FREMONT MUTUAL FUNDS, INC.
INSTITUTIONAL
U.S. MICRO-CAP FUND
ANNUAL REPORT
[GRAPHIC OMITTED]
October 31, 1999
FREMONT [LOGO]
FUNDS
<PAGE>
A MESSAGE FROM MICHAEL H. KOSICH, PRESIDENT OF FREMONT MUTUAL FUNDS, INC.
[PHOTO]
Dear Fellow Shareholder,
As we close fiscal 1999, the global economic picture couldn't be much brighter.
The long dormant Japanese economy is finally showing signs of life, emerging
market Asia is recovering, European economies have regained momentum, and like
Old Man River, the U.S. economy just keeps rolling along. From this perspective,
the future of the world's equities markets looks quite promising. However,
investors often have trouble seeing the forest through all the trees.
For example, as I write, U.S. equities investors are more focused on what the
Federal Reserve is likely to do over the next three months than on the favorable
long term impact of a strong global economy on stocks. Everyone is tuned into
their favorite financial news program waiting for the release of the latest
monthly economic reports (often revised the next month) and Fed Chairman Alan
Greenspan's most recent comments (generally revised in his next speech).
We think this is the wrong approach. Speculators try to take advantage of market
gyrations and short term performance trends. Investors ignore the short-term
vicissitudes of the market and stick with well conceived programs designed to
achieve their long term financial objectives.
The same is true about individual mutual fund investments. I recently spoke with
a shareholder who bought the Fremont U.S. Micro-Cap Fund, (the retail version
and first cousin of Institutional Micro-Cap), in October 1997, following a year
in which the Fund had gained more than 40%. He then sold in October 1998, after
the Fund struggled through a severe bear market for small company stocks. Of
course, he was sitting on the sidelines this year as Micro-Cap posted a
phenomenal 110.46% return. I suggested to him that if he had focused more on Bob
Kern's outstanding long term track record and less on trailing 12-month results
he could have avoided an all too common investment mistake. Even the best
portfolio managers will have an off year, generally when the investment style
and the capitalization sector they focus on is out of favor. The real great
ones--and we put Bob Kern in this category--will bounce back and produce very
attractive long-term returns.
We thank you for being a valued investor with us during this very successful
year and look forward to working with you for many years to come.
Sincerely,
/s/ Michael H. Kosich
Michael H. Kosich
President
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Fund Profile and Letter to Shareholders .................................... 2
Report of Independent Accountants .......................................... 4
Statement of Investments ................................................... 5
FINANCIAL STATEMENTS
Statement of Assets and Liabilities ........................................ 6
Statement of Operations .................................................... 6
Statement of Changes in Net Assets ......................................... 7
FINANCIAL HIGHLIGHTS ....................................................... 7
NOTES TO FINANCIAL STATEMENTS .............................................. 8
<PAGE>
- --------------------------------------------------------------------------------
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
- --------------------------------------------------------------------------------
Robert E. Kern, Jr.
Portfolio Manager
Kern Capital Management LLC
[PHOTO]
Robert E. Kern, Jr.
- ------------
FUND PROFILE
- ------------
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.
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 month periods ended October 31, 1999, the Fremont
Institutional U.S. Micro-Cap Fund gained 44.12% and 118.10% compared to the
Russell 2000's -0.25% and 14.87% returns.
Fiscal 1999 was a particularly gratifying year for us in that the Fund
posted impressive gains in a rather uninspiring small company stock market. More
than any other year in my investment career, fiscal 1999 validated our thesis
that successful micro-cap investing is all about stock selection. As evidenced
by the Fund's performance relative to the benchmark index, it was not the asset
class that mattered or even industry group concentration. It was buying the
right companies, at the right price, at the right time, and just as importantly,
avoiding mistakes. This is a function of research--not just analyzing balance
sheets and income statements, but meeting with corporate managements, reviewing
business plans, and assessing their ability to effectively execute growth
strategies.
This year, as in past and we hope future years, our focus on truly
innovative small companies also deserves credit for our success. Innovative new
products and services translate into extraordinary growth potential and investor
interest. We work hard to identify innovative young companies ahead of the
competition. When we succeed, and our stock selections attract the attention of
other institutional investors, their performance can be quite spectacular. For
example, this year, several of our holdings performed so well that they quickly
graduated from the micro-cap asset class.
Briefly reviewing fiscal 1999, our decision in the dark days of
August/September 1998 to concentrate the portfolio in those stocks we had the
greatest degree of confidence in and that we felt would perform the best when
the market turned around paid off handsomely in the first half. One of the
biggest challenges in the second half was making decisions on stocks that had
performed extraordinarily well. It takes courage to sell stocks that keep
advancing. However, when portfolio holdings reached valuations exceeding
economic reality, we scaled back. In retrospect, in some cases, we sold too
early. In other cases, our
- --------------------------------------------------------------------------------
GROWTH OF $10,000 (1)
[GRAPHIC OMITTED]
10/31/99
--------
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND $111,101
RUSSELL 2000 INDEX $ 34,804
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED 10/31/99
1 YEAR 5 YEARS 10 YEARS
- -------------------------------
118.10% 33.50% 24.39%
ANNUAL RETURNS TOP TEN HOLDINGS
11/01/88-10/31/89 +25.28% Netopia, Inc. ...................... 5.6%
11/01/89-10/31/90 -10.25% Arhtrocare Corp. ................... 5.1%
11/01/90-10/31/91 +84.70% Photon Dynamics, Inc. .............. 3.7%
11/01/91-10/31/92 -0.65% Anaren Microwave, Inc. ............. 3.1%
11/01/92-10/31/93 +42.08% TeleTech Holdings Inc. ............. 2.9%
11/01/93-10/31/94 -10.62% Puma Technology, Inc. .............. 2.4%
11/01/94-10/31/95 +29.21% New Era of Networks, Inc. .......... 2.4%
11/01/95-10/31/96 +41.99% Rare Medium Group, Inc. ............ 2.2%
11/01/96-10/31/97 +34.19% Ancor Communications, Inc. ......... 2.2%
11/01/97-10/31/98 -21.03% California Amplifier, Inc. ......... 2.1%
11/01/98-10/31/99 +118.10% TOTAL .................... 31.7%
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 Institutional8 8 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.
- --------------------------------------------------------------------------------
2 FREMONT MUTUAL FUNDS
<PAGE>
timing was quite good. Regardless of where the chips ultimately fall, we believe
exercising valuation discipline is the only prudent way to invest in what can be
a quite volatile asset class.
In the second fiscal half, we did alter our sector allocation. We pared
back our consumer stock holdings in response to higher mortgage rates, higher
energy prices, and a slumping stock market--all factors that may erode consumer
confidence and restrain consumer spending going forward. We increased our
commitment to technology, particularly in the communications arena, where we are
finding some very promising small companies with exciting new broadband
technologies for faster internet access and transmission. We are largely
steering clear of computer component companies, whose earnings are likely to be
disrupted by erratic order patterns due to the Y2K phenomenon. Although we have
not yet increased our allocation to healthcare, we are encouraged by the very
good performance of our holdings in the second half, following a disappointing
first half.
- --------------------------------------------------------------------------------
FREMONT INSTITUTIONAL
U.S. MICRO-CAP FUND
PORTFOLIO DIVERSIFICATION
AS OF 10/31/99
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
TECHNOLOGY (EQUIPMENT) (16.6%)
SHORT TERM SECURITIES (19.6%)
OTHER (2.2%)
CAPITAL GOODS (2.2%)
CONSUMER SERVICES (5.2%)
CONSUMER NON-DURABLES (6.0%)
BUSINESS EQUIPMENT & SERVICES (16.3%)
HEALTH CARE (9.8%)
RETAIL (7.9%)
TECHNOLOGY (COMPONENTS) (7.5%)
TECHNOLOGY (SOFTWARE) (6.7%)
We like to remind shareholders that innovation is not limited to glamorous
sectors like technology. We occasionally find truly innovative companies in
somewhat mundane industries. Jore Corporation, which became a public company in
September 1999, is a great example. Jore is a leading manufacturer of innovative
power tool accessories including a patented quick change drilling and driving
system and a full range of hex-shank drill bits, screwdriver heads, etc. Jore
has also developed a drill bit machining center that automates all aspects of
drill bit production resulting in improved quality and lower manufacturing
costs. But perhaps the most innovative thing Jore is doing is on the marketing
front. Currently Jore builds small power tool accessories for the Sears'
Craftsman brand. In April 1999, Jore licensed from the Stanley Works the
exclusive right to sell power tool accessories using the highly respected
StanleyTM brand. They expect to rollout these Stanley brand products in stores
like Home Depot, Lowes and other big hardware retailers in 2000 and 2001. Jore's
revenues, which were slightly over $10 million in 1996, are forecasted to exceed
$55 million in 1999 and reach $100 million within the next two years. The
combination of strong revenue growth and improving profitability is expected to
result in accelerating earnings growth for Jore. Although Jore is a recent
addition to the Fund's portfolio, it is a truly innovative micro-cap company in
product development, manufacturing processes, and marketing, and has the
potential to become one of the Fund's successful long-term investments.
In closing, fiscal 1999 will be a very hard act to follow. This does not
diminish our enthusiasm and commitment to finding small companies with big
futures. The Kern Capital Management investment team will continue to strive to
generate attractive investment returns for Fremont Institutional U.S. Micro-Cap
Fund shareholders and justify the confidence you've shown in our abilities.
Sincerely,
/S/ Robert E. Kern, Jr.
Robert E. Kern, Jr.
FREMONT MUTUAL FUNDS 3
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
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 of 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 (one of the portfolios consisting
Fremont Mutual Funds, Inc.) (hereafter referred to as the "Fund"), at October
31, 1999, and the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended and the
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 audit 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
December 9, 1999
4 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
OCTOBER 31, 1999
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS
Value
Shares Security Description (Note 1)
- --------------------------------------------------------------------------------
STOCKS 80.4 %
BUSINESS EQUIPMENT & SERVICES 16.3%
* 67,100 Arguss Holdings, Inc. $ 989,725
* 158,900 Boston Communications Group, Inc. 804,431
* 47,400 Computer Outsourcing Services, Inc. 485,850
* 30,400 Corporate Executive Board Co. 1,147,600
* 101,600 Datalink Corp. 1,339,850
* 4,100 Digital Lava, Inc. 12,300
* 43,400 internet.com LLC 868,000
* 41,500 Net Perceptions, Inc. 664,000
* 144,900 NewsEdge Corp. 1,575,787
* 92,600 NuCO2, Inc. 648,200
* 157,500 Rare Medium Group, Inc. 2,323,125
* 31,000 RoweCom, Inc. 823,438
* 64,900 SBA Communications Corp. 632,775
* 95,600 Shuffle Master, Inc. 848,450
* 214,400 TeleTech Holdings, Inc. 3,041,800
* 28,400 Winfield Capital Corp. 502,325
* 15,900 Zomax, Inc. 443,213
-------------
17,150,869
-------------
CAPITAL GOODS 2.2%
* 70,600 Adept Technology, Inc. 485,374
* 102,600 IMPCO Technologies, Inc. 1,314,562
* 226,900 Miller Industries, Inc. 553,069
-------------
2,353,005
-------------
CONSUMER DURABLES 0.6%
* 51,800 Jore Corp. 602,175
-------------
602,175
-------------
CONSUMER NON-DURABLES 6.0%
* 42,200 Audiovox Corp. (Class A) 859,825
* 111,600 McNaughton Apparel Group, Inc. 885,825
* 174,000 Sterling Vision, Inc. 326,250
106,900 Steven Madden Ltd. 1,309,525
* 120,200 The Topps Company, Inc. 1,179,463
* 65,000 Wesley Jessen VisionCare, Inc. 1,746,875
-------------
6,307,763
-------------
CONSUMER SERVICES 5.2%
* 67,950 American Classic Voyages Co. 1,698,750
67,600 Cash America International, Inc. 637,975
* 53,500 Cinar Corp. (Class B) 929,562
* 17,400 First Cash, Inc. 163,125
* 118,600 Homeseekers.com, Inc. 1,067,400
* 77,700 ZipLink, Inc. 922,688
-------------
5,419,500
-------------
ENERGY 0.8%
* 46,500 UTI Energy Corp. 892,219
-------------
892,219
-------------
HEALTH CARE 9.8%
* 73,350 ArthroCare Corp. 5,317,875
* 53,400 Cytyc Corp. 2,122,650
* 32,000 Fusion Medical Technologies, Inc. 354,000
* 123,000 Gene Logic, Inc. 791,813
* 133,900 Genelabs Technologies, Inc. 430,991
* 88,300 Mediconsult.com, Inc. 524,281
* 37,900 NeoPharm, Inc. 521,125
* 32,000 Women First HealthCare, Inc. 238,000
-------------
10,300,735
-------------
RAW MATERIALS 0.5%
82,800 Northern Technologies International Corp 496,800
-------------
496,800
-------------
Shares/ Value
Face Amount Security Description (Note 1)
- --------------------------------------------------------------------------------
RETAIL 7.9%
* 71,800 Buca, Inc. $ 879,550
* 75,000 David's Bridal, Inc. 745,313
64,000 Deb Shops Inc. 1,344,000
* 135,000 Genesco, Inc. 1,788,750
* 59,200 NPC International, Inc. 710,400
* 127,400 Rent-Way, Inc. 2,118,025
* 57,600 Uno Restaurant Corp. 658,800
-------------
8,244,838
-------------
SHELTER 0.3%
* 50,000 Modtech Holdings, Inc. 265,625
-------------
265,625
-------------
TECHNOLOGY (COMPONENTS) 7.5%
* 95,500 Anaren Microwave, Inc. 3,270,875
* 117,500 California Amplifier, Inc. 2,217,812
* 60,100 Elantec Semiconductor, Inc. 1,284,637
* 11,800 Kopin Corp. 495,600
* 80,800 Spectrum Control, Inc. 626,200
-------------
7,895,124
-------------
TECHNOLOGY (EQUIPMENT) 16.6%
* 71,000 Ancor Communcations, Inc. 2,249,812
* 85,500 Information Resource Engineering, Inc. 1,539,000
* 33,700 Integrated Measurement Systems, Inc. 410,719
* 56,900 MTI Technology Corp. 963,744
* 108,800 Netopia, Inc. 5,807,200
79,100 Orckit Communications Ltd. 2,180,194
* 128,300 Photon Dynamics, Inc. 3,881,075
* 81,000 Princeton Video Image, Inc. 420,187
-------------
17,451,931
-------------
TECHNOLOGY (SOFTWARE) 6.7%
* 112,000 Exigent International, Inc. 392,000
* 122,000 MDSI Mobile Data Solutions, Inc. 1,738,500
* 75,600 New Era of Networks, Inc. 2,452,275
* 66,500 Puma Technology, Inc. 2,460,500
-------------
7,043,275
-------------
TOTAL STOCKS (Cost $60,976,926) 84,423,859
-------------
SHORT TERM SECURITIES 18.3%
$ 3,700,000 Export Development Corp., CP, 5.230%, 11/19/99 3,700,000
4,000,000 France Telecom, CP, 5.250%, 11/02/99 3,999,417
4,000,000 Merrill Lynch & Co., Inc., CP, 5.320%, 11/03/99 3,998,818
4,000,000 Mobil Corp., CP, 5.300%, 11/08/99 3,995,878
3,000,000 Novartis Finance Corp., CP, 5.350%, 11/01/99 3,000,000
487,707 Repurchase Agreement, State Street Bank and
Trust Co., 5.050% 11/01/99 (Maturity Value
$487,912) (Cost $487,707) Collateral: FFCB,
5.550%, 09/10/01 487,707
-------------
TOTAL SHORT-TERM SECURITIES (Cost $19,181,820) 19,181,820
-------------
TOTAL INVESTMENTS (Cost $80,158,746), 98.7% 103,605,679
OTHER ASSETS AND LIABILITIES, NET, 1.3% 1,365,214
-------------
NET ASSETS, 100.0% $ 104,970,893
=============
*Non income producing securities
The accompanying notes are an integral part of these financial statements.
FREMONT MUTUAL FUNDS 5
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
(ALL NUMBERS IN THOUSANDS EXCEPT NET ASSET VALUE PER SHARE)
ASSETS:
Investments in securities at cost $ 80,159
===========
Investments in securities at value (Note 1) 103,606
Cash 9
Dividends and interest receivable 4
Receivable for securities sold 879
Receivable from sale of fund shares 1,154
Unamortized organization costs (Note 3) 14
-----------
TOTAL ASSETS 105,666
-----------
LIABILITIES:
Payable for securities purchased 566
Payable for fund shares redeemed 20
Accrued expenses:
Investment advisory and administrative fees 94
Other 15
-----------
TOTAL LIABILITIES 695
-----------
NET ASSETS $ 104,971
===========
Net assets consist of:
Paid in capital $ 80,860
Unrealized appreciation on investments 23,447
Accumulated net realized gain 664
-----------
NET ASSETS $ 104,971
===========
SHARES OF CAPITAL STOCK OUTSTANDING 7,673
===========
NET ASSET VALUE PER SHARE $ 13.68
===========
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31,1999
(ALL NUMBERS IN THOUSANDS)
INVESTMENT INCOME:
Interest $ 444
Dividends 20
-----------
TOTAL INCOME 464
-----------
EXPENSES:
Investment advisory and administrative fees (Note 2) 742
Shareholder servicing fees 14
Custody fees 37
Accounting fees 20
Audit and legal fees 16
Directors' fees (Note 2) 5
Registration fees 16
Reports to shareholders 6
Other 13
-----------
TOTAL EXPENSES BEFORE REDUCTIONS 869
Earned credit (Note 2) (1)
Expenses reimbursed by Advisor (Note 2) (62)
-----------
TOTAL NET EXPENSES 806
-----------
NET INVESTMENT LOSS (342)
-----------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS:
Net realized gain from investments 20,874
Net unrealized appreciation on investments 27,929
-----------
Net realized and unrealized gain from investments 48,803
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 48,461
===========
The accompanying notes are an integral part of these financial statements.
6 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
OCTOBER 31, 1999
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
(ALL NUMBERS IN THOUSANDS) YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
INCREASE (DECREASE) IN NET ASSETS: ---------------- ----------------
<S> <C> <C>
From operations:
Net investment loss $ (342) $ (221)
Net realized gain (loss) from investments 20,874 (3,141)
Net unrealized appreciation (depreciation) on investments 27,929 (8,765)
---------- ----------
Net increase (decrease) in net assets from operations 48,461 (12,127)
---------- ----------
Distributions to shareholders from:
Net realized gains (16,721) (1,255)
---------- ----------
Total distributions to shareholders (16,721) (1,255)
---------- ----------
From capital share transactions:
Proceeds from shares sold 30,562 31,161
Payments for shares redeemed (10,102) (22,116)
Reinvested dividends 15,424 1,139
---------- ----------
Net increase in net assets
from capital share transactions 35,884 10,184
---------- ----------
Net increase (decrease) in net assets 67,624 (3,198)
Net assets at beginning of period 37,347 40,545
---------- ----------
NET ASSETS AT END OF PERIOD $ 104,971 $ 37,347
========== ==========
CAPITAL TRANSACTIONS IN SHARES:
Sold 2,321 3,337
Redeemed (797) (2,640)
Reinvested dividends 1,180 127
---------- ----------
Net increase from capital share transactions 2,704 824
========== ==========
FINANCIAL HIGHLIGHTS
PERIOD FROM
SELECTED PER SHARE DATA YEAR ENDED YEAR ENDED AUGUST 4, 19971 TO
for one share outstanding during the period OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ---------------- ----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.52 $ 9.78 $ 10.00
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (.04) (.04) --
Net realized and unrealized gain (loss) 8.80 (1.98) .09
----------- ----------- -----------
Total investment operations 8.76 (2.02) .09
----------- ----------- -----------
LESS DISTRIBUTIONS
From net realized gains (2.60) (.24) (.31)
----------- ----------- -----------
Total distributions (2.60) (.24) (.31)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.68 $ 7.52 $ 9.78
=========== =========== ===========
TOTAL RETURN (2) 118.10% -21.03% 0.90%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 104,971 $ 37,347 $ 40,545
Ratio of net expenses to average net assets3 1.25% 1.25% 1.25%*
Ratio of gross expenses to average net assets3 1.35% 1.38% 1.49%*
Ratio of net investment loss to average net assets3 -.53% -.44% -.21%*
Portfolio turnover rate 155% 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.
FREMONT MUTUAL FUNDS 7
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 1999
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 twelve
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.
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. 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.
Capital loss carryover of $2,860,764 at October 31, 1998 was utilized
in the current 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.
F. 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 securites
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 secified amount of
interest at a later date, generally for a period of less than one
week. The seller must maintain on a daily basis, with the Fund's
custodian, collateral equal to at least 100% of the repurchase price,
including accrued interest. At October 31, 1999, all outstanding
repurchase agreements held by the Fund, had been entered into on
October 29, 1999.
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 accompanying notes are an integral part of these financial statements.
8 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 1999
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 as
contingent liabilities that are not recordable on the balance sheet of
the Fund until payment is probable. The Advisor has not recouped
$148,715 of reimbursements as of October 31, 1999.
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, 1999,
no reimbursements were required or made to the Fund by the Advisor to
comply with these limitations.
OTHER RELATED PARTIES
At October 31, 1999, 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 66% of the Fund.
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, 1999 were as follows:
PURCHASES PROCEEDS
Long-term securities: $90,928,738 $87,118,618
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, 1999, the cost of securities for federal income tax
purposes was $80,251,594 and the net unrealized appreciation based on
that cost were as follows:
Unrealized appreciation $ 28,977,450
Unrealized depreciation (5,437,669)
--------------
Net unrealized appreciation $ 23,539,781
==============
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.
The Fund did not incur such borrowings during the year.
The accompanying notes are an integral part of these financial statements.
FREMONT MUTUAL FUNDS 9
<PAGE>
FREMONT [LOGO]
FUNDS
50 Beale Street, Suite 100
San Francisco, CA 94105
www.fremontfunds.com
[GRAPHIC OMITTED]
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
BR040-9912
