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FREMONT MUTUAL FUNDS, INC.
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INSTITUTIONAL U.S. MICRO-CAP ANNUAL REPORT | OCTOBER 31, 2000
fremont
FREMONT INVESTMENT ADVISORS
<PAGE>
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A MESSAGE FROM MICHAEL H. KOSICH,
PRESIDENT OF FREMONT MUTUAL FUNDS, INC.
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Dear Fellow Shareholder,
Greed and fear are said to be the two dominant emotions impacting investor
behavior. During the first four months of this reporting period, greed held
sway, with investors "chasing" exceptional returns in technology stocks. In
early March, greed gave way to fear-first, that valuations were simply too high,
and in mid-summer, that third quarter earnings would fail to live up to
expectations. Indeed, several high profile U.S. multi-nationals and leading
technology companies either reported disappointing third quarter earnings or
warned that future earnings were not going to meet consensus estimates. With the
exception of brief rallies in August and the last week of October, stocks
trended lower from late spring through the end of fiscal 2000. We witnessed a
similar performance pattern in international equities markets, which were
confronted by additional challenges, most notably rapidly rising oil prices and
a plummeting euro.
As I write, global stock markets continue to flounder as investors wrestle with
a host of economic and market issues. Our equities funds' portfolio managers
face the same challenge -- interpreting economic and market trends and deciding
how best to respond to the changing environment. They will share their current
thoughts with you in the following Annual Report. As should be expected, the
managers have different opinions on these issues and favor different investment
strategies. But, they all agree that over the long term, the financial markets
will reward investors for their discipline and patience.
Highlights this year include Money Magazine citing the Fremont U.S. Small Cap
Fund as one of the top 100 mutual funds in its June, 2000 issue and Mutual Funds
Magazine pronouncing the Fremont Bond Fund as one of the top 10 funds to buy in
2001 in its recently published December, 2000 issue.
On October 4, 2000, Fremont Investment Advisors announced the appointment of
Nancy Tengler, the former President and Chief Investment Officer of Global
Alliance Value Investors, Ltd., as its new President and CIO. Nancy brings a
wealth of experience and an admirable track record of investment success to the
FIA team. In 2001, we plan to offer a new value oriented growth fund with Nancy
Tengler at the helm.
After more than 30 years in the investment business, I've decided to retire at
year-end. Nancy will also be succeeding me as President of Fremont Funds. I have
enjoyed my tenure at Fremont and am confident I am leaving the firm in good
hands.
Sincerely,
/s/ Michael H. Kosich
Michael H. Kosich
President
<PAGE>
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TABLE OF CONTENTS
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Fund Profile and Letter to Shareholders 2
Report of Independent Accountants 4
Schedule of Investments in Securities and Net Assets 5
FINANCIAL STATEMENTS
Statement of Assets and Liabilities 7
Statement of Operations 7
Statements of Changes in Net Assets 8
FINANCIAL HIGHLIGHTS 9
NOTES TO FINANCIAL STATEMENTS 10
TAX DESIGNATION 12
<PAGE>
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FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
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Portfolio Manager
Robert E. Kern, Jr.
Kern Capital Management LLC
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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, 2000, the Fremont
Institutional U.S. Micro-Cap Fund declined 0.20% and gained 60.36% compared to
the Russell 2000's 1.10% loss and 17.40% gain. We are pleased to have delivered
positive returns in what has been a very challenging year for micro-cap stock
investors.
The Fund has a history of excelling in rising markets and holding up
sufficiently well during declines to produce attractive returns through the
micro-cap market cycle. This has translated into excellent long term performance
versus our benchmark index. This performance pattern repeated itself in fiscal
2000. The Fund achieved exceptional absolute and relative returns in the first
four months of this reporting period. Over the balance of the fiscal year, our
returns did not compare favorably to the benchmark index. However, by fiscal
year end, we posted positive results and maintained our performance lead.
In first half fiscal 2000, our technology investments performed impressively and
our healthcare holdings contributed to returns. Our consumer and services
investments lagged. Although we began significantly reducing our tech sector
weighting at the beginning of second half fiscal 2000, we still suffered the
consequences of significant exposure to the weakest sector of the market. Our
healthcare investments continued to perform relatively well in the second half,
but our consumer and services holdings continued to stumble.
We have been through challenging markets before, most recently in the first
three quarters of calendar 1998, when micro-cap stocks declined sharply. Our
response to this difficult market was to concentrate the portfolio in stocks we
had the highest degree of confidence in and believed would perform best when the
market turned around. This worked to our advantage in the fourth quarter of 1998
and through all of 1999, a period in which the Fund posted impressive returns.
We are currently laying the groundwork for good gains when the micro-cap stock
market recovers from its present malaise. Let me give two examples of the kind
of stocks we believe will help propel performance in the years ahead.
Two of the Fund's larger holdings, Spectra-Physics Lasers (SPLI) and Zygo
Corporation (ZIGO), are established companies with similar growth drivers. Both
companies are well positioned to participate in the explosive long-term growth
forecasted for fiber optic-based telecommunications. SPLI has leveraged its
strong position in high-power lasers and optical coatings to develop next
generation products for the telecommunications industry. ZIGO has combined its
knowledge of precision optics, metrology and motion control with a recent
acquisition's high-volume, precision-manufacturing skills to potentially
revolutionize the way optical components are manufactured. While neither firms'
share price has been spared in this latest tech fallout, both companies'
businesses remain on track and are expected to rebound with a turn in the stock
market.
The reduction in our technology exposure from nearly 40% of assets at the peak
to 26% of assets at the close of this reporting period, was the only major shift
in sector weighting during second half fiscal 2000. Historically, the Fund's
technology weighting has ranged from a high of around 40% to a low of
approximately 20%. The fact that we are now in the lower end of that range
reflects our concern that we may continue to see valuations in the tech sector
decline to come more in line with current fundamentals. Healthcare now
represents 13% of assets, consumer stocks 18%, services 12% and special
situations 10%. The remaining 21% is in cash reserves. We believe this "dry
powder" will allow us to take maximum advantage of opportunities evolving in the
micro-cap market.
2 FREMONT MUTUAL FUNDS
<PAGE>
Once the dust settles, we will probably use much of this cash to rebuild our
technology sector commitments.
In closing, volatility in the micro-cap market is a fact of life. We can live
with that. We will make adjustments in response to changing fundamentals and
valuations in the different sectors represented in the portfolio. We will use
cash reserves as a defensive weapon during difficult markets and an offensive
weapon in more fertile investment environments. However our primary focus will
remain on identifying the most promising businesses in the five most innovative
sectors of the economy. This basic strategy has served us well for a long time
and we believe will continue to generate superior returns in the future.
Sincerely,
/s/ Robert E Kern, Jr.
Robert E Kern, Jr.
Portfolio Manager
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FREMONT INSTITUTIONAL
U.S. MICRO-CAP FUND SECTOR
DIVERSIFICATION AS OF 10/31/00
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[GRAPHIC OMITTED]
Short-Term Securities (20.6%)
Health Care (13.2%)
Business Equipment & Services (12.5%)
Technology (Components) (10.8%)
Technology (Equipment) (9.7%)
Retail (7.8%)
Consumer Services (7.5%)
Technology (Software) (5.2%)
Capital Goods (4.1%)
Consumer Non-Durables (2.3%)
Other (6.3%)
ANNUAL RETURNS
11/01/88-10/31/89 +25.28%
11/01/89-10/31/90 -10.25%
11/01/90-10/31/91 +84.70%
11/01/91-10/31/92 -0.65%
11/01/92-10/31/93 +42.08%
11/01/93-10/31/94 -10.62%
11/01/94-10/31/95 +29.21%
11/01/95-10/31/96 +41.99%
11/01/96-10/31/97 +34.19%
11/01/97-10/31/98 -21.03%
11/01/98-10/31/99 +118.10%
11/01/99-10/31/00 +60.36%
TOP TEN HOLDINGS
Boston Communications Group, Inc. .. 3.3%
Anaren Microwave, Inc. ............. 2.6%
TeleTech Holdings, Inc. ............ 2.5%
COMARCO, Inc. ...................... 2.5%
Zygo Corp. ......................... 2.3%
Endocare, Inc. ..................... 2.3%
Gene Logic, Inc. ................... 2.3%
ArthroCare Corp. ................... 2.2%
Aaon, Inc. ......................... 2.1%
Nucentrix Broadband Networks, Inc. . 2.1%
TOTAL ......................... 24.2%
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED 10/31/00
1 Year 5 Years 10 Years
---------------------------------
60.36% 39.38% 31.82%
GROWTH OF $10,000(1)
[GRAPHIC OMITTED]
10/31/00
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Fremont Institutional U.S. Micro-Cap Fund $178,164
Russell 2000 Index $ 40,859
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. The returns shown were achieved during a period of generally
rising market values, especially in the technology sector. Investors should not
expect that such favorable returns can be achieved consistently. Investments in
newly emerging companies are subject to erratic earning patterns, competitive
conditions within the industry, limited earnings history and the reliance on one
or a limited number of products.
FREMONT MUTUAL FUNDS 3
<PAGE>
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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 schedule of investments in securities and net assets, and the related
statements 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 (one of the portfolios constituting Fremont
Mutual Funds, Inc.) (hereafter referred to as the "Fund"), at October 31, 2000,
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 accounting
principles generally accepted in the United States of America. These financial
statements and financial high-lights (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 auditing
standards generally accepted in the United States of America, 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 19, 2000
4 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
October 31, 2000
SCHEDULE OF INVESTMENTS IN SECURITIES AND NET ASSETS
Value
Shares Security Description (Note 1)
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STOCKS 77.6%
BUSINESS EQUIPMENT & SERVICES 12.5%
* 79,300 Agency.com, Inc. $ 832,650
* 333,200 Boston Communications Group, Inc. 7,871,850
* 53,400 Bright Horizons Family Solutions, Inc. 1,335,000
* 49,400 Corporate Executive Board Co. 2,278,575
* 34,900 CoStar Group, Inc. 1,090,625
* 263,400 Datalink Corp. 3,160,800
* 60,200 Infocrossing, Inc. 756,262
* 156,600 Media 100, Inc. 1,546,425
* 40,400 Shuffle Master, Inc. 906,475
* 360,200 Spectrum Control, Inc. 4,457,475
* 214,400 TeleTech Holdings, Inc. 5,949,600
------------
30,185,737
------------
CAPITAL GOODS 4.1%
* 242,500 Aaon, Inc. 5,122,812
* 96,700 IMPCO Technologies, Inc. 1,903,781
* 68,300 Oshkosh Truck Corp. 2,808,837
------------
9,835,430
------------
CONSUMER DURABLES 0.3%
* 138,600 Jore Corp. 814,275
------------
814,275
------------
CONSUMER NON-DURABLES 2.3%
* 18,200 Concord Camera Corp. 563,062
67,000 K-Swiss, Inc. 1,842,500
* 148,300 McNaughton Apparel Group, Inc. 2,039,125
* 61,700 Universal Electronics, Inc. 1,133,737
------------
5,578,424
------------
CONSUMER SERVICES 7.5%
* 173,850 American Classic Voyages Co. 2,401,303
* 353,000 Cash America International, Inc. 1,831,187
* 170,100 Championship Auto Racing Teams, Inc. 4,231,237
* 72,400 Internet.com Corp. 1,506,825
* 394,000 Lojack Corp. 3,152,000
* 222,000 Nucentrix Broadband Networks, Inc. 5,022,750
------------
18,145,302
------------
ENERGY 1.1%
* 301,400 Newpark Resources, Inc. 2,712,600
------------
2,712,600
------------
HEALTH CARE 13.2%
* 238,500 ArthroCare Corp. 5,410,969
* 253,100 eBenX, Inc. 3,021,381
* 203,300 Eclipsys Corp. 5,018,969
* 313,100 Endocare, Inc. 5,537,956
* 233,300 Fusion Medical Technologies, Inc. 1,924,725
* 251,600 Gene Logic, Inc. 5,488,025
* 239,400 Innerdyne, Inc. 1,675,800
* 104,600 NeoPharm, Inc. 3,791,750
------------
31,869,575
------------
RAW MATERIALS 0.3%
101,900 Northern Technologies International Corp. $ 706,931
------------
706,931
------------
RETAIL 7.8%
* 57,200 Bebe Stores, Inc. 872,300
* 125,600 Buca, Inc. 1,962,500
* 64,600 Electronics Boutique Holdings Corp. 1,009,375
* 46,000 Finish Line, Inc. (Class A) 350,750
* 241,300 Genesco, Inc. 4,283,075
* 129,800 Good Guys, Inc. 762,575
* 278,900 Gymboree Corp. 2,492,669
* 223,900 Intertan, Inc. 2,476,894
* 68,500 Quicksilver, Inc. 1,310,063
* 63,000 Stein Mart, Inc. 976,500
* 42,600 The Buckle, Inc. 716,213
* 59,500 The Children's Place Retail Stores, Inc. 1,543,281
------------
18,756,195
------------
SHELTER 1.3%
* 292,900 Modtech Holdings, Inc. 3,112,063
------------
3,112,063
------------
TECHNOLOGY (COMPONENTS) 10.8%
* 59,650 Anaren Microwave, Inc. 6,203,600
* 169,700 California Amplifier, Inc. 4,242,500
* 331,600 California Micro Devices Corp. 4,207,175
* 122,100 Microsemi Corp. 4,884,000
* 158,800 Parlex Corp. 2,540,800
* 15,100 Sage, Inc. 200,075
* 109,800 Spectra-Physics Lasers, Inc. 3,877,313
------------
26,155,463
------------
TECHNOLOGY (EQUIPMENT) 9.7%
93,700 BEI Technologies, Inc. 3,338,063
* 306,900 COMARCO, Inc. 5,927,006
* 278,800 Micro Component Technology, Inc. 1,254,600
* 187,700 Netopia, Inc. 2,041,238
* 279,500 Repeater Technologies, Inc. 978,250
* 120,800 Rimage Corp. 1,208,000
* 214,100 RIT Technologies Ltd. 1,920,209
* 73,200 Trikon Technologies, Inc. 1,203,225
* 114,700 Zygo Corp. 5,677,650
------------
23,548,241
------------
TECHNOLOGY (SOFTWARE) 5.2%
* 112,000 Exigent International, Inc. 227,500
* 120,000 MDSI Mobile Data Solutions, Inc. 1,545,000
* 116,900 Novadigm, Inc. 1,169,000
* 153,900 PC-Tel, Inc. 2,654,775
* 161,100 Primus Knowledge Solutions, Inc. 1,308,938
* 137,500 Princeton Video Image, Inc. 601,563
* 212,500 Puma Technology, Inc. 2,882,031
* 135,900 Take-Two Interactive Software, Inc. 1,690,256
* 48,600 VocalTec Communications Ltd. 413,100
------------
12,492,163
------------
The accompanying notes are an integral part of these financial statements.
FREMONT MUTUAL FUNDS 5
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
October 31, 2000
SCHEDULE OF INVESTMENTS IN SECURITIES AND NET ASSETS
Shares/ Value
Face Amount Security Description (Note 1)
--------------------------------------------------------------------------------
UTILITIES 1.5%
* 338,500 Cadiz, Inc. $ 3,596,563
------------
3,596,563
------------
TOTAL STOCKS (Cost $174,836,153) 187,508,962
------------
SHORT-TERM INVESTMENTS 20.6%
$10,000,000 Associates Corp. of North America,
6.620%,(a) 11/01/00 10,000,000
39,838,188 Repurchase Agreement,
State Street Bank and Trust Co.,
5.980%, 11/01/00
(Maturity Value $39,844,805)
(Cost $39,838,188) Collateral:
FNMA, 6.360%, 04/09/09 39,838,188
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $49,838,188) 49,838,188
------------
TOTAL INVESTMENTS (Cost $224,674,341), 98.2% 237,347,150
------------
OTHER ASSETS AND LIABILITIES, NET, 1.8% 4,307,023
------------
NET ASSETS, 100.0% $241,654,173
============
* Non-income producing security.
(a) Represents discount rate or yield to maturity at the date of acquisition.
The accompanying notes are an integral part of these financial statements.
6 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
(All numbers in thousands except net asset value per share)
ASSETS:
Investments in securities at cost $ 184,836
Repurchase agreement at cost 39,838
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TOTAL INVESTMENTS AT COST $ 224,674
==========
Investments in securities at value $ 197,509
Repurchase agreement at value 39,838
Dividends and interest receivable 17
Receivable for securities sold 4,415
Receivable from sale of fund shares 2,277
Other assets 26
----------
TOTAL ASSETS 244,082
----------
LIABILITIES:
Payable for securities purchased 1,266
Payable for fund shares redeemed 920
Accrued expenses:
Investment advisory, administrative
and distribution fees 229
Other 13
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TOTAL LIABILITIES 2,428
----------
NET ASSETS $ 241,654
==========
Net assets consist of:
Paid in capital $ 212,728
Undistributed net investment income 20
Unrealized appreciation on investments 12,673
Accumulated net realized gain 16,233
----------
NET ASSETS $ 241,654
==========
SHARES OF CAPITAL STOCK OUTSTANDING 13,915
==========
NET ASSET VALUE PER SHARE $ 17.37
==========
STATEMENT OF OPERATIONS
Year Ended October 31, 2000
(All numbers in thousands)
INVESTMENT INCOME:
Interest $ 3,386
Dividends 58
----------
TOTAL INCOME 3,444
----------
EXPENSES:
Investment advisory and
administrative fees 2,552
Shareholder servicing fees 40
Custody fees 59
Accounting fees 39
Audit and legal fees 31
Directors' fees 12
Registration fees 17
Reports to shareholders 7
Recouped by management 6
Other 16
----------
TOTAL EXPENSES BEFORE REDUCTIONS 2,779
Earned custody credit (5)
----------
TOTAL NET EXPENSES 2,774
----------
NET INVESTMENT INCOME 670
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
Net realized gain from:
Investments 65,700
Net unrealized depreciation on:
Investments (10,774)
----------
Net realized and unrealized gain
from investments 54,926
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 55,596
==========
FREMONT MUTUAL FUNDS 7
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2000 AND 1999
(All numbers in thousands)
2000 1999
-------- --------
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 670 $ (342)
Net realized gain from investments 65,700 20,874
Net unrealized appreciation (depreciation)
on investments (10,774) 27,929
-------- --------
Net increase in net assets from operations 55,596 48,461
-------- --------
Distributions to shareholders from:
Net investment income (650) --
Net realized gains (50,131) (16,721)
-------- --------
Total distributions to shareholders (50,781) (16,721)
-------- --------
From capital share transactions:
Proceeds from shares sold 213,074 30,562
Reinvested dividends 44,890 15,424
Payments for shares redeemed (126,096) (10,102)
-------- --------
Net increase in net assets
from capital share transactions 131,868 35,884
-------- --------
Net increase in net assets 136,683 67,624
Net assets at beginning of period 104,971 37,347
-------- --------
NET ASSETS AT END OF PERIOD $241,654 $104,971
======== ========
Undistributed net investment income $ 20 $ --
======== ========
CAPITAL TRANSACTIONS IN SHARES:
Sold 9,462 2,321
Reinvested dividends 2,577 1,180
Redeemed (5,797) (797)
-------- --------
Net increase from capital share transactions 6,242 2,704
======== ========
The accompanying notes are an integral part of these financial statements.
8 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS Year Ended October 31
-------------------------------------------------------------------------------- Period from
August 4, 1997(1) to
2000 1999 1998 October 31, 1997
---------- ---------- ---------- ----------
SELECTED PER SHARE DATA
FOR ONE SHARE OUTSTANDING DURING THE PERIOD
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.68 $ 7.52 $ 9.78 $ 10.00
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .06 (.04) (.04) --
Net realized and unrealized gain (loss) 8.19 8.80 (1.98) .09
---------- ---------- ---------- ----------
Total investment operations 8.25 8.76 (2.02) .09
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
From net investment income (.06) -- -- --
From net realized gains (4.50) (2.60) (.24) (.31)
---------- ---------- ---------- ----------
Total distributions (4.56) (2.60) (.24) (.31)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 17.37 $ 13.68 $ 7.52 $ 9.78
========== ========== ========== ==========
TOTAL RETURN(2) 60.36% 118.10% -21.03% .90%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $ 241,654 $ 104,971 $ 37,347 $ 40,545
Ratio of net expenses to average net
assets(3) 1.25% 1.25% 1.25% 1.25%*
Ratio of gross expenses to average net
assets(3) 1.24% 1.35% 1.38% 1.49%*
Ratio of net investment income (loss)
to average net assets .30% -.53% -.44% -.21%*
Portfolio turnover rate 123% 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 9
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
Notes To Financial Statements -- October 31, 2000
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 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.
The following is a summary of significant accounting policies followed
by the Fund. These policies are in conformity with generally accepted
accounting principles for investment companies.
A. SECURITY VALUATION
Investments 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 in good faith 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.
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.
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 for 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 securities
dealer, or a bank that is a member of the Federal Reserve System. At
that time, the bank or securities dealer agrees to repurchase the
underlying security at the same price, plus a specified amount of
interest at a later date, generally for a period of less than one
week. The seller must maintain 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, 2000, all outstanding
repurchase agreements held by the Fund, had been entered into on
October 31, 2000.
10 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
Notes To Financial Statements -- October 31, 2000
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 until March 1, 2001. 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 by the Fund until
payment is probable. At October 31, 2000, the Advisor recouped $5,654
of reimbursed expenses. At October 31, 2000, the cumulative unrecouped
reimbursements totaled $125,804. The Advisor may recoup $63,711 of the
above amount no later than October 31, 2001 and $62,093 no later than
October 31, 2002.
State Street Bank & Trust Company ("State Street") serves as custodian
and investment accounting agent for the Fund. All fees charged by
State Street 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 State Street 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.
OTHER RELATED PARTIES
At October 31, 2000, 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 31% 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. PURCHASES AND SALES OF INVESTMENT SECURITIES
Aggregate purchases and aggregate proceeds from sales of securities
for the fiscal year ended October 31, 2000 were as follows:
PURCHASES PROCEEDS
------------ ------------
Long-term securities: $248,179,441 $200,020,788
4. 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.
5. UNREALIZED APPRECIATION (DEPRECIATION) -- TAX BASIS
At October 31, 2000, the cost of securities for federal income tax
purposes was $225,817,360 and the net unrealized appreciation based on
that cost were as follows:
Unrealized appreciation $ 39,353,180
Unrealized depreciation (27,823,390)
-----------
Net unrealized appreciation $ 11,529,790
============
6. 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.
FREMONT MUTUAL FUNDS 11
<PAGE>
FREMONT INSTITUTIONAL U.S. MICRO-CAP FUND
TAX DESIGNATION (UNAUDITED)
In accordance with the Internal Revenue Code, the Fund is making the following
designation:
CORPORATE DIVIDEND RECEIVED DEDUCTIONS: 2%
LONG-TERM CAPITAL GAIN DISTRIBUTIONS: $915,531
PLEASE REFER TO THE 2000 1099S FOR PURPOSES OF FILING TAX RETURNS.
12 FREMONT MUTUAL FUNDS
<PAGE>
FREMONT FUNDS
50 Beale Street, Suite 100
San Francisco, CA 94105
www.fremontfunds.com
Distributed by First Fund Distributors, Inc., San Francisco, CA 94105
BR008b-0012
