FREMONT MUTUAL FUNDS, INC.
INSTITUTIONAL
U.S. MICROCAP FUND
ANNUAL REPORT
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October 31, 1998
Fremont [LOGO]
Funds
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TABLE OF CONTENTS
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Fund Profile and Letter to Shareholders ................................... 2
Report of Independent Accountants ......................................... 4
Statement of Investments .................................................. 5
Combined Financial Statements
Statement of Assets and Liabilities ....................................... 6
Statement of Operations ................................................... 7
Statement of Changes in Net Assets ........................................ 8
Financial Highlights ...................................................... 8
Notes to Financial Statements ............................................. 9
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
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Robert E. Kern, Jr.
Portfolio Manager
Kern Capital Management LLC
[PHOTO]
Robert E. Kern, Jr.,
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FUND PROFILE
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The U.S. micro-cap stock 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 manager, Robert E. Kern, Jr., is nationally recognized as a
pioneer and leading practitioner of micro-cap research and portfolio management.
To Our Shareholders,
For the six and twelve months ended October 31, 1998, the Fremont Institutional
U.S. Micro-Cap Fund declined 26.35% and 21.03%, respectively, compared to the
Russell 2000's 21.20% and 11.84% losses over the same time period.
In mid-April, small company stocks hit an air pocket formed by a global
economic crisis in confidence. Small and micro-cap stocks fell as investors
initially flocked to large cap stocks and ultimately sought the shelter of U.S.
Treasuries. The S&P 500's 26% peak-to-trough correction was modest in comparison
to the Russell 2000's 37% slide from its April high to early October bottom.
During the second half of fiscal 1998, we experienced price declines in all
five of our portfolio sectors--technology, health care, services, consumer, and
special situations. Losers outpaced winners by a wide margin. Stocks that
reported disappointing earnings were taken out and shot. In general, those that
met our earnings expectations were only beaten up. That's what happens during
severe market downturns. In a more normal market environment, we would expect
earnings shortfalls to be punished. Conversely, we would anticipate rewards from
portfolio holdings that met their earnings expectations. However, through much
of this fiscal year, reporting good earnings gains was not good enough to propel
stock prices.
Our investment team's strategy during difficult periods in the stock market
is to consolidate the number of portfolio holdings and focus on those that we
believe will be among the first to attract investor interest when confidence
improves. When the stock market rallied in October, this strategy again proved
successful as the Fund's gain of 12.9% ranked it among the best performing
micro-cap funds during October.
We also altered our sector allocation. Technology now represents 31%,
consumer stocks 16%, health care 11%, business equipment & services
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GROWTH OF $10,000 (1)
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10/31/98
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND $50,940
RUSSELL 2000 INDEX $30,298
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/98
1 YEAR 5 YEARS 10 YEARS
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- -21.03% 11.69% 17.68%
ANNUAL RETURNS TOP TEN HOLDINGS
11/01/88-10/31/89 +25.28% Orckit Communications Ltd. ........... 6.2%
11/01/89-10/31/90 -10.25% MDSI Mobile Data Solutions, Inc. ..... 4.6%
11/01/90-10/31/91 +84.70% Cytyc Corp. .......................... 4.3%
11/01/91-10/31/92 -0.65% IMPCO Technologies, Inc. ............. 3.3%
11/01/92-10/31/93 +42.08% Cinar Films, Inc. (Class B) .......... 3.0%
11/01/93-10/31/94 -10.62% New Era of Networks, Inc. ............ 3.0%
11/01/94-10/31/95 +29.21% Anaren Microwave, Inc. ............... 2.7%
11/01/95-10/31/96 +41.99% TSI International Software Ltd. ...... 2.4%
11/01/96-10/31/97 +34.19% NuCO2, Inc. .......................... 2.4%
11/01/97-10/31/98 -21.03% Richey Electronics, Inc. ............. 2.3%
TOTAL ........................ 34.2%
*Unannualized (1) Assumes initial investment of $10,000 on November 1, 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. Performance for the Fremont Institutional U.S.
Micro-Cap Fund reflects the performance of the post-venture fund of Fund A of
the Bechtel Trust & Thrift, whose assets were transferred into the Fremont
Institutional U.S. Micro-Cap Fund on 8/6/97, net of actual fees and expenses.
The post-venture fund imposed higher fees and expenses than that of the Fremont
Institutional U.S. Micro-Cap Fund and was not registered with the Securities and
Exchange Commission and therefore was not subject to the investment restrictions
imposed on registered mutual funds. Management fees and other expenses are
included in the Fund's performance; however, fees and expenses are not
incorporated in the Russell 2000 Index.
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2 FREMONT MUTUAL FUNDS
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14%, and special situations 13%. That leaves 15% in cash, most of which came in
from new shareholders and additional contributions from existing shareholders in
late October. We are pleased by the confidence shareholders have in our
investment abilities and delighted to have this "dry powder" to build up
existing positions and take advantage of evolving opportunities in the micro-cap
stock market.
Let me give you an example. MDSI Mobile Data Solutions, Inc., is the
leading worldwide systems provider for automating mobile field service crews in
the utilities and telecommunications industries. Utilizing wireless
communications, the global positioning system (GPS), and low-cost portable
computers, MDSI reports the location and progress of maintenance and repair
crews to its client companies' central offices, thereby materially enhancing
productivity and reducing cost. MDSI stumbled in its initial efforts to serve
the taxi dispatch business, losing money on a large contract with a London taxi
company.
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
PORTFOLIO DIVERSIFICATION AS OF 10/31/98
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TECHNOLOGY (SOFTWARE) (16.5%)
SHORT-TERM SECURITIES (14.8%)
OTHER (17.1%)
RETAIL (7.0%)
CONSUMER SERVICES (8.3%)
HEALTH CARE (10.8%)
TECHNOLOGY (COMPONENTS) (11.5%)
BUSINESS EQUIPMENT & SERVICES (14.0%)
However, its utilities, telecommunications, and cable television markets are
thriving, as shown by a 31% increase in revenues, 53% rise in earnings, and 35%
increase in backlog during the third quarter of 1998.
On October 26, 1998, MDSI announced a joint marketing venture with the
Vantive Corporation, a leader in the front office enterprise software business.
MDSI will be the "Mr. Outside"--relaying information from the field--to
Vantive's "Mr. Inside"--correlating field service data and adjusting manpower
and scheduling. We think the synergy in these two leading companies' services
will increase market penetration for both and help further energize MDSI's
earnings growth. We have been patient long-term investors and think our patience
will soon be rewarded.
After posting excellent total returns over the prior three fiscal years,
the Fund took a step back in fiscal 1998 and experienced a decline of 21.03%.
Recently, smaller company stocks rebounded strongly from an extreme oversold
level. Whether this represents a major market turn or merely a rally is
uncertain. However, we are secure in our belief that the Fund portfolio contains
many leading innovative companies, which will reward investors in the future.
Sincerely,
/s/ Robert E. Kern, Jr.
Robert E. Kern, Jr.
Portfolio Manager
FREMONT MUTUAL FUNDS 3
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Board of Directors and Shareholders of Fremont Mutual Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, and the related
statement of operations and changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of the Fremont
Institutional U.S. Micro-Cap Fund of Fremont Mutual Funds, Inc., (hereafter
referred to as the "Fund") at October 31, 1998, the results of its operations
for the year then ended, the changes in its net assets and its financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998, by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
December 9, 1998
4 FREMONT MUTUAL FUNDS
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
OCTOBER 31, 1998
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS
Value
Shares Security Description (Note 1)
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STOCKS 85.2%
BUSINESS EQUIPMENT & SERVICES 14.0%
* 35,200 24/7 Media, Inc. $ 402,599
* 47,200 AmeriLink Corp. 401,200
* 32,100 Arguss Holdings, Inc. 481,500
* 29,500 Building One Services Corp. 365,063
* 94,100 Hospitality Worldwide Services 482,263
* 82,500 Integrated Process Equipment Corp. 737,344
* 8,100 META Group, Inc. 194,400
* 125,400 NuCO2, Inc. 877,800
* 17,300 OmniAmerica, Inc. 343,838
* 13,500 Realty Information Group, Inc. 113,063
* 83,600 Richey Electronics, Inc. 841,225
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5,240,295
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CAPITAL GOODS 4.4%
* 72,500 IMPCO Technologies, Inc. 1,223,438
* 81,000 Miller Industries, Inc. 425,250
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1,648,688
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CONSUMER DURABLES 1.6%
40,400 Craftmade International, Inc. 585,800
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585,800
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CONSUMER NON-DURABLES 6.0%
* 11,600 The Hain Food Group, Inc. 233,450
* 70,300 JAKKS Pacific, Inc. 711,788
* 44,000 RARE Hospitality International, Inc. 528,000
* 55,500 Steven Madden Ltd. 385,031
* 41,000 United Retail Group, Inc. 384,375
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2,242,644
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CONSUMER SERVICES 8.3%
* 47,850 American Classic Voyages Co. 720,741
* 45,800 Blue Rhino Corp. 561,050
* 53,500 Cinar Films, Inc. (Class B) 1,130,188
* 31,200 Go2net, Inc. 686,399
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3,098,378
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ENERGY 1.7%
* 24,100 KTI, Inc. 506,100
* 6,000 Veritas DGC, Inc. 111,750
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617,850
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HEALTH CARE 10.8%
* 20,800 ArthroCare Corp. 369,200
* 94,800 Cytyc Corp. 1,587,900
* 6,200 GelTex Pharmaceuticals, Inc. 155,000
* 244,200 Genelabs Technologies, Inc. 526,556
* 75,500 Intensiva Healthcare Corp. 424,688
* 29,200 Monarch Dental Corp. 350,400
* 25,900 Perclose, Inc. 618,363
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4,032,107
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RAW MATERIALS 0.9%
59,000 Northern Technologies International 342,938
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342,938
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Shares/ Value
Face Amount Security Description (Note 1)
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RETAIL 7.0%
44,500 J. Baker, Inc. $ 244,750
* 7,800 Media Arts Group, Inc. 99,450
* 95,500 Movie Gallery, Inc. 382,000
* 34,200 Quiksilver, Inc. 707,513
* 31,300 Rent-Way, Inc. 739,463
* 14,050 Successories, Inc. 42,150
* 15,500 Tractor Supply Co. 383,625
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2,598,951
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TECHNOLOGY (COMPONENTS) 11.5%
* 76,600 Anaren Microwave, Inc. 986,225
* 23,000 Micrel, Inc. 756,125
* 180,100 Orckit Communications Ltd. 2,318,788
* 46,800 Southwall Technologies, Inc. 251,550
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4,312,688
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TECHNOLOGY (EQUIPMENT) 2.5%
* 50,200 Proxim, Inc. 749,863
* 46,100 Schmitt Industries, Inc. 187,281
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937,144
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TECHNOLOGY (SOFTWARE) 16.5%
* 93,400 Acclaim Entertainment, Inc. 747,200
* 125,900 MDSI Mobile Data Solutions, Inc. 1,699,649
* 22,400 New Era of Networks, Inc. 1,103,199
* 68,600 OrCAD, Inc. 553,087
* 40,100 Peerless Systems Corp. 275,687
* 13,682 Peregrine Systems, Inc. 477,159
* 28,900 TSI International Software Ltd. 906,737
* 147,200 V-One Corp. 390,999
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6,153,717
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TOTAL STOCKS (Cost $36,292,952) 31,811,200
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SHORT-TERM SECURITIES 19.9%
45,412 SSgA Prime Money Market Fund $ 45,412
$ 7,400,000 Federal Home Loan Mortgage Corp.,
Discount Note, 5.420%, 11/02/98 7,398,886
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TOTAL SHORT-TERM SECURITIES (Cost $7,444,298) 7,444,298
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TOTAL INVESTMENTS (Cost $43,737,250), 105.1% 39,255,498
OTHER ASSETS AND LIABILITIES, NET, (5.1)% (1,908,319)
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NET ASSETS, 100.0% $ 37,347,179
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* Non-income producing securities
The accompanying notes are an integral part of these financial statements.
FREMONT MUTUAL FUNDS 5
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
OCTOBER 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
(All numbers in thousands except net asset value per share)
Assets:
Investments in securities at cost $ 43,737
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Investments in securities at value (Note 1) 39,255
Dividends and interest receivable 22
Receivable for securities sold 8
Receivable from sale of fund shares 186
Unamortized organization costs (Note 3) 19
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Total assets 39,490
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Liabilities:
Bank overdraft 135
Payable for securities purchased 1,924
Payable to management company 8
Payable for fund shares redeemed 45
Accrued expenses:
Investment advisory, administrative and
shareholder servicing fees 31
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Total liabilities 2,143
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Net assets $ 37,347
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Net assets consist of:
Paid in capital $ 44,976
Unrealized depreciation on investments (4,482)
Accumulated net realized loss (3,147)
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Net assets $ 37,347
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Shares of capital stock outstanding 4,969
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Net asset value per share $ 7.52
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The accompanying notes are an integral part of these financial statements.
6 FREMONT MUTUAL FUNDS
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
YEAR ENDED OCTOBER 31, 1998
STATEMENT OF OPERATIONS
(All numbers in thousands)
Investment Income:
Interest $ 389
Dividends 11
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Total income 400
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Expenses:
Investment advisory and administrative fees (Note 2) 571
Shareholder servicing fees 19
Custody fees 30
Accounting fees 20
Audit and legal fees 16
Directors' fees (Note 2) 6
Registration fees 13
Other 11
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Total expenses before reductions 686
Earned credits (1)
Expenses waived and/or reimbursed by Advisor (Note 2) (64)
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Total net expenses 621
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Net investment loss (221)
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Realized and unrealized loss from investments:
Net realized loss from investments (3,141)
Net unrealized depreciation on investments (8,765)
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Net realized and unrealized loss from investments (11,906)
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Net decrease in net assets resulting from operations $(12,127)
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The accompanying notes are an integral part of these financial statements.
FREMONT MUTUAL FUNDS 7
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
OCTOBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS
(All numbers in thousands)
<TABLE>
<CAPTION>
Period from
Year ended August 4, 1997 1 to
October 31, 1998 October 31, 1997
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Increase (decrease) in net assets:
From operations:
<S> <C> <C>
Net investment loss $ (221) $ (20)
Net realized gain (loss) from investments (3,141) 2,498
Net unrealized depreciation on investments (8,765) (2,226)
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Net increase (decrease) in net assets from operations (12,127) 252
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Distributions to shareholders from:
Net realized gains (1,255) (1,229)
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Total distributions to shareholders (1,255) (1,229)
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From capital share transactions:
Proceeds from shares sold (Note 2) 31,161 40,322
Payments for shares redeemed (22,116) --
Reinvested dividends 1,139 1,200
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Net increase in net assets
from capital share transactions 10,184 41,522
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Net increase (decrease) in net assets (3,198) 40,545
Net assets at beginning of period 40,545 --
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Net assets at end of period $ 37,347 $ 40,545
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Capital transactions in shares:
Sold (Note 2) 3,337 4,022
Redeemed (2,640) --
Reinvested dividends 127 123
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Net increase from capital share transactions 824 4,145
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<CAPTION>
FINANCIAL HIGHLIGHTS
Period from
Year ended August 4, 1997 1 to
October 31, 1998 October 31, 1997
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Selected Per Share Data
for one share outstanding during the period
Net asset value, beginning of period $ 9.78 $ 10.00
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Income from Investment Operations
Net investment loss (.04) --
Net realized and unrealized gain (loss) (1.98) .09
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Total investment operations (2.02) .09
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Less Distributions
From net realized gains (.24) (.31)
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Total distributions (.24) (.31)
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Net asset value, end of period $ 7.52 $ 9.78
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Total Return 2 -21.03% 0.90%
Ratios and Supplemental Data
Net assets, end of period (000s omitted) $ 37,347 $ 40,545
Ratio of net expenses to average net assets 3 1.25% 1.25%*
Ratio of gross expenses to average net assets 3 1.38% 1.49%*
Ratio of net investment loss to average net assets 3 -.44% -.21%*
Portfolio turnover rate 187% 28%
</TABLE>
1 Fund's date of inception
2 Total return would have been lower had the advisor not waived and/or
reimbursed expenses.
3 See Note 2 of "Notes to Financial Statements."
* Annualized
The accompanying notes are an integral part of these financial statements.
8 FREMONT MUTUAL FUNDS
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FREMONT MUTUAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Fremont Mutual Funds, Inc. (the "Investment Company") is an open-end
investment company authorized to issue ten billion shares of $.0001 par
value capital stock. These shares are currently offered in thirteen
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 in conformity
with generally accepted accounting principles for investment companies and
are summarized below.
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
Investment Company accounts for the assets of the Fund and allocates
general expenses of the Investment Company 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 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 differences will be reclassified to paid in capital. Temporary
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.
For Federal income tax purposes, The Fund has a capital loss carryover at
October 31, 1998. Capital loss carryovers 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 carryovers expire in eight years. The Fund has a
capital loss carryover of $2,860,764 at October 31, 1998 which will expire
in 2006.
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 and administrative
services agreement with Fremont Investment Advisors, Inc. (the Advisor), a
majority-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
management 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 Fund's expenses during the three years following
that reduction if such reimbursement is requested by the Advisor, if such
reimbursement can be achieved within the foregoing expense limit, and if
the Board of Directors approves the reimbursement at the time of the
request as not inconsistent with the best interests of the Fund. Because
of these substantial contingencies, the potential reimbursements will be
accounted for
FREMONT MUTUAL FUNDS 9
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FREMONT MUTUAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 1998
as contingent liabilities that are not recordable on the balance sheet of
the Fund until payment is probable. The Advisor has not recouped $22,911
of prior period expense waivers and reimbursements as of October 31, 1998.
Investors Fiduciary Trust Company ("IFTC") serves as custodian and
investment accounting agent for the Fund. All fees charged by IFTC are
paid by the Fund, subject to the limitations listed above. Fees for
custody services are subject to reductions by credits earned on the cash
balances of the Fund held by IFTC as custodian.
Ratios of expenses have been disclosed both before and after the impact of
these various waivers, reimbursements and credits 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 year ended October 31, 1998, no
reimbursements were required or made to the Fund by the Advisor to comply
with these limitations.
Other Related Parties
At October 31, 1998, 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 85% of the Fund.
On August 6, 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 OF INVESTMENT SECURITIES
Aggregate purchases and aggregate proceeds from sales of securities for
the year ended October 31, 1998 were as follows:
Purchases Proceeds
Long-term securities: $87,197,685 $78,265,212
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, 1998, the cost of securities for federal income tax
purposes was $44,023,979 and the net unrealized depreciation based on that
cost were as follows:
Unrealized appreciation $ 2,726,840
Unrealized depreciation (7,495,321)
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Net unrealized depreciation $ (4,768,481)
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7. LINE OF CREDIT
The Investment Company has a Line of Credit Arrangement ("LOC") with State
Street Bank and Trust Company, to be used for extraordinary or emergency
purposes, primarily to cover redemption payments. The Fund's borrowings
cannot exceed 20% of its net assets. Combined borrowings of all Funds
cannot exceed the $75 million limit on the total line of credit. The Fund
is subject to the annual fees and interest on the unpaid balance based on
prevailing market rates as defined in the LOC. At October 31, 1998, there
were no such borrowings outstanding.
10 FREMONT MUTUAL FUNDS
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Fremont [LOGO]
Funds
50 Beale Street, Suite 100
San Francisco, CA 94105
www.fremontfunds.com
[GRAPHIC]
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
BR040-9812
