FLEMING MUTUAL FUND GROUP, INC.
ANNUAL REPORT
September 30, 2000
CHASE
FLEMING
Asset Management
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Shareholder Letter and Comments from Investment Adviser
Fleming Mid Cap Value Fund............................................ 1
Fleming Small Cap Growth Fund......................................... 4
Schedules of Investments
Fleming Mid Cap Value Fund............................................ 7
Fleming Small Cap Growth Fund......................................... 11
Statements of Assets and Liabilities....................................... 16
Statements of Operations................................................... 17
Statements of Changes in Net Assets........................................ 18
Financial Highlights....................................................... 20
Notes To Financial Statements.............................................. 22
Report of Independent Auditors............................................. 27
<PAGE>
FLEMING MID CAP VALUE FUND
Annual report dated September 30, 2000
--------------------------------------------------------------------------------
Dear Shareholder,
I am pleased to report that the stock market trends of the final weeks of March
extended through the ensuing six months. It was certainly not uninterrupted but
in general technology stocks declined while the rest of the market recovered.
This allowed the performance of your fund to show a 13.57% gain for the six
months ended September 30, 2000 while the broad market was essentially flat. The
most appropriate "benchmark", the S&P Midcap Value Index appreciated by 10% for
the same period.
The principal factor behind the fund's success was its good fortune in avoiding
share price collapses which have become so prevalent of late. Well known
examples of this phenomenon include Xerox, Eastman Kodak, AT&T, Procter &
Gamble, Home Depot and many others beside. This is not to say that the portfolio
was totally unscathed during the six months, but three out of its four major
decliners were market rather than event driven. The one exception was Circuit
City, a consumer electronics retailer embarking on a multi-year program of
converting its store base to a new format. Given the uncertainty surrounding the
cost and likely success of this project we decided to sell Circuit City. The
other three costly positions were Verizon Communications, Gannett and Clear
Channel, which suffered mainly from their inclusion in the steadily
deteriorating media and communications sector. In our opinion these stocks have
defensive characteristics, growing cash flow streams and low market valuations,
making each of them a core holding going forward.
Enough of the bad news. Clearly to have made over 13% in six months there must
have been some winners on the other side of the ledger. The most fertile areas
turned out to be financials and healthcare, both of which benefited from a
realization that the interest rate cycle had probably peaked. Given its mid cap
bias the fund's winners were not among the major investment banks like Morgan
Stanley or Merrill Lynch, nor the pharmaceutical giants such as Pfizer or Merck.
Fortunately there was equally good money to be made out of the lower valuation
segments, including regional banks, reinsurers, real estate investment trusts,
medical devices and health insurers. The single largest dollar gain came from
USA Education, the company formerly knows as Sallie Mae. Recently we have taken
the precaution of scaling back this name given the continuing uncertainty over
the outcome of the Presidential election and the dwindling Republican majority
in Washington. We have also reduced Trigon Heathcare for much the same reason.
Another fruitful sector has been consumer staples particularly thanks to Nabisco
Corp. which is being taken over by Philip Morris at a generous premium.
CHASE
FLEMING
Asset Management
1
<PAGE>
As always the future is clouded by the fact that the obvious value stocks in the
market are generally cheap for good reason. The strategy that has served us well
in the past has been to invest in the best companies in the most undervalued
sectors. At present this would lead us to communications, capital goods and
consumer cyclicals, all of which have declined by at least 20% this year (as
long as General Electric is excluded from capital goods). Unfortunately two of
these sectors are deemed to be economically sensitive, and it is impossible to
predict the magnitude of the current slowdown. Certainly a hard landing cannot
be ruled out if the travails of NASDAQ and the technology stocks have a broad
psychological impact on overall consumer sentiment. At its worst this could lead
to a dangerous downward spiral for the economy, corporate profits and the stock
market. Now that we are in uncharted waters in terms of popular involvement in
the market it is impossible to predict the course of events. Nonetheless we feel
it is prudent to take a long term view and thereby take advantage of the
available bargains, even though they might get cheaper in the next few months.
Having had minimal exposure to retailers, the fund took positions in Gap Stores
and Costco early in October. It can be expected that the three aforementioned
out of favor sectors will see further additions in the current period. Maybe my
next letter will make a similar statement about selective purchases in the
technology sector, which is down but by not means undervalued yet.
Sincerely,
Jonathan Simon
President and Portfolio Manager of the Fleming Mid Cap Value Fund
CHASE
FLEMING
Asset Management
2
<PAGE>
FLEMING MID CAP VALUE FUND
Value of $10,000 vs S&P/BARRA Mid Cap 400 Value
and Russell Midcap(TM) Value Indices
Average Annual Total Return
Period Ended September 30, 2000
Since Inception * One Year
----------------- --------
20.68% 23.76%
Fleming Mid S&P/Barra Mid Russell
Date Cap Value Cap 400 Value Midcap Value
---- --------- ------------- ------------
11/13/97 10,000 10,000 10,000
11/30/97 10,200 10,108 10,337
12/31/97 10,490 10,714 10,733
1/31/98 10,570 10,469 10,525
2/28/98 11,072 11,244 11,228
3/31/98 11,934 11,770 11,806
4/30/98 11,994 11,845 11,740
5/31/98 11,854 11,367 11,465
6/30/98 11,974 11,283 11,502
7/31/98 11,363 10,792 10,919
8/31/98 10,169 9,024 9,384
9/30/98 10,650 9,726 9,932
10/31/98 11,413 10,494 10,575
11/30/98 12,125 10,738 10,946
12/31/98 12,564 11,217 11,279
1/31/99 12,331 10,630 11,016
2/28/99 12,281 10,123 10,774
3/31/99 12,341 10,314 10,928
4/30/99 13,342 11,312 11,963
5/31/99 14,090 11,496 12,013
6/30/99 14,555 11,854 12,150
7/31/99 14,872 11,696 11,846
8/31/99 14,145 11,253 11,436
9/30/99 13,889 10,699 10,858
10/31/99 14,391 10,914 11,178
11/30/99 14,333 11,134 10,973
12/31/99 14,306 11,479 11,268
1/31/00 14,017 10,983 10,594
2/29/00 13,148 10,580 10,151
3/31/00 15,135 12,199 11,381
4/30/00 15,004 12,088 11,427
5/31/00 15,793 12,436 11,623
6/30/00 15,662 11,875 11,190
7/31/00 16,149 12,345 11,452
8/31/00 16,702 13,227 12,154
9/30/00 17,188 13,423 12,270
Past performance is not predictive of future performance.
The S&P/BARRA Mid Cap 400 Value Index is an unmanaged, capitalization weighted,
price only index of 400 stocks that measure the performance of the mid-sized
company segment of the U.S. market. The S&P/BARRA Mid Cap 400 Value Index is a
subset of the Mid Cap 400 Index, which contains companies with lower
price-to-book ratios. The Russell MidcapTM Value Index is an unmanaged,
capitalization weighted, price only index that measures the performance of those
companies included in the Russell Midcap Index that have lower price-to-book
ratios and lower forecasted growth rates.
* Inception - November 13, 1997.
3
<PAGE>
FLEMING SMALL CAP GROWTH FUND
Annual report dated September 30, 2000
--------------------------------------------------------------------------------
Dear Shareholder,
I am pleased to report that the year to September 30th 2000 posted another
strong performance for your fund, with its NAV increasing 36.33 per cent. This
compared with an increase of 29.66 for the Russell 2000 Growth, 23.39 for the
Russell 2000 and 13.28 for the S&P 500.
That being said, the past twelve months will go down as a painfully
manic-depressive year for the market. 1999's unbridled New Economy euphoria
gathered momentum into January and February but finally succumbed to the
correction that seemed inevitable but was a long time coming. A midsummer rally
of sorts has masked a grinding recalibration of valuations that has decimated
many of the erstwhile high-flyers. Maintaining a clear perspective in this kind
of environment has been unusually difficult, particularly where valuation is
concerned.
The correction in technology has rolled from sector to sector. Among Internet
stocks, Business-to-Consumer (B2C) companies suffered first and most severely,
including ultimately blue-chip names such as Yahoo! and Amazon. In the telecom
area, most of the competitive local exchange carriers (CLECs) that had been
created to compete with the traditional phone companies have experienced share
price collapse, with spillover effects upon the associated equipment vendors.
The list of technology survivors gets shorter and shorter, topped by the
market's "four horsemen" that power the internet: Cisco, Sun, Oracle and EMC,
while the allure of fiber-optic communications (and a limited investing
universe) continues to support stratospheric valuations in that space. Elsewhere
the world is a very different place than it was nine months ago.
Growth was vastly overpriced during the speculative frenzy, causing us to
underweight technology and healthcare in favor of more moderate-growth sectors.
Since the correction, we have been steadily unwinding that bias and increasing
the growth rate of the portfolio. This is a delicate process, as there is
considerable noise in the market: stocks are coming down because the valuations
were too high, but also because, at the margin, the news is a little less good.
As with any situation where the players suddenly find themselves all at one end
of the field, there is always a period of confusion and ultimately overshooting
in the other direction.
CHASE
FLEMING
Asset Management
4
<PAGE>
What happened in the opening of the year felt like a mania, and indeed it turned
out to be one. It has proved difficult to gauge how far down valuations might
come when the bubble burst, and with hindsight the excesses in the technology
sector have unwound further than we expected. Long term the correction is
healthy and beneficial to the market, and will allow the true leaders to emerge
from a period when low cost capital created massive over-crowding in a wide
range of businesses. The correction is painful but offers long-term investors a
much more rational entry point than presented twelve months ago.
Sincerely,
Christopher M.V. Jones
Vice President and Portfolio Manager of the Fleming Small Cap Growth Fund
CHASE
FLEMING
Asset Management
5
<PAGE>
FLEMING SMALL CAP GROWTH FUND
Value of $10,000 vs Russell 2000 and Russell 2000 Growth Indices
Average Annual Total Return
Period Ended September 30, 2000
Since Inception * One Year
----------------- --------
24.88% 36.33%
Fleming Small Russell
Date Cap Growth Fund Russell 2000 2000 Growth
---- --------- ------------- ------------
11/14/97 10,000 10,000 10,000
11/30/97 9,970 9,935 9,762
12/31/97 10,206 10,109 9,768
1/31/98 10,386 9,949 9,638
2/28/98 10,927 10,685 10,489
3/31/98 11,618 11,126 10,928
4/30/98 11,748 11,187 10,995
5/31/98 11,298 10,584 10,196
6/30/98 11,608 10,606 10,300
7/31/98 10,777 9,747 9,440
8/31/98 8,664 7,854 7,261
9/30/98 9,485 8,469 7,997
10/31/98 10,066 8,815 8,415
11/30/98 10,647 9,277 9,068
12/31/98 11,722 9,851 9,888
1/31/99 11,967 9,982 10,333
2/28/99 10,927 9,173 9,388
3/31/99 11,538 9,316 9,722
4/30/99 12,733 10,151 10,581
5/31/99 13,233 10,299 10,597
6/30/99 13,730 10,765 11,156
7/31/99 14,464 10,470 10,811
8/31/99 13,637 10,082 10,407
9/30/99 13,906 10,084 10,608
10/31/99 14,288 10,125 10,879
11/30/99 15,335 10,729 12,029
12/31/99 17,178 11,944 14,150
1/31/00 16,049 11,752 14,018
2/29/00 17,065 13,692 17,281
3/31/00 17,980 12,789 15,464
4/30/00 17,579 12,019 13,902
5/31/00 16,739 11,319 12,685
6/30/00 19,159 12,306 14,323
7/31/00 18,231 11,910 13,096
8/31/00 19,974 12,818 14,474
9/30/00 18,958 12,441 13,754
Past performance is not predictive of future performance.
The Russell 2000 (R) 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 (R) Index. The Russell 2000 (R) Growth Index
measures the performance of those Russell 2000 companies with higher
price-to-book ratios and higher forecasted growth rates.
* Inception - November 14, 1997.
6
<PAGE>
FLEMING MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS: 98.0%
BANKS: 8.3%
2,200 Cullen/Frost Bankers, Inc. $ 71,500
285 M & T Bank Corp. 145,350
1,000 Marshall & Ilsley Corp. 50,125
500 State Street Corp. 65,000
1,300 Wells Fargo & Co. 59,719
-----------
391,694
-----------
BEVERAGES: 4.5%
4,000 Brown-Forman Corp. - Class A 215,750
-----------
BUILDING RELATED: 0.8%
4,000 Clayton Homes, Inc. 40,000
-----------
COMMERCIAL SERVICES: 2.2%
3,000 Dun & Bradstreet Corp. 103,313
-----------
CONSUMER PRODUCTS: 2.6%
5,000 Energizer Holdings, Inc.* 122,500
-----------
DIVERSIFIED FINANCIAL SERVICES: 4.0%
1,000 Fannie Mae 71,500
900 Stillwell Financial, Inc. 39,150
1,600 USA Education, Inc. 77,100
-----------
187,750
-----------
ENVIRONMENTAL CONTROL: 0.9%
2,400 Waste Management, Inc. 41,850
-----------
7
<PAGE>
FLEMING MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
FOOD: 6.8%
2,500 Interstate Bakeries $ 36,563
2,900 Nabisco Holdings Corp. - Class A 155,875
5,500 Ralston-Ralston Purina Group 130,281
-----------
322,719
-----------
GAS & ELECTRIC UTILITIES: 9.0%
1,400 El Paso Energy Corp. 86,275
6,000 Energy East Corp. 135,750
3,000 NSTAR* 120,750
2,000 Williams Companies, Inc.* 84,500
-----------
427,275
-----------
HEALTH CARE: 11.6%
500 Baxter International, Inc. 39,906
1,500 Biomet, Inc. 52,500
3,700 First Health Group Corp.* 119,325
2,000 Fisher Scientific International, Inc. 67,500
7,000 Sybron International Corp. - Wisconsin* 168,000
2,000 Trigon Healthcare, Inc.* 105,125
-----------
552,356
-----------
INSURANCE: 10.4%
600 Markel Corp.* 91,050
1,000 Marsh & McLennan Companies, Inc. 132,750
2,100 Nationwide Financial Services, Inc. - Class A 78,488
4,000 PartnerRe Ltd. 189,750
-----------
492,038
-----------
LODGING: 2.4%
2,375 Marriott International, Inc. - Class A 86,539
1,300 Orient Express Hotel, Ltd.* 25,025
-----------
111,564
-----------
MANUFACTURING: 3.0%
2,500 Carlisle Companies, Inc. 103,750
2,000 National Service Inds, Inc. 39,125
-----------
142,875
-----------
8
<PAGE>
FLEMING MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
MEDIA: 12.7%
2,000 Clear Channel Communications, Inc.* $ 113,000
2,000 E.W. Scripps Co. 108,000
3,250 Gannett Co., Inc. 172,250
400 Washington Post Co. - Class B 211,150
-----------
604,400
-----------
OILS & GAS PRODUCERS: 4.4%
3,500 Devon Energy Corp.* 210,525
-----------
REAL ESTATE: 4.1%
5,700 Security Capital Group, Inc. - Class B* 107,944
4,000 Security Capital US - ADR* 85,500
-----------
193,444
-----------
REAL ESTATE INVESTMENT TRUSTS: 3.4%
1,000 Kimco Realty Corp. 42,250
5,000 Public Storage, Inc. 119,688
-----------
161,938
-----------
RETAIL: 4.3%
5,000 Blockbuster, Inc. - Class A 44,063
2,850 Payless Shoesource, Inc.* 159,600
-----------
203,663
-----------
TELECOMMUNICATIONS: 2.6%
4,000 Loral Space & Communications Ltd.* 24,500
2,000 Verizon Communications 96,872
-----------
121,372
-----------
TOTAL COMMON STOCKS
(cost $3,966,001) 4,647,026
-----------
9
<PAGE>
FLEMING MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 1.5%
$71,046 Firstar Stellar Treasury Fund (cost $71,046) $ 71,046
-----------
TOTAL INVESTMENTS IN SECURITIES
(cost $4,037,047+): 99.5% 4,718,072
Other Assets less Liablities: 0.5% 25,483
-----------
NET ASSETS: 100.0% $ 4,743,555
===========
ADR - American depositary receipt
* Non-income producing security.
+ At September 30, 2000, the basis of investments for federal income tax
purposes was the same as their cost for financial reporting purposes.
Unrealized appreciation and depreciation were as follows:
Gross unrealized appreciation 789,123
Gross unrealized deprecaition (108,098)
-----------
Net unrealized appreciation $ 681,025
===========
See accompanying Notes to Financial Statements.
10
<PAGE>
FLEMING SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS: 98.2%
Banks: 1.4%
1,965 Texas Regional Bancshares, Inc. $ 55,757
-----------
Biomedical: 8.6%
1,315 Aclara Biosciences, Inc.* 39,943
750 Enzon, Inc.* 49,500
850 Exelixis, Inc.* 26,668
965 Genzyme Transgenics Corp.* 34,016
1,020 Lexicon Genetics, Inc.* 32,257
1,260 Myriad Genetics, Inc.* 108,360
1,750 Rosetta Inpharmatics, Inc.* 48,809
-----------
339,553
-----------
Commercial Services: 3.6%
2,030 Acnielson Corp.* 48,339
1,160 Iron Mountain, Inc.* 42,920
3,345 Sylvan Learning Systems, Inc.* 49,548
-----------
140,807
-----------
COMPUTERS: 2.8%
3,340 McAfee.com Corp.* 49,683
1,775 Rainbow Technologies, Inc.* 62,791
-----------
112,474
-----------
CONSULTING SERVICES: 8.5%
4,952 Americredit Corp.* 142,679
2,610 AnswerThink Consulting Group* 42,413
995 T. Rowe Price Associates Investment Management, Inc. 46,703
2,225 Wind River Systems, Inc.* 106,661
-----------
338,456
-----------
11
<PAGE>
FLEMING SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
DATA PROCESSING: 1.7%
1,490 Choicepoint, Inc.* $ 68,354
-----------
DISTRIBUTION/WHOLESALE: 2.9%
750 CDW Computer Centers, Inc.* 51,750
3,235 Daisytek International Corp.* 20,421
950 Tech Data Corp.* 40,612
-----------
112,783
-----------
Electrical Components & Equipment: 4.5%
1,985 Cabletron Systems, Inc.* 58,309
1,530 Ritchie Brothers Auctioneers* 32,704
1,600 Vicor Corp.* 86,800
-----------
177,813
-----------
ELECTRONICS: 6.5%
2,230 APW Ltd.* 108,713
1,340 Cyberoptics Corp.* 24,539
2,545 Electronics for Imaging, Inc.* 64,261
1,285 Kemet Corp.* 35,498
250 Technitrol, Inc. 25,250
-----------
258,261
-----------
HEALTH CARE: 3.3%
1,000 Novoste Corp.* 42,500
3,155 Staar Surgical Co.* 54,621
1,375 Ventana Medical Systems, Inc.* 34,891
-----------
132,012
-----------
HOUSEHOLD PRODUCTS: 1.4%
1,630 Scotts Co. (The)* 54,605
-----------
12
<PAGE>
FLEMING SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
INSURANCE BROKERS: 2.8%
2,085 Brown & Brown, Inc. $ 66,329
2,000 Mutual Risk Management Ltd. 43,875
-----------
110,204
-----------
INTERNET: 3.4%
725 Critical Path, Inc.* 44,044
1,300 Digital Island, Inc.* 24,375
3,949 Hollywood.com, Inc.* 23,817
4,990 net.Genesis Corp.* 43,351
-----------
135,587
-----------
LEISURE TIME: 1.5%
3,955 American Classic Voyages* 57,842
-----------
MEDIA: 6.8%
2,450 Information Holdings, Inc.* 86,822
4,075 On Command Corp.* 50,046
2,680 Penton Media, Inc. 73,700
3,625 Primedia, Inc.* 59,359
-----------
269,927
-----------
MISCELLANEOUS MANUFACTURING: 3.0%
1,135 Carbo Ceramics, Inc. 30,148
1,830 Falcon Products, Inc. 17,156
1,605 Mettler-Toledo International, Inc.* 70,620
-----------
117,924
-----------
OILS & GAS PRODUCERS: 4.1%
1,080 Devon Energy Corp. 64,962
2,070 Newfield Exploration Co.* 96,643
-----------
161,605
-----------
13
<PAGE>
FLEMING SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
PHARMACEUTICALS: 6.2%
1,050 Abgenix, Inc.* $ 84,853
1,225 Corixa Corp.* 61,557
1,170 Vertex Pharmaceuticals, Inc.* 98,865
-----------
245,275
-----------
REAL ESTATE INVESTMENT MANAGEMENT: 2.0%
4,605 Grubb & Ellis Co.* 28,206
3,410 Trammel Crow Co.* 51,150
-----------
79,356
-----------
RETAIL: 1.5%
1,565 Tractor Supply Co.* 17,215
1,165 Tweeter Home Entertainment Group, Inc.* 42,304
-----------
59,519
-----------
SOFTWARE: 10.2%
2,575 Acxiom Corp.* 81,756
1,779 Advent Software, Inc.* 124,308
1,855 CSG Systems International, Inc.* 53,795
2,640 Kana Communications, Inc.* 58,740
1,555 Packeteer, Inc.* 58,993
1,580 Witness Systems, Inc* 28,539
-----------
406,131
-----------
TELECOMMUNICATIONS: 4.7%
2,525 Choice One Communications, Inc.* 30,773
2,650 Itc Deltacom, Inc* 30,475
1,320 Neon Communications* 46,035
725 Powerwave Technologies, Inc.* 27,527
525 Stratos Lightwave, Inc* 16,931
1,100 Tekelec* 36,163
-----------
187,904
-----------
14
<PAGE>
FLEMING SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 2000 - (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
TRANSPORTATION: 3.3%
3,965 American Freightways Corp.* $ 62,944
850 Expeditors International Wash, Inc. 38,303
2,255 Swift Transportation Co., Inc.* 29,456
-----------
130,703
-----------
TRAVEL SERVICES: 3.5%
7,147 Pegasus Systems, Inc.* 139,813
-----------
TOTAL COMMON STOCKS
(cost $3,463,229) 3,892,665
-----------
Principal
Amount
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 1.2%
$46,220 Firstar Stellar Treasury Fund (cost $46,220) 46,220
-----------
TOTAL INVESTMENTS IN SECURITIES
(cost $3,509,449+): 99.4% 3,938,885
Other Assets Less Liabilities: 0.6% 24,028
-----------
NET ASSETS: 100.0% $ 3,962,913
===========
* Non-income producing security.
+ At September 30, 2000, the basis of investements for federal income tax
purposes was the same as their cost for financial reporting purposes.
Unrealized appreciation and depreciation were as follows:
Gross unrealized appreciation $ 943,443
Gross unrealized depreciation (514,007)
-----------
Net unrealized appreciation $ 429,436
===========
See accompanying Notes to Financial Statements.
15
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
STATEMENTS OF ASSETS AND LIABILITIES AT SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Fleming Mid Cap Fleming Small Cap
Value Fund Growth Fund
--------------- -----------------
<S> <C> <C>
ASSETS
Investments securities, at value
(cost $4,037,047 and $3,509,449 respectively) $4,718,072 $3,938,885
Receivables:
Investment securities sold -- 45,148
Fund shares sold 1,749 3,705
Due from advisor 14,286 --
Dividends and interest 3,851 1,020
Deferred organization costs, net 29,126 29,227
Other assets 5,954 3,502
---------- ----------
Total assets 4,773,038 4,021,487
---------- ----------
LIABILITIES
Payables:
Investment securities purchased -- 23,485
Due to advisor -- 960
Accrued expenses 29,483 34,129
---------- ----------
Total liabilities 29,483 58,574
---------- ----------
NET ASSETS $4,743,555 $3,962,913
========== ==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($4,743,555/363,152 shares and $3,962,913/262,112
shares outstanding respectively; $.001 par value
with 100,000,000 share authorized) $ 13.06 $ 15.12
========== ==========
COMPONENTS OF NET ASSETS
Paid-in capital $3,762,936 $3,015,297
Accumulated net investment income 42,776 --
Accumulated net realized gain on investments 256,818 518,180
Net unrealized appreciation on investments 681,025 429,436
---------- ----------
Net assets $4,743,555 $3,962,913
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Fleming Mid Cap Fleming Small Cap
Value Fund Growth Fund
--------------- -----------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 65,132 $ 7,164
Interest 10,299 6,689
---------- ----------
Total income 75,431 13,853
Expenses
Advisory fees 32,908 28,012
Administration fees 40,000 40,000
Legal fees 20,028 20,028
Fund accounting fees 17,535 19,252
Audit fees 13,941 14,715
Transfer agent fees 12,949 11,301
Amortization of deferred organization costs 12,462 12,099
Director fees 8,023 8,555
Registration expense 4,612 1,854
Insurance expense 4,366 3,510
Custodian fees 3,415 9,755
Miscellaneous expenses 6,389 5,453
---------- ----------
Total expenses 176,628 174,534
Less: Fees waived and expenses absorbed (136,037) (141,118)
---------- ----------
Net expenses 40,591 33,416
---------- ----------
NET INVESTMENT INCOME (LOSS) 34,840 (19,563)
---------- ----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments 353,098 545,715
Net unrealized appreciation on investments 571,172 337,023
---------- ----------
Net realized and unrealized gain on investments 924,270 882,738
---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 959,110 $ 863,175
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Fleming Mid Cap Value Fund
-----------------------------------------
Year Ended Year Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income $ 34,840 $ 1,973
Net realized gain on investments 353,098 683,996
Net unrealized appreciation on investments 571,172 222,974
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 959,110 908,943
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (22,002) (22,787)
From net realized gain (780,276) (52,495)
---------- ----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (802,278) (75,282)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets derived from net
change in outstanding shares (a) 1,034,766 (154,474)
---------- ----------
TOTAL INCREASE IN NET ASSETS 1,191,598 679,187
NET ASSETS
Beginning of year 3,551,957 2,872,770
---------- ----------
END OF YEAR
(including accumulated net investment income
of $42,776 and $17,476, respectively) $4,743,555 $3,551,957
========== ==========
(a) A summary of capital share transactions is as follows:
Year Ended Year Ended
September 30, 2000 September 30, 1999
-------------------------- --------------------------
Shares Value Shares Value
----------- ----------- ----------- -----------
Shares sold 78,421 $ 878,378 29,529 $ 386,384
Shares issued on reinvestment
of distribution 69,052 774,077 5,253 69,588
Shares redeemed (46,194) (617,689) (43,354) (610,446)
----------- ----------- ----------- -----------
Net increase (decrease) 101,279 $ 1,034,766 (8,572) $ (154,474)
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Fleming Small Cap Growth Fund
-----------------------------------------
Year Ended Year Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss $ (19,563) $ (10,176)
Net realized gain on investments 545,715 328,518
Net unrealized appreciation on investments 337,023 214,236
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 863,175 532,578
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (5,720) (6,652)
From net realized gain (348,579) (39,511)
---------- ----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (354,299) (46,163)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a) 1,640,561 220,392
---------- ----------
TOTAL INCREASE IN NET ASSETS 2,149,437 706,807
NET ASSETS
Beginning of year 1,813,476 1,106,669
---------- ----------
END OF YEAR
(including accumulated net investment income
of $0 and $5,710, respectively) $3,962,913 $1,813,476
========== ==========
(a) A summary of capital share transactions is as follows:
Year Ended Year Ended
September 30, 2000 September 30, 1999
-------------------------- --------------------------
Shares Value Shares Value
----------- ----------- ----------- -----------
Shares sold 102,773 $ 1,348,724 14,951 $ 185,653
Shares issued on reinvestment
of distributions 28,696 350,085 3,854 45,356
Shares redeemed (4,213) (58,248) (830) (10,617)
----------- ----------- ----------- -----------
Net increase 127,256 $ 1,640,561 17,975 $ 220,392
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for one share outstanding thoughout each period.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Fleming Mid Cap Value Fund
----------------------------------------------
Year Ended September 30, November 13, 1997*
------------------------ through
2000 1999 September 30, 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.56 $ 10.62 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.11 0.02 0.11
Net realized and unrealized gain on investments 2.59 3.20 0.54
------- ------- -------
Total from investment operations 2.70 3.22 0.65
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income (0.09) (0.10) (0.03)
From net realized gain (3.11) (0.18) --
------- ------- -------
Total distributions (3.20) (0.28) (0.03)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.06 $ 13.56 $ 10.62
======= ======= =======
Total return 23.76% 30.41% 6.50% +
Net assets, end of period (millions) $ 4.7 $ 3.6 $ 2.9
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed 4.24% 5.11% 7.72% ++
After fees waived and expenses absorbed 0.97% 1.25% 1.25% ++
Ratio of net investment income to average net assets
(after fees waived and expenses absorbed) 0.84% 0.06% 0.73% ++
Portfolio turnover rate 98.95% 108.74% 73.34% +
</TABLE>
* Commencement of operations.
+ Not annualized.
++ Annualized.
See accompanying Notes to Financial Statements.
20
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for one share outstanding thoughout each period.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Fleming Small Cap Growth Fund
----------------------------------------------
Year Ended September 30, November 14, 1997*
------------------------ through
2000 1999 September 30, 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.45 $ 9.47 $ 10.00
------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.08) 0.08 0.08
Net realized and unrealized gain (loss) on
investments 4.34 4.28 (0.59)
------- ------- -------
Total from investment operations 4.26 4.36 (0.51)
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income (0.04) (0.09) (0.02)
From net realized gain (2.55) (0.29) --
------- ------- -------
Total distributions (2.59) (0.38) (0.02)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 15.12 $ 13.45 $ 9.47
======= ======= =======
Total return 36.33% 46.61% (5.15%) +
Net assets, end of period (millions) $ 4.0 $ 1.8 $ 1.1
Ratio of expenses to average net assets
Before fees waived and expenses absorbed 5.47% 10.19% 13.84% ++
After fees waived and expenses absorbed 1.05% 1.35% 1.35% ++
Ratio of net investment loss to average net assets
(after fees waived and expenses absorbed) (0.61%) (0.68%) (0.30%)++
Portfolio turnover rate 88.25% 70.75% 35.47% +
</TABLE>
* Commencement of operations.
+ Not annualized.
++ Annualized.
See accompanying Notes to Financial Statements.
21
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Fleming 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 Mid Cap Value
Fund (formally Fleming Fund) and the Fleming Small Cap Growth Fund (formally
Fleming Fledging 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. On August 1, 2000, The Chase Manhattan Corporation
acquired Robert Fleming Holdings Limited, the Adviser's indirect parent.
Investment operations began on November 13, 1997 for the Fleming Mid Cap Value
Fund and November 14, 1997 for the Fleming Small Cap Growth Fund.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Securities which are traded on a national
securities exchange or Nasdaq are valued at the last reported sales
price at the close of regular trading on each day that the exchanges
are open for trading; securities traded on an exchange or Nasdaq for
which there have been no sales and other over-the-counter securities,
are valued at the last reported bid price. Securities for which
quotations are not readily available are stated at their respective
fair values as determined in good faith by the Board of Directors.
Short-term investments are stated at cost, which when combined with
accrued interest, approximates market value.
B. DEFERRED ORGANIZATION COSTS. Costs incurred by the Funds in connection
with their organization, registration and the initial public offering
of shares have been deferred and are amortized on a straight-line
basis over a period of five 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 shares redeemed by the number of
original shares outstanding at the time of redemption.
C. FEDERAL INCOME TAXES. The Funds intend to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of their taxable income to
their shareholders. Therefore, no federal income tax provision is
required.
22
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
D. SECURITY TRANSACTIONS, INVESTMENT INCOME AND DISTRIBUTIONS. Security
transactions are accounted for on the trade date. The cost of
securities sold is determined on a specific identification basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recognized on an accrual basis.
Discounts and premiums on securities purchased are amortized over the
life of the respective securities.
E. USE OF ESTIMATES. The preparation of financial statements in
conformity 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. Actual results could differ from those estimates.
F. RECLASSIFICATION OF CAPITAL ACCOUNTS. The Funds account and report for
distributions to shareholders in accordance with the American
Institute of Certified Public Accountants' Statement of Position 93-2:
DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF
INCOME, CAPITAL AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
COMPANIES. For the year ended September 30, 2000, the Mid Cap Value
Fund increased accumulated net investment income and decreased paid-in
capital by $12,462. For the year ended September 30, 2000, the Small
Cap Growth Fund decreased paid-in capital by $12,099 and accumulated
net realized gain on investments by $7,474, and increased accumulated
net investment income by $19,573 due to the Fund experiencing a net
investment loss during the year. Net assets were not affected by these
changes.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
Robert Fleming, Inc. (the "Adviser") provides the Funds with investment
management services under an Investment Advisory Agreement. The Adviser
furnishes all investment advice, office space, facilities and most of the
personnel needed by Funds. As compensation for their services, the Adviser was
entitled to a monthly fee at the following annual percentage of average daily
net assets:
Prior to Effective on
March 31, 2000 April 1, 2000
-------------- -------------
Fleming Mid Cap Value Fund 0.90% 0.70%
Fleming Small Cap Growth Fund 1.00% 0.80%
The Funds are responsible for their own operating expenses. Prior to April 1,
2000, the Adviser had contractually agreed to limit the Funds total operating
expenses (excluding interest and taxes) to not more than 1.25% of the average
daily net assets for the Fleming
23
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
Mid Cap Value Fund and 1.35% of the average daily net assets for the Fleming
Small Cap Growth Fund. Effective April 1, 2000, the Adviser had contractually
agreed to limit total operating expenses (excluding interest and taxes) to not
more than 0.75% of the average daily net assets for the Fleming Mid Cap Value
Fund and 0.85% of the average daily net assets for the Fleming Small Cap Growth
Fund.
This new contract has a one-year term ending March 31, 2001. Any fee waived
and/or any Fund expense absorbed by the Adviser pursuant to an agreed upon
expense cap shall be reimbursed by the Funds to the Adviser, if so requested by
the Adviser, anytime before the end of the third fiscal year following the year
to which the fee reduction, waiver, or expense absorption relates, provided the
aggregated amount of the Funds' current operating expense for such fiscal year
does not exceed the applicable limitation on the Funds' total operating
expenses.
For the year ended September 30, 2000, the Adviser waived fees of $32,908 and
absorbed expenses of $103,129 for the Fleming Mid Cap Value Fund and waived fees
of $28,012 and absorbed expenses of $113,106 for the Fleming Small Cap Growth
Fund.
At September 30, 2000, the cumulative unreimbursed amount paid and/or waived by
the Adviser on behalf of the Fleming Mid Cap Value Fund and Fleming Small Cap
Growth Fund is $402,359 and $407,964, respectively.
At September 30, 2000, the Adviser may recapture a portion of the above amounts
no later than the dates as stated below:
September 30,
-------------------------------------
2001 2002 2003
-------- -------- --------
Fleming Mid Cap Value Fund $131,012 $135,310 $136,037
Fleming Small Cap Growth Fund $134,932 $131,914 $141,118
The Funds must pay their current ordinary operating expense before the Adviser
is entitled to any reimbursement. Any such reimbursement is also contingent upon
the Board of Directors review and approval prior to the time the reimbursement
is initiated.
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Funds; prepares reports and materials to be supplied to the directors;
monitors the activities of the Funds' custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Funds'
expense accruals. For its services, the Administrator receives a monthly fee at
an annual rate equal to 0.10% of the Funds' first $200 million of average daily
net assets, 0.05% of the next $300 million, and 0.03% of assets over $500
million, subject to a minimum annual fee of $40,000 per Fund.
24
<PAGE>
FLEMING MUTUAL FUND GROUP, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
First Fund Distributors, Inc. (the "Distributor") acts as the Funds' principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Each independent Director is compensated by the Group at an annual rate of
$5,000, plus related travel expense.
Certain officers of the Group are also officers and/or directors of the
Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from the sales of securities for the year
ended September 30, 2000, excluding short-term investments, for the Funds are
summarized below:
Fleming Mid Fleming Small
Cap Value Fund Cap Growth Fund
-------------- ---------------
Purchases $ 4,169,783 $ 3,899,697
Sales 3,901,544 2,644,440
25
<PAGE>
FEDERAL INCOME TAX INFORMATION: (UNAUDITED)
In order to meet certain requirements of the Internal Revenue Code we are
advising you that $146,757 and $86,473 of the capital gain distributions paid by
the Fleming Mid Cap Value Fund and the Fleming Small Cap Growth Fund,
respectively, during the fiscal year September 30, 2000 are from long term
capital gains.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099 DIV which will be sent to you separately in January 2001.
The Fleming Mid Cap Value Fund and the Fleming Small Cap Growth Fund hereby
designate 86.35% and 51.71%, respectively, of the ordinary dividends paid during
the fiscal year ended September 30, 2000 as qualifying for the corporate
dividends received deduction. Shareholders will receive notification in January
2001 of the percentage applicable to the preparation of their 2000 income tax
returns.
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Fleming Mutual Fund Group, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Fleming Mutual Fund Group, Inc. (comprising,
respectively, the Fleming Mid Cap Value Fund and the Fleming Small Cap Growth
Fund), as of September 30, 2000, and the related statements of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the periods
indicated therein. 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 auditing standards generally accepted
in the United States. 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, 2000, 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 Mutual Fund Group, Inc.,
at September 30, 2000, the results of their operations for the year then ended,
the statement of changes in their net assets for each of the two years in the
period then ended, and their financial highlights for each of the periods
indicated therein, in conformity with auditing standards generally accepted in
the United States.
/s/ Ernst & Young LLP
New York, New York
November 15, 2000
27
<PAGE>
================================================================================
Adviser
ROBERT FLEMING, INC.
320 Park Avenue, 11th Floor
New York, NY 10022
(212) 508-3900
Distributor
FIRST FUND DISTRIBUTORS, INC.
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
FIRSTAR BANK, N.A.
615 E. Michigan Street
Milwaukee, WI 53202
Transfer Agent
INTEGRATED FUND SERVICES, INC.
221 E. Fourth Street, Suite 300
Cincinnati, OH 45202
(513) 362-8011
Legal Counsel
MORGAN, LEWIS & BOCKIUS, LLP
1800 M Street NW, 9th Floor
Washington, DC 20036
Auditors
ERNST & YOUNG, LLP
787 Seventh Avenue
New York, NY 10019
================================================================================
This report is intended for the shareholders of the Funds and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate sa
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
