FLEMING CAPITAL MUTUAL FUND GROUP, INC.
TABLE OF CONTENTS
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Shareholder Letter and Comments from Investment Adviser
Fleming Fund ........................................................ 2
Fleming Fledgling Fund .............................................. 5
Schedules of Investments
Fleming Fund ........................................................ 8
Fleming Fledgling Fund .............................................. 12
Statements of Assets and Liabilities ................................... 17
Statements of Operations ............................................... 18
Statements of Changes in Net Assets .................................... 19
Financial Highlights ................................................... 21
Notes To Financial Statements .......................................... 23
This report is provided for the general information of the shareholders of the
Fleming Capital Mutual Fund Group, Inc. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus. Distributor: First Fund Distributors, Inc.
<PAGE>
Fleming Fund
Annual Report dated September 30, 1999
- --------------------------------------------------------------------------------
Dear Shareholder:
The fiscal year to 30th September 1999 was a turbulent one for the stock market
but nonetheless rewarding. Coming off a low base the Fleming Fund saw positive
performance of 30.4% for the period, while the S&P 500 Index registered a gain
of 27.8%. The market was dominated by a 74% rise in the value of the S&P
Technology Index, a sector where high valuations have precluded the Fund's
participation so far. All sectors except gas and electric utilities generated
gains, and the cyclical areas outperformed the more defensive ones. Over the
course of the year, market sentiment switched from worrying about a deflationary
recession to nervousness about an overheating economy.
The most successful sector for the fund was media, where strong advertising
trends helped to propel the performance of Cox Radio and Lamar Advertising. The
growing acceptance of cable TV as the most effective broadband pipe into the
home was the driver behind the success of our investment in TCA Cable, which
more than doubled in less than a year. So far the market has failed to give
equal credit to Washington Post, whose Post-Newsweek Cable division holds
significant value.
The two major economic sector weightings for the fund are financial services and
consumer cyclicals. Both of these were positive contributors in absolute terms
but lagged the overall market in spite of strong gains from American Express,
Legg Mason, Dayton Hudson and Marriott. In my letter last year I singled out
Marriott as an example of a great company selling at a bargain basement price.
From its low of $20 the stock gradually appreciated to a high of $44 in April
before settling back down to its current level in the low $30's. Concern about a
slowdown in the lodging industry has afforded an attractive buying opportunity
once again. In my letter six months ago I switched the focus to another
portfolio holding, Midas. An unexpected decline in same store sales caused a
severe drop in the stock price. Fortunately the damage to the fund was
controlled by reducing the weighting after a disclosure of insider selling by
senior members of the management team. A small position is being retained
because the stock is trading at a very low multiple of free cash flow. However,
I have learned my lesson and will not tempt fate again by emphasizing my
favorite stocks in print.
The strong market for initial public offerings has been beneficial for the funds
advised by Robert Fleming Inc. The Fleming Fund participates in a rotation
system designed to provide for equitable access to such offerings among clients.
FLEMING
Asset Management
2
<PAGE>
This permitted the Fund to receive three allocations of hot new issue stocks
during the year, namely Chemdex,
Marimba and Tut Systems. The instant realized gains from these stocks were
significant contributors to the year's performance. As a result portfolio
turnover and the annual fund distribution are both higher than expected.
Shareholders should keep in mind that it is unlikely that initial public
offering gains of such magnitude will be realized in the future.
The strategy of the fund is to invest in companies offering a combination of
growth and value. While strong organic revenue growth is preferred, it tends to
be scarce and therefore highly valued. Consequently the majority of the investee
companies generate growth through acquisition, an activity which is both
unpredictable and opportunistic. In the absence of such opportunities they tend
to repurchase stock, which generates growth on a per share basis. As long as the
underlying business has sustainable competitive strengths and generates excess
cash flow a creative management should be able to enhance value per share
through a combination of acquisitions, stock repurchases and proactive balance
sheet management. These are the hallmarks of the portfolio today, and yet the
stocks are selling at valuation levels last seen in the fall of 1990. The key
difference is that the market as a whole looks expensive. Should the technology
sector ever crack it will surely take the rest of the market down with it. With
that caveat I remain confident in the prospects for the Fleming Fund.
Sincerely,
Jonathan Simon
President and Portfolio Manager of the Fleming Fund
FLEMING
Asset Management
3
<PAGE>
Fleming Fund
Value of $10,000 vs S&P 500 and Wilshire 5000
Average Annual Total Returns for
Periods Ending 9/30/99
Since Inception 19.10%
One Year 30.41%
FLEMING FUND S&P 500 WILSHIRE 5000
------------ ------- -------------
11/13/97 10,000.00 10,000.00 10,000.00
11/30/97 10,200.00 10,431.00 10,239.00
12/31/97 10,490.00 10,610.41 10,428.42
1/31/98 10,570.23 10,728.19 10,484.73
2/28/98 11,071.66 11,501.69 11,248.02
3/31/98 11,934.13 12,090.58 11,810.42
4/30/98 11,994.30 12,212.69 11,950.97
5/31/98 11,853.90 12,002.63 11,633.07
6/30/98 11,974.24 12,489.94 12,041.39
7/31/98 11,362.50 12,357.55 11,777.69
8/31/98 10,169.08 10,573.12 9,943.90
9/30/98 10,650.46 11,250.85 10,593.24
10/31/98 11,412.64 12,165.55 11,381.38
11/30/98 12,124.67 12,902.78 12,098.40
12/31/98 12,563.62 13,645.98 12,872.70
1/31/99 12,331.15 14,216.38 13,346.41
2/28/99 12,280.61 13,774.25 12,861.94
3/31/99 12,341.26 14,325.22 13,358.41
4/30/99 13,341.90 14,879.61 13,998.28
5/31/99 14,089.86 14,528.45 13,691.72
6/30/99 14,554.75 15,336.23 14,400.95
7/31/99 14,872.27 14,856.21 13,938.68
8/31/99 14,145.04 14,783.41 13,809.05
9/30/99 13,888.98 14,378.34 13,448.63
Past performance is not predictive of future performance. During the latest
fiscal year, the fund benefitted from the purchase of initial public offerings
which contributed meaningfully to the Fund's performance. Shareholders should
keep in mind that as the Fund's assets grow and as market conditions change it
is unlikely that purchases of initial public offerings will contribute to the
Fund's performance to the same extent in the future.
The S&P 500 Index is an unmanaged index composed of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange and
over-the-counter market. The Wilshire 5000 Index is an unmanaged index that
measures the performance of all U.S. headquartered equity securities with
readily available price data.
4
<PAGE>
Fleming Fledgling Fund
Annual Report dated September 30, 1999
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to be able to report strong performance for your fund over the
twelve months to September 30th. Over this period the fund's net asset value
increased 46.6 per cent, compared with a gain of 19.1 per cent increase for the
Russell 2000 and 32.6 per cent increase for the Russell 2000 Growth. Performance
was also strong relative to the S&P 500's 27.8 per cent gain, which was
encouraging in the context of large companies' continued outperformance of the
small caps in aggregate.
The past year had many different facets to it, but the factor that clearly
dominated was growth, and technology most particularly. In the latter's case,
the explosion in investor interest in the Internet, and the consequent deluge of
new issue activity in the capital markets resulted in the greatest period of
value creation (at least on paper) that has occurred in the past twenty years.
Of course it remains to be seen how much of this market value will be sustained
in the long run, and past speculative bubbles would suggest that it is probable
that only a few of the hundreds of companies attracting great interest today
will actually build sustainable business franchises. That being said, it is
undeniable that the Internet and Worldwide Web are dramatically changing the
competitive landscape of virtually every industry in the US and that it will be
a vital component in the future success of most companies.
More generally, the past year remained dominated by large companies, as the
performance of the Russell 2000 relative to the S&P 500 illustrates. That being
said, looking a little closer, the dynamics within the market have been
improving for small companies. The most notable shift has been in the broadening
out of performance in growth stocks in general, as manifested by the Russell
2000 Growth index's out-performance of the S&P 500. Growth has been
outperforming value for some time, but until this year all large cap stocks, be
they growth or value outperformed all small cap stocks. As growth has become
increasingly scarce and with earnings problems emerging in all parts of the
market small cap names have been getting more attention.
The other ray of light was the strength of performance of small caps universally
during the June quarters which produced one of the best quarters of both
relative and nominal performance in the past five years. This was quickly
knocked on the head by the increase in rates in August, which may well be a
indication of how the market may react if the yield curve and quality spread
environment relaxes.
FLEMING
Asset Management
5
<PAGE>
Within the fund's portfolio we remain concentrated in companies with strong
growth profiles, which have clear market leadership in their particular vertical
markets. We are focused particularly on companies where we have a high degree of
confidence in earnings as this, in our opinion, is where the biggest risk lies.
As regards technology and the Internet, we are favoring businesses that are
users of technology over creators of technology, and primarily in commercial
rather than consumer applications.
We are encouraged by your fund's performance and are optimistic about the
prospects for the portfolio's earnings growth over the next year.
Sincerely,
Christopher M.V. Jones
Vice President and Portfolio Manager of the Fleming Fledgling Fund
FLEMING
Asset Management
6
<PAGE>
Fleming Fledgling Fund
Value of $10,000 vs Russell 2000 and Lipper Small Cap Index
Average Annual Total Returns for
Periods Ending 9/30/99
Since Inception 19.21%
One Year 46.61%
FLEMING
FLEDGLING FUND RUSSELL 2000 LIPPER SMALL CAP
-------------- ------------ ----------------
11/14/97 10,000.00 10,000.00 10,000.00
11/30/97 9,970.00 9,957.00 9,812.94
12/31/97 10,206.00 10,131.25 9,911.05
1/31/98 10,386.28 9,971.17 9,720.36
2/28/98 10,927.13 10,708.04 10,504.39
3/31/98 11,618.21 11,149.21 10,973.30
4/30/98 11,748.42 11,210.54 11,019.19
5/31/98 11,297.71 10,606.29 10,409.44
6/30/98 11,608.20 10,628.56 10,549.97
7/31/98 10,776.89 9,767.65 9,814.36
8/31/98 8,663.58 7,870.77 7,866.82
9/30/98 9,484.87 8,487.05 8,292.67
10/31/98 10,065.78 8,833.32 8,631.14
11/30/98 10,646.69 9,296.19 9,134.90
12/31/98 11,722.23 9,871.62 9,826.35
1/31/99 11,967.29 10,002.62 9,910.10
2/28/99 10,927.13 10,708.04 10,504.39
3/31/99 11,538.43 9,336.09 9,362.33
4/30/99 12,733.12 10,172.60 9,904.41
5/31/99 13,233.45 10,321.12 10,049.01
6/30/99 13,730.11 10,787.64 10,752.44
7/31/99 14,464.18 10,531.97 10,649.22
8/31/99 13,637.06 10,142.29 10,435.17
9/30/99 13,905.87 10,144.32 10,513.44
Past performance is not predictive of future performance. During the latest
fiscal year, the Fund benefited from the puchase of initial public offerings
which contributed meaningfully to the Fund's performance. Shareholders should
keep in mind that as the Fund's assets grow and as market conditions change it
is unlikely that purchases of initial public offerings will contribute to the
Fund's performance to the same extent in the future.
The Russell 2000 Index is an unmanaged, capitalization weighted price only index
which is comprised of 2000 of the smallest stocks (on the basis of
capitalization) in the Russell 3000 Index. The Lipper Small Cap Index measures
the performance of the 30 largest mutual funds that invest primarily in
companies with market capitalizations of less than $1 billion at time the of
purchase.
7
<PAGE>
FLEMING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 97.26% Value
- --------------------------------------------------------------------------------
BANKS: 4.39%
2,200 Cullen/Frost Bankers, Inc. $ 55,000
220 M & T Bank Corp. 100,980
----------
155,980
----------
BEVERAGES: 2.62%
1,600 Brown-Forman Corp. - Class A 93,200
----------
BUILDING RELATED: 4.51%
12,000 Clayton Homes, Inc. 104,250
1,400 Martin Marietta Materials, Inc. 55,913
----------
160,163
----------
COMMERCIAL SERVICES: 4.25%
1,200 Equifax, Inc. 33,750
2,500 Sodexho Marriott Services, Inc. 42,500
2,500 Tivo, Inc.* 74,844
----------
151,094
----------
CONSULTING SERVICES: 0.18%
390 Gartner Group, Inc. - Class B* 6,508
----------
DIVERSIFIED FINANCIAL: 2.29%
1,000 Legg Mason, Inc. 38,313
1,000 SLM Holding Corp. 43,000
----------
81,313
----------
See accompanying Notes to Financial Statements.
8
<PAGE>
FLEMING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: Continued Value
- --------------------------------------------------------------------------------
FINANCE: 2.46%
650 American Express Co. $ 87,506
----------
FOOD: 6.56%
2,200 Interstate Bakeries 50,600
2,000 Nabisco Holdings Corp. - Class A 69,125
2,000 Ralston-Ralston Purina Group 55,625
3,200 U.S. Foodservice* 57,600
----------
232,950
----------
GAS & ELECTRIC UTILITIES: 4.31%
2,500 NSTAR* 96,875
1,500 Williams Cos, Inc.* 56,156
----------
153,031
----------
HEALTH CARE: 6.60%
4,000 IMS Health Care, Inc. 91,250
3,500 Renal Care Group, Inc.* 76,671
2,300 Trigon Healthcare, Inc.* 66,413
----------
234,334
----------
INSURANCE: 14.89%
5,800 CNA Surety Corp. 76,125
1,300 Marsh & McLennan Companies, Inc. 89,050
2,630 Medical Assurance, Inc.* 65,914
2,500 Nationwide Financial Services, Inc. - Class A 88,438
1,500 Partner RE, Ltd. 52,125
3,400 The MIIX Group, Inc.* 57,588
2,213 XL Capital, Ltd. 99,584
----------
528,824
----------
See accompanying Notes to Financial Statements.
9
<PAGE>
FLEMING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: Continued Value
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT: 0.90%
1,487 Waddell & Reed Financial, Inc. - Class B $ 31,785
----------
LODGING: 2.76%
3,000 Marriott International, Inc. - Class A 98,063
----------
MEDIA: 13.94%
1,000 Cox Radio, Inc. - Class A* 59,500
1,650 E.W. Scripps Co. 81,056
1,100 Gannett Co. 76,106
1,500 Lamar Advertising Company* 74,250
400 Washington Post Co. - Class B 204,250
----------
495,162
----------
MISCELLANEOUS MANUFACTURING: 3.57%
3,200 Carlisle Companies, Inc. 126,400
----------
OILS & GAS PRODUCERS: 2.68%
2,300 Devon Energy Corp.* 95,306
----------
REAL ESTATE: 4.57%
5,300 Security Capital Group, Inc. - Class B* 77,844
4,650 Security Capital U.S. Realty - ADR* 84,281
----------
162,125
----------
REAL ESTATE INVESTMENT TRUSTS: 5.55%
3,600 Kimco Realty Corp. 128,700
2,720 Public Storage, Inc. 68,510
----------
197,210
----------
See accompanying Notes to Financial Statements.
10
<PAGE>
FLEMING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: Continued Value
- --------------------------------------------------------------------------------
RETAIL: 8.99%
1,200 Dayton-Hudson Corp. $ 72,075
1,700 Midas, Inc. 35,063
1,100 Payless Shoesource, Inc.* 55,550
2,100 Shopko Stores, Inc. 60,900
5,800 Vicorp Restaurants, Inc.* 95,700
----------
319,288
----------
TRAVEL SERVICES: 1.25%
1,100 Galileo International, Inc. 44,275
----------
TOTAL COMMON STOCKS: 97.26%
(cost $3,344,664) $3,454,517
----------
SHORT-TERM INVESTMENT: 4.69%
-------------------------------------------
166,570 Firstar Stellar Treasury Money Market Fund
(cost $166,570) 166,570
----------
TOTAL INVESTMENTS: 101.95%
(cost $3,511,234) 3,621,087
Liabilities, less Other Assets: -1.95% (69,130)
----------
NET ASSETS: 100.0% $3,551,957
==========
* Non-income producing security.
ADR American Depositary Receipt
See accompanying Notes to Financial Statements.
11
<PAGE>
FLEMING FLEDGLING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 96.76% Value
- --------------------------------------------------------------------------------
ADVERTISING: 2.91%
1,445 Advo, Inc.* $ 28,810
394 TMP Worldwide, Inc.* 23,985
----------
52,795
----------
AUTO PARTS: 2.03%
3,300 Jason, Inc.* 25,988
985 Keystone Automotive Industries, Inc.* 10,773
----------
36,761
----------
BANKS: 4.85%
620 Investors Financial Services Corp. 21,313
90 M & T Bank Corp. 41,310
1,025 Texas Regional Bancshares, Inc. 25,369
----------
87,992
----------
Chemicals: 3.23%
1,690 The Scotts Co.* 58,516
----------
COMMERCIAL SERVICES: 15.89%
3,550 Ace Cash Express, Inc.* 51,475
1,800 Acnielson Corp.* 40,838
1,250 Coinmach Laundry Corp.* 12,188
420 Duff & Phelps Credit Rating 33,574
2,025 Interim Services, Inc.* 33,159
1,355 Iron Mountain, Inc.* 45,901
1,200 On Command Corp.* 22,800
786 Quintiles Transnational Corp.* 14,959
See accompanying Notes to Financial Statements.
12
<PAGE>
FLEMING FLEDGLING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: Continued Value
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES: 15.89%-(CONTINUED)
1,705 Sylvan Learning Systems, Inc.* $ 33,034
----------
287,928
----------
CONSULTING SERVICES: 0.98%
450 T. Rowe Price Associates Investment Mgmt., Inc. 12,347
465 Superior Consultants Holdings Corp.* 5,464
----------
17,811
----------
DATA PROCESSING: 1.67%
450 Choicepoint, Inc.* 30,319
----------
DISTRIBUTION/WHOLESALE: 5.99%
615 CDW Computer Centers, Inc.* 30,058
2,625 Daisytek International Corp.* 36,914
810 Scansource, Inc.* 22,579
815 Tech Data Corp.* 18,974
----------
108,525
----------
ELECTRICAL COMPONENTS & EQUIPMENT: 2.51%
575 Jabil Circuit, Inc.* 28,463
450 Richie Brothers Auctioneers* 17,100
----------
45,563
----------
ELECTRONICS: 3.05%
760 Cyberoptics Corp.* 12,208
610 Kemet Corp.* 19,501
750 Pittway Corp.Class A 23,625
----------
55,334
----------
See accompanying Notes to Financial Statements.
13
<PAGE>
FLEMING FLEDGLING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: Continued Value
- --------------------------------------------------------------------------------
FINANCE: 2.62%
3,177 Americredit Corp.* $ 47,456
----------
HAND/MACHINE TOOLS: 2.30%
1,375 Applied Power, Inc.Class A 41,766
----------
HEALTH CARE: 3.11%
1,725 Hanger Orthopedic Group, Inc.* 25,013
1,425 Henry Schein, Inc.* 20,306
250 Provantage Health Services* 2,578
720 Staar Surgical Co.* 8,550
----------
56,447
----------
INSURANCE BROKERS: 0.96%
525 Brown & Brown, Inc. 17,456
----------
LEISURE TIME: 2.85%
2,250 American Classic Voyages* 51,609
----------
MEDIA: 8.29%
425 Information Holdings, Inc.* 8,261
820 Jones Intercable, Inc.Class A * 44,331
2,320 Penton Media, Inc. 37,700
1,125 Primedia, Inc.* 15,750
1,130 TV Guide Inc.Class A* 44,211
----------
150,253
----------
MISCELLANEOUS MANUFACTURING: 4.04%
450 Carbo Ceramics Inc. 12,375
See accompanying Notes to Financial Statements.
14
<PAGE>
FLEMING FLEDGLING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: Continued Value
- --------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING: 4.04%-(CONTINUED)
1,700 Falcon Products, Inc. $ 14,875
300 Ivex Packaging Corp.* 3,000
1,455 MettlerToledo International, Inc.* 43,104
----------
73,354
----------
OILS & GAS PRODUCERS: 3.53%
1,115 Newfield Exploration Co.* 36,725
2,025 Vintage Petroleum, Inc. 27,338
----------
64,063
----------
REAL ESTATE INVESTMENT MGMT.: 4.56%
2,925 Grubb & Ellis Co.* 16,819
1,025 Prologis Trust 19,347
1,625 SL Green Realty Corp. 32,297
1,075 Trammel Crow Co.* 14,244
----------
82,707
----------
RETAIL: 5.02%
1,812 Regis Corp. 34,881
1,097 Sonic Corp.* 33,390
1,200 Tractor Supply Co.* 22,800
----------
91,071
----------
SOFTWARE: 9.16%
1,550 Acxiom Corp.* 30,467
997 Advent Software, Inc.* 62,063
2,000 CSG Systems International, Inc.* 54,813
See accompanying Notes to Financial Statements.
15
<PAGE>
FLEMING FLEDGLING FUND
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: Continued Value
- --------------------------------------------------------------------------------
SOFTWARE: 9.16%-(CONTINUED)
1,850 Integrated Systems, Inc.* $ 18,847
----------
166,190
----------
TRANSPORTATION: 5.71%
1,345 Air Express International Corp. 30,515
645 Expeditors International Wash, Inc. 20,700
1,000 Forward Air Corp.* 23,625
675 Heartland Express, Inc.* 9,534
975 Swift Transportation Co., Inc.* 19,195
----------
103,569
----------
TRAVEL SERVICES: 1.50%
725 Pegasus Systems, Inc.* 27,185
----------
TOTAL COMMON STOCKS: 96.76%
(cost $1,662,257) 1,754,670
----------
SHORT-TERM INVESTMENT: 3.04%
-------------------------------------------
55,171 Firstar Stellar Treasury Money Market Fund
(cost $55,171) 55,171
----------
TOTAL INVESTMENTS: 99.80%
(cost $1,717,428) 1,809,841
Other Assets, less Liabilities: 0.20% 3,635
----------
NET ASSETS: 100.00% $1,813,476
==========
* Non-income producing security.
ADR American Depositary Receipt
See accompanying Notes to Financial Statements.
16
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
STATEMENTS OF ASSETS AND LIABILITIES, SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
FLEMING FLEMING FLEDGLING
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investments securities at value
(cost $3,511,234 and $1,717,428, respectively) $3,621,087 $1,809,841
Receivables:
Investment securities sold 114,713 --
Fund shares sold 3,114 1,253
From Adviser 20,129 11,233
Dividends and interest income 2,471 1,047
Deferred organization costs, net 41,588 41,326
Other assets 6,310 1,500
---------- ----------
Total assets 3,809,412 1,866,200
---------- ----------
LIABILITIES
Payable:
Investment securities purchased 214,403 12,155
Accrued expenses 43,052 40,569
---------- ----------
Total liabilities 257,455 52,724
---------- ----------
NET ASSETS $3,551,957 $1,813,476
========== ==========
COMPOSITION OF NET ASSETS
Paid-in capital $2,740,632 $1,386,835
Undistributed net investment income 17,476 5,710
Undistributed net realized gain on investments 683,996 328,518
Net unrealized appreciation on investments 109,853 92,413
---------- ----------
Net assets $3,551,957 $1,813,476
========== ==========
Number of shares issued and outstanding
(unlimited shares authorized, no par value) 261,873 134,856
========== ==========
Net asset value per share $ 13.56 $ 13.45
========== ==========
See accompanying Notes to Financial Statements.
17
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
STATEMENTS OF OPERATIONS, YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
FLEMING FLEMING FLEDGLING
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
INCOME:
Dividend income $ 38,823 $ 5,756
Interest income 6,898 4,183
--------- ---------
Total income 45,721 9,939
EXPENSES:
Advisory fees 31,499 14,900
Custodian fees 4,851 4,851
Administration fees 40,000 40,000
Fund accounting fees 16,998 16,998
Transfer agent fees 12,501 13,801
Legal fees 10,001 10,001
Insurance 7,001 3,001
Audit fees 16,844 16,104
Reports to shareholders 3,000 2,000
Registration fees 3,402 2,402
Director's fees 8,249 6,949
Amortization of deferred organization costs 15,711 16,021
Miscellaneous expenses 9,001 5,001
--------- ---------
Total expenses 179,058 152,029
Expenses reimbursed/waived (135,310) (131,914)
--------- ---------
Net expenses 43,748 20,115
--------- ---------
NET INVESTMENT INCOME (LOSS) 1,973 (10,176)
--------- ---------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 683,996 328,518
Net unrealized appreciation on investments 222,974 214,236
--------- ---------
Net realized and unrealized
gain on investments 906,970 542,754
--------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 908,943 $ 532,578
========= =========
See accompanying Notes to Financial Statements.
18
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEMING FUND
- -----------------------------------------------------------------------------------------
October 1, 1998 to November 13, 1997* to
September 30, 1999 September 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 1,973 $ 14,836
Net realized gain on investments 683,996 52,495
Net unrealized appreciation/depreciation
on investments 222,974 (113,121)
---------- ----------
Net increase (decrease) in net assets
resulting from operations 908,943 (45,790)
---------- ----------
Distributions to shareholders:
From net investment income (22,787) (3,632)
From net realized gains (52,495) --
---------- ----------
Total distributions (75,282) (3,632)
---------- ----------
Capital share transactions:
Proceeds from shares sold 386,384 3,048,047
Net asset value of shares issued on
reinvestment of distributions 69,588 3,632
Cost of shares redeemed (610,446) (229,487)
---------- ----------
Net increase (decrease) from capital
share transactions (154,474) 2,822,192
---------- ----------
NET INCREASE IN NET ASSETS 679,187 2,772,770
NET ASSETS
Beginning of period 2,872,770 100,000
---------- ----------
End of period (including undistributed
net investment income of $17,476 and
$22,579, respectively) $3,551,957 $2,872,770
========== ==========
CHANGE IN SHARES
Shares sold 29,529 280,770
Shares issued on reinvestment
of distributions 5,253 347
Shares redeemed (43,354) (20,672)
---------- ----------
Net increase (decrease) (8,572) 260,445
========== ==========
</TABLE>
* Commencement of operations.
See accompanying Notes to Financial Statements.
19
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEMING FLEDGING FUND
- -----------------------------------------------------------------------------------------
October 1, 1998 to November 14, 1997* to
September 30, 1999 September 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss $ (10,176) $ (3,225)
Net realized gain on investments 328,518 39,511
Net unrealized appreciation/depreciation
on investments 214,236 (121,823)
----------- -----------
Net increase (decrease) in net assets
resulting from operations 532,578 (85,537)
----------- -----------
Distributions to shareholders:
From net investment income (6,652) (1,608)
From net realized gains (39,511) --
----------- -----------
Total distributions (46,163) (1,608)
----------- -----------
Capital share transactions:
Proceeds from shares sold 185,653 1,190,227
Net asset value of shares issued on
reinvestment of distributions 45,356 1,608
Cost of shares redeemed (10,617) (98,021)
----------- -----------
Net increase from capital share
transactions 220,392 1,093,814
----------- -----------
NET INCREASE IN NET ASSETS 706,807 1,006,669
NET ASSETS
Beginning of period 1,106,669 100,000
----------- -----------
End of period (including undistributed
net investment income of $5,710
and $6,517, respectively) $ 1,813,476 $ 1,106,669
=========== ===========
CHANGE IN SHARES
Shares sold 14,951 116,718
Shares issued on reinvestment of
distributions 3,854 158
Shares redeemed (830) (9,995)
----------- -----------
Net increase 17,975 106,881
=========== ===========
</TABLE>
* Commencement of operations.
See accompanying Notes to Financial Statements.
20
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements and market price data for the fund's shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FLEMING FUND
- -----------------------------------------------------------------------------------------
October 1, 1998 to November 13, 1997* to
September 30, 1999 September 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.62 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.02 0.11
Net Realized and Unrealized Gain
on Investments 3.20 0.54
------- ------
Total from Investment Operations 3.22 0.65
------- ------
LESS DISTRIBUTIONS:
From net investment income (0.10) (0.03)
From net realized gain (0.18) --
------- ------
Total Distributions (0.28) (0.03)
------- ------
NET ASSET VALUE, END OF PERIOD $ 13.56 $10.62
======= ======
Total Return 30.41% 6.50% +
Net Assets at End of Period ('000) $ 3,552 $2,873
Ratio of Expenses to Average Net Assets:
Before Expense Reimbursement 5.11% 7.72% ++
After Expense Reimbursement 1.25% 1.25% ++
Ratio of Net Investment Income to Average
Net Assets (After Expense Reimbursement) 0.06% 0.73% ++
Portfolio Turnover Rate 108.74% 73.34% +
</TABLE>
* Commencement of operations.
+ Not annualized.
++ Annualized.
See accompanying Notes to Financial Statements.
21
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements and market price data for the fund's shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FLEMING FLEDGLING FUND
- -----------------------------------------------------------------------------------------
October 1, 1998 to November 14, 1997* to
September 30, 1999 September 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.47 $10.00
------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.08 0.08
Net Realized and Unrealized Gain (Loss)
on Investments 4.28 (0.59)
------ ------
Total from Investment Operations 4.36 (0.51)
------ ------
LESS DISTRIBUTIONS:
From net investment income (0.09) (0.02)
From net realized gains (0.29) --
------ ------
Total Distributions (0.38) (0.02)
------ ------
NET ASSET VALUE, END OF PERIOD $13.45 $ 9.47
====== ======
Total Return 46.61% (5.15%) +
Net Assets at End of Period ('000) $1,813 $1,107
Ratio of Expenses to Average Net Assets
Before Expense Reimbursement 10.19% 13.84% ++
After Expense Reimbursement 1.35% 1.35% ++
Ratio of Net Investment Loss to Average
Net Assets (After Expense Reimbursement) (0.68%) (0.30%) ++
Portfolio Turnover Rate 70.75% 35.47% +
</TABLE>
* Commencement of operations.
+ Not annualized.
++ Annualized.
See accompanying Notes to Financial Statements.
22
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(1) ORGANIZATION
The Fleming Capital Mutual Fund Group, Inc., (the "Group"), was organized
as a Maryland corporation on August 19, 1997 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Group consists of two separate series:
the Fleming Fund and the Fleming Fledgling Fund (each a "Fund" and
collectively the "Funds") which seek growth through capital appreciation.
Robert Fleming, Inc. (the "Adviser") serves as the investment adviser to
the Funds and purchased 10,000 shares of each Fund on September 26, 1997.
Investment operations began on November 13, 1997 for the Fleming Fund and
November 14, 1997 for the Fleming Fledgling Fund.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Group in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP"). The presentation of financial statements in conformity with GAAP
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 reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions. Expenses directly attributable to each Fund are charged to
that Fund's operations; expenses which are applicable to both Funds are
allocated among them on a pro-rata basis.
(a) Investment Valuation
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such
securities are traded. Short-term investments with maturities of sixty
days or less are valued at amortized cost. Securities and other assets
for which market prices are not readily available are valued at fair
value as determined in good faith in accordance with procedures
approved by the Board of Directors.
(b) Organization Costs
Costsincurred by the Funds in connection with their organization,
registration and the initial public offering of shares have been
deferred and are amortized over 5 years. If any of the original shares
of the Funds are redeemed by any holder thereof prior to the end of
the amortization period, the redemption proceeds will be reduced by
the pro rata share of the unamortized expenses as of the date of
redemption. The pro rata share by which the proceeds are reduced will
be derived by dividing the number of original shares outstanding at
the time of redemption.
23
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(c) FEDERAL INCOME AND EXCISE TAXES
The Funds intend to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute
substantially all investment company net taxable income and net capital
gains to shareholders in a manner which results in no tax cost to the Fund.
Therefore, no federal income or excise tax provision is required.
(d) DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income and net realized gains are
generally declared and paid annually. Distributions to shareholders are
recorded on the ex-dividend date. The Funds periodically make
reclassifications among certain of its capital accounts as a result of the
recognition and characterization of certain income and capital gain
distributions determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
Due to permanent book to tax differences relating to the treatment of
deferred organizational expenses, the Fleming Fund and the Fleming
Fledgling Fund reclassified ($15,711) and ($16,021), respectively, from
accumulated undistributed net investment income (loss) to paid-in-capital.
These reclassifications had no effect on net assets of the Funds.
(e) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. The Funds
determine the gain or loss realized from investment transactions using the
identified cost method. Dividend income is recognized on the ex-dividend
date and interest income is recognized on an accrual basis. Discounts are
accreted and premiums are amortized as adjustments to interest income and
the identified costs of investments.
24
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(3) INVESTMENT ADVISER AND OTHER TRANSACTIONS WITH AFFILIATES
The Group has an Investment Advisory Agreement with the Adviser, with whom
certain officers and directors of the Funds are affiliated, to furnish
investment advisory services to the Funds. Under the terms of this
agreement, the Funds pay the Adviser equal to the following annual
percentage of average daily net assets:
Fleming Fund 0.90%
Fledgling Fund 1.00%
The Adviser has agreed to voluntarily reduce fees for expenses (exclusive
of brokerage, interest, taxes and extraordinary expenses) that exceed the
annual expense limitation of 1.25% for the Fleming Fund and 1.35% for the
Fleming Fledgling Fund of average daily net assets. For the fiscal year
ended September 30, 1999, the Adviser reimbursed and waived $135,310 of
expenses for the Fleming Fund and $131,914 for the Fleming Fledgling Fund.
The Investment Advisory Agreement permits the Adviser to seek reimbursement
of any reductions made to its advisory fees and payments made to limit
expenses which are the responsibility of the Funds within the three-year
period following such reduction, subject to the Funds ability to effect
such reimbursement and remain in compliance with applicable expense
limitations. At September 30, 1999, the cumulative amount of expenses
reimbursed and waived by the adviser and subject to possible future
reimbursement by the Funds amounted to $266,322 and $266,846 for the
Fleming Fund and Fledgling Fund, respectively.
Investment Company Administration, L.L.C. is the Administrator to the Funds
pursuant to an administration agreement. Each Fund pays the Administrator
an annual fee equal to 0.10% of the first $200 million of average daily net
assets, 0.05% of the next $300 million, and 0.03% assets over $500 million,
payable monthly and subject to a minimum annual fee of $40,000 per Fund.
First Fund Distributors, Inc. serves as the Distributor to the Funds
pursuant to a Distribution Agreement. The Distributor receives no fee for
its distribution services.
Each independent Director is compensated by the Group at an annual rate of
$5,000, plus related travel expense.
Certain officers of the Adviser, Administrator and Distributor are also
officers and/or Directors of the Funds.
25
<PAGE>
FLEMING CAPITAL MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(4) INVESTMENT TRANSACTIONS
For the fiscal year ended September 30, 1999, the aggregate purchases
and sales of securities, excluding short-term investments, for the
Funds are summarized below:
Fleming
Fleming Fund Fledgling Fund
------------ --------------
Purchases $3,583,277 $1,132,253
Sales 3,833,042 971,578
At September 30, 1999, the Fleming Fund and the Fleming Fledgling Fund had
gross unrealized appreciation and depreciation of investments, based on
cost for the federal income tax purposes of $3,511,234 and $1,717,428
respectively, as follows:
Fleming
Fleming Fund Fledgling Fund
------------ --------------
Gross appreciation $ 311,477 $ 293,885
Gross depreciation (201,624) (201,472)
--------- ---------
Net unrealized appreciation
on investments $ 109,853 $ 92,413
========= =========
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Fleming Capital Mutual Fund Group, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Fleming Capital Mutual Fund Group, Inc.
(comprising, respectively, the Fleming Fund and the Fleming Fledgling Fund), as
of September 30, 1999, and the related statements of operations, changes in net
assets and the financial highlights for the year then ended and for the period
November 13, 1997 and November 14, 1997, respectively, (commencement of
operations) to September 30, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and others. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Fleming Capital Mutual Fund Group,
Inc., at September 30, 1999, the results of their operations, the changes in
their net assets and their financial highlights for the year then ended and for
the period November 13, 1997 and November 14, 1997, respectively, (commencement
of operations) to September 30, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
November 2, 1999
