any successor or comparable statute thereto, and regulations promulgated thereunder. Inasmuch as the computation of net income and gains for federal income tax purposes may vary from the computation thereof on the books of the Real Estate Securities Fund, the Board of Directors shall have the power, in its sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Board of Directors, to enable the Real Estate Securities Fund to qualify as a regulated investment company and to avoid liability of the Real Estate Securities Fund for federal income tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Directors to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the Real Estate Securities Fund for such tax. Dividends and distributions may be made in cash, property or additional shares of the Real Estate Securities Fund or another class or series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by each Shareholder of the mode of the making of such dividend or distribution to that Shareholder. Any such dividend or distribution paid in shares will be paid at the net asset value thereof as defined in subsection (9) below. (5) Liquidation. In the event of the liquidation or dissolution of the Corporation, the shareholders of the Real Estate Securities Fund shall be entitled to receive, as a series and in preference to any other series, when and as declared by the Board of Directors, the excess of the assets belonging to the Real Estate Securities Fund over the liabilities belonging to that series and such shareholders shall not be entitled thereby to any distribution upon liquidation of any other class or series. The assets so distributable to the shareholders of the Real Estate Securities Fund shall be distributed among such shareholders in proportion to the number of shares of that series held by them and recorded on the books of the Corporation. The liquidation of the Real Estate Securities Fund may be authorized by vote of a majority of the Board of Directors then in office, subject to the approval of a majority of the outstanding securities of that series, as defined in the 1940 Act, and without the vote of the holders of any other class or series. The liquidation or dissolution of the Real Estate Securities Fund may be accomplished, in whole or in part, by the transfer of assets of such series to another class or series or by the exchange of shares of such series for the shares of another class or series. (6) Voting. On each matter submitted to a vote of the shareholders of the Corporation, each holder of a share of the Real Estate Securities Fund shall be entitled to one vote for each share of the Real Estate Securities Fund standing in his name on the books of the -3- Corporation, and all shares of all classes or series shall vote as a single class or series ("Single Class Voting"); provided, however, that (a) as to any matter with respect to which a separate vote of the Real Estate Securities Fund or of any class or classes thereof is required by the 1940 Act or by the Maryland General Corporation Law (including, without limitation, approval of any plan, agreement or other arrangement referred to in subsection (12)(b)(iii) below), such requirement as to a separate vote by the Real Estate Securities Fund or of any class or classes thereof shall apply in lieu of Single Class Voting as described above; (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes of series, then, subject to (c) below, the shares of all other classes or series shall vote as a single class or series; and (c) as to any matter which does not affect the interest of the Real Estate Securities Fund, or of any class or classes thereof, the holders of shares of the Real Estate Securities Fund, or of any class or classes thereof, as the case may be, shall not be entitled to vote. As to any matter with respect to which a separate vote of the Real Estate Securities Fund is required pursuant to proviso (a) above, notwithstanding any provision of law requiring any action on that matter to be taken or authorized by the holders of a greater proportion than a majority of the Real Estate Securities Fund entitled to vote thereon, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of shares of the Real Estate Securities Fund outstanding and entitled to vote thereon. (7) Redemption by Shareholder. Each holder of shares of the Real Estate Securities Fund shall have the right at such times as may be permitted by the Corporation, but no less frequently than once each week, to require the Corporation to redeem all or any part of his shares of the Real Estate Securities Fund at a redemption price per share equal to the net asset value per share of the Real Estate Securities Fund next determined (in accordance with subsection (9)) after the Shares are properly tendered for redemption, less such redemption charge (which may, but is not required to be, the same for the shares of each class of the Real Estate Securities Fund) as is determined by the Board of Directors. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may make payment wholly or partly in securities or other assets belonging to the Real Estate Securities Fund at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of the Real Estate Securities Fund to require the Corporation to redeem shares of that series during any period or at any time when and to the extent permissible under the 1940 Act. (8) Redemption by Corporation. The Board of Directors may cause the Corporation to redeem at net asset value the shares of the Real Estate Securities Fund from a holder who has had shares of that series having an aggregate net asset value (determined in accordance with subsection (9)) of an amount equal to $100 less than the minimum initial investment in or less in -4- his account, provided that at least sixty (60) days' prior written notice of the proposed redemption has been given to such holder by postage paid mail to his last known address. Upon redemption of such shares pursuant to this subsection, the Corporation shall promptly cause payment of the full redemption price to be made to the holder of such shares so redeemed. (9) Net Asset Value Per Share. Subject to subsection (12) below, the net asset value per share of the Real Estate Securities Fund shall be the quotient obtained by dividing the value of the net assets of that series (being the value of the assets belonging to that series less the liabilities belonging to that series) by the total number of shares of the Real Estate Securities Fund outstanding, all determined by the Board of Directors in accordance with generally accepted accounting principles and not inconsistent with the 1940 Act. The Board of Directors may determine to maintain the net asset value per share of the Real Estate Securities Fund at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that series as dividends payable in additional shares of the Real Estate Securities Fund at the designated constant dollar amount and for the handling of any losses attributable to that series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to the Real Estate Securities Fund his pro rata portion of the total number of shares required to be canceled in order to permit the net asset value per share of the Real Estate Securities Fund to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the Real Estate Securities Fund shall be deemed to have agreed, by his investment in such series, to make the contribution referred to in the preceding sentence in the event of any such loss. (10) Equality. Subject to subsection (12) below, all shares of the Real Estate Securities Fund shall represent an equal proportionate interest in the assets belonging to the Real Estate Securities Fund (subject to the liabilities belonging to that series), and each share of the Real Estate Securities Fund shall be equal to each other share of that series. The Board of Directors may from time to time divide or combine the shares of the Real Estate Securities Fund, or any class or classes thereof, into a greater or lesser number of shares of the Real Estate Securities Fund or any class or classes thereof, as the case may be, without thereby changing the proportionate beneficial interest in the assets belonging to the Real Estate Securities Fund or in any way affecting the rights of shares of the Real Estate Securities Fund, or any class thereof. (11) Conversion or Exchange Rights. Subject to compliance with the requirements of the 1940 Act, the Board of Directors shall have the authority to provide that holders of shares of the Real Estate Securities Fund shall have the right to convert or exchange said shares into shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors. -5- (12) Designation of Classes. (a) The Real Estate Securities Fund of Common Stock may have such number of classes of Common Stock as shall be designated by the Board of Directors from time to time. Any class of Common Stock of the Real Estate Securities Fund shall be referred to herein individually as a "Class" and collectively, together with any further class or classes of such Series from time to time established, as the "Classes." Each Class shall consist of, until further changed, such number of shares as shall be designated by the Board of Directors from time to time, provided that the total number of shares of all Classes of the Real Estate Securities Fund shall not exceed the number of shares classified from time to time as capital stock of the Real Estate Securities Fund. All such shares are initially classified as Class A Common Stock of the Real Estate Securities Fund. Designations of shares among the Classes by the Board of Directors shall be effectuated through the filing from time to time of articles supplementary to the Corporation's Charter. (b) All Classes of the Real Estate Securities Fund shall represent the same interest in the Corporation and have identical voting, dividend, liquidation, and other rights with any other shares of Common Stock of that Series; provided, however, that notwithstanding anything in the Charter of the Corporation or these Articles Supplementary to the contrary: (i) The shares of Class A Common Stock shall be sold without front-end sales loads; provided, however, if no other Class is at that time established, that the Board of Directors may in its discretion authorize the sale of Class A Common Stock with front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as are in accordance with the 1940 Act and applicable rules and regulations (if any) of NASD Regulation, Inc.("NASDR"). (ii) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that shares of each additional Class may be subject to such no-load arrangements, front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as may be established from time to time by the Board of Directors in accordance with the 1940 Act and applicable rules and regulations (if any) of NASDR. (iii) Expenses related solely to a particular Class (including, without limitation, distribution expenses under a 1940 Act Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated) shall be borne by that Class and shall be appropriately reflected (in the manner determined by the Board of Directors) in the net asset value, dividends, distribution and liquidation rights of the shares of that Class. -6- (iv) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that on an anniversary (as designated in such articles supplementary) of the first business day of the month following the month in which shares of a Class were purchased by a stockholder, such shares (as well as a pro rata portion of any shares purchased through the reinvestment of dividends and other distributions paid in respect of all shares of that Class held by such stockholder) may automatically convert to shares of Class A Common Stock or any other Class as may be designated in the articles supplementary; provided, however, that such conversion may be subject to the continuing availability of an opinion of counsel to the effect that the conversion of the shares of that Class does not constitute a taxable event under federal income tax law. The Board of Directors, in its sole discretion, may suspend the conversion of shares of that Class if such opinion is no longer available. (13) Fractional Shares. The Corporation may issue and sell fractions of shares of the Real Estate Securities Fund, or any class or classes thereof, having pro rata all the rights of full shares of the Real Estate Securities Fund, or any class thereof, including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the Articles or in the By-Laws, they shall be deemed to include fractions of shares of the Real Estate Securities Fund, or any class or classes thereof, as the case may be, where the context does not clearly indicate that only full shares are intended. (14) Stock Certificates. The Corporation shall not be obligated to issue certificates representing shares of the Real Estate Securities Fund, or any class or classes thereof, unless it shall receive a written request therefor from the record holder thereof in accordance with procedures established in the Bylaws or by the Board of Directors. IN WITNESS WHEREOF, Fremont Mutual Funds, Inc., has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Secretary on December 29, 1997. FREMONT MUTUAL FUNDS, INC. WITNESS: ____________________________ By:_____________________________ Tina Thomas, Michael H. Kosich, Secretary President -7- THE UNDERSIGNED, President of Fremont Mutual Funds, Inc., who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. - ------------------------ Michael H. Kosich, President -8- EX-4 7 ARTICLES SUPPLEMENTARY FREMONT MUTUAL FUNDS, INC. ARTICLES SUPPLEMENTARY Fremont Mutual Funds, Inc., a Maryland corporation, having its principal office in Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article FIFTH of the Charter of the Corporation, the Board of Directors has duly classified 100,000,000 shares of the unissued shares of capital stock of the Corporation into a series designated the Fremont Select Fund (the "Select Fund") and has provided for the issuance of such series. The Board of Directors of the Corporation may from time to time increase or decrease the number of shares of capital stock so classified. All such shares are initially classified as "Class A Common Stock" of the Select Fund. The Board of Directors may classify or reclassify any unissued shares of capital stock of the Select Fund (whether or not such shares have been previously classified or reclassified) from time to time by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock. SECOND: A description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Select Fund is as follows: (1) Assets Belonging to the Select Fund Series. All consideration received by the Corporation from the issue or sale of shares of the Select Fund, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the Select Fund for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, together with any General Items allocated to the Select Fund as provided in the following sentence, are herein referred to as "assets belonging to" the Select Fund. If there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular class or series (collectively "General Items"), such General Items shall be allocated by or under the supervision of the Board of Directors to the Select Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable; and -1- any General Items so allocated to the Select Fund shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes. (2) Liabilities Of the Select Fund Series. The assets belonging to the Select Fund shall be charged with the liabilities of the Corporation in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as belonging to any particular class or series shall be allocated and charged by or under the supervision of the Board of Directors to the Select Fund in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to the Select Fund are herein referred to as "liabilities belonging to" that series. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Directors shall be conclusive and binding for all purposes. (3) Income Belonging to the Select Fund Series. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the Investment Company Act of 1940, as amended (the "1940 Act"), to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding. Income belonging to the Select Fund includes all income, earnings and profits derived from assets belonging to the Select Fund less any expenses, costs, charges or reserves belonging to the Select Fund for the relevant time period, all determined in accordance with generally accepted accounting principles. (4) Dividends and Distributions. Dividends and distributions on shares of the Select Fund may be paid with such frequency, in such form and in such amount as the Board of Directors may from time to time determine. Dividends may be daily or otherwise pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities belonging to the Select Fund. All dividends on shares of the Select Fund shall be paid only out of the income belonging to the Select Fund and capital gains distributions on shares of the Select Fund shall be paid only out of the capital gains belonging to the Select Fund. Subject to subsection (12) below, all dividends and distributions on shares of the Select Fund shall be distributed pro rata to the holders of the Select Fund in proportion to the number of shares of the Select Fund held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no dividend or distribution shall be payable on shares as to which the Shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. -2- The Select Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended, or any successor or comparable statute thereto, and regulations promulgated thereunder. Inasmuch as the computation of net income and gains for federal income tax purposes may vary from the computation thereof on the books of the Select Fund, the Board of Directors shall have the power, in its sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Board of Directors, to enable the Select Fund to qualify as a regulated investment company and to avoid liability of the Select Fund for federal income tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Directors to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the Select Fund for such tax. Dividends and distributions may be made in cash, property or additional shares of the Select Fund or another class or series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by each Shareholder of the mode of the making of such dividend or distribution to that Shareholder. Any such dividend or distribution paid in shares will be paid at the net asset value thereof as defined in subsection (9) below. (5) Liquidation. In the event of the liquidation or dissolution of the Corporation, the shareholders of the Select Fund shall be entitled to receive, as a series and in preference to any other series, when and as declared by the Board of Directors, the excess of the assets belonging to the Select Fund over the liabilities belonging to that series and such shareholders shall not be entitled thereby to any distribution upon liquidation of any other class or series. The assets so distributable to the shareholders of the Select Fund shall be distributed among such shareholders in proportion to the number of shares of that series held by them and recorded on the books of the Corporation. The liquidation of the Select Fund may be authorized by vote of a majority of the Board of Directors then in office, subject to the approval of a majority of the outstanding securities of that series, as defined in the 1940 Act, and without the vote of the holders of any other class or series. The liquidation or dissolution of the Select Fund may be accomplished, in whole or in part, by the transfer of assets of such series to another class or series or by the exchange of shares of such series for the shares of another class or series. (6) Voting. On each matter submitted to a vote of the shareholders of the Corporation, each holder of a share of the Select Fund shall be entitled to one vote for each share of the Select Fund standing in his name on the books of the Corporation, and all shares of all classes or series shall vote as a single class or series ("Single Class Voting"); provided, however, that (a) as to any matter with respect to which a separate vote of the Select Fund or of any class or classes thereof is required by the 1940 Act or by the Maryland General Corporation Law (including, without limitation, approval of any plan, agreement or other arrangement referred to in subsection (12)(b)(iii) below), such requirement as to a separate vote by the Select Fund or of any class or classes thereof shall apply in lieu of Single Class Voting as described above; (b) in -3- the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes of series, then, subject to (c) below, the shares of all other classes or series shall vote as a single class or series; and (c) as to any matter which does not affect the interest of the Select Fund, or of any class or classes thereof, the holders of shares of the Select Fund, or of any class or classes thereof, as the case may be, shall not be entitled to vote. As to any matter with respect to which a separate vote of the Select Fund is required pursuant to proviso (a) above, notwithstanding any provision of law requiring any action on that matter to be taken or authorized by the holders of a greater proportion than a majority of the Select Fund entitled to vote thereon, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of shares of the Select Fund outstanding and entitled to vote thereon. (7) Redemption by Shareholder. Each holder of shares of the Select Fund shall have the right at such times as may be permitted by the Corporation, but no less frequently than once each week, to require the Corporation to redeem all or any part of his shares of the Select Fund at a redemption price per share equal to the net asset value per share of the Select Fund next determined (in accordance with subsection (9)) after the Shares are properly tendered for redemption, less such redemption charge (which may, but is not required to be, the same for the shares of each class of the Select Fund) as is determined by the Board of Directors. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may make payment wholly or partly in securities or other assets belonging to the Select Fund at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of the Select Fund to require the Corporation to redeem shares of that series during any period or at any time when and to the extent permissible under the 1940 Act. (8) Redemption by Corporation. The Board of Directors may cause the Corporation to redeem at net asset value the shares of the Select Fund from a holder who has had shares of that series having an aggregate net asset value (determined in accordance with subsection (9)) of an amount equal to $100 less than the minimum initial investment in or less in his account, provided that at least sixty (60) days' prior written notice of the proposed redemption has been given to such holder by postage paid mail to his last known address. Upon redemption of such shares pursuant to this subsection, the Corporation shall promptly cause payment of the full redemption price to be made to the holder of such shares so redeemed. (9) Net Asset Value Per Share. Subject to subsection (12) below, the net asset value per share of the Select Fund shall be the quotient obtained by dividing the value of the net assets of that series (being the value of the assets belonging to that series less the liabilities belonging to -4- that series) by the total number of shares of the Select Fund outstanding, all determined by the Board of Directors in accordance with generally accepted accounting principles and not inconsistent with the 1940 Act. The Board of Directors may determine to maintain the net asset value per share of the Select Fund at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the 1940 Act for the continuing declarations of income attributable to that series as dividends payable in additional shares of the Select Fund at the designated constant dollar amount and for the handling of any losses attributable to that series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to the Select Fund his pro rata portion of the total number of shares required to be canceled in order to permit the net asset value per share of the Select Fund to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the Select Fund shall be deemed to have agreed, by his investment in such series, to make the contribution referred to in the preceding sentence in the event of any such loss. (10) Equality. Subject to subsection (12) below, all shares of the Select Fund shall represent an equal proportionate interest in the assets belonging to the Select Fund (subject to the liabilities belonging to that series), and each share of the Select Fund shall be equal to each other share of that series. The Board of Directors may from time to time divide or combine the shares of the Select Fund, or any class or classes thereof, into a greater or lesser number of shares of the Select Fund or any class or classes thereof, as the case may be, without thereby changing the proportionate beneficial interest in the assets belonging to the Select Fund or in any way affecting the rights of shares of the Select Fund, or any class thereof. (11) Conversion or Exchange Rights. Subject to compliance with the requirements of the 1940 Act, the Board of Directors shall have the authority to provide that holders of shares of the Select Fund shall have the right to convert or exchange said shares into shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors. (12) Designation of Classes. (a) The Select Fund of Common Stock may have such number of classes of Common Stock as shall be designated by the Board of Directors from time to time. Any class of Common Stock of the Select Fund shall be referred to herein individually as a "Class" and collectively, together with any further class or classes of such Series from time to time established, as the "Classes." Each Class shall consist of, until further changed, such number of shares as shall be designated by the Board of Directors from time to time, provided that the total number of shares of all Classes of the Select Fund shall not exceed the number of shares classified from time to time as capital stock of the Select Fund. All such shares are initially classified as Class A Common Stock of the Select Fund. Designations of shares among the -5- Classes by the Board of Directors shall be effectuated through the filing from time to time of articles supplementary to the Corporation's Charter. (b) All Classes of the Select Fund shall represent the same interest in the Corporation and have identical voting, dividend, liquidation, and other rights with any other shares of Common Stock of that Series; provided, however, that notwithstanding anything in the Charter of the Corporation or these Articles Supplementary to the contrary: (i) The shares of Class A Common Stock shall be sold without front-end sales loads; provided, however, if no other Class is at that time established, that the Board of Directors may in its discretion authorize the sale of Class A Common Stock with front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as are in accordance with the 1940 Act and applicable rules and regulations (if any) of NASD Regulation, Inc. ("NASDR"). (ii) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that shares of each additional Class may be subject to such no-load arrangements, front-end sales loads, contingent deferred sales charges or such other sales or redemption charge arrangements as may be established from time to time by the Board of Directors in accordance with the 1940 Act and applicable rules and regulations (if any) of NASDR. (iii) Expenses related solely to a particular Class (including, without limitation, distribution expenses under a 1940 Act Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated) shall be borne by that Class and shall be appropriately reflected (in the manner determined by the Board of Directors) in the net asset value, dividends, distribution and liquidation rights of the shares of that Class. (iv) Articles supplementary hereafter adopted by the Board of Directors in connection with the designation of any additional Classes may provide that on an anniversary (as designated in such articles supplementary) of the first business day of the month following the month in which shares of a Class were purchased by a stockholder, such shares (as well as a pro rata portion of any shares purchased through the reinvestment of dividends and other distributions paid in respect of all shares of that Class held by such stockholder) may automatically convert to shares of Class A Common Stock or any other Class as may be designated in the articles supplementary; provided, however, that such conversion may be subject to the continuing availability of an opinion of counsel to the effect that the conversion of the shares of that Class does not constitute a taxable event under federal income tax law. The Board of Directors, in its sole discretion, may suspend the conversion of shares of that Class if such opinion is no longer available. -6- (13) Fractional Shares. The Corporation may issue and sell fractions of shares of the Select Fund, or any class or classes thereof, having pro rata all the rights of full shares of the Select Fund, or any class thereof, including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the Articles or in the By-Laws, they shall be deemed to include fractions of shares of the Select Fund, or any class or classes thereof, as the case may be, where the context does not clearly indicate that only full shares are intended. (14) Stock Certificates. The Corporation shall not be obligated to issue certificates representing shares of the Select Fund, or any class or classes thereof, unless it shall receive a written request therefor from the record holder thereof in accordance with procedures established in the Bylaws or by the Board of Directors. IN WITNESS WHEREOF, Fremont Mutual Funds, Inc., has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Secretary on December 29, 1997. FREMONT MUTUAL FUNDS, INC. WITNESS: ____________________________ By:____________________________ Tina Thomas, Michael H. Kosich, Secretary President -7- THE UNDERSIGNED, President of Fremont Mutual Funds, Inc., who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. - ------------------------ Michael H. Kosich, President -8- EX-5 8 INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT THIS AGREEMENT, dated and effective as of the 4th day of August, 1997, is made and entered into by and between FREMONT MUTUAL FUNDS, INC., a Maryland corporation (hereinafter called the "Company"), and FREMONT INVESTMENT ADVISORS, INC., a California corporation (hereinafter called the "Advisor"). WHEREAS, the Company is engaged in business as an open-end management investment company and is so registered under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Advisor is engaged principally in the business of rendering investment advisory and management services and is so registered under the Investment Advisers Act of 1940; and WHEREAS, the Company is authorized to issue shares of capital stock in separate series with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Company intends to offer shares in a newly formed series, the Fremont Institutional U.S. Micro-Cap Fund (the "Series"); NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties hereto as follows: 1. (a) The Company hereby appoints the Advisor to act as manager and investment adviser to the Series for the period and on the terms herein set forth. The Advisor accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. (b) The Advisor shall, for all purposes herein, be deemed an independent contractor and not an agent of the Company. 2. (a) The Advisor agrees to provide supervision of the portfolio of the Series and to determine what securities or other property shall be purchased or sold by the Series, subject to the engagement by the Advisor of any subadvisor approved by the Board of Directors of the Company, giving due consideration to the policies of the Series as expressed in the Company's Articles of Incorporation, Bylaws, Form N-1A Registration Statement under the 1940 Act and under the Securities Act of 1933, as amended (the "1933 Act"), and prospectus as in use from time to time, as well as to the factors affecting the status of the Series as a "regulated investment company" under the Internal Revenue Code of 1986, as amended. In its duties hereunder, the Advisor shall further be bound by any and all determinations by the Board of Directors of the Company relating to investment policy, which determinations shall in writing be communicated to the Advisor. Subject to the foregoing, the Advisor will exercise all voting rights with respect to portfolio securities and may delegate such voting rights to any subadvisor approved by the Board of Directors. (b) To the extent authorized by the Board of Directors of the Company, the Advisor shall make decisions for the Series as to foreign currency matters and make determinations as to, and execute and perform, foreign exchange contracts or may delegate such decisions to any subadvisor approved by the Board of Directors. (c) (i) The Advisor shall provide adequate facilities and qualified personnel for the placement of, and shall place orders for the purchase, or other acquisition, and sale, or other disposition, of portfolio securities for the Series. With respect to such transactions, the Advisor, subject to such direction as may be furnished from time to time by the Board of Directors of the Company, shall endeavor as the primary objective to obtain the most favorable prices and executions of orders. Subject to such primary objective, the Advisor may place orders with brokerage firms which furnish statistical and other information to the Advisor, taking into account the value and quality of the brokerage services of such brokerage firms, including the availability and quality of such statistical and other information. Receipt by the Advisor of any such statistical and other information and services shall not be deemed to give rise to any requirement for abatement of the advisory fee payable to the Advisor pursuant to Section 5 hereof. (ii) On occasions when the Advisor deems the purchase or sale of a security to be in the best interests of the Series as well as other clients of the Advisor, the Advisor, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so sold or purchased when the Advisor believes that to do so will be in the best interests of the Series. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Advisor in the manner the Advisor considers to be the most equitable and consistent with its fiduciary obligations to the Series and to such other clients. 3. The Advisor shall furnish the services of persons to perform the executive, administrative, clerical, and bookkeeping functions of the Company. The Advisor shall pay the compensation and travel expenses of all such persons, and they shall serve without additional compensation from the Company. The Advisor shall also, at its expense, provide such persons with suitable office space; all necessary small office equipment and utilities; and general purpose accounting forms, supplies, and postage. 4. The Series agrees to bear all of it own ordinary operating expenses including, but not be limited to, computer services, fund accounting, custodian, registrar, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes and insurance; expenses of the issuance and redemption of shares of the Series (including stock certificates, registration and qualification fees and expenses); legal and auditing expenses; compensation, fees, and expenses paid to Directors; association dues; costs of stationery and forms prepared exclusively for the Company; and costs of assembling and storing shareholder account data. The Series shall pay also all expenses relating to interest, brokerage commissions and other transaction charges relating to investment activities of the Series, and extraordinary expenses (including, for example, litigation expenses, if any) as determined by a majority of disinterested directors of the Company. 5. (a) The Series shall pay to the Advisor on or before the tenth (10th) day of each month, as compensation for the services rendered by the Advisor during the preceding month, an amount to be computed at the annual rate of 1.15% of the average value of the Series' daily net assets. - 2 - (b) The fees payable to the Advisor shall be computed and accrued daily at one three-hundred-sixty-fifth (1/365th) or one three-hundred-sixty-sixth (1/366th), as appropriate, of the applicable rates set forth therein. The net asset value of the Series shall be determined in the manner set forth in the Articles of Incorporation and Prospectus of the Company after the close of the New York Stock Exchange on each day on which said Exchange is open, and in the case of Saturdays, Sundays, and other days on which said exchange shall not be open, in the manner further set forth in said Articles of Incorporation and Prospectus. In the event of termination other than at the end of a calendar month, the monthly fee shall be prorated for the portion of the month prior to termination and paid on or before the tenth (10th) day subsequent to termination. 6. (a) The Advisor agrees to reduce the fee payable to it under this Agreement by the amount by which the ordinary operating expenses of the Company for any fiscal year of the Company shall exceed the annual rate of 1.25% of the Series' average daily net assets. Costs incurred in connection with the purchase or sale of portfolio securities, including brokerage fees and commissions, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, shall be accounted for as capital items and not as expenses. Proper accruals shall be made by the Company for any projected reduction hereunder and corresponding amounts shall be withheld from the fees paid by the Company to the Advisor. Any additional reduction computed at the end of the fiscal year shall be deducted from the fee for the last month of such fiscal year. (b) Any fee reduction pursuant to this paragraph shall be reimbursed by the Series to the Advisor in the first, second or third (or any combination thereof) fiscal year next succeeding the fiscal year of the reduction if the aggregate operating expenses for the next succeeding fiscal year or second succeeding fiscal year or third succeeding fiscal year do not exceed the annual rate of 1.25% of the Series' average daily net assets. The Advisor generally may request and receive reimbursement for the oldest reductions before payment for fees and expenses for the current year. 7. Nothing contained in this Agreement shall be construed to prohibit the Advisor from performing investment advisory, management, or distribution services for other investment companies and other persons or companies, or to prohibit affiliates of the Advisor from engaging in such businesses or in other related or unrelated businesses. 8. The Company agrees (i) not to hold the Advisor or any of its officers, directors, agents or employees liable for, and (ii) to indemnify or insure the Advisor and its officers, directors, agents and employees ("Indemnified Parties") against, any costs and liabilities the Indemnified Parties may incur as a result of any claim against the Indemnified Parties in the good faith exercise of their powers hereunder (excepting matters as to which the Indemnified Parties shall be finally adjudged to have been guilty of willful misconduct or gross negligence, or in violation of applicable law) or arising out of an act or omission of the custodian, subadvisor or of any broker or agent selected by the Advisor in a commercially reasonable manner. 9. (a) This Agreement shall become effective on the date hereof (the "Effective Date"). Unless terminated as herein provided, this Agreement shall remain in full force and effect for two (2) years from the Effective Date, and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Company or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, and (ii) in either event by the vote of a majority of the Directors of the Company who are not parties to this 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. - 3 - (b) This Agreement may be terminated at any time, without payment of any penalty, by the Board of Directors of the Company or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, on thirty (30) days' written notice to the Advisor, or by the Advisor on like notice to the Company. (c) This Agreement shall automatically and immediately terminate in the event of its assignment. (d) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (e) No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the Series, if such approval is required by applicable law. 10. (a) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. (b) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate originals by their officers thereunto duly authorized as of the date first above written. FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC. By: By: -------------------------- -------------------------- Michael H. Kosich David L. Redo President President ATTEST: ATTEST: - ----------------------- ----------------------- Secretary Secretary EX-6 9 INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT THIS AGREEMENT, dated and effective as of the 22nd day of September, 1997, is made and entered into by and between FREMONT MUTUAL FUNDS, INC., a Maryland corporation (hereinafter called the "Company"), and FREMONT INVESTMENT ADVISORS, INC., a California corporation (hereinafter called the "Advisor"). WHEREAS, the Company is engaged in business as an open-end management investment company and is so registered under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Advisor is engaged principally in the business of rendering investment advisory and management services and is so registered under the Investment Advisers Act of 1940; and WHEREAS, the Company is authorized to issue shares of capital stock in separate series with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Company intends to offer shares in a newly formed series, the Fremont U.S. Small Cap Fund (the "Series"); NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties hereto as follows: 1. (a) The Company hereby appoints the Advisor to act as manager and investment adviser to the Series for the period and on the terms herein set forth. The Advisor accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. (b) The Advisor shall, for all purposes herein, be deemed an independent contractor and not an agent of the Company. 2. (a) The Advisor agrees to provide supervision of the portfolio of the Series and to determine what securities or other property shall be purchased or sold by the Series, subject to the engagement by the Advisor of any subadvisor approved by the Board of Directors of the Company, giving due consideration to the policies of the Series as expressed in the Company's Articles of Incorporation, Bylaws, Form N-1A Registration Statement under the 1940 Act and under the Securities Act of 1933, as amended (the "1933 Act"), and prospectus as in use from time to time, as well as to the factors affecting the status of the Series as a "regulated investment company" under the Internal Revenue Code of 1986, as amended. In its duties hereunder, the Advisor shall further be bound by any and all determinations by the Board of Directors of the Company relating to investment policy, which determinations shall in writing be communicated to the Advisor. Subject to the foregoing, the Advisor will exercise all voting rights with respect to portfolio securities and may delegate such voting rights to any subadvisor approved by the Board of Directors. (b) To the extent authorized by the Board of Directors of the Company, the Advisor shall make decisions for the Series as to foreign currency matters and make determinations as to, and execute and perform, foreign exchange contracts or may delegate such decisions to any subadvisor approved by the Board of Directors. (c) (i) The Advisor shall provide adequate facilities and qualified personnel for the placement of, and shall place orders for the purchase, or other acquisition, and sale, or other disposition, of portfolio securities for the Series. With respect to such transactions, the Advisor, subject to such direction as may be furnished from time to time by the Board of Directors of the Company, shall endeavor as the primary objective to obtain the most favorable prices and executions of orders. Subject to such primary objective, the Advisor may place orders with brokerage firms which furnish statistical and other information to the Advisor, taking into account the value and quality of the brokerage services of such brokerage firms, including the availability and quality of such statistical and other information. Receipt by the Advisor of any such statistical and other information and services shall not be deemed to give rise to any requirement for abatement of the advisory fee payable to the Advisor pursuant to Section 5 hereof. (ii) On occasions when the Advisor deems the purchase or sale of a security to be in the best interests of the Series as well as other clients of the Advisor, the Advisor, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so sold or purchased when the Advisor believes that to do so will be in the best interests of the Series. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Advisor in the manner the Advisor considers to be the most equitable and consistent with its fiduciary obligations to the Series and to such other clients. 3. The Advisor shall furnish the services of persons to perform the executive, administrative, clerical, and bookkeeping functions of the Company. The Advisor shall pay the compensation and travel expenses of all such persons, and they shall serve without additional compensation from the Company. The Advisor shall also, at its expense, provide such persons with suitable office space; all necessary small office equipment and utilities; and general purpose accounting forms, supplies, and postage. 4. The Series agrees to bear all of it own ordinary operating expenses including, but not be limited to, computer services, fund accounting, custodian, registrar, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes and insurance; expenses of the issuance and redemption of shares of the Series (including stock certificates, registration and qualification fees and expenses); legal and auditing expenses; compensation, fees, and expenses paid to Directors; association dues; costs of stationery and forms prepared exclusively for the Company; and costs of assembling and storing shareholder account data. The Series shall pay also all expenses relating to interest, brokerage commissions and other transaction charges relating to investment activities of the Series, and extraordinary expenses (including, for example, litigation expenses, if any) as determined by a majority of disinterested directors of the Company. 5. (a) The Series shall pay to the Advisor on or before the tenth (10th) day of each month, as compensation for the services rendered by the Advisor during the preceding month, an amount to be computed at the annual rate of 1.00% of the average value of the Series' daily net assets, plus an administrative fee at the annual rate of .15% of the average value of the Series' daily net assets. - 2 - (b) The fees payable to the Advisor shall be computed and accrued daily at one three-hundred-sixty-fifth (1/365th) or one three-hundred-sixty-sixth (1/366th), as appropriate, of the applicable rates set forth therein. The net asset value of the Series shall be determined in the manner set forth in the Articles of Incorporation and Prospectus of the Company after the close of the New York Stock Exchange on each day on which said Exchange is open, and in the case of Saturdays, Sundays, and other days on which said exchange shall not be open, in the manner further set forth in said Articles of Incorporation and Prospectus. In the event of termination other than at the end of a calendar month, the monthly fee shall be prorated for the portion of the month prior to termination and paid on or before the tenth (10th) day subsequent to termination. 6. (a) The Advisor may, but is not required to, waive all or a portion of its fees and/or reimburse the Series for other expenses in order to reduce the operating expenses of the Series. Any fee reduction pursuant to this paragraph shall be reimbursed by the Series to the Advisor in the first, second or third (or any combination thereof) fiscal year next succeeding the fiscal year of the reduction if the aggregate operating expenses for the next succeeding fiscal year or second succeeding fiscal year or third succeeding fiscal year do not exceed the annual rate of 1.25% of the Series' average daily net assets. The Advisor generally may request and receive reimbursement for the oldest reductions before payment for fees and expenses for the current year. 7. Nothing contained in this Agreement shall be construed to prohibit the Advisor from performing investment advisory, management, or distribution services for other investment companies and other persons or companies, or to prohibit affiliates of the Advisor from engaging in such businesses or in other related or unrelated businesses. 8. The Company agrees (i) not to hold the Advisor or any of its officers, directors, agents or employees liable for, and (ii) to indemnify or insure the Advisor and its officers, directors, agents and employees ("Indemnified Parties") against, any costs and liabilities the Indemnified Parties may incur as a result of any claim against the Indemnified Parties in the good faith exercise of their powers hereunder (excepting matters as to which the Indemnified Parties shall be finally adjudged to have been guilty of willful misconduct or gross negligence, or in violation of applicable law) or arising out of an act or omission of the custodian, subadvisor or of any broker or agent selected by the Advisor in a commercially reasonable manner. 9. (a) This Agreement shall become effective on the date hereof (the "Effective Date"). Unless terminated as herein provided, this Agreement shall remain in full force and effect for two (2) years from the Effective Date, and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Company or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, and (ii) in either event by the vote of a majority of the Directors of the Company who are not parties to this 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. - 3 - (b) This Agreement may be terminated at any time, without payment of any penalty, by the Board of Directors of the Company or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, on thirty (30) days' written notice to the Advisor, or by the Advisor on like notice to the Company. (c) This Agreement shall automatically and immediately terminate in the event of its assignment. (d) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (e) No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the Series, if such approval is required by applicable law. 10. (a) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. (b) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate originals by their officers thereunto duly authorized as of the date first above written. FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC. By: By: ---------------------------- ---------------------------- Michael H. Kosich David L. Redo President President ATTEST: ATTEST: ---------------------------- ---------------------------- Secretary Secretary - 4 - EX-7 10 INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT THIS AGREEMENT, dated and effective as of the 31st day of December, 1997, is made and entered into by and between FREMONT MUTUAL FUNDS, INC., a Maryland corporation (hereinafter called the "Company"), and FREMONT INVESTMENT ADVISORS, INC., a California corporation (hereinafter called the "Advisor"). WHEREAS, the Company is engaged in business as an open-end management investment company and is so registered under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Advisor is engaged principally in the business of rendering investment advisory and management services and is so registered under the Investment Advisers Act of 1940; and WHEREAS, the Company is authorized to issue shares of capital stock in separate series with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Company intends to offer shares in a newly formed series, the Fremont Real Estate Securities Fund (the "Series"); NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties hereto as follows: 1. (a) The Company hereby appoints the Advisor to act as manager and investment adviser to the Series for the period and on the terms herein set forth. The Advisor accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. (b) The Advisor shall, for all purposes herein, be deemed an independent contractor and not an agent of the Company. 2. (a) The Advisor agrees to provide supervision of the portfolio of the Series and to determine what securities or other property shall be purchased or sold by the Series, subject to the engagement by the Advisor of any subadvisor approved by the Board of Directors of the Company, giving due consideration to the policies of the Series as expressed in the Company's Articles of Incorporation, Bylaws, Form N-1A Registration Statement under the 1940 Act and under the Securities Act of 1933, as amended (the "1933 Act"), and prospectus as in use from time to time, as well as to the factors affecting the status of the Series as a "regulated investment company" under the Internal Revenue Code of 1986, as amended. In its duties hereunder, the Advisor shall further be bound by any and all determinations by the Board of Directors of the Company relating to investment policy, which determinations shall in writing be communicated to the Advisor. Subject to the foregoing, the Advisor will exercise all voting rights with respect to portfolio securities and may delegate such voting rights to any subadvisor approved by the Board of Directors. (b) To the extent authorized by the Board of Directors of the Company, the Advisor shall make decisions for the Series as to foreign currency matters and make determinations as to, and execute and perform, foreign exchange contracts or may delegate such decisions to any subadvisor approved by the Board of Directors. (c) (i) The Advisor shall provide adequate facilities and qualified personnel for the placement of, and shall place orders for the purchase, or other acquisition, and sale, or other disposition, of portfolio securities for the Series. With respect to such transactions, the Advisor, subject to such direction as may be furnished from time to time by the Board of Directors of the Company, shall endeavor as the primary objective to obtain the most favorable prices and executions of orders. Subject to such primary objective, the Advisor may place orders with brokerage firms which furnish statistical and other information to the Advisor, taking into account the value and quality of the brokerage services of such brokerage firms, including the availability and quality of such statistical and other information. Receipt by the Advisor of any such statistical and other information and services shall not be deemed to give rise to any requirement for abatement of the advisory fee payable to the Advisor pursuant to Section 5 hereof. (ii) On occasions when the Advisor deems the purchase or sale of a security to be in the best interests of the Series as well as other clients of the Advisor, the Advisor, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so sold or purchased when the Advisor believes that to do so will be in the best interests of the Series. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Advisor in the manner the Advisor considers to be the most equitable and consistent with its fiduciary obligations to the Series and to such other clients. 3. The Advisor shall furnish the services of persons to perform the executive, administrative, clerical, and bookkeeping functions of the Company. The Advisor shall pay the compensation and travel expenses of all such persons, and they shall serve without additional compensation from the Company. The Advisor shall also, at its expense, provide such persons with suitable office space; all necessary small office equipment and utilities; and general purpose accounting forms, supplies, and postage. 4. The Series agrees to bear all of it own ordinary operating expenses including, but not be limited to, computer services, fund accounting, custodian, registrar, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes and insurance; expenses of the issuance and redemption of shares of the Series (including stock certificates, registration and qualification fees and expenses); legal and auditing expenses; compensation, fees, and expenses paid to Directors; association dues; costs of stationery and forms prepared exclusively for the Company; and costs of assembling and storing shareholder account data. The Series shall pay also all expenses relating to interest, brokerage commissions and other transaction charges relating to investment activities of the Series, and extraordinary expenses (including, for example, litigation expenses, if any) as determined by a majority of disinterested directors of the Company. 5. (a) The Series shall pay to the Advisor on or before the tenth (10th) day of each month, as compensation for the services rendered by the Advisor during the preceding month, an amount to be computed at the annual rate of 1.00% of the average value of the Series' daily net assets. The Series shall also pay the Advisor a 12b-1 fee of .25% per annum of the average value of the Series' daily net assets. - 2 - (b) The fees payable to the Advisor shall be computed and accrued daily at one three-hundred-sixty-fifth (1/365th) or one three-hundred-sixty-sixth (1/366th), as appropriate, of the applicable rates set forth therein. The net asset value of the Series shall be determined in the manner set forth in the Articles of Incorporation and Prospectus of the Company after the close of the New York Stock Exchange on each day on which said Exchange is open, and in the case of Saturdays, Sundays, and other days on which said exchange shall not be open, in the manner further set forth in said Articles of Incorporation and Prospectus. In the event of termination other than at the end of a calendar month, the monthly fee shall be prorated for the portion of the month prior to termination and paid on or before the tenth (10th) day subsequent to termination. 6. (a) The Advisor agrees to reduce the fee payable to it under this Agreement by the amount by which the ordinary operating expenses of the Company for any fiscal year of the Company shall exceed the annual rate of 1.50% of the Series' average daily net assets. Costs incurred in connection with the purchase or sale of portfolio securities, including brokerage fees and commissions, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, shall be accounted for as capital items and not as expenses. Proper accruals shall be made by the Company for any projected reduction hereunder and corresponding amounts shall be withheld from the fees paid by the Company to the Advisor. Any additional reduction computed at the end of the fiscal year shall be deducted from the fee for the last month of such fiscal year. (b) Any fee reduction pursuant to this paragraph shall be reimbursed by the Series to the Advisor in the first, second or third (or any combination thereof) fiscal year next succeeding the fiscal year of the reduction if the aggregate operating expenses for the next succeeding fiscal year or second succeeding fiscal year or third succeeding fiscal year do not exceed the annual rate of 1.50% of the Series' average daily net assets. The Advisor generally may request and receive reimbursement for the oldest reductions before payment for fees and expenses for the current year. 7. Nothing contained in this Agreement shall be construed to prohibit the Advisor from performing investment advisory, management, or distribution services for other investment companies and other persons or companies, or to prohibit affiliates of the Advisor from engaging in such businesses or in other related or unrelated businesses. 8. The Company agrees (i) not to hold the Advisor or any of its officers, directors, agents or employees liable for, and (ii) to indemnify or insure the Advisor and its officers, directors, agents and employees ("Indemnified Parties") against, any costs and liabilities the Indemnified Parties may incur as a result of any claim against the Indemnified Parties in the good faith exercise of their powers hereunder (excepting matters as to which the Indemnified Parties shall be finally adjudged to have been guilty of willful misconduct or gross negligence, or in violation of applicable law) or arising out of an act or omission of the custodian, subadvisor or of any broker or agent selected by the Advisor in a commercially reasonable manner. 9. (a) This Agreement shall become effective on the date hereof (the "Effective Date"). Unless terminated as herein provided, this Agreement shall remain in full force and effect for two (2) years from the Effective Date, and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Company or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, and (ii) in either event by the vote of a majority of the Directors of the Company who are not parties to this 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. - 3 - (b) This Agreement may be terminated at any time, without payment of any penalty, by the Board of Directors of the Company or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, on thirty (30) days' written notice to the Advisor, or by the Advisor on like notice to the Company. (c) This Agreement shall automatically and immediately terminate in the event of its assignment. (d) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (e) No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the Series, if such approval is required by applicable law. 10. (a) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. (b) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate originals by their officers thereunto duly authorized as of the date first above written. FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC. By: By: ------------------------- ------------------------- Michael H. Kosich David L. Redo President President ATTEST: ATTEST: - ------------------------- ------------------------- Secretary Secretary - 4 - EX-8 11 INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT THIS AGREEMENT, dated and effective as of the 31st day of December, 1997, is made and entered into by and between FREMONT MUTUAL FUNDS, INC., a Maryland corporation (hereinafter called the "Company"), and FREMONT INVESTMENT ADVISORS, INC., a California corporation (hereinafter called the "Advisor"). WHEREAS, the Company is engaged in business as an open-end management investment company and is so registered under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Advisor is engaged principally in the business of rendering investment advisory and management services and is so registered under the Investment Advisers Act of 1940; and WHEREAS, the Company is authorized to issue shares of capital stock in separate series with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Company intends to offer shares in a newly formed series, the Fremont Select Fund (the "Series"); NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties hereto as follows: 1. (a) The Company hereby appoints the Advisor to act as manager and investment adviser to the Series for the period and on the terms herein set forth. The Advisor accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. (b) The Advisor shall, for all purposes herein, be deemed an independent contractor and not an agent of the Company. 2. (a) The Advisor agrees to provide supervision of the portfolio of the Series and to determine what securities or other property shall be purchased or sold by the Series, subject to the engagement by the Advisor of any subadvisor approved by the Board of Directors of the Company, giving due consideration to the policies of the Series as expressed in the Company's Articles of Incorporation, Bylaws, Form N-1A Registration Statement under the 1940 Act and under the Securities Act of 1933, as amended (the "1933 Act"), and prospectus as in use from time to time, as well as to the factors affecting the status of the Series as a "regulated investment company" under the Internal Revenue Code of 1986, as amended. In its duties hereunder, the Advisor shall further be bound by any and all determinations by the Board of Directors of the Company relating to investment policy, which determinations shall in writing be communicated to the Advisor. Subject to the foregoing, the Advisor will exercise all voting rights with respect to portfolio securities and may delegate such voting rights to any subadvisor approved by the Board of Directors. (b) To the extent authorized by the Board of Directors of the Company, the Advisor shall make decisions for the Series as to foreign currency matters and make determinations as to, and execute and perform, foreign exchange contracts or may delegate such decisions to any subadvisor approved by the Board of Directors. (c) (i) The Advisor shall provide adequate facilities and qualified personnel for the placement of, and shall place orders for the purchase, or other acquisition, and sale, or other disposition, of portfolio securities for the Series. With respect to such transactions, the Advisor, subject to such direction as may be furnished from time to time by the Board of Directors of the Company, shall endeavor as the primary objective to obtain the most favorable prices and executions of orders. Subject to such primary objective, the Advisor may place orders with brokerage firms which furnish statistical and other information to the Advisor, taking into account the value and quality of the brokerage services of such brokerage firms, including the availability and quality of such statistical and other information. Receipt by the Advisor of any such statistical and other information and services shall not be deemed to give rise to any requirement for abatement of the advisory fee payable to the Advisor pursuant to Section 5 hereof. (ii) On occasions when the Advisor deems the purchase or sale of a security to be in the best interests of the Series as well as other clients of the Advisor, the Advisor, to the extent permitted by applicable laws and regulations, may aggregate the securities to be so sold or purchased when the Advisor believes that to do so will be in the best interests of the Series. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Advisor in the manner the Advisor considers to be the most equitable and consistent with its fiduciary obligations to the Series and to such other clients. 3. The Advisor shall furnish the services of persons to perform the executive, administrative, clerical, and bookkeeping functions of the Company. The Advisor shall pay the compensation and travel expenses of all such persons, and they shall serve without additional compensation from the Company. The Advisor shall also, at its expense, provide such persons with suitable office space; all necessary small office equipment and utilities; and general purpose accounting forms, supplies, and postage. 4. The Series agrees to bear all of it own ordinary operating expenses including, but not be limited to, computer services, fund accounting, custodian, registrar, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes and insurance; expenses of the issuance and redemption of shares of the Series (including stock certificates, registration and qualification fees and expenses); legal and auditing expenses; compensation, fees, and expenses paid to Directors; association dues; costs of stationery and forms prepared exclusively for the Company; and costs of assembling and storing shareholder account data. The Series shall pay also all expenses relating to interest, brokerage commissions and other transaction charges relating to investment activities of the Series, and extraordinary expenses (including, for example, litigation expenses, if any) as determined by a majority of disinterested directors of the Company. 5. (a) The Series shall pay to the Advisor on or before the tenth (10th) day of each month, as compensation for the services rendered by the Advisor during the preceding month, an amount to be computed at the annual rate of 1.00% of the average value of the Series' daily net assets. The Series shall also pay the Advisor a 12b-1 fee of .25% per annum of the average value of the Series' daily net assets. - 2 - (b) The fees payable to the Advisor shall be computed and accrued daily at one three-hundred-sixty-fifth (1/365th) or one three-hundred-sixty-sixth (1/366th), as appropriate, of the applicable rates set forth therein. The net asset value of the Series shall be determined in the manner set forth in the Articles of Incorporation and Prospectus of the Company after the close of the New York Stock Exchange on each day on which said Exchange is open, and in the case of Saturdays, Sundays, and other days on which said exchange shall not be open, in the manner further set forth in said Articles of Incorporation and Prospectus. In the event of termination other than at the end of a calendar month, the monthly fee shall be prorated for the portion of the month prior to termination and paid on or before the tenth (10th) day subsequent to termination. 6. (a) The Advisor agrees to reduce the fee payable to it under this Agreement by the amount by which the ordinary operating expenses of the Company for any fiscal year of the Company shall exceed the annual rate of 1.40% of the Series' average daily net assets. Costs incurred in connection with the purchase or sale of portfolio securities, including brokerage fees and commissions, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, shall be accounted for as capital items and not as expenses. Proper accruals shall be made by the Company for any projected reduction hereunder and corresponding amounts shall be withheld from the fees paid by the Company to the Advisor. Any additional reduction computed at the end of the fiscal year shall be deducted from the fee for the last month of such fiscal year. (b) Any fee reduction pursuant to this paragraph shall be reimbursed by the Series to the Advisor in the first, second or third (or any combination thereof) fiscal year next succeeding the fiscal year of the reduction if the aggregate operating expenses for the next succeeding fiscal year or second succeeding fiscal year or third succeeding fiscal year do not exceed the annual rate of 1.40% of the Series' average daily net assets. The Advisor generally may request and receive reimbursement for the oldest reductions before payment for fees and expenses for the current year. 7. Nothing contained in this Agreement shall be construed to prohibit the Advisor from performing investment advisory, management, or distribution services for other investment companies and other persons or companies, or to prohibit affiliates of the Advisor from engaging in such businesses or in other related or unrelated businesses. 8. The Company agrees (i) not to hold the Advisor or any of its officers, directors, agents or employees liable for, and (ii) to indemnify or insure the Advisor and its officers, directors, agents and employees ("Indemnified Parties") against, any costs and liabilities the Indemnified Parties may incur as a result of any claim against the Indemnified Parties in the good faith exercise of their powers hereunder (excepting matters as to which the Indemnified Parties shall be finally adjudged to have been guilty of willful misconduct or gross negligence, or in violation of applicable law) or arising out of an act or omission of the custodian, subadvisor or of any broker or agent selected by the Advisor in a commercially reasonable manner. 9. (a) This Agreement shall become effective on the date hereof (the "Effective Date"). Unless terminated as herein provided, this Agreement shall remain in full force and effect for two (2) years from the Effective Date, and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Company or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, and (ii) in either event by the vote of a majority of the Directors of the Company who are not parties to this 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. - 3 - (b) This Agreement may be terminated at any time, without payment of any penalty, by the Board of Directors of the Company or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Series, on thirty (30) days' written notice to the Advisor, or by the Advisor on like notice to the Company. (c) This Agreement shall automatically and immediately terminate in the event of its assignment. (d) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (e) No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the Series, if such approval is required by applicable law. 10. (a) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. (b) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate originals by their officers thereunto duly authorized as of the date first above written. FREMONT MUTUAL FUNDS, INC. FREMONT INVESTMENT ADVISORS, INC. By: By: ------------------------- ------------------------- Michael H. Kosich David L. Redo President President ATTEST: ATTEST: - ------------------------- ------------------------- Secretary Secretary - 4 - EX-9 12 PORTFOLIO MANAGEMENT AGREEMENT PORTFOLIO MANAGEMENT AGREEMENT THIS AGREEMENT dated and effective as of August 29, 1997, among Kern Capital Management L.L.C. (the "Subadvisor"); Fremont Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland corporation (the "Fund"). WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company and is authorized to issue separate series (the "Series"), each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective, policies and limitations; and WHEREAS, the Fund presently offers shares of a particular series named the Fremont Institutional U.S. Micro-Cap Fund (the "Institutional U.S.Micro-Cap Series"); and WHEREAS, the Fund has retained the Advisor to render investment management and administrative services to the Institutional U.S.Micro-Cap Series; and WHEREAS, the Advisor and the Fund desire to retain the Subadvisor to furnish portfolio management services to the Institutional U.S.Micro-Cap Series in connection with Advisor's investment management activities on behalf of the Series, and the Subadvisor is willing to furnish such services to the Advisor and the Institutional U.S.Micro-Cap Series; NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the Subadvisor, the Advisor and the Fund as follows: 1. Appointment. The Advisor and the Fund hereby appoint Subadvisor to act as Subadvisor with respect to certain assets of the Institutional U.S.Micro-Cap Series for the periods and on the terms set forth in this Agreement. The Subadvisor accepts such appointment and agrees to furnish the services herein set forth, for the compensation herein provided. 2. Subadvisor Duties. Subject to the supervision of the Advisor and the Fund's Board of Directors, the Subadvisor shall have full discretionary authority as agent and attorney-in-fact with respect to the portion of assets of the Institutional U.S.Micro-Cap Series' portfolio assigned to the Subadvisor, from time to time by the Advisor or the Board of Directors, including authority to: (a) buy, sell, exchange, convert or otherwise trade in any stocks without limitation and (b) place orders for the execution of such securities transactions with or through such brokers, dealers, or issuers as Subadvisor may select. The Subadvisor will provide the services under this Agreement in accordance with the Institutional U.S.Micro-Cap Series' registration statement filed with the Securities and Exchange Commission ("SEC"), as amended. Investments by the Subadvisor shall conform with the provisions of Appendix A attached hereto, as such may be revised from time to time at the discretion of the Advisor and the Fund. Subject to the foregoing, the Subadvisor will vote proxies with respect to the securities and investments purchased with the assets of the Institutional U.S.Micro-Cap Series' portfolio managed by the Subadvisor and will provide regular reports of proxy voting. The Subadvisor further agrees that it will: (a) conform with all applicable rules and regulations of the Securities and Exchange Commission. (b) place orders pursuant to its investment determinations for the Institutional U.S.Micro-Cap Series either directly with the issuer or with any broker or dealer. In placing orders with brokers and dealers, the Subadvisor will attempt to obtain the best net price and the most favorable execution of its orders. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Subadvisor may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide it with research advice and other services of lawful assistance to the Subadvisor in serving the Institutional U.S.Micro-Cap Series as the Subadvisor or who sell the Institutional U.S.Micro-Cap Series' shares. (c) make available to the Advisor and the Fund promptly upon their request all its investment records and ledgers to assist the Advisor and the Fund in their compliance with respect to the Institutional U.S.Micro-Cap Series' securities transactions as required by the 1940 Act and the Investment Advisers Act of 1940 ("Advisers Act"), as well as other applicable laws. The Subadvisor will furnish the Fund's Board of Directors with respect to the Institutional U.S.Micro-Cap Series such periodic and special reports as the Advisor and the Directors may reasonably request. (d) maintain detailed records of the assets managed by the Subadvisor as well as all investments, receipts, disbursements and other transactions made with such assets. Such records shall be open to inspection and audit at reasonable times by any person designated by the Advisor or the Fund. The Subadvisor shall provide to the Advisor or the Fund and any other party either the Advisor or the Fund designates: (i) monthly statements of the activities with regard to the assets for the month and of the assets showing each asset at its cost and, for each security listed on any national securities exchange, its value at the last quoted sale price reported on the composite tape on the valuation date or, in the cases of securities not so reported, by the principal exchange on which the security is traded, or, if no trade was made on the valuation date or if such security is not listed on any exchange, its value as determined by a nationally recognized pricing service used by the Subadvisor to value securities in their client accounts, at the value specified by such pricing service on the valuation date, and for any other security or asset in a manner determined in good faith by the Subadvisor to reflect its then fair market value; (ii) statements evidencing any purchases and sales as soon as practicable after such transaction has taken place; (iii) a quarterly review of the assets under management; and (iv) tax information as requested, on a monthly basis, to the Fund's custodian bank. 3. Expenses. During the term of this Agreement, the Subadvisor will pay all expenses incurred by it, its staff and their activities, in connection with its portfolio management activities under this Agreement. 4. Compensation. For the services provided to the Institutional U.S.Micro-Cap Series, the Advisor will pay the Subadvisor a fee equal to .75% per annum of the average daily value of assets under management by the Subadvisor. Fees shall be billed and payable after the end of each calendar month. Fees will be prorated for any period of less than one month. 5. Books and Records; Custody. (a) In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadvisor hereby agrees that all records which it maintains for the Institutional U.S.Micro-Cap Series are the property of the Fund and further agrees to surrender promptly to the Fund any of such records upon the Fund's request. The Subadvisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. (b) Title to all investments shall be made in the name of the Fund, provided that for convenience in buying, selling, and exchanging securities (stocks, bonds, commercial paper, etc.), title to such securities may be held in the name of the Fund's custodian bank, or its nominee. The Fund shall advise the Subadvisor of the identity of its custodian bank and shall give the Subadvisor 15 days' written notice of any changes in such custody arrangements. - 2 - Neither the Subadvisor, nor any parent, subsidiary or related firm, shall take possession of or handle any cash, securities, mortgages or deeds of trust, or other indicia of ownership of the Fund's investments, or otherwise act as custodian of such investments. All cash and the indicia of ownership of all other investments shall be held by the Fund's custodian bank. The Fund shall instruct its custodian bank to (a) carry out all investment instructions as may be directed by the Subadvisor with respect thereto (which may be orally given if confirmed in writing); and (b) provide the Subadvisor with all operational information necessary for the Subadvisor to trade on behalf of the Fund. 6. Indemnification. The Subadvisor agrees to indemnify and hold harmless, the Advisor, the Fund, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund (other than the Subadvisor) and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"), controls ("controlling person") the Advisor or the Fund against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses), to which the Advisor, the Fund or such affiliated person or controlling person may become subject under the 1933 Act, 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise, which (1) may be based upon any wrongful act or omission by the Subadvisor, any of its employees or representatives or any affiliate of or any person acting on behalf of the Subadvisor or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering the shares of the Institutional U.S. Micro-Cap Series or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Fund or any affiliated person of the Fund by the Subadvisor or any affiliated person of the Subadvisor; provided, however, that in no case is the Subadvisor's indemnity in favor of the Advisor or the Fund or any affiliated person or controlling person of the Advisor or the Fund deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement. The Fund agrees not to hold the Subadvisor or any of its officers or employees liable for, and to indemnify or insure the Subadvisor and its officers and employees ("Indemnified Parties") against any act or omission of any other subadvisor providing investment management services to the Fund, and against any costs and liabilities the Indemnified Parties may incur as a result of a claim against the Indemnified Parties regarding actions taken in good faith exercise of their powers hereunder excepting matters as to which the Indemnified Parties have been negligent, engaged in willful misfeasance, bad faith, reckless disregard of the obligations and duties under this Agreement or have been in violation of applicable law or regulations. 7. Services Not Exclusive. It is understood that the services of the Subadvisor are not exclusive, and nothing in this Agreement shall prevent the Subadvisor from providing similar services to other investment companies (subject to such restrictions as Subadvisor may agree to separately) or from engaging in other activities. When the Subadvisor recommends the purchase or sale of a security for other investment companies and other clients, and at the same time the Subadvisor recommends the purchase or sale of the same security for the Institutional U.S.Micro-Cap Series, it is understood that such transactions will be executed on a basis that is fair and equitable to the Series. 8. (a) Duration. This Agreement shall become effective on the date first written above. Unless terminated as herein provided, this Agreement shall remain in full force and effective for no more than two (2) years and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Fund or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Institutional U.S.Micro-Cap Series, and (ii) by the Advisor, and (iii) in either event by the vote of a majority of the Directors of the Fund who are not parties of this 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. - 3 - (b) Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of the Fund or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Institutional U.S.Micro-Cap Series, or by the Advisor, on thirty (30) days' written notice to the Subadvisor, or by the Subadvisor on like notice to the Fund and to the Advisor. (c) Automatic Termination. This Agreement shall automatically and immediately terminate in the event of its assignment. 9. Amendments. No provision of this agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the Institutional U.S.Micro-Cap Series, if such approval is required by applicable law. 10. Miscellaneous. (a) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (d) Nothing herein shall be construed as constituting the Subadvisor as an agent of the Fund or the Advisor. (e) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. KERN CAPITAL MANAGEMENT L.L.C. By: ------------------------------- (Title) FREMONT INVESTMENT ADVISORS, INC. By: ------------------------------- (Title) FREMONT MUTUAL FUNDS, INC. By: ------------------------------- (Title) - 4 - APPENDIX A TO PORTFOLIO MANAGEMENT AGREEMENT Kern Capital Management L.L.C. Subadvisor to the Fremont Institutional U.S.Micro-Cap Fund INVESTMENT OBJECTIVES AND GUIDELINES ------------------------------------ Overall Investment Objective: - ----------------------------- The objective of the Fremont Institutional U.S.Micro-Cap Fund is to achieve long-term capital appreciation by investing, in normal market conditions, at least 65% of its total assets in equity securities of U.S. companies of relatively small capitalization. The Fund's investment objective reflects the belief that an investment in companies with small stock market capitalizations which are not as well-known to the general public provides an opportunity for greater reward than an investment in common stocks of larger, better-known companies. Policy and Guidelines for Subadvisor: - ------------------------------------- The Subadvisor will adhere to the Investment Objective and to policies in the Fremont Institutional U.S.Micro-Cap Fund prospectus. Performance Objective for Subadvisor: - ------------------------------------- The Subadvisor is expected to achieve a competitive rate of return over a 3 to 5 year time horizon and/or a complete market cycle, when compared to other managers of similar size and with similar investment objectives. - 5 - EX-10 13 PORTFOLIO MANAGMENT AGREEMENT PORTFOLIO MANAGEMENT AGREEMENT THIS AGREEMENT dated and effective as of September 22, 1997, among Kern Capital Management L.L.C. (the "Subadvisor"); Fremont Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland corporation (the "Fund"). WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company and is authorized to issue separate series (the "Series"), each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective, policies and limitations; and WHEREAS, the Fund presently offers shares of a particular series named the Fremont U.S. Small Cap Fund (the "U.S. Small Cap Series"); and WHEREAS, the Fund has retained the Advisor to render investment management and administrative services to the U.S. Small Cap Series; and WHEREAS, the Advisor and the Fund desire to retain the Subadvisor to furnish portfolio management services to the U.S. Small Cap Series in connection with Advisor's investment management activities on behalf of the Series, and the Subadvisor is willing to furnish such services to the Advisor and the U.S. Small Cap Series; NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the Subadvisor, the Advisor and the Fund as follows: 1. Appointment. The Advisor and the Fund hereby appoint Subadvisor to act as Subadvisor with respect to certain assets of the U.S. Small Cap Series for the periods and on the terms set forth in this Agreement. The Subadvisor accepts such appointment and agrees to furnish the services herein set forth, for the compensation herein provided. 2. Subadvisor Duties. Subject to the supervision of the Advisor and the Fund's Board of Directors, the Subadvisor shall have full discretionary authority as agent and attorney-in-fact with respect to the portion of assets of the U.S. Small Cap Series' portfolio assigned to the Subadvisor, from time to time by the Advisor or the Board of Directors, including authority to: (a) buy, sell, exchange, convert or otherwise trade in any stocks without limitation and (b) place orders for the execution of such securities transactions with or through such brokers, dealers, or issuers as Subadvisor may select. The Subadvisor will provide the services under this Agreement in accordance with the U.S. Small Cap Series' registration statement filed with the Securities and Exchange Commission ("SEC"), as amended. Investments by the Subadvisor shall conform with the provisions of Appendix A attached hereto, as such may be revised from time to time at the discretion of the Advisor and the Fund. Subject to the foregoing, the Subadvisor will vote proxies with respect to the securities and investments purchased with the assets of the U.S. Small Cap Series' portfolio managed by the Subadvisor and will provide regular reports of proxy voting. The Subadvisor further agrees that it will: (a) conform with all applicable rules and regulations of the Securities and Exchange Commission. (b) place orders pursuant to its investment determinations for the U.S. Small Cap Series either directly with the issuer or with any broker or dealer. In placing orders with brokers and dealers, the Subadvisor will attempt to obtain the best net price and the most favorable execution of its orders. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Subadvisor may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide it with research advice and other services of lawful assistance to the Subadvisor in serving the U.S. Small Cap Series as the Subadvisor or who sell the U.S. Small Cap Series' shares. (c) make available to the Advisor and the Fund promptly upon their request all its investment records and ledgers to assist the Advisor and the Fund in their compliance with respect to the U.S. Small Cap Series' securities transactions as required by the 1940 Act and the Investment Advisers Act of 1940 ("Advisers Act"), as well as other applicable laws. The Subadvisor will furnish the Fund's Board of Directors with respect to the U.S. Small CapSeries such periodic and special reports as the Advisor and the Directors may reasonably request. (d) maintain detailed records of the assets managed by the Subadvisor as well as all investments, receipts, disbursements and other transactions made with such assets. Such records shall be open to inspection and audit at reasonable times by any person designated by the Advisor or the Fund. The Subadvisor shall provide to the Advisor or the Fund and any other party either the Advisor or the Fund designates: (i) monthly statements of the activities with regard to the assets for the month and of the assets showing each asset at its cost and, for each security listed on any national securities exchange, its value at the last quoted sale price reported on the composite tape on the valuation date or, in the cases of securities not so reported, by the principal exchange on which the security is traded, or, if no trade was made on the valuation date or if such security is not listed on any exchange, its value as determined by a nationally recognized pricing service used by the Subadvisor to value securities in their client accounts, at the value specified by such pricing service on the valuation date, and for any other security or asset in a manner determined in good faith by the Subadvisor to reflect its then fair market value; (ii) statements evidencing any purchases and sales as soon as practicable after such transaction has taken place; (iii) a quarterly review of the assets under management; and (iv) tax information as requested, on a monthly basis, to the Fund's custodian bank. 3. Expenses. During the term of this Agreement, the Subadvisor will pay all expenses incurred by it, its staff and their activities, in connection with its portfolio management activities under this Agreement. 4. Compensation. For the services provided to the U.S. Small Cap Series, the Advisor will pay the Subadvisor a fee equal to .65% per annum of the average daily value of assets under management by the Subadvisor. Fees shall be billed and payable after the end of each calendar month. Fees will be prorated for any period of less than one month. 5. Books and Records; Custody. (a) In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadvisor hereby agrees that all records which it maintains for the U.S. Small Cap Series are the property of the Fund and further agrees to surrender promptly to the Fund any of such records upon the Fund's request. The Subadvisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. (b) Title to all investments shall be made in the name of the Fund, provided that for convenience in buying, selling, and exchanging securities (stocks, bonds, commercial paper, etc.), title to such securities may be held in the name of the Fund's custodian bank, or its nominee. The Fund shall advise the Subadvisor of the identity of its custodian bank and shall give the Subadvisor 15 days' written notice of any changes in such custody arrangements. Neither the Subadvisor, nor any parent, subsidiary or related firm, shall take possession of or handle any cash, securities, mortgages or deeds of trust, or other indicia of ownership of the Fund's investments, or otherwise act as custodian of such investments. All cash and the indicia of ownership of all other investments shall be held by the Fund's custodian bank. The Fund shall instruct its custodian bank to (a) carry out all investment instructions as may be directed by the Subadvisor with respect thereto (which may be orally given if confirmed in writing); and (b) provide the Subadvisor with all operational information necessary for the Subadvisor to trade on behalf of the Fund. 6. Indemnification. The Subadvisor agrees to indemnify and hold harmless, the Advisor, the Fund, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund (other than the Subadvisor) and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"), controls ("controlling person") the Advisor or the Fund against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses), to which the Advisor, the Fund or such affiliated person or controlling person may become subject under the 1933 Act, 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise, which (1) may be based upon any wrongful act or omission by the Subadvisor, any of its employees or representatives or any affiliate of or any person acting on behalf of the Subadvisor or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering the shares of the U.S. Small Cap Series or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Fund or any affiliated person of the Fund by the Subadvisor or any affiliated person of the Subadvisor; provided, however, that in no case is the Subadvisor's indemnity in favor of the Advisor or the Fund or any affiliated person or controlling person of the Advisor or the Fund deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement. The Fund agrees not to hold the Subadvisor or any of its officers or employees liable for, and to indemnify or insure the Subadvisor and its officers and employees ("Indemnified Parties") against any act or omission of any other subadvisor providing investment management services to the Fund, and against any costs and liabilities the Indemnified Parties may incur as a result of a claim against the Indemnified Parties regarding actions taken in good faith exercise of their powers hereunder excepting matters as to which the Indemnified Parties have been negligent, engaged in willful misfeasance, bad faith, reckless disregard of the obligations and duties under this Agreement or have been in violation of applicable law or regulations. 7. Services Not Exclusive. It is understood that the services of the Subadvisor are not exclusive, and nothing in this Agreement shall prevent the Subadvisor from providing similar services to other investment companies (subject to such restrictions as Subadvisor may agree to separately) or from engaging in other activities. When the Subadvisor recommends the purchase or sale of a security for other investment companies and other clients, and at the same time the Subadvisor recommends the purchase or sale of the same security for the U.S. Small Cap Series, it is understood that such transactions will be executed on a basis that is fair and equitable to the Series. 8. (a) Duration. This Agreement shall become effective on the date first written above. Unless terminated as herein provided, this Agreement shall remain in full force and effective for no more than two (2) years and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Fund or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the U.S. Small Cap Series, and (ii) by the Advisor, and (iii) in either event by the vote of a majority of the Directors of the Fund who are not parties of this 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. (b) Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of the Fund or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the U.S. Small Cap Series, or by the Advisor, on thirty (30) days' written notice to the Subadvisor, or by the Subadvisor on like notice to the Fund and to the Advisor. (c) Automatic Termination. This Agreement shall automatically and immediately terminate in the event of its assignment. 9. Amendments. No provision of this agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the U.S. Small Cap Series, if such approval is required by applicable law. 10. Miscellaneous. (a) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (d) Nothing herein shall be construed as constituting the Subadvisor as an agent of the Fund or the Advisor. (e) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. KERN CAPITAL MANAGEMENT L.L.C. By: ______________________________ (Title) FREMONT INVESTMENT ADVISORS, INC. By: ______________________________ (Title) FREMONT MUTUAL FUNDS, INC. By: ______________________________ (Title) APPENDIX A TO PORTFOLIO MANAGEMENT AGREEMENT Kern Capital Management L.L.C. Subadvisor to the Fremont U.S. Small Cap Fund INVESTMENT OBJECTIVES AND GUIDELINES Overall Investment Objective: The objective of the Fremont U.S. Small Cap Fund is to achieve long-term capital appreciation by investing, in normal market conditions, at least 65% of its total assets in equity securities of U.S. companies of relatively small capitalization. The Fund's investment objective reflects the belief that an investment in companies with small stock market capitalizations which are not as well-known to the general public provides an opportunity for greater reward than an investment in common stocks of larger, better-known companies. Policy and Guidelines for Subadvisor: The Subadvisor will adhere to the Investment Objective and to policies in the Fremont U.S. Small Cap Fund prospectus. Performance Objective for Subadvisor: The Subadvisor is expected to achieve a competitive rate of return over a 3 to 5 year time horizon and/or a complete market cycle, when compared to other managers of similar size and with similar investment objectives. EX-11 14 PORTFOLIO MANAGEMENT AGREEMENT PORTFOLIO MANAGEMENT AGREEMENT THIS AGREEMENT dated and effective as of June 24, 1994, among Acadian Asset Management, Inc., a Massachusetts corporation (the "Subadvisor"); Fremont Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland corporation (the "Fund"). WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company and is authorized to issue separate series (the "Series"), each of which may offer a separate class of shares of beneficial interest, each series having its own investment objective, policies and limitations; WHEREAS, the Fund presently offers shares of a particular series named the Fremont International Small Cap Fund (the "International Small Cap Series"), WHEREAS, the Fund has retained the Advisor to render investment management and administrative services to the Series; WHEREAS, the Advisor and the Fund desire to retain the Subadvisor to furnish portfolio management services to the International Small Cap Series in connection with Advisor's investment management activities on behalf of the Series, and the Subadvisor is willing to furnish such services to the Advisor and the International Small Cap Series. NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the Subadvisor, the Advisor and the Fund as follows: 1. Appointment. The Advisor and the Fund hereby appoint Subadvisor to act as Subadvisor with respect to certain assets of the International Small Cap Series for the periods and on the terms set forth in this Agreement. The Subadvisor accepts such appointment and agrees to furnish the services herein set forth, for the compensation herein provided. 2. Subadvisor Duties. Subject to the supervision of the Advisor and the Fund's Board of Directors, the Subadvisor shall have full discretionary authority as agent and attorney-in-fact with respect to the portion of assets of the International Small Cap Series' portfolio assigned to the Subadvisor, from time to time by the Advisor or the Board of Directors, including authority to: (a) buy, sell, exchange, convert or otherwise trade in any stocks without limitation and (b) place orders for the execution of such securities transactions with or through such brokers, dealers, or issuers as Subadvisor may select. The Subadvisor will provide the services under this Agreement in accordance with the International Small Cap Series' registration statement filed with the Securities and Exchange Commission ("SEC"), as amended. Investments by the Subadvisor shall conform with the provisions of Appendix B attached hereto, as such may be revised from time to time at the discretion of the Advisor and the Fund. Subject to the foregoing, the Subadvisor will vote proxies with respect to the securities and investments purchased with the assets of the International Small Cap Series' portfolio managed by the Subadvisor and will provide regular reports of proxy voting. The Subadvisor further agrees that it will: (a) conform with all applicable rules and regulations of the Securities and Exchange Commission; (b) place orders pursuant to its investment determinations for the International Small Cap Series either directly with the issuer or with any broker or dealer. In placing orders with brokers and dealers, the Subadvisor will attempt to obtain the best net price and the most favorable execution of its orders. Consistent with this obligation, when the execution and price offered by two or more brokers or dealers are comparable, the Subadvisor may, in its discretion, purchase and sell portfolio securities to and from brokers and dealers who provide it with research advice and other services of lawful assistance to the Subadvisor in serving the International Small Cap Series as the Subadvisor or who sell the International Small Cap Series' shares; and (c) make available to the Advisor and the Fund promptly upon their request all its investment records and ledgers to assist the Advisor and the Fund in their compliance with respect to the International Small Cap Series' securities transactions as required by the 1940 Act and the Investment Advisers Act of 1940 ("Advisers Act"), as well as other applicable laws. The Subadvisor will furnish the Fund's Board of Directors with respect to the International Small Cap Series such periodic and special reports as the Advisor and the Directors may reasonably request. (d) maintain detailed records of the assets managed by the Subadvisor as well as all investments, receipts, disbursements and other transactions made with such assets. Such records shall be open to inspection and audit at reasonable times by any person designated by the Advisor or the Fund. The Subadvisor shall provide to the Advisor or the Fund and any other party either the Advisor or the Fund designates: (i) monthly statements of the activities with regard to the assets for the month and of the assets showing each asset at its cost and, for each security listed on any national securities exchange, its value at the last quoted sale price reported on the composite tape on the valuation date or, in the cases of securities not so reported, by the principal exchange on which the security is traded, or, if no trade was made on the valuation date or if such security is not listed on any exchange, its value as determined by a nationally recognized pricing service used by the Subadvisor to value securities in their client accounts, at the value specified by such pricing service on the valuation date, and for any other security or asset in a manner determined in good faith by the Subadvisor to reflect its then fair market value; (ii) statements evidencing any purchases and sales as soon as practicable after such transaction has taken place; (iii) a quarterly review of the assets under management; and (iv) tax information as requested, on a monthly basis, to the Fund's custodian bank. 3. Expenses. During the term of this Agreement, the Subadvisor will pay all expenses incurred by it, its staff and their activities, in connection with its portfolio management activities under this Agreement. 4. Compensation. For the services provided to the Initial Series, the Advisor of the Fund will pay the Subadvisor a fee as provided on Appendix A hereto. 5. Books and Records; Custody. (a) In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadvisor hereby agrees that all records which it maintains for the International Small Cap Series are the property of the Fund and further agrees to surrender promptly to the Fund any of such records upon the Fund's request. The Subadvisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. (b) Title to all investments shall be made in the name of the Fund, provided that for convenience in buying, selling, and exchanging securities (stocks, bonds, commercial paper, etc.), title to such securities may be held in the name of the Fund's custodian bank, or its nominee. The Fund shall advise the Subadvisor of the identity of its custodian bank and shall give the Subadvisor 15 days' written notice of any changes in such custody arrangements. - 2 - Neither the Subadvisor, nor any parent, subsidiary or related firm, shall take possession of or handle any cash, securities, mortgages or deeds of trust, or other indicia of ownership of the Fund's investments, or otherwise act as custodian of such investments. All cash and the indicia of ownership of all other investments shall be held by the Fund's custodian bank. The Fund shall instruct its custodian bank to (a) carry out all investment instructions as may be directed by the Subadvisor with respect thereto (which may be orally given if confirmed in writing); and (b) provide the Subadvisor with all operational information necessary for the Subadvisor to trade on behalf of the Fund. 6. Indemnification. The Subadvisor agrees to indemnify and hold harmless, the Advisor, the Fund, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund (other than the Subadvisor) and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"), controls ("controlling person") the Advisor or the Fund against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses), to which the Advisor, the Fund or such affiliated person or controlling person may become subject under the 1933 Act, 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise, which (1) may be based upon any wrongful act or omission by the Subadvisor, any of its employees or representatives or any affiliate of or any person acting on behalf of the Subadvisor or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering the shares of the Fund or any Series or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Fund or any affiliated person of the Fund by the Subadvisor or any affiliated person of the Subadvisor; provided, however, that in no case is the Subadvisor's indemnity in favor of the Advisor or the Fund or any affiliated person or controlling person of the Advisor or the Fund deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement. The Fund agrees not to hold the Subadvisor or any of its officers or employees liable for, and to indemnify or insure the Subadvisor and its officers and employees ("Indemnified Parties") against any act or omission of any other subadvisor providing investment management services to the Fund, and against any costs and liabilities the Indemnified Parties may incur as a result of a claim against the Indemnified Parties regarding actions taken in good faith exercise of their powers hereunder excepting matters as to which the Indemnified Parties have been negligent, engaged in willful misfeasance, bad faith, reckless disregard of the obligations and duties under this Agreement or have been in violation of applicable law or regulations. 7. Services Not Exclusive. It is understood that the services of the Subadvisor are not exclusive, and nothing in this Agreement shall prevent the Subadvisor from providing similar services to other investment companies (whether or not their investment objectives and policies are similar to those of the International Small Cap Series) or from engaging in other activities. When the Subadvisor recommends the purchase or sale of a security for other investment companies and other clients, and at the same time the Subadvisor recommends the purchase or sale of the same security for the International Small Cap Series, it is understood that such transactions will be executed on a basis that is fair and equitable to the Series. 8. (a) Duration. This Agreement shall become effective on the date hereof. Unless terminated as herein provided, this Agreement shall remain in full force and effective through July 31, 1995 and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Directors of the Fund or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the International Small Cap Series, and (ii) by the Advisor, and (iii) in either event by the vote of a majority of the Directors of the Fund who are not parties of this 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. - 3 - (b) Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of the Fund or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the International Small Cap Series, or by the Advisor, on thirty (30) days' written notice to the Subadvisor, or by the Subadvisor on like notice to the Fund and to the Advisor. (c) Automatic Termination. This Agreement shall automatically and immediately terminate in the event of its assignment. 9. Amendments. No provision of this agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the International Small Cap Series, if such approval is required by applicable law. 10. Miscellaneous. (a) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (d) Nothing herein shall be construed as constituting the Subadvisor as an agent of the Fund or the Advisor. (e) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. ACADIAN ASSET MANAGEMENT, INC. By: ------------------------------- (Title) FREMONT INVESTMENT ADVISORS, INC. By: ------------------------------- David L. Redo President --------- (Title) FREMONT MUTUAL FUNDS, INC. By: ------------------------------- V.P. Kuhn, Jr. Executive Vice President ------------------------ (Title) - 4 - APPENDIX A TO PORTFOLIO MANAGEMENT AGREEMENT Acadian Asset Management, Inc. Subadvisor to the Fremont International Small Cap Fund SCHEDULE OF FEES ---------------- Value of Total Assets Under Management by Acadian Asset Management, Inc. for the Fremont International Small Cap Fund Annual Rate* ------------ .75% on the first $50 Million .65% on the next $50 Million .50% on the next $100 Million .40% thereafter. Fee should be billed and payable after the end of each calendar month based on the average daily balances in this account. Fee will be prorated for any period less than one month. *NOTE: Acadian Asset Management, Inc. will waive this fee for 12 months from the start date of the Fund. - 5 - APPENDIX B TO PORTFOLIO MANAGEMENT AGREEMENT Acadian Asset Management, Inc. Subadvisor to the Fremont International Small Cap Fund INVESTMENT OBJECTIVES AND GUIDELINES ------------------------------------ Overall Investment Objective: - ----------------------------- The objective of the Fremont International Small Cap Fund is to achieve long-term capital appreciation by investing, in normal market conditions, at least 65% of its total assets in small capitalization equity securities of issuers domiciled outside the United States. The Fund's investment objective reflects the belief that long-term investment planning should include the investment opportunities that exist outside the U.S. In normal market conditions, securities of issuers domiciled in at least three different non-U.S. countries will be represented in the Fund's portfolio. Policy and Guidelines for Subadvisor: - ------------------------------------- The Subadvisor will adhere to the Investment Objective and to policies in the Fremont International Small Cap Fund prospectus. Performance Objective for Subadvisor: - ------------------------------------- The Subadvisor is expected to achieve a competitive rate of return over a 3 to 5 year time horizon and/or a complete market cycle, when compared to other managers of similar size and with similar investment objectives. Performance will also be compared to the Morgan Stanley Capital International EAFE Index. - 6 - EX-12 15 PORTFOLIO MANAGEMENT AGREEMENT PORTFOLIO MANAGEMENT AGREEMENT THIS AGREEMENT dated and effective as of December 31, 1997 among Kensington Investment Group, a Delaware corporation (the "Subadvisor"); Fremont Investment Advisors, Inc., a Delaware corporation (the "Advisor"); and Fremont Mutual Funds, Inc., a Maryland corporation (the "Fund"). WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company and is authorized to issue separate series (the "Series"), each of which may offer a separate class of shares of beneficial interest, each Series having its own investment objective, policies and limitations; and WHEREAS, the Fund presently offers shares of a particular series named the Fremont Real Estate Securities Fund (the "Real Estate Securities Series"); and WHEREAS, the Fund has retained the Advisor to render investment management and administrative services to the Real Estate Securities Series; and WHEREAS, the Advisor and the Fund desire to retain the Subadvisor to furnish portfolio management services to the Real Estate Securities Series in connection with Advisor's investment management activities on behalf of the Series, and the Subadvisor is willing to furnish such services to the Advisor and the Real Estate Securities Series; NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the Subadvisor, the Advisor and the Fund as follows: 1. Appointment. The Advisor and the Fund hereby appoint Subadvisor to provide sub-investment advisory services to the Advisor and the Fund with respect to certain assets of the Real Estate Securities Series for the periods and on the terms set forth in this Agreement. The Subadvisor accepts such appointment and agrees to furnish the services herein set forth, for the compensation herein provided. 2. Subadvisor Duties. Subject to the supervision of the Advisor, the Subadvisor shall have full discretionary authority as agent and attorney-in-fact with respect to the portion of assets of the Real Estate Securities Series' portfolio assigned to the Subadvisor, from time to time by the Advisor or the Board of Directors, including authority to: (a) buy, sell, exchange, convert or otherwise trade in any stocks without limitation and (b) place orders for the execution of such securities transactions with or through such brokers, dealers, or issuers as Subadvisor may select. The Subadvisor will provide the services under this Agreement in accordance with the Real Estate Securities Series' registration statement filed with the Securities and Exchange Commission ("SEC"), as amended. The Advisor will provide the Subadvisor with a copy of each registration statement promptly after it has been filed with the SEC. Investments by the Subadvisor shall conform with the provisions of Appendix B attached hereto, as such may be revised from time to time at the discretion of the Advisor and the Fund. Subject to the foregoing, the Subadvisor will vote proxies with respect to the securities and investments purchased with the assets of the Real Estate Securities Series' portfolio managed by the Subadvisor. The Subadvisor further agrees that it will: (a) conform with all applicable rules and regulations of the Securities and Exchange Commission. (b) select brokers and dealers to execute portfolio transactions for the Real Estate Securities Series and select the markets on or in which the transaction will be executed. In providing the Real Estate Securities Series with investment management, it is recognized that the Subadvisor will give primary consideration to securing the most favorable price and efficient execution considering all circumstances. Within the framework of this policy, the Subadvisor may consider the financial responsibility, research and investment information and other research services and products provided by brokers or dealers who may effect or be a party to any such transaction or other transactions to which the Subadvisor's other clients may be a party. It is understood that it is desirable for the Fund that the Subadvisor have access to brokerage and research services and products and security and economic analysis provided by brokers who may execute brokerage transactions at a higher cost to the Real Estate Securities Series than broker-dealers that do not provide such brokerage and research services. Therefore, in compliance with Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), the Subadvisor is authorized to place orders for the purchase and sale of securities for the Real Estate Securities Series with such brokers, that provide brokerage and research products and/or services that charge an amount of commission for effecting securities transactions in excess of the amount of commission another broker would have charged for effecting that transaction, provided the Subadvisor determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research products and/or services provided by such broker viewed in terms of either that particular transaction or the overall responsibilities of the Subadvisor for this or other advisory accounts, subject to review by the Fund from time to time with respect to the extent and continuation of this practice. It is understood that the information, services and products provided by such brokers may be useful to the Subadvisor in connection with the Subadvisor's services to other clients. On occasions when the Subadvisor deems the purchase or sale of a security to be in the best interest of the Real Estate Securities Series as well as other clients of the Subadvisor, the Subadvisor, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be sold or purchased in order to obtain the most favorable price of lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, shall be made by the Subadvisor in the manner the Subadvisor considers to be the most equitable and consistent with its fiduciary obligations to the Real Estate Securities Series and to such other clients. (c) make available to the Advisor and the Fund's Board of Directors promptly upon their request all its investment records and ledgers relating to the Real Estate Securities Series to assist the Advisor and the Fund in their compliance with respect to the Real Estate Securities Series' securities transactions as required by the 1940 Act and the Investment Advisers Act of 1940 ("Advisers Act"), as well as other applicable laws. The Subadvisor will furnish the Fund's Board of Directors with respect to the Real Estate Securities Series such periodic and special reports as the Advisor and the Directors may reasonably request in writing. (d) maintain detailed records of the Fund's assets managed by the Subadvisor as well as all investments, receipts, disbursements and other transactions made with such assets. Such records shall be open to inspection and audit during Subadvisor's normal business hours upon reasonable notice by any person designated by the Advisor or the Fund. The Subadvisor shall provide to the Advisor or the Fund and any other party designated by either the Advisor or the Fund: (i) monthly statements of the activities with regard to the assets for the month and of the assets showing each asset at its cost and, for each security listed on any national securities exchange, its value at the last quoted sale price reported on the composite tape on the valuation date or, in the cases of securities not so reported, by the principal exchange on which the security traded or, if no trade was made on the valuation date or if such security is not listed on any exchange, its value as determined by a nationally recognized pricing service used by the Subadvisor specified by such pricing service on the valuation date, and for any other security or asset in a manner determined in good faith by the Subadvisor to reflect its then fair market value; (ii) statements evidencing any purchases and sales as soon as practicable after such transaction has taken place, and (iii) a quarterly review of the assets under management. 3. Expenses. During the term of this Agreement, the Subadvisor will pay all expenses incurred by it, its staff and their activities, in connection with its portfolio management activities under this Agreement. The Subadvisor shall not be responsible for any expense incurred by the Advisor or the Fund, except as provided in Section 6 below. 4. Compensation. For the services provided to the Real Estate Securities Series, the Advisor will pay the Subadvisor the fees as set forth in Appendix A hereto at the times set forth in Appendix A hereto. 5. Books and Records; Custody. (a) In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadvisor hereby agrees that all records which it maintains for the Real Estate Securities Series are the property of the Fund and further agrees to surrender promptly to the Fund any of such records upon the Fund's request. The Subadvisor further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in the Rule. (b) Title to all investments shall be made in the name of the Fund, provided that for convenience in buying, selling, and exchanging securities (stocks, bonds, commercial paper, etc.), title to such securities may be held in the name of the Fund's custodian bank, or its nominee. The Fund shall advise the Subadvisor of the identity of its custodian bank and shall give the Subadvisor 15 days' written notice of any changes in such custody arrangements. - 2 - Neither the Subadvisor, nor any parent, subsidiary or related firm, shall take possession of or handle any cash, securities, mortgages or deeds of trust, or other indicia of ownership of the Fund's investments, or otherwise act as custodian of such investments. All cash and the indicia of ownership of all other investments shall be held by the Fund's custodian bank. The Fund shall instruct its custodian bank to (a) carry out all investment instructions as may be directed by the Subadvisor with respect thereto (which may be orally given if confirmed in writing); and (b) provide the Subadvisor with all operational information necessary for the Subadvisor to trade on behalf of the Fund. 6. Indemnification. The Subadvisor agrees to indemnify and hold harmless the Advisor, the Fund, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Advisor or the Fund (other than the Subadvisor) and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"), controls ("controlling person") the Advisor or the Fund against any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) to which the Advisor, the Fund or such affiliated person or controlling person may become subject under the 1933 Act, 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise, which (1) may be based upon any wrongful act or omission by the Subadvisor, any of its employees or representatives or any affiliate of or any person acting on behalf of the Subadvisor or (2) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering the shares of the Fund or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Fund or any affiliated person of the Fund by the Subadvisor or any affiliated person of the Subadvisor; provided, however, that in no case is the Subadvisor's indemnity in favor of the Advisor or the Fund or any affiliated person or controlling person of the Advisor or the Fund deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith or negligence in the performance of his or its duties or by reason of his or its reckless disregard of obligations and duties under this Agreement or under any law. The Fund agrees not to hold the Subadvisor or any of its officers or employees liable for, and to indemnify and hold harmless, the Subadvisor and its directors, officers, employees, affiliated persons and controlling persons ("Indemnified Parties") against, any act or omission of any other subadvisor providing investment management services to the Fund, and against any costs and liabilities the Indemnified Parties may incur as a result of a claim against the Indemnified Parties regarding actions taken in good faith exercise of their powers and responsibilities hereunder excepting matters as to which the Indemnified Parties have been grossly negligent, engaged in willful misfeasance, bad faith, reckless disregard of the obligations and duties under this Agreement or have been in violation of applicable law or regulations. 7. Other Investment Activities of Subadvisor. The Fund and Advisor acknowledge that Subadvisor, may have investment responsibilities or render investment advice to, or perform other investment advisory services for, other individuals or entities ("Affiliated Accounts"). It is also understood that the services of the Subadvisor provide a competitive advantage to the Fund and the Advisor, and the Subadvisor agrees that it will not provide investment advisory or subadvisory services to any other United States, publicly offered, SEC registered investment company with investment objectives and policies similar to those of the Real Estate Securities Series for the duration of this agreement. Subject to the provisions of paragraph 2 hereof, the Fund agrees that the Subadvisor may give advice or exercise investment responsibility and take other action with respect to other Affiliated Accounts which may differ from advice given or the timing or nature of action taken with respect to the Real Estate Securities Series; provided that the Subadvisor acts in good faith, and provided further that it is the Subadvisor's policy to allocate, within its reasonable discretion, investment opportunities to the Real Estate Securities Series over a period of time on a fair and equitable basis relative to the Affiliated Accounts, taking into account the investment objectives and policies of the Real Estate Securities Series and any specific investment restrictions applicable thereto. The Fund acknowledges that one or more of the Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose of or otherwise deal with positions in investments in which the Real Estate Securities Series may have an interest from time to time, whether in transactions which may involve the Real Estate Securities Series or otherwise. Subadvisor shall have no obligation to acquire for the Real Estate Securities Series a position in any investment which any Affiliated Account may acquire, and the Fund shall have no first refusal, co-investment or other rights in respect of any such investment either for the Real Estate Securities Series or otherwise. 8. (a) Duration. This Agreement shall become effective on the date hereof. Unless terminated as herein provided, this Agreement shall remain in full force and effective for a period of two years from the date of this Agreement, and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Board of Directors of the Fund or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Real Estate Securities Series, and (ii) by the Advisor, and (iii) by the vote of a majority of the Board of Directors of the Fund who are not parties to this 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. - 3 - (b) Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Directors of the Fund or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Real Estate Securities Series, or by the Advisor, on thirty (30) days' written notice to the Subadvisor, or by the Subadvisor on like notice to the Board of Directors of the Fund and to the Advisor. Payment of fees earned through the date of termination shall not be construed as a penalty. (c) Automatic Termination. This Agreement shall automatically and immediately terminate in the event of its assignment. 9. Amendments. No provision of this agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought and no amendment of this Agreement shall be effective until approved by a vote of a majority of the outstanding voting securities of the Real Estate Securities Series, if such approval is required by applicable law. 10. Miscellaneous. (a) This Agreement shall be governed by the laws of the State of California, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (d) Nothing herein shall be construed as constituting the Subadvisor as an agent of the Fund or the Advisor. (e) This Agreement supersedes any prior agreement relating to the subject matter hereof between the parties. (f) This Agreement may be executed in counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered, shall be deemed an original and all of which counterparts shall constitute but one and the same agreement. 11. Use of Name. It is understood that the name "Kensington Investment Group" or the name of any of its affiliates, or any derivative associated with those names, are the valuable property of the Subadvisor and its affiliates and that the Fund and/or the Fund's distributor have the right to use such name(s) or derivative(s) in offering materials and sales literature of the Fund so long as this Agreement is in effect. Upon termination of the Agreement the Fund shall forthwith cease to use such name(s) or derivative(s). 12. Receipt of Brochure. The Advisor and the Fund have received from Kensington Investment Group the disclosure statement or "brochure" required to be delivered pursuant to Rule 204-3 of the Advisers Act, which disclosure statement or brochure was received by the Advisor and the Fund more than 48 hours prior to entering into this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. Kensington Investment Group By: ----------------------------------- (Title) FREMONT INVESTMENT ADVISORS, INC. By: ----------------------------------- (Title) FREMONT MUTUAL FUNDS, INC. By: ----------------------------------- (Title) - 4 - APPENDIX A TO PORTFOLIO MANAGEMENT AGREEMENT Kensington Investment Group Subadvisor to the Fremont Real Estate Securities Fund SCHEDULE OF FEES ---------------- Fremont Investment Advisors, Inc. will pay to Kensington Investment Group a fee computed at the annual rate of 0.50% (50 basis points) of the average value of the daily assets of the Real Estate Securities Fund under management by Kensington Investment Group. Both the Advisor and the Sub-Advisor will waive their fees for the first six months, and will then continue to waive fees until the earlier of December 31, 1998 or until assets in the Fund reach $25 million. The Portfolio Management Agreement with the Sub-Advisor may be terminated by the Advisor or the Investment Company upon 30 days' written notice. The Advisor has day-to-day authority to increase or decrease the amount of the Fund's assets under management by the Sub-Advisor. Fees will be billed after the end of each calendar month. Fees will be prorated for any period less than one month and shall be due and payable within thirty (30) days after an invoice has been delivered to Fremont Investment Advisors, Inc. - 5 - APPENDIX B TO PORTFOLIO MANAGEMENT AGREEMENT Kensington Investment Group Subadvisor to the Fremont Real Estate Securities Fund INVESTMENT OBJECTIVES AND GUIDELINES ------------------------------------ Overall Investment Objective: - ----------------------------- The objective of the Fremont Real Estate Securities Fund is to obtain a combination of income and long-term capital appreciation by investing primarily in equity securities of companies in the real estate industry. Under normal market conditions, at least 65% of the Portfolio's total assets will be invested in equity securities of companies principally engaged in the real estate industry. Policy and Guidelines for Subadvisor: - ------------------------------------- The Subadvisor will adhere to the Investment Objective and to policies in the Fremont Real Estate Securities Fund prospectus and Statement of Additional Information. Performance Objective for Subadvisor: - ------------------------------------- The Subadvisor is expected to achieve a competitive rate of return over a 3 to 5 year time horizon and/or a complete market cycle, relative to other real estate securities funds as compiled by Lipper Analytical Services and/or Morningstar. A competitive rate of return is defined as Fund performance in the top one-third of such funds. Performance may be compared to other investments or indices of comparable quality as outlined in the Statement of Additional Information. - 6 - EX-13 16 SUB-TRANSFER AGENCY AND SERVICE AGREEMENT SUB-TRANSFER AGENCY AND SERVICE AGREEMENT between FREMONT INVESTMENT ADVISORS, INC. and STATE STREET BANK AND TRUST COMPANY Sub-Transfer Agreement(4G) TABLE OF CONTENTS ----------------- Page ---- 1. Terms of Appointment; Duties of the Bank..................1 2. Fees and Expenses.........................................4 3. Representations and Warranties of the Bank................4 4. Representations and Warranties of the Transfer Agent............................................5 5. Wire Transfer Operating Guidelines........................5 6. Data Access and Proprietary Information...................7 7 Indemnification...........................................8 8. Standard of Care.........................................10 9. Covenants of the Fund and the Transfer Agent.............10 10. Termination of Agreement.................................11 11. Additional Funds.........................................11 12. Assignment...............................................11 13. Amendment................................................12 14. Massachusetts Law to Apply...............................12 15. Force Majeure............................................12 16. Disaster Recovery and Insurance Coverage.................12 17. Consequential Damages....................................13 18. Merger of Agreement......................................13 19. Counterparts.............................................13 20. Reproduction of Documents................................13 SUB-TRANSFER AGENCY AND SERVICE AGREEMENT ----------------------------------------- AGREEMENT made as of the 10 day of October, 1997, by and between FREMONT INVESTMENT ADVISORS, INC., a Delaware corporation, having its principal office and place of business at 333 Market Street, Suite 2600, San Francisco, California 94105 (the "Transfer Agent"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its principal office and place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank"). WHEREAS, the Transfer Agent has been appointed by each of the investment companies (including each series thereof) listed on Schedule A (the "Fund(s)"), each an open-end diversified management investment company registered under the Investment Company Act of 1940, as amended, as transfer agent, dividend disbursing agent and shareholder servicing agent in connection with certain activities, and the Transfer Agent has accepted each such appointment; WHEREAS, the Transfer Agent has entered into a Transfer Agency and Service Agreement with each of the Funds (including each series thereof) listed on Schedule A pursuant to which the Transfer Agent is responsible for certain transfer agency and dividend disbursing functions and the Transfer Agent is authorized to subcontract for the performance of its obligations and duties thereunder in whole or in part with the Bank; WHEREAS, the Transfer Agent is desirous of having the Bank perform certain shareholder accounting, administrative and servicing function (collectively "Shareholder and Record-Keeping Services"); WHEREAS, the Transfer Agent desires to appoint the Bank as its agent, and the Bank desires to accept such appointment; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: l. Terms of Appointment; Duties of the Bank ---------------------------------------- 1.1 Subject to the terms and conditions set forth in this Agreement, the Transfer Agent hereby employs and appoints the Bank to act as, and the Bank agrees to act as, the agent of the Transfer Agent for the shares of its each of the Funds in connection with any accumulation, open-account, retirement plans or similar plan provided to the shareholders of each Fund ("Shareholders") and set out in the currently effective prospectus and statement of additional information ("prospectus") of each such Fund, including without limitation any periodic investment plan or periodic withdrawal program. As used herein, the term "Shares" means the authorized and issued shares of common stock, or shares of beneficial interest, as the case may be, for each of the Funds (including each series thereof) enumerated in Schedule A. 1.2 The Bank agrees that it will perform the following Shareholder and Record-Keeping services: (a) In accordance with procedures established from time to time by agreement between the Transfer Agent and the Bank, the Bank shall: 1 (i) receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation thereof to the Custodian of the Fund authorized pursuant to the Articles of Incorporation of each Fund (the "Custodian"); (ii) pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) receive for acceptance redemption requests and redemption directions and deliver the appropriate documentation thereof to the Custodian; (iv) in respect to the transactions in items (i), (ii) and (iii) above, the Bank shall execute transactions directly with broker-dealers authorized by the Funds; (v) at the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (vi) effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vii) prepare and transmit payments for dividends and distributions declared by each Fund; (viii) maintain records of account for and advise the Fund and its Shareholders as to the foregoing; and (ix) record the issuance of shares of each Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares of each Fund which are authorized, based upon data provided to it by each Fund, and issued and outstanding. The Bank shall also provide each Fund on a regular basis with the total number of shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of shares, to monitor the issuance of such shares or to take cognizance of any laws relating to the issue or sale of such shares, which functions shall be the sole responsibility of each Fund. 2 (b) In addition to and neither in lieu nor in contravention of the services set forth in the above paragraph (a), the Bank shall: (i) perform the customary services of a transfer agent, dividend disbursing agent, custodian of certain retirement plans and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing Shareholder proxies, Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and (ii) provide a system which will enable each Fund to monitor the total number of Shares sold by each Portfolio in each State. The Fund may engage a third party to maintain the Fund's state registrations and that the Bank is authorized to provide the necessary information to such agent. (c) In addition, each Fund shall (i) identify to the Bank in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Bank for each Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by each Fund and the reporting of such transactions to each Fund as provided above. (d) Procedures as to who shall provide certain of these services in Section 1 may be established from time to time by agreement between the Transfer Agent and the Bank per the attached service responsibility schedule. The Bank may at times perform only a portion of these services and the Transfer Agent, the Funds or their agent may perform these services on each Fund's behalf. (e) The Fund shall authorize the Bank to negotiate and process checks made payable to existing Shareholders tendered to the Bank for the purchase of Shares in amounts less than $10,000, such checks are commonly known as "third party checks". (f) The Bank shall provide additional services on behalf of the Transfer Agent (e.g., escheatment services) which may be agreed upon in writing between the Fund and the Bank. 3 2. Fees and Expenses ----------------- 2.1 For the performance by the Bank pursuant to this Agreement, the Transfer Agent agrees to pay the Bank an annual maintenance fee for each Shareholder account as set out in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.2 below may be changed from time to time subject to mutual written agreement between the Transfer Agent and the Bank. 2.2 In addition to the fee paid under Section 2.1 above, the Transfer Agent agrees to reimburse the Bank for its reasonable out-of-pocket expenses, including but not limited to confirmation production, postage, forms, telephone, microfilm, microfiche, mailing and tabulating proxies, records storage, or advances incurred by the Bank for the items set out in the fee schedule attached hereto. In addition, any other reasonable expenses incurred by the Bank at the request or with the consent of the Transfer Agent, will be reimbursed by the Fund. 2.3 The Transfer Agent agrees to pay all fees and reimbursable expenses within thirty days following the receipt of the respective billing notice. 3. Representations and Warranties of the Bank ------------------------------------------ The Bank represents and warrants to the Transfer Agent that: 3.1 It is a trust company duly organized and existing and in good standing under the laws of The Commonwealth of Massachusetts. 3.2 It is duly qualified to carry on its business in The Commonwealth of Massachusetts. 3.3 It is empowered under applicable laws and by its Charter and By-Laws to enter into and perform this Agreement. 3.4 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 3.5 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 4 4. Representations and Warranties of the Transfer Agent ---------------------------------------------------- The Transfer Agent represents and warrants to the Bank that: 4.1 It is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 4.2 It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement. 4.3 All corporate proceedings required by said Articles of Incorporation and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4.4 Each Fund is an open-end and diversified management investment company registered under the Investment Company Act of 1940, as amended. 4.5 A registration statement under the Securities Act of 1933, as amended for each Fund is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of each Fund being offered for sale. 5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform ------------------------------------------------------------- Commercial Code --------------- 5.1 The Bank is authorized to promptly debit the appropriate Transfer Agent account(s) upon the receipt of a payment order in compliance with the selected security procedure (the "Security Procedure") chosen for funds transfer and in the amount of money that the Bank has been instructed to transfer. The Bank shall execute payment orders in compliance with the Security Procedure and with the Transfer Agent instructions on the execution date provided that such payment order is received by the customary deadline for processing such a request, unless the payment order specifies a later time. All payment orders and communications received after this the customary deadline will be deemed to have been received the next business day. 5 5.2 The Transfer Agent acknowledges that the Security Procedure it has designated on the Transfer Agent Selection Form was selected by the Transfer Agent from security procedures offered by the Bank. The Transfer Agent shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated to the Bank in writing. The Transfer Agent must notify the Bank immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Transfer Agent's authorized personnel. The Bank shall verify the authenticity of all Transfer Agent instructions according to the Security Procedure. 5.3 The Bank shall process all payment orders on the basis of the account number contained in the payment order. In the event of a discrepancy between any name indicated on the payment order and the account number, the account number shall take precedence and govern. 5.4 The Bank reserves the right to decline to process or delay the processing of a payment order which (a) is in excess of the collected balance in the account to be charged at the time of the Bank's receipt of such payment order; (b) if initiating such payment order would cause the Bank, in the Bank's sole judgement, to exceed any volume, aggregate dollar, network, time, credit or similar limits which are applicable to the Bank; or (c) if the Bank, in good faith, is unable to satisfy itself that the transaction has been properly authorized. 5.5 The Bank shall use reasonable efforts to act on all authorized requests to cancel or amend payment orders received in compliance with the Security Procedure provided that such requests are received in a timely manner affording the Bank reasonable opportunity to act. However, the Bank assumes no liability if the request for amendment or cancellation cannot be satisfied. 5.6 The Bank shall assume no responsibility for failure to detect any erroneous payment order provided that the Bank complies with the payment order instructions as received and the Bank complies with the Security Procedure. The Security Procedure is established for the purpose of authenticating payment orders only and not for the detection of errors in payment orders. 5.7 The Bank shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order, unless the Bank is notified of the unauthorized payment order within thirty (30) days of notification by the Bank of the acceptance of such payment order. In no event (including failure to execute a payment order) shall the Bank be liable for special, indirect or consequential damages, even if advised of the possibility of such damages. 6 5.8 When the Transfer Agent initiates or receives Automated Clearing House credit and debit entries pursuant to these guidelines and the rules of the National Automated Clearing House Association and the New England Clearing House Association, the Bank will act as an Originating Depository Financial Institution and/or receiving depository Financial Institution, as the case may be, with respect to such entries. Credits given by the Bank with respect to an ACH credit entry are provisional until the Bank receives final settlement for such entry from the Federal Reserve Bank. If the Bank does not receive such final settlement, the Transfer Agent agrees that the Bank shall receive a refund of the amount credited to the Transfer Agent in connection with such entry, and the party making payment to the Transfer Agent via such entry shall not be deemed to have paid the amount of the entry. 5.9 Confirmation of Bank's execution of payment orders shall ordinarily be provided within twenty four (24) hours notice of which may be delivered through the Bank's proprietary information systems, or by facsimile or call-back. Transfer Agent must report any objections to the execution of an order within thirty (30) days. 6. Data Access and Proprietary Information --------------------------------------- 6.1 The Transfer Agent acknowledges that the data bases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Transfer Agent by the Bank as part of the Fund's ability to access certain Fund-related data ("Customer Data") maintained by the Bank on data bases under the control and ownership of the Bank ("Data Access Services") constitute copyrighted, trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to the Bank or other third party. In no event shall Proprietary Information be deemed Customer Data. The Transfer Agent agrees to treat all Proprietary Information as proprietary to the Bank and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder. Without limiting the foregoing, the Transfer Agent agrees for itself and its employees and agents: (a) to access Customer Data solely from locations as may be designated in writing by the Bank and solely in accordance with the Bank's applicable user documentation; (b) to refrain from copying or duplicating in any way the Proprietary Information; (c) to refrain from obtaining unauthorized access to any portion of the Proprietary Information, and if such access is inadvertently obtained, to inform in a timely manner of such fact and dispose of such information in accordance with the Bank's instructions; (d) to refrain from causing or allowing the data acquired hereunder from being retransmitted to any other computer facility or other location, except with the prior written consent of the Bank; 7 (e) that the Transfer Agent shall have access only to those authorized transactions agreed upon by the parties; and (f) to honor all reasonable written requests made by the Bank to protect at the Bank's expense the rights of the Bank in Proprietary Information at common law, under federal copyright law and under other federal or state law. Each party shall take reasonable efforts to advise its employees of their obligations pursuant to this Section 6. The obligations of this Section shall survive any earlier termination of this Agreement. 6.2 If the Transfer Agent notifies the Bank that any of the Data Access Services do not operate in material compliance with the most recently issued user documentation for such services, the Bank shall endeavor in a timely manner to correct such failure. Organizations from which the Bank may obtain certain data included in the Data Access Services are solely responsible for the contents of such data and the Transfer Agent agrees to make no claim against the Bank arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 6.3 If the transactions available to the Transfer Agent include the ability to originate electronic instructions to the Bank in order to (i) effect the transfer or movement of cash or Shares or (ii) transmit Shareholder information or other information, then in such event the Bank shall be entitled to rely on the validity and authenticity of such instruction without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by the Bank from time to time. 7. Indemnification --------------- 7.1 The Bank shall not be responsible for, and the Transfer Agent shall indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to: (a) all actions of the Bank or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct; 8 (b) the Transfer Agent's lack of good faith, negligence or willful misconduct which arise out of the breach of any representation or warranty of the Transfer Agent hereunder; (c) the reliance on or use by the Bank or its agents or subcontractors of information, records, documents or services which (i) are received by the Bank or its agents or subcontractors, and (ii) have been prepared, maintained or performed by the Transfer Agent or each Fund or any other person or firm on behalf of the Transfer Agent or each Fund including but not limited to any previous transfer agent or registrar; (d) the reliance on, or the carrying out by the Bank or its agents or subcontractors of any instructions or requests of the Transfer Agent or each Fund; (e) the offer or sale of Shares in violation of federal or state securities laws or regulations requiring that such Shares be registered or in violation of any stop order or other determination or ruling by any federal or any state agency with respect to the offer or sale of such Shares; (f) the negotiations and processing of checks made payable to prospective or existing Shareholders tendered to the Bank for the purchase of Shares, such checks are commonly known as "third party checks"; and (g) upon the Fund's request entering into any agreements required by the National Securities Clearing Corporation (the "NSCC") required by the NSCC for the transmission of Fund or Shareholder data through the NSCC clearing systems. 7.2 At any time the Bank may apply to any officer of the Transfer Agent for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by the Bank under this Agreement, and the Bank and its agents or subcontractors shall not be liable and shall be indemnified by the Transfer Agent for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. The Bank, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Bank or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Transfer Agent, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Transfer Agent. 9 7.3 In order that the indemnification provisions contained in this Section 7 shall apply, upon the assertion of a claim for which the Transfer Agent may be required to indemnify the Bank, the Bank shall promptly notify the Transfer Agent of such assertion, and shall keep the Transfer Agent advised with respect to all developments concerning such claim. The Transfer Agent shall have the option to participate with the Bank in the defense of such claim or to defend against said claim in its own name or in the name of the Bank. The Bank shall in no case confess any claim or make any compromise in any case in which the Transfer Agent may be required to indemnify the Bank except with the Transfer Agent's prior written consent. 8. Standard of Care ---------------- The Bank shall at all times act in good faith and agrees to use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors unless said errors are caused by its negligence, bad faith, or willful misconduct or that of its employees. 9. Covenants of the Transfer Agent and the Bank -------------------------------------------- 9.1 The Transfer Agent shall promptly furnish to the Bank the following: (a) A certified copy of the resolution of the Board of Directors of the Transfer Agent authorizing the appointment of the Bank and the execution and delivery of this Agreement. 9.2 The Bank hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Transfer Agent for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 9.3 The Bank shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Bank agrees that all such records prepared or maintained by the Bank relating to the services to be performed by the Bank hereunder are the property of each Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to each Fund on and in accordance with its request. 10 9.4 The Bank and the Transfer Agent agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 9.5 In case of any requests or demands for the inspection of the Shareholder records of any of the Funds, the Bank will endeavor to notify the Transfer Agent and to secure instructions from an authorized officer of the Transfer Agent as to such inspection. The Bank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. 10. Termination of Agreement - --- ------------------------ 10.1 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other. 10.2 Should the Transfer Agent exercise its right to terminate, all out-of-pocket expenses associated with the movement of records and material will be borne by the Transfer Agent. Additionally, the Bank reserves the right to charge for any other reasonable expenses associated with such termination and a charge up to the equivalent to the average of three (3) months' fees. 11. Additional Funds ---------------- In the event that the Fund establishes one or more series of Shares in addition to the series named in the attached Schedule A with respect to which it desires to have the Bank render services as transfer agent under the terms hereof, it shall so notify the Bank in writing, and if the Bank agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. 12. Assignment ---------- 12.1 Except as provided in Section 12.3 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. 12.2 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 11 12.3 The Bank may, without further consent on the part of the Transfer Agent, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly registered as a transfer agent pursuant to Section 17A(c)(2) or (iii) a BFDS affiliate; provided, however, that the Bank shall be as fully responsible to the Transfer Agent for the acts and omissions of any subcontractor as it is for its own acts and omissions. 13. Amendment --------- This Agreement may be amended or modified by a written agreement executed by both parties and if so requested by the Bank, authorized or approved by a resolution of the Transfer Agent. 14. Massachusetts Law to Apply -------------------------- This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. 15. Force Majeure ------------- In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 16. Disaster Recovery and Insurance Coverage ---------------------------------------- 16.1 In the event of equipment failures beyond the Bank's control, the Bank shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. The Bank shall enter into and maintain in effect with appropriate parties one or more agreements making reasonable provisions for (a) periodic back-up of the computer files and data with respect to the Fund and (b) emergency use of electronic data processing equipment to provide services under this Agreement. 16.2 The Bank shall maintain commercially reasonable amounts of (a) comprehensive general liability insurance coverage and (b) errors and omissions insurance coverage and notify the Fund in the event that such insurance is canceled. 12 17. Consequential Damages --------------------- Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure to act hereunder. 18. Merger of Agreement ------------------- This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. 19. Counterparts ------------ This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 20. Reproduction of Documents ------------------------- This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction shall likewise be admissible in evidence. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. FREMONT INVESTMENT ADVISORS, INC. BY: ----------------------------------- STATE STREET BANK AND TRUST COMPANY BY: ----------------------------------- Executive Vice President ATTEST: - -------------------------------- STATE STREET BANK & TRUST COMPANY TRANSFER AGENT SERVICE RESPONSIBILITIES*
Service Performed Responsibility - ----------------- -------------- Bank Transfer Agent ---- -------------- 1. Receives orders for the purchase X of Shares. 2. Issue Shares and hold Shares in X Shareholders accounts. X 3. Receive redemption requests. X 4. Effect transactions 1-3 above X directly with broker-dealers. X 5. Pay over monies to redeeming X Shareholders. X 6. Effect transfers of Shares. X 7. Prepare and transmit dividends X and distributions. X 8. Issue Replacement Certificates. X 9. Reporting of abandoned property. X 10. Maintain records of account. X 11. Maintain and keep a current and X accurate control book for each issue of securities. 12. Mail proxies. X 13. Mail Shareholder reports. X 14. Mail prospectuses to current X Shareholders. X 15. Withhold taxes on U.S. resident X and non-resident alien accounts. X
STATE STREET BANK & TRUST COMPANY TRANSFER AGENT SERVICE RESPONSIBILITIES*
Service Performed Responsibility - ----------------- -------------- Bank Transfer Agent ---- -------------- 16. Prepare and file U.S. Treasury X Department forms. X 17. Prepare and mail account and X confirmation statements for Shareholders. 18. Provide Shareholder account X information. X 19. Blue sky reporting. X
* Such services are more fully described in Section 1.2 (a), (b) and (c) of the Agreement. FREMONT INVESTMENT ADVISORS, INC. BY: ------------------------------------ STATE STREET BANK AND TRUST COMPANY BY: ------------------------------------ Executive Vice President ATTEST: - --------------------------- SCHEDULE A Fremont Global Fund Fremont Money Market Fund Fremont California Intermediate Tax-Free Fund Fremont Bond Fund Fremont Growth Fund Fremont International Growth Fund Fremont U.S. Micro-Cap Fund Fremont International Small Cap Fund Fremont Emerging Markets Fund Fremont U.S. Institutional Micro-Cap Fund Fremont U.S. Small Cap Fund Fremont Select Fund Fremont Real Estate Securities Fund EX-14 17 OPINION OF COUNSEL PAUL, HASTINGS, JANOFSKY & WALKER, LLP 345 CALIFORNIA STREET SAN FRANCISCO, CALIFORNIA 94104 Telephone (415) 835-1600 Facsimile (415) 217-5333 February 27, 1998 Fremont Mutual Funds, Inc. 333 Market Street, Suite 2600 San Francisco, California 94105 Re: Fremont Institutional U.S. Micro-Cap Fund Fremont U.S. Small Cap Fund Fremont Real Estate Securities Fund Fremont Select Fund Ladies and Gentlemen: We have acted as counsel to Fremont Mutual Funds, Inc., a Maryland corporation (the "Corporation"), in connection with Post-Effective Amendments to the Corporation's Registration Statement on Form N-1A filed with the Securities and Exchange Commission (the "Post-Effective Amendments") and relating to the issuance by the Corporation of up to a maximum of 100,000,000 of $.0001 par value shares of beneficial interest (the "Shares") for each of four series of the Corporation: the Fremont Institutional U.S. Micro-Cap Fund, the Fremont U.S. Small Cap Fund, the Fremont Real Estate Securities Fund, and the Fremont Select Fund (the "Funds"). In connection with this opinion, we have assumed the authenticity of all records, documents and instruments submitted to us as originals, the genuineness of all signatures, the legal capacity of all natural persons, and the conformity to the originals of all records, documents, and instruments submitted to us as copies. We have based our opinion on the following: (a) the Corporation's Articles of Incorporation filed with the State Department of Assessments and Taxation of Maryland on July 13, 1988, as amended on October 5, 1988 and November 1, 1988, as supplemented twice on November 14, 1988, as corrected twice on December 8, 1988, as supplemented on June 27, 1990, as corrected on July 17, 1990, as supplemented on May 8, 1992, February 25, 1993, and July 1, 1993, as amended on July 26, Fremont Mutual Funds, Inc. February 27, 1998 Page 2 1993 and three times on July 30, 1993, as supplemented on December 27, 1993 and twice on January 3, 1994, as amended on March 2, 1994, as supplemented on July 2, 1996, August 7, 1997, October 16, 1997, and three times on December 30, 1997 (as so amended, supplemented and corrected, the "Articles of Incorporation"), as certified to us by an officer of the Corporation as being true and complete and in effect on the date hereof; (b) the By-laws of the Corporation certified to us by an officer of the Corporation as being true and complete and in effect on the date hereof ; (c) resolutions of the Board of Directors of the Corporation adopted at meetings on May 2, 1997, August 1, 1997 and November 14, 1997, authorizing the establishment of the Funds and the issuance of the Shares; (d) the Post-Effective Amendments; and (e) a certificate of an officer of the Corporation as to certain factual matters relevant to this opinion. Our opinion below is limited to the federal law of the United States of America and the Maryland General Corporation Law. We are not licensed to practice law in the State of Maryland, and we have based our opinion below solely on our review of the Maryland General Corporation Law and the case law interpreting such Law as reported in Annotated Laws of Maryland. We have not undertaken a review of other Maryland law or of any administrative or court decisions in connection with rendering this opinion. We disclaim any opinion as to any law other than that of the United States of America and the Maryland General Corporation Law as described above, and we disclaim any opinion as to any statute, rule, regulation, ordinance, order or other promulgation of any regional or local governmental authority. Based on the foregoing and our examination of such questions of law as we have deemed necessary and appropriate for the purpose of this opinion, and assuming that (i) all of the Shares will be issued and sold for cash at the per-share public offering price on the date of their issuance in accordance with statements in the Corporation's Prospectuses included in the Post- Effective Amendments and in accordance with the Articles of Incorporation, (ii) all consideration for the Shares will be actually received by the Corporation, and (iii) all applicable securities laws will be complied with, it is our opinion that, when issued and sold by the Corporation, the Shares will be legally issued, fully paid and nonassessable. This opinion is rendered to you in connection with the Post-Effective Amendments and is solely for your benefit. This opinion may not be relied upon by you for any Fremont Mutual Funds, Inc. February 27, 1998 Page 3 other purpose or relied upon by any other person, firm, corporation or other entity for any purpose, without our prior written consent. We disclaim any obligation to advise you of any developments in areas covered by this opinion that occur after the date of this opinion. We hereby consent to (i) the reference to our firm as Legal Counsel in the Prospectus included in the Post-Effective Amendments, and (ii) the filing of this opinion as an exhibit to a Post-Effective Amendment. Very truly yours, /s/ PAUL, HASTINGS, JANOFSKY & WALKER, LLP EX-17 18 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS ---------- We consent to the incorporation by reference in Post-Effective Amendment No. 31 to the Registration Statement of Fremont Mutual Funds, Inc. on Form N-1A (File No. 33-23453 ) of our report dated December 9, 1997 on our audit of the financial statements of Fremont Mutual Funds, Inc., which report is included in the annual report to shareholders for the year ended October 31, 1997, which is incorporated by reference in the Registration Statement. COOPERS & LYBRAND L.L.P. San Francisco, California February 25, 1998 EX-18 19 SUB-TRANSFER AGENCY AND SERVICE AGREEMENT FREMONT MUTUAL FUNDS, INC. -------------------------- SHARE MARKETING PLAN (Rule 12b-1 Plan) (Fixed Compensation Plan) This Share Marketing Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended (the "Act"), by Fremont Mutual Funds, Inc., a Maryland corporation (the "Corporation") with respect to certain series of its shares as listed in Exhibit A (each such series, a "Fund"). The Plan has been approved by a majority of the Corporation's Board of Directors, including a majority of the Directors who are not interested persons of the Corporation and who have no direct or indirect financial interest in the operation of the Plan (the "independent Directors"), cast in person at a meeting called for the purpose of voting on the Plan. In reviewing the Plan, the Board of Directors considered the proposed range and nature of payments and terms of the Investment Management Agreement between the Corporation on behalf of each Fund and Fremont Investment Advisors, Inc. (the "Advisor") and the nature and amount of other payments, fees and commissions that may be paid to the Advisor, its affiliates and other agents of the Corporation. The Board of Directors, including the independent Directors, concluded that the proposed overall compensation of the Advisor and its affiliates was fair and not excessive. In its considerations, the Board of Directors also recognized that uncertainty may exist from time to time with respect to whether payments to be made by the Corporation to the Advisor, as the initial "distribution coordinator," or other firms under agreements with respect to a Fund may be deemed to constitute impermissible distribution expenses. As a general rule, an investment company may not finance any activity primarily intended to result in the sale of its shares, except pursuant to the Rule. Accordingly, the Board of Directors determined that the Plan also should provide that payments by the Corporation and expenditures made by others out of monies received from the Corporation which are later deemed to be for the financing of any activity primarily intended to result in the sale of Fund shares shall be deemed to have been made pursuant to the Plan. The approval of the Board of Directors included a determination that in the exercise of the Directors' reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit the Corporation, the Fund to which the Plan applies and its shareholders. The provisions of the Plan are: 1. Annual Fee. The Corporation will pay to Advisor, as the Funds' distribution coordinator, an annual fee for the Advisor's services in connection with the promotion and distribution of the Fund's shares and related shareholder servicing. The annual fee paid to Advisor under the Plan will be calculated daily and paid monthly by each Fund on the first day of each month based on the average daily net assets of each Fund, as follows: an annual rate of up to 0.25%. This fee is not tied exclusively to actual distribution and service expenses, and the fee may exceed the expenses actually incurred. 2. Services Covered by the Plan. The fee paid under Section 1 of the Plan is intended to compensate the Advisor for performing the following kinds of services: services primarily intended to result in the sale of the Fund's shares ("distribution services"), including, but not limited to: (a) making payments, including incentive compensation, to agents for and consultants to Advisor, any affiliate of the Advisor or the Corporation, including pension administration firms that provide distribution and shareholder related services and broker-dealers that engage in the distribution of the Fund's shares; (b) making payments to persons who provide support services in connection with the distribution of a Fund's shares and servicing of a Fund's shareholders, including, but not limited to, personnel of Advisor, office space and equipment, telephone facilities, answering routine inquiries regarding the Fund, processing shareholder transactions and providing any other shareholder services not otherwise provided by the Corporation's transfer agency or other servicing arrangements; (c) making payments pursuant to the form of Distribution Agreement attached hereto as an exhibit; (d) formulating and implementing marketing and promotional activities, including, but not limited to, direct mail promotions and television, radio, newspaper, magazine and other mass media advertising; (e) printing and distributing prospectuses, statements of additional information and reports of the Fund to prospective shareholders of the Fund; (f) preparing, printing and distributing sales literature pertaining to the Fund; and (g) obtaining whatever information, analysis and reports with respect to marketing and promotional activities that the Corporation may, from time to time, deem advisable. Such services and activities shall be deemed to be covered by this Plan whether performed directly by the Advisor or by a third party. 3. Written Reports. Advisor shall furnish to the Board of Directors of the Corporation, for its review, on a quarterly basis, a written report of the monies paid to it under the Plan with respect to each Fund, and shall furnish the Board of Directors of the Corporation with such other information as the Board of Directors may reasonably request in connection with the payments made under the Plan in order to enable the Board of Directors to make an informed determination of whether the Plan should be continued as to each Fund. -2- 4. Termination. The Plan may be terminated as to any Fund at any time, without penalty, by vote of a majority of the outstanding voting securities of a Fund, and any Distribution Agreement under the Plan may be likewise terminated on not more than sixty (60) days' written notice. Once terminated, no further payments shall be made under the Plan notwithstanding the existence of any unreimbursed current or carried forward Distribution Expenses. 5. Amendments. The Plan and any Distribution Agreement may not be amended to increase materially the amount to be spent for distribution and servicing of Fund shares pursuant to Section 1 hereof without approval by a majority of the outstanding voting securities of a Fund. All material amendments to the Plan and any Distribution Agreement entered into with third parties shall be approved by the independent Directors cast in person at a meeting called for the purpose of voting on any such amendment. The Advisor may assign its responsibilities and liabilities under the Plan to another party who agrees to act as "distribution coordinator" for the Corporation with the consent of a majority of the independent Directors. 6. Selection of Independent Directors. So long as the Plan is in effect, the selection and nomination of the Corporation's independent Directors shall be committed to the discretion of such independent Board of Directors. 7. Effective Date of Plan. The Plan shall take effect at such time as it has received requisite Director and shareholder approval and, unless sooner terminated, shall continue in effect for a period of more than one year from the date of its execution only so long as such continuance is specifically approved at least annually by the Board of Directors of the Corporation, including the independent Directors, cast in person at a meeting called for the purpose of voting on such continuance. 8. Preservation of Materials. The Corporation will preserve copies of the Plan, any agreements relating to the Plan and any report made pursuant to Section 5 above, for a period of not less than six years (the first two years in an easily accessible place) from the date of the Plan, agreement or report. 9. Meanings of Certain Terms. As used in the Plan, the terms "interested person" and "majority of the outstanding voting securities" will be deemed to have the same meaning that those terms have under the Act and the rules and regulations under the Act, subject to any exemption that may be granted to the Corporation under the Act by the Securities and Exchange Commission. This Plan and the terms and provisions thereof are hereby accepted and agreed to by the Corporation and Advisor, as distribution coordinator, as evidenced by their execution hereof, as of this ____ day of November 1997. FREMONT MUTUAL FUNDS, INC. By: ______________________________________________ Title: ___________________________________________ FREMONT INVESTMENT ADVISORS, INC. as Distribution Coordinator By: ______________________________________________ Title: ___________________________________________ -3- FREMONT MUTUAL FUNDS, INC. --------------- EXHIBIT A TO SHARE MARKETING PLAN The following Series of Fremont Mutual Funds, Inc. have adopted the Share Marketing Plan: Fund Date Adopted ---- ------------ Fremont U.S. Small Cap Fund September 24, 1997 Fremont Emerging Markets Fund __________, 1998 Fremont International Growth Fund __________, 1998 -4- FREMONT MUTUAL FUNDS, INC. Share Marketing Agreement EXHIBIT ONLY - ----------------------------------- - ----------------------------------- - ----------------------------------- - ----------------------------------- Ladies and Gentlemen: This Share Marketing Agreement has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Company Act"), by Fremont Mutual Funds, Inc., a Maryland business corporation (the "Corporation"), on behalf of various series of the Corporation (each series, a "Fund"), as governed by the terms of a Share Marketing Plan (Rule 12b-1 Plan) (the "Plan"). The Plan has been approved by a majority of the Directors who are not interested persons of the Corporation or the Funds and who have no direct or indirect financial interest in the operation of the Plan (the "independent Directors"), cast in person at a meeting called for the purpose of voting on such Plan. Such approval included a determination that in the exercise of the reasonable business judgment of the Board of Directors and in light of the Directors' fiduciary duties, there is a reasonable likelihood that the Plan will benefit each Fund and its shareholders. 1. To the extent you provide eligible shareholder services of the type identified in the Plan to the Funds identified in the attached Schedule (the "Schedule"), we shall pay you a monthly fee based on the average net asset value of Fund shares during any month which are attributable to customers of your firm, at the rate set forth on the Schedule. -5- 2. In no event may the aggregate annual fee paid to you pursuant to the Schedule exceed ____ percent of the value of the net assets of each Fund held in your customers' accounts which are eligible for payment pursuant to this Agreement (determined in the same manner as the Fund uses to compute its net assets as set forth in its then effective Prospectus), without approval by a majority of the outstanding shares of each Fund. 3. You shall furnish us and the Corporation with such information as shall reasonably be requested by the Corporation's Board of Directors with respect to the services performed by you and the fees paid to you pursuant to the Schedule. 4. We shall furnish to the Board of Directors of the Corporation, for its review, on a quarterly basis, a written report of the amounts expended under the Plan by us with respect to each Fund and the purposes for which such expenditures were made. 5. You agree to make shares of the Funds available only (a) to your customers or entities that you service at the net asset value per share next determined after receipt of the relevant purchase instruction or (b) to each such Fund itself at the redemption price for shares, as described in each Fund's then-effective Prospectus. 6. No person is authorized to make any representations concerning a Fund or shares of a Fund except those contained in each Fund's then-effective Prospectus or Statement of Additional Information and any such information as may be released by a Fund as information supplemental to such Prospectus or Statement of Additional Information. 7. Additional copies of each such Prospectus or Statement of Additional Information and any printed information issued as supplemental to each such Prospectus or Statement of Additional Information will be supplied by each Fund to you in reasonable quantities upon request. 8. In no transaction shall you have any authority whatever to act as agent of the Funds and nothing in this Agreement shall constitute you or the Fund the agent of the other. You are not authorized to act as an underwriter of shares of the Funds or as a dealer in shares of the Funds. 9. All communications to the Funds shall be sent to: Ms. Tina Thomas, Fremont Investment Advisors, Inc., 333 market Street, Suite 2600, San Francisco, California, 94105. Any notice to you shall be duly given if mailed or telegraphed to you at your address as indicated in this Agreement. 10. This Agreement may be terminated by us or by you, by the vote of a majority of the Directors of the Corporation who are independent Directors, or by a vote of a majority of the outstanding shares of a Fund, on sixty (60) days' written notice, all without payment of any penalty. It shall also be terminated automatically by any act that terminates the Plan. -6- 11. The provisions of the Plan between the Corporation and us, insofar as they relate to you, are incorporated herein by reference. This Agreement shall take effect on the date indicated below, and the terms and provisions thereof are hereby accepted and agreed to by us as evidenced by our execution hereof. Fremont Investment Advisors, Inc. Distribution Coordinator By: EXHIBIT ONLY ------------------------------- Authorized Officer Dated: ________________________ Agreed and Accepted: - ---------------------------- (Name) By: ------------------------ (Authorized Officer) -7- FREMONT MUTUAL FUNDS, INC. --------------- SCHEDULE TO SHARE MARKETING AGREEMENT BETWEEN _____________________. AND FREMONT INVESTMENT ADVISORS, INC. as distribution coordinator Pursuant to the provisions of the Share Marketing Agreement between the above parties with respect to Fremont Investment Advisors, Inc. as Distribution Coordinator, shall pay a monthly fee to the above-named party based on the average net asset value of shares of each Fund during the previous calendar month the sales of which are attributable to the above-named party, as follows: Fund Fee ---- --- -8- EX-19 20 POWERS OF ATTORNEY FREMONT MUTUAL FUNDS, INC. POWER OF ATTORNEY ----------------- KNOWN ALL BY THESE PRESENTS, that the person(s) whose signature appears below constitutes and appoints each of the following individually: David L. Redo Peter Landini Tina Thomas Julie Allecta Robert M. Slotky to act as attorney-in-fact and agent, with power of substitution and resubstitution, for the undersigned in any and all capacities to execute any and all documents relating to the Fremont Mutual Funds, Inc., including but not limited to registration statements, amendments to registration statements, proxy solicitation materials, applications and amendments to applications, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and conforming all that said attorney-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof. Dated: January 30, 1998 /s/Richard E. Holmes -------------------- Richard Holmes, Director FREMONT MUTUAL FUNDS, INC. POWER OF ATTORNEY ----------------- KNOWN ALL BY THESE PRESENTS, that the person(s) whose signature appears below constitutes and appoints each of the following individually: David L. Redo Peter Landini Tina Thomas Julie Allecta Robert M. Slotky to act as attorney-in-fact and agent, with power of substitution and resubstitution, for the undersigned in any and all capacities to execute any and all documents relating to the Fremont Mutual Funds, Inc., including but not limited to registration statements, amendments to registration statements, proxy solicitation materials, applications and amendments to applications, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and conforming all that said attorney-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof. Dated: January 30, 1998 /s/DONALD C. LUCHESSA --------------------- Donald Luchessa, Director FREMONT MUTUAL FUNDS, INC. POWER OF ATTORNEY ----------------- KNOWN ALL BY THESE PRESENTS, that the person(s) whose signature appears below constitutes and appoints each of the following individually: David L. Redo Peter Landini Tina Thomas Julie Allecta Robert M. Slotky to act as attorney-in-fact and agent, with power of substitution and resubstitution, for the undersigned in any and all capacities to execute any and all documents relating to the Fremont Mutual Funds, Inc., including but not limited to registration statements, amendments to registration statements, proxy solicitation materials, applications and amendments to applications, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and conforming all that said attorney-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof. Dated: January 30, 1998 /s/DAVID L. EGAN ---------------- David Egan, Director -----END PRIVACY-ENHANCED MESSAGE-----