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FREMONT MUTUAL FUNDS, INC.-Registered Trademark-
INSTITUTIONAL
U.S. MICRO-CAP
ANNUAL REPORT
[GRAPHIC]
1997
OCTOBER 31, 1997
[LOGO]
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FREMONT FUNDS
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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
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FREMONT FUNDS
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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
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FREMONT FUNDS
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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
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FREMONT FUNDS
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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
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
October 31, 1997
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STATEMENT OF INVESTMENTS
IN SECURITIES AND NET ASSETS
VALUE
SHARES SECURITY DESCRIPTION (NOTE 1)
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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
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4,766,926
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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
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3,559,189
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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
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812,062
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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
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4,325,134
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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
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701,000
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FINANCIAL SERVICES 2.4%
6,300 PennFed Financial Services, Inc. 189,000
39,800 R&G Financial Corp. (Class B) 791,025
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980,025
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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
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4,928,512
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MULTI-INDUSTRY 1.0%
* 26,200 Metals USA, Inc. 386,450
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386,450
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RAW MATERIALS 0.8%
33,300 Northern Technologies International 341,325
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341,325
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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
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2,785,957
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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
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3,501,900
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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
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1,699,388
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* Non-income producing securities
The accompanying notes are an integral part of these financial statements. 5
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
October 31, 1997
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VALUE
SHARES SECURITY DESCRIPTION (NOTE 1)
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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
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5,567,660
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TRANSPORTATION 1.0%
* 31,800 Smithway Motor Express Corp. (Class A) 429,301
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429,301
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TOTAL STOCKS (Cost $30,501,113) 34,784,829
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SHARES/FACE AMOUNT/ISSUER/DISCOUNT RATE/STATED MATURITY
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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
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TOTAL SHORT TERM SECURITIES (Cost $5,242,137) 5,242,137
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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
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* Non-income producing securities
6 The accompanying notes are an integral part of these financial statements.
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
October 31, 1997
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STATEMENT OF ASSETS AND LIABILITIES
(ALL NUMBERS IN THOUSANDS EXCEPT NET ASSET VALUE PER SHARE)
ASSETS:
Investments in securities at cost $ 35,743
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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
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TOTAL ASSETS 41,573
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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
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TOTAL LIABILITIES 1,028
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NET ASSETS $ 40,545
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Net assets consist of:
Paid in capital $ 35,012
Unrealized appreciation on investments 4,284
Accumulated net realized gain 1,249
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NET ASSETS $ 40,545
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SHARES OF CAPITAL STOCK OUTSTANDING 4,145
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NET ASSET VALUE PER SHARE $ 9.78
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The accompanying notes are an integral part of these financial statements. 7
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
October 31, 1997
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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
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TOTAL INCOME 101
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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
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TOTAL EXPENSES BEFORE REDUCTIONS 144
Expenses waived and/or reimbursed by Advisor (Note 2) (23)
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TOTAL NET EXPENSES 121
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NET INVESTMENT LOSS (20)
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REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized gain from investments 2,498
Net unrealized depreciation on investments (2,226)
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Net realized and unrealized gain from investments 272
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 252
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8 The accompanying notes are an integral part of these financial statements.
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
October 31, 1997
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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)
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Net increase in net assets from operations 252
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Distributions to shareholders from:
Net realized gains (1,229)
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Total distributions to shareholders (1,229)
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From capital share transactions:
Proceeds from shares sold (Note 2) 40,322
Reinvested dividends 1,200
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Net increase in net assets
from capital share transactions 41,522
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Net increase in net assets 40,545
Net assets at beginning of period --
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NET ASSETS AT END OF PERIOD $ 40,545
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CAPITAL TRANSACTIONS IN SHARES:
Sold (Note 2) 4,022
Reinvested dividends 123
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Net increase from capital share transactions 4,145
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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
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INCOME FROM INVESTMENT OPERATIONS
Net realized and unrealized gain .09
-----------
Total investment operations .09
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LESS DISTRIBUTIONS
From net realized gains (.31)
-----------
Total distributions (.31)
-----------
NET ASSET VALUE, END OF PERIOD $ 9.78
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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
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
Notes to Financial Statements - October 31, 1997
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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
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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
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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)
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Net unrealized appreciation $ 4,276,710
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