As filed with the Securities and Exchange Commission on January 31, 1997
Registration Nos. 33-43616
811-6449
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
PRE-EFFECTIVE AMENDMENT No.
POST-EFFECTIVE AMENDMENT No. 7 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
POST-EFFECTIVE AMENDMENT No. 7
(Check appropriate box or boxes)
FRONTIER FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
101 West Wisconsin Avenue, Pewaukee, WI 53072-3433
(Address or Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 414-691-1196
It is proposed that this filing will become effective on January 31, 1997
pursuant to paragraph (b) of Rule 485.
CSC-Lawyers Incorporating Service, 100 Light Street, 6th Floor, Baltimore, MD
21202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as practical after the effective date
of this Registration Statement
Pursuant to the provisions of Rule 24f-2(a)(1) under the Investment Company Act
of 1940, registrant hereby elects to register an indefinite number of securities
under the Securities Act of 1933. Registrant has filed a Rule 24f-2 Notice
within six months of the fiscal year ended September 30, 1996.
FRONTIER FUNDS, INC.
Prospectus January 31, 1997
FREEDOM INVESTORS CORP.
Investment Advisor
FREEDOM INVESTORS CORP.
Distributor
TABLE OF CONTENTS
-----------------
Page
----
Cross Reference Sheet..........................................3
Table of Fees and Expenses.....................................6
Financial Highlights...........................................7
Prospectus Summary.............................................8
Investment Objective, Policies and Risk Considerations.........9
Other Investment Techniques...................................11
Management of the Fund........................................13
Purchase of Shares............................................15
Investment Risks..............................................18
Redemption of Shares..........................................19
Retirement Plans..............................................19
Dividends, Distributions and Taxes............................20
General Information...........................................21
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, and
if given or made, such information or representation may not be relied upon as
being authorized by the Fund, the Advisor, the Distributor or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a solicitation
of any offer to buy in any state to any person to whom it is unlawful to make
such offer in such state.
FRONTIER FUNDS, INC.
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------ --------
PART A Prospectus Caption
------------------
Item l. Cover Page Cover Page
Item 2. Synopsis Table of Fees and Expenses;
and Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Cover Page; Summary; and
Investment Objective, Policies
and Risk Considerations
Item 5. Management of the Fund General Information;
and Management of the Fund;
Item 6. Capital Stock and Other Securities General Information;
Dividends, Distributions and
Taxes; and Information for
Stockholders
Item 7. Purchase of Securities Being Offered Purchase of Shares
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Legal Proceedings
PART B Statement of Additional Information Caption
-------------------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Basic Investment
Techniques; and Investment
Restrictions
Item 14. Management of the Fund The Advisor; and Directors and
Officers
Item 15. Control Persons and Principal Holders
of Securities Directors and Officers
Item 16. Investment Advisory and
Other Services The Advisor; The Distributor
Item 17. Brokerage Allocation and
Other Practices Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities Prospectus-General
Information;
and Determination of Net Asset
Value
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered Prospectus-Purchase of Shares:
Redemption of Shares
Item 20. Tax Status Dividends, Distributions and
Taxes
Item 21. Underwriters Prospectus-Purchase of Shares;
The Distributor
Item 22. Calculations of Performance Data Investment Performance
Information
Item 23. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
(FRONTIER FUNDS, INC. LOGO)
FRONTIER FUNDS, INC.
101 West Wisconsin Avenue, Pewaukee, Wisconsin 53072-3433
Telephone: 414-691-1196
PROSPECTUS
JANUARY 31, 1997
The Equity Fund Portfolio (the "Equity Fund") is a separate class or series of
Frontier Funds, Inc. ("Frontier"), a Maryland Corporation, incorporated on
October 24, 1991, and registered as an open-ended, diversified, management
investment company under the Investment Company Act of 1940, whose investment
objective is capital appreciation on its assets. The Equity Fund seeks to
achieve its investment objective by investing primarily in the equity securities
of growth-oriented companies with market values at the time of investment of
greater than $10 million, which the Equity Fund's investment advisor believes
are likely to have growth in revenue and/or earnings and potential for above-
average capital appreciation. The minimum initial investment is $1,000.
Subsequent investments will be a minimum of $50. (See "Purchase of Shares.")
For further information, contact the Equity Fund, at the address or telephone
number shown above.
This Prospectus sets forth concisely the information about the Equity Fund a
prospective investor should know before investing in the Equity Fund. A
Statement of Additional Information, dated January 31, 1997 (the "Additional
Statement"), containing additional information about the Equity Fund has been
filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. For a free copy, write or call the Equity Fund
at the telephone number or address set forth above.
This Prospectus should be retained
by investors for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
TABLE OF FEES AND EXPENSES
--------------------------
STOCKHOLDER TRANSACTION EXPENSES:
- --------------------------------
Maximum Sales Load Imposed on Purchases...............8%
Maximum Sales Load Imposed on Reinvested Dividends....None
Deferred Sales Load...................................None
Redemption Fees.......................................None
Exchange Fee..........................................None
ANNUAL EQUITY FUND OPERATING EXPENSES (as a percentage of average net assets):
- -------------------------------------
Management Fees (a)<F1> (after waiver)................0%
12b-1 Expenses........................................NONE
Other Expenses (b)<F2>................................7.29%
Total Equity Fund Operating Expenses (after waiver
and expense reimbursements)..........................7.29%
EXAMPLE:
- -------
1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period (c)<F3> $146 $274 $397 $679
(a)<F1>The Advisor has agreed to waive payment of its 1% management fee by the
Equity Fund for the previous fiscal year ending September 30, 1996 and the
Advisor may continue to waive payment of its 1% management fee for the
present fiscal year ending September 30, 1997. If the 1% management fee
had been paid in the fiscal year ended September 30, 1996, the Equity Fund's
total operating expenses would have been 8.29% The Advisor, also at its
discretion, may pay any additional expenses of the Equity Fund above the
Management Fee of 1% it deems necessary and appropriate for the operation of
the Equity Fund. The Equity Fund may reimburse the Advisor for such
additional expenses in excess of 1% as the Board of Directors of Frontier
deem appropriate and in accordance with applicable law as long as those
expenses do not exceed the most restrictive state expense limitations.
(b)<F2>Such expenses may include the rental cost of office space for Equity Fund
personnel, the cost of net asset value calculation, custodian and transfer
agency fees, administrator fees and other customary Equity Fund expenses.
Freedom Investors Corp. ("Investors"), has entered into an agreement with
Frontier, pursuant to which Investors will pay all organization expenses
incurred by the Equity Fund. Investors agrees that the Equity Fund shall
have no obligation to reimburse or repay Investors for any organizational
expenses previously paid by it or to be paid by it.
(c)<F3>Does include anticipated sales charge.
The amounts listed in this example should not be considered as representative of
future expenses and actual expenses may be greater or less than those indicated.
Moreover, while the example assumes a 5% annual return, the Equity Fund's actual
performance will vary and may result in an actual return greater or less than
5%.
The foregoing table is to assist you in understanding the various direct and
indirect costs and expenses that an investor in the Equity Fund would bear.
Except as reduced by the amount of its expense reimbursement obligations, the
management fee of the Advisor, whose address is the same as the Equity Fund's,
would be an annual fee of 1% of the average daily net assets of the Equity Fund.
Financial Highlights
- --------------------
The following Financial Highlights for a share of beneficial interest
outstanding throughout the period shown has been audited by Arthur Andersen,
independent accountants, whose most recent report on the financial statements
which incorporate this information appears in the Equity Fund's Annual Report to
Shareholders, as filed with the Securities and Exchange Commission (the "SEC")
on December 5, 1996. This table should be read in conjunction with the
financial statements and notes thereto which are contained in the Statement of
Additional Information.
FINANCIAL HIGHLIGHTS
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
------- ------- ------- ------- -------
Net Asset Value, Beginning of the
Period $8.06 $7.59 $8.68 $9.39 $10.00*
<F3>
Income from investment operations:
Net investment income (loss) (.51) (.47) (.77) (1.12) (1.11)
Net gains or losses on
securities (both realized
and unrealized) (.94) .94 .13 .41 .50
------ ----- ------ ----- -----
Total from investment operation (1.45) .47 (.64) (.71) (.61)
Less distributions:
Dividends (from net investment
income) -- -- (.27) -- --
Distributions (from capital
gains) -- -- (.18) -- --
Total distributions -- -- (.45) -- --
Net Asset Value, End of the Period $6.61 $8.06 $7.59 $8.68 $9.39
====== ===== ====== ===== =====
Total Return**<F4> (17.99)% 6.19% (7.23)% (7.56)% (12.17)%***
<F5>
Ratios/Supplemental Data
Net Assets, End of the
Period (000's) 1,445 1,557 1,188 1,079 332
Ratio of Total Expenses to Average
Net Assets 8.29% 8.08% 9.61% 14.51% 35.05%***
<F5>
Ratio of Net Expenses to Average
Net Assets 7.29% 7.08% 9.55% 13.51% 24.02%***
<F5>
Ratio of Net Investment Loss to
Average Net Assets (7.26)% (7.06)% (9.40)%(12.36)% (23.10)%***
<F5>
Portfolio Turnover Rate 133.42% 100.80% 121.48% 84.66% 0%
Average Commission Rate Paid $.0511****<F6>
*<F3>The period of April 1, 1992 (commencement of operations) through September
30, 1992.
**<F4>Excluding sales charges.
***<F5>Annualized.
****<F6>Disclosure of this rate is required by the SEC on a prospective basis
beginning with the Equity Fund's 1996 fiscal year end.
PROSPECTUS SUMMARY
------------------
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus:
THE FUND: The Equity Fund is a separate class or series of Frontier
Funds, Inc., a Maryland Corporation, incorporated on October 24, 1991, and
registered as an open-ended, diversified, load, management investment company
under the Investment Company Act of 1940.
INVESTMENT OBJECTIVE: The Equity Fund's investment objective is to
seek capital appreciation on its assets. The Equity Fund will seek to achieve
this objective by investing primarily in equity securities of growth-oriented
companies with total market values at the time of investment of greater than $10
million which the Equity Fund's investment advisor believes are likely to have
growth in revenues and/or earnings and potential for above average capital
appreciation. Although the Equity Fund may invest up to 25% of its total assets
in nonconvertible debt securities and may use various special investment
techniques, under normal market conditions, the Equity Fund will invest at least
75% of its total assets in the equity securities of companies described above.
For purposes of this investment policy, equity securities are defined as:
common stocks, preferred stocks, warrants, convertible bonds and convertible
debentures. See "Investment Objectives, Policies and Risk Considerations" and
"Other Investment Techniques."
There is no assurance that the Equity Fund will achieve its
investment objective. The investment objective of the Equity Fund and its
investment restrictions described in the Additional Statement are fundamental
and may not be changed without stockholder approval. Its other investment
policies may be changed by the Board of Directors without stockholder approval.
MANAGEMENT AND FEES: Freedom Investors Corp. (the "Advisor") serves
as the Equity Fund's investment advisor and is compensated for its services and
its related expenses at an annual rate of 1.00% of the Equity Fund's average
daily net assets. This fee is higher than that paid by some mutual funds but is
comparable to other mutual funds which seek capital appreciation. The Equity
Fund is the first investment company the Advisor has managed. See "Investment
Risks" on page 18. Freedom Investors Corp. (the "Distributor"), will act as
distributor for Equity Fund shares.
HOW TO PURCHASE SHARES: Shares of the Equity Fund may be purchased
through certain registered broker-dealers and from American Data Services, Inc.,
Transfer Agent for the Equity Fund ("Transfer Agent"), at the public offering
price per share next determined after receipt of an order by either a registered
broker-dealer or the Equity Fund's Transfer Agent, in proper form with
accompanying check or other bank wire payment arrangements satisfactory to the
Equity Fund. The minimum initial investment is $1,000. Subsequent investments
will be a minimum of $50. Investments through an Individual Retirement Account
or other retirement plans, however, have different requirements. See "Purchase
of Shares" and "Retirement Plans."
HOW TO SELL SHARES: Shares of the Equity Fund may be redeemed through
certain registered broker-dealers and the Transfer Agent by the stockholder at
any time at the net asset value per share next determined after the redemption
request is received by either a registered broker-dealer or the Transfer Agent
in proper form. See "Redemption of Shares."
DIVIDENDS AND REINVESTMENT: Each dividend and capital gains
distribution, if any, declared by the Equity Fund on its outstanding shares
will, unless a stockholder elects otherwise, be paid on the payment date in
additional shares of the Equity Fund having an aggregate net asset value as of
the ex-dividend date of such dividend or distribution equal to the cash amount
of such distribution. An election may be changed by notifying the Equity Fund
in writing at any time prior to the record date for a particular dividend or
distribution. There are no sales or other charges in connection with the
reinvestment of dividends and capital gains distributions. There is no fixed
dividend rate, and there can be no assurance that the Equity Fund will pay any
dividends or realize any capital gains. However, the Equity Fund currently
intends to pay dividends and capital gains distributions, if any, on an annual
basis. See "Dividends, Distributions and Taxes."
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
- ------------------------------------------------------
The Equity Fund's investment objective is to seek capital appreciation on its
assets by investing primarily in the equity securities of growth-oriented
companies with total market values at the time of investment of greater than
$10 million which the Advisor believes are likely to have growth in revenues and
earnings and potential for above average capital appreciation. Although the
Equity Fund may invest up to 25% of its total assets in nonconvertible debt
securities and may use various special investment techniques, under normal
market conditions, the Equity Fund will invest at least 75% of its total assets
in the equity securities of companies described above. For purposes of this
investment policy, equity securities are defined as: common stocks, preferred
stocks, warrants, convertible bonds and convertible debentures. The Equity Fund
will not permit loans to be made to affiliates of the Equity Fund.
Equity Securities
- -----------------
Common stocks represent the residual ownership interest in the issuer and are
entitled to the income and increase in the value of the assets and business of
the entity after all of its obligations and preferences or preferred stocks are
satisfied. Common stocks generally have voting rights. Common stocks fluctuate
in price in response to many factors including historical and prospective
earnings of the issuer, the value of its assets, general economic conditions,
interest rate, investor perceptions and market liquidity.
Equity securities also include preferred stock (whether or not convertible into
common stock) and debt securities convertible into or exchangeable for common or
preferred stock. Preferred stock has a preference over common stock in
liquidation (and generally dividends as well) but is subordinated to the
liabilities of the issuer in all respects. As a general rule the market value
of preferred stock with a fixed dividend rate and no conversion element varies
inversely with interest rates and perceived credit risk, while the market price
of convertible preferred stock generally also reflects some element of
conversion value. Because preferred stock is junior to debt securities and
other obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in a
more senior debt security with similar stated yield characteristics. Debt
securities that are convertible into or exchangeable for preferred or common
stock are liabilities of the issuer but are generally subordinated to more
senior debt securities of the issuer. Although such securities also generally
reflect an element of conversion value, their market value also varies with
interest rates and perceived credit risk.
Growth-oriented companies, as described above, offer a greater potential for
capital appreciation. Growth-oriented companies usually have new products or
technologies, new distribution methods, rapid changes in industry conditions due
to regulatory or other developments, changes in management or similar
characteristics that may result not only in the expected growth in revenues but
in an accelerated or above average rate of earnings growth, which would usually
be reflected in capital appreciation. In addition, because they may not be
actively followed by stock analysts, the market may overlook favorable trends in
particular growth companies, and then adjust its valuation more quickly once
investor interest is gained. Growth companies may also be subject to a
valuation catalyst such as increased investor attention, takeover efforts or a
change in management.
The Advisor believes that opportunities for capital appreciation may also be
found in the preferred stock and convertible securities of growth-oriented
companies. This is particularly true in the case of companies that have
performed below expectations at the time the preferred stock or convertible
security was issued. If the company's performance has been poor enough, its
preferred stock and convertible debt securities will trade more like the common
stock than like a fixed income security and may result in above average
appreciation once it becomes apparent that performance is improving. Even if
the credit quality of the company is not in question, the market price of the
convertible security will often reflect little or no element of conversion value
if the price of its common stock has fallen substantially below the conversion
price. This leads to the possibility of capital appreciation if the price of
the common stock recovers. Although the Advisor believes that capital
appreciation opportunities may be found in these securities, it does not expect
them to constitute a major portion of the Equity Fund's portfolio. Preferred
stocks and convertible securities are also fixed income securities and
accordingly have many of the same characteristics and risks as nonconvertible
debt securities described below.
Nonconvertible Debt Securities
- ------------------------------
Under normal market conditions, the Equity Fund may invest up to 25% of its
assets in nonconvertible debt securities. For purposes of this investment
policy, nonconvertible debt securities are defined as: (1) Corporate Bonds,
both rated and unrated, unrated bonds are more speculative in nature than rated
bonds; (2) Government Securities which include securities of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities; (3) Commercial Paper
which include commercial paper of companies rated A-1 or A-2 by Standard &
Poor's Corporation ("S&P") or rated P-1 or P-2 by Moody's Investors Service,
Inc. ("Moody's"). Fixed income securities rated, at the time of
investment, less than BBB by Standard & Poor's Corporation ("S&P") or Baa by
Moody's or which are unrated but of comparable quality in the judgment of the
Advisor, are not investment grade and are viewed by the rating agencies as being
predominantly speculative in character and are characterized by substantial risk
concerning payments of interest and principal, sensitivity to economic
conditions and changes in interest rates, as well as by market price volatility
and/or relative lack of secondary market trading, among other risks.
The market values of fixed income securities generally fall when interest rates
rise and, conversely, rise when interest rates fall. The Advisor would want to
take advantage of rising bond prices. Lower rated and unrated fixed income
securities tend to reflect short term corporate and market developments to a
greater extent than higher rated fixed income securities, which react primarily
to fluctuations in the general level of interest rates. These lower rated or
unrated securities generally have higher yields, but as a result of factors such
as reduced creditworthiness of issuers, increased risk of default and a more
limited and less liquid secondary market, are subject to greater volatility and
risk of loss of income and principal than are higher rated securities. The
Advisor will attempt to reduce such risk through portfolio diversification,
credit analysis, and attention to trends in the economy, industries and
financial markets.
Investing in lower rated securities, which are often known as "junk bonds,"
entail certain risks which should be considered by investors contemplating an
investment in the Equity Fund. Those risks include the following:
Youth and Volatility of the High-Yield Market
- ---------------------------------------------
Although the market for high-yield bonds has been in existence for many years,
including periods of economic downturns, the high-yield market grew rapidly
during the long economic expansion which took place in the United States during
the 1980s. During that economic expansion, the use of high-yield debt
securities to fund highly leveraged corporate acquisitions and restructurings
increased dramatically. As a result, the high-yield market grew substantially
during that economic expansion. In its present size and form, the high-yield
market has not weathered a protracted recession. Although experts disagree on
the impact such a stagnant or recessionary period would have on the high-yield
market, some analysts believe such an economic downturn would severely disrupt
the market for high-yield bonds, would adversely affect the value of outstanding
bonds and would adversely affect the ability of high-yield issuers to repay
principal and interest. Those analysts cite recent volatility in the high-yield
market as evidence for their position. It is likely that protracted periods of
economic uncertainty would result in increased volatility in the market prices
of high-yield bonds, an increase in the number of high-yield bond defaults and
corresponding volatility in the Equity Fund's net value.
Redemptions
- -----------
If, as a result of volatility in the high-yield market or other factors, the
Equity Fund experiences substantial net redemptions of the Equity Fund's shares
for a sustained period of time (i.e., more shares of the Equity Fund are
redeemed than are purchased), the Equity Fund may be required to sell securities
without regard to the investment merits of the securities to be sold. If the
Equity Fund sells a substantial number of securities to generate proceeds for
redemptions, the asset base of the Equity Fund will decrease and the Equity
Fund's expense ratio may increase.
Liquidity and Valuation
- -----------------------
The secondary market for high-yield securities is currently dominated by
institutional investors, including mutual funds, savings and loan institutions
and other financial institutions. There is generally no established retail
secondary market for high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid than other secondary
securities markets. The high-yield secondary market is particularly susceptible
to liquidity problems when the institutions which dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the recent
savings and loan crisis. A less liquid secondary market makes it more difficult
for the Equity Fund to obtain precise valuations of the high-yield securities in
its portfolio. During periods involving such liquidity problems, judgment plays
a greater role in valuing high-yield securities than is normally the case. The
secondary market for high yield securities is also generally considered to be
more likely to be disrupted by adverse publicity and investor perceptions than
the more established secondary securities markets. The Equity Fund's privately
placed high-yield securities may be particularly susceptible to the liquidity
and valuation risks outlined above.
Legislative Action and Proposals
- --------------------------------
There are a variety of legislative actions which have recently been taken or
which are currently being considered by the United States Congress which could
adversely affect the market for high-yield bonds. For example, one proposal
seeks to eliminate or reduce the deductibility of interest paid on high-yield
bonds used to finance corporate acquisitions. Also, recently enacted
legislation has, with some exceptions, generally prohibited federally-insured
savings and loan institutions from investing in high-yield securities. These
and other legislative actions could result in further tightening of the
secondary market for high-yield issues, could reduce the number of new high-
yield securities being issued and could make it more difficult for the Equity
Fund to attain its investment objective.
Zero Coupon Bonds and Payment-In-Kind Bonds
- -------------------------------------------
Although the Equity Fund may not generally purchase a substantial amount of zero
coupon bonds or payment-in-kind ("PIK") bonds, from time to time the Equity Fund
may acquire zero coupon bonds and, to a lesser extent, PIK bonds. Zero coupon
bonds and PIK bonds are generally considered to be more interest-sensitive than
income bearing bonds, to be more speculative than interest bearing bonds, and to
have certain tax consequences which could, under certain circumstances, be
adverse to the Equity Fund. For example, the Equity Fund accrues, and is
required to distribute to stockholders, income on its zero coupon bonds.
However, the Equity Fund may not receive the cash associated with this income
until the bonds are sold or mature. If the Equity Fund did not have sufficient
cash to make the required distribution of accrued income, the Equity Fund could
be required to sell other securities in its portfolio or to borrow to generate
the cash required.
If the Advisor believes that stocks in general are overvalued, or that interest
rates may rise substantially, or that the general economic environment may be
deteriorating, the Advisor may assume a temporary defensive position and may
invest up to 100% of the Equity Fund's assets in high quality commercial paper
and U.S. government securities such as U.S. Treasury Bills and U.S. Treasury
Notes. If the Advisor assumes a temporary defensive position, the Equity Fund,
at that time, may not follow the investment objectives as stated in this
Prospectus.
OTHER INVESTMENT TECHNIQUES
- ---------------------------
Foreign Securities
- ------------------
The Equity Fund may invest up to 25% of its total assets in the securities of
non-U.S. issuers. These investments involve certain risks not ordinarily
associated with investments in securities of domestic issuers. These risks
include fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic developments which could
adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or as
uniform as those of U.S. companies. Non-U.S. securities markets, while growing
in volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies. Transaction costs of
investing in non-U.S. securities markets are generally higher than in the U.S.
There is generally less government supervision and regulation of exchanges,
brokers and issuers than there is in the U.S. The Equity Fund might have
greater difficulty taking appropriate legal action in non-U.S. courts. Non-U.S.
markets also have different clearance and settlement procedures which in some
markets have at times failed to keep pace with the volume of transactions,
thereby creating substantial delays and settlement failures that could adversely
affect the Equity Fund's performance.
Dividend and interest income from non-U.S. securities will generally be subject
to withholding taxes by the country in which the issuer is located and may not
be recoverable by the Equity Fund or the investor.
Corporate Reorganizations
- -------------------------
The Equity Fund may invest without limit in securities for which a tender or
exchange offer has been made or announced and in securities of companies for
which a merger, consolidation, liquidation or similar reorganization proposal
has been announced if, in the judgment of the Advisor, there is a reasonable
prospect of capital appreciation significantly greater than the added portfolio
turnover expenses inherent in the short term nature of such transactions. The
principal risk is that such offers or proposals may not be consummated within
the time and under the terms contemplated at the time of the investment, in
which case, unless such offers or proposals are replaced by equivalent or
increased offers or proposals which are consummated, the Equity Fund may sustain
a loss. For further information on such investments, see "Basic Investment
Techniques" in the Additional Statement.
Warrants and Rights
- -------------------
The Equity Fund may invest up to 5% of its total assets in warrants or rights
(other than those acquired in units or attached to other securities) which
entitle the holder to buy equity securities at a specific price during or at the
end of a specific period of time. The Equity Fund will not invest more than 2%
of its total assets in warrants or rights which are not listed on the New York
or American Stock Exchanges.
When Issued, Delayed Delivery Securities and Forward Commitments
- ----------------------------------------------------------------
The Equity Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a "when" and "if" issued
security. When such transactions are negotiated, the price is fixed at the time
of the commitment, with payment and delivery taking place in the future,
generally a month or more after the date of the commitment. While the Equity
Fund will only enter into a forward commitment with the intention of actually
acquiring the security, the Equity Fund may sell the security before the
settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Equity Fund prior to
the settlement date. The Equity Fund will segregate with its Custodian, the
Star Bank, N.A., located at the Star Bank Center, 425 Walnut Street, Cincinnati,
Ohio 45202 (the "Custodian"), cash or liquid high-grade debt securities in an
aggregate amount at least equal to the amount of its outstanding forward
commitments.
Loans of Portfolio Securities
- -----------------------------
To increase income, the Equity Fund may lend its portfolio securities to
registered securities broker-dealers or financial institutions if: (1) the loan
is collateralized in accordance with applicable regulatory requirements, (2) the
loan is subject to termination by the Equity Fund at any time, (3) the Equity
Fund receives reasonable interest or fee payments on the loan, (4) the Equity
Fund is able to exercise all voting rights with respect to the loaned securities
and (5) the loan will not cause the value of all loaned securities to exceed 33%
of the value of the Equity Fund's assets. Although the Equity Fund has no
current intention to do so, it may also enter into repurchase agreements which
are considered to be loans collateralized by the underlying securities.
If the borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates and the Equity Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over the value of the collateral. As with any extension of credit, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially.
Borrowing
- ---------
The Equity Fund may not borrow money except for (1) short-term credits from
banks as may be necessary for the clearance of portfolio transactions and (2)
borrowings from banks for temporary or emergency purposes, including the meeting
of redemption requests, which would otherwise require the untimely disposition
of its portfolio securities. Borrowing for any purpose including redemptions or
reverse repurchase agreements may not, in the aggregate, exceed 5% of assets
after giving effect to the borrowing and borrowing for purposes other than
meeting redemptions may not exceed 5% of the value of the Equity Fund's assets
after giving effect to the borrowing. The Equity Fund will not make additional
investments when borrowings exceed 5% of assets. The Equity Fund may mortgage,
pledge or hypothecate assets to secure such borrowings.
Portfolio Turnover
- ------------------
The investment policies of the Equity Fund may lead to frequent changes in
investments particularly in periods of rapidly fluctuating interest or currency
exchange rates. The portfolio turnover may be higher than that of other
investment companies. It is not the intention of the Equity Fund nor the
advisor to engage in short-term trading. A higher portfolio turnover rate may
result in higher expenses and certain tax consequences. While it is impossible
to predict with certainty the portfolio turnover, the Advisor expects that the
annual turnover rate of the Equity Fund will not exceed 100%.
Portfolio turnover generally involves some expense to the Equity Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Rapid turnover makes it
more difficult for the Equity Fund to qualify as a pass-through entity for
federal tax purposes in view of a requirement that the Equity Fund obtain less
than 30% of its gross income in any tax year from gains on the sale of
securities held less than three months. The portfolio turnover rate is computed
by dividing the lesser of the amount of the securities purchased or securities
sold by the average monthly value of securities owned during the year (excluding
securities whose maturities at acquisition were one year or less).
MANAGEMENT OF THE FUND
- ----------------------
The Advisor
- -----------
Frontier's Board of Directors (who, with its officers, are described in the
Additional Statement) has overall responsibility for the management of the
Equity Fund. The Board of Directors decides upon matters of general policy and
reviews the actions of Freedom Investors Corp., the Distributor and the Advisor,
which is a Wisconsin corporation formed in 1988 by James R. Fay ("Mr. Fay"), the
President. The Advisor is located at 101 West Wisconsin Avenue, Pewaukee,
Wisconsin 53702-3433. The Advisor is a registered Investment Advisor with the
Securities and Exchange Commission. Mr. Fay, President of the Advisor, is the
person who is primarily responsible for the day-to-day management of the Equity
Fund Portfolio. Neither the Advisor nor Mr. Fay has advised any other mutual
fund. The principal occupation of Mr. Fay during the last five years has been
his role as President of Freedom Financial, Inc., Freedom Investors Corp. and
Frontier Funds. Pursuant to an Investment Advisory Agreement with Frontier, the
Advisor, under the supervision of Frontier's Board of Directors, provides a
continuous investment program for the Equity Fund's portfolio, provides
investment research and makes and executes recommendations for the purchase and
sale of securities. As compensation for its services and the related expenses
borne by the Advisor, the Equity Fund pays the Advisor a fee, computed daily and
payable monthly, equal, on an annual basis, to 1.00% of the Equity Fund's
average daily net assets, which is higher than that paid by some mutual funds
but is comparable to other mutual funds which seek capital appreciation. The
Advisor has waived payment of its 1% management fee since the Equity Fund's
inception. The Advisor may continue to waive payment of its 1% management fee
for the present fiscal year ending September 30, 1997. The Advisor, at its own
discretion, may pay any additional expenses of the Equity Fund above the
management fee of 1% it deems necessary and appropriate for the operation of the
Equity Fund. The Equity Fund may reimburse the Advisor for any additional
expenses in excess of 1% as the Board of Directors of Frontier deems appropriate
and in accordance with applicable law.
In addition to the fees of the Advisor, the Equity Fund is responsible for the
payment of all its other expenses incurred in the operation of the Equity Fund,
which include, among other things, expenses for legal and independent
accountant's services, costs of printing all materials sent to stockholders,
charges of the Custodian, the Transfer Agent and any persons hired by the
Equity Fund, Securities and Exchange Commission fees, fees and expenses of
unaffiliated directors, accounting and printing costs, the Equity Fund's pro
rata portion of membership fees in trade organizations, fidelity bond coverage
for the Equity Fund's officers and employees, interest, brokerage and other
trading costs, taxes, expenses of qualifying the Equity Fund for sale in various
jurisdictions, expenses of personnel performing stockholder servicing functions,
litigation and other extraordinary or nonrecurring expenses and other expenses
properly payable by the Equity Fund.
All brokerage commissions paid by Frontier for the purchase and sale of assets
of the Equity Fund will be paid to non-affiliated broker/dealers.
The net asset value per share as of September 30, 1996 was $6.61 representing a
decrease of $1.45 per share, which represents a total negative return of 17.99%.
The Fund maintained its investment strategy consistent with the stated
investment objectives and limitations. This strategy has resulted in a net loss
on investments.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENTS IN THE
FRONTIER FUNDS, INC., EQUITY FUND PORTFOLIO AND THE S&P 500.
Date Frontier Funds, Inc. Equity Fund Portfolio S&P 500
- ---- ------------------------------------------ -------
4/1/92 $10,000 $10,000
9/30/93 7,985 11,452
9/30/94 7,408 11,873
9/30/95 7,866 14,996
9/30/96 6,551 17,718
AVERAGE ANNUAL TOTAL RETURN
Year 5 = (17.99%)
The Administrator
- -----------------
Frontier has entered into an Administrative Services Agreement ("Administrative
Agreement") with American Data Services, Inc. (the "Administrator"), whose
principal offices are located at 24 West Carver Street, Huntington, New York
11743. Pursuant to the Administrative Agreement, the Administrator coordinates
the administrative services necessary for the Equity Fund's operations between
the Equity Fund's Custodian, Transfer Agent, legal counsel and independent
accountants. These administrative services do not include the investment
advisory and portfolio management services of the Advisor. For these services
and the related expenses borne by the Administrator, the Equity Fund pays the
Administrator a fee computed daily and payable monthly, at the greater of $2,203
or based upon the total assets of the Equity Fund, at a rate of 1/12th of 0.10%
on the first $75 million of the average total monthly assets, 0.05% on the next
$100 million of the average total monthly assets and 0.03% on the average total
assets excess of $175 million monthly. In addition, the Equity Fund will
reimburse the Administrator its reasonable out-of-pocket expenses for travel, in
connection with travel requested by the Equity Fund or the Equity Fund's Advisor
which, together with the services to be rendered and both parties retain the
right unilaterally to terminate the arrangement on not less than 60 days'
notice.
PURCHASE OF SHARES
- ------------------
Shares of the Equity Fund may be purchased through certain registered broker-
dealers and from the Transfer Agent for the Equity Fund, at the public offering
price per share next determined which is equal to their net asset value plus a
sales charge. The minimum initial investment is $1,000. Subsequent investments
will be a minimum of $50. Investments through an Individual Retirement Account
or other retirement plans, however, have different requirements (see "Retirement
Plans").
Shares purchased through registered broker-dealers are sold at the public
offering price per share as described above next determined after receipt of an
order by a registered broker-dealer. For residents of the State of Nebraska,
the Equity Fund will only accept orders from broker-dealers registered in the
State of Nebraska. Shares purchased through the Transfer Agent, are sold at the
public offering price per share next determined after receipt of an order by the
Transfer Agent in proper form with accompanying check or bank wire payment
arrangements satisfactory to the Equity Fund. Although most stockholders elect
not to receive stock certificates, certificates for whole shares only can be
obtained on specific written request to the Transfer Agent.
Prospectuses, sales material and applications may be obtained from the
Distributor. The Equity Fund and its Distributor reserve the right in their
sole discretion (1) to suspend the offerings of the Equity Fund's shares and (2)
to reject purchase orders when, in the judgment of the Equity Fund's management,
such rejection is in the best interest of the Equity Fund.
The net asset value per share of the Equity Fund is determined as of the close
of the regular session of the New York Stock Exchange, which is generally 4
p.m., New York City time, on each day that trading is conducted on the New York
Stock Exchange by dividing the value of the Equity Fund's net assets (i.e., the
value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
number of shares outstanding at the time the determination is made.
In the calculation of the Equity Fund's net asset value: (1) a portfolio
security listed or traded on the New York or American Stock Exchanges or quoted
by National Association of Securities Dealers Automated Quotations, Inc.
("NASDAQ") is valued at its last sale price on that exchange (if there were no
sales that day, the security is valued at the closing bid); (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid quotation; and (3) when market quotations
are not readily available, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Equity Fund's directors (valuation of debt securities
for which market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors).
Portfolio securities for which market quotations are readily available are
valued at market value as determined by the last quoted sale price prior to the
valuation time on the valuation date in the case of securities traded on
securities exchanges or other markets for which such information is available.
Other readily marketable securities are valued at the latest available bid price
for such securities prior to the valuation time. All other assets are valued at
fair value as determined by or under the supervision of the Board of Directors
of Frontier. See "Determination of Net Asset Value" in the Additional
Statement.
Discount or
Sales Charge As % Sales Charge As % Commission
Initial Sales of Net Amount of the Public to Dealers as % of
Charge Invested Offering Price Offering Price
------ -------- -------------- --------------
Amount of Purchase
- ------------------
Less than 8.7% 8% 7.5%
$5,000,000
$5,000,000 and over 0% 0% 0%
Mail
- ----
To make an initial purchase by mail, send a completed subscription order form
with a check for the amount of the investment payable to "Frontier Funds, Inc.,
Equity Fund," to: Frontier Funds, Inc., 101 West Wisconsin Avenue, Pewaukee,
Wisconsin 53072-3433 or Star Bank, N.A., via mail: Frontier Funds, Inc., Equity
Fund, Location 0222, Cincinnati, Ohio 45264-0222; via Federal Express: Star
Bank, N.A., Frontier Funds, Inc., Equity Fund, 425 Walnut Street, M.L., 6118,
Cincinnati, Ohio 45202.
Subsequent purchases do not require a completed application and can be made by
(1) mailing a check to the same address noted above or by (2) bank wire, as
indicated below. The exact name and number of the stockholder's account should
be clearly indicated.
Checks will be accepted if drawn in U.S. currency on a domestic bank for less
than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be subject
to collection delays and will be accepted only upon actual receipt of funds by
the Transfer Agent. Bank collection fees may apply.
Bank Wire
- ---------
To purchase shares of the Equity Fund using the wire system for transmittal of
money among banks, an investor should first telephone the Transfer Agent for the
Equity Fund, at 1-800-231-2901 to obtain a new account number. The investor
should then instruct a Federal Reserve System member bank to wire Funds to:
Star Bank, N.A.
ABA # 042-00001-3
Frontier Funds, Inc., Equity Fund
Acct. # 8512162
For Further Credit to:
Account Name (Your Name)
Personal Account No. of (Your Frontier Funds, Inc., Account Number)
For initial purchases, the investor should promptly complete and mail the
subscription order form to the address shown above for mail purchases. There
may be a charge by your bank for transmitting the money by bank wire but
Transfer Agent does not charge investors in the Equity Fund for the receipt of
wire transfers. If you are planning to wire funds, it is suggested that you
instruct your bank early in the day so the wire transfer can be accomplished the
same day.
Personal Delivery
- -----------------
Deliver a check made payable to "Frontier Funds, Inc., Equity Fund" along with a
completed subscription order form to: Frontier Funds, Inc., 101 West Wisconsin
Avenue, Pewaukee, Wisconsin 53072-3433 or Star Bank, N.A., Mutual Fund Custody
Unit, 425 Walnut Street, Sixth Floor, Cincinnati, Ohio 45202.
Automatic Investment Plan
- -------------------------
The Equity Fund offers an automatic monthly investment plan, details of which
can be obtained from the Distributor. There is a $1,000 minimum initial
investment for accounts establishing an automatic investment plan.
Systematic Withdrawal Plan
- --------------------------
The Equity Fund offers a systematic withdrawal program for stockholders whereby
they can authorize an automatic redemption on a monthly, quarterly or annual
basis. To be eligible for the Systematic Withdrawal Plan, a stockholder must
have an Equity Fund account value of $10,000 or more. Details can be obtained
from the Distributor.
Other Investors
- ---------------
No minimum initial investment is required for officers, directors or full-time
employees of the Equity Fund, the Advisor, the Distributor or their affiliates,
registered representatives with sales agreements, certain broker-dealers,
including members of the "immediate family" of such individuals and retirement
plans and trusts for their benefit, and shares may be purchased by the above-
mentioned at net asset value. The term "immediate family" refers to spouses,
children and grandchildren (adopted or natural), parents, grandparents,
siblings, a spouse's siblings, a sibling's spouse and a sibling's children.
Reduced Sales Charges
- ---------------------
A reduction of sales charge rates may be obtained as follows:
Right of Accumulation
- ---------------------
The Right of Accumulation refers to the waiving of the sales charge assessed on
purchases of shares by single purchasers at the point at which such purchases
aggregate $5,000,000, provided that all previously purchased shares are still
held by the purchaser. A "single purchaser" (as defined below) is not subject
to any sales charge under the following example: if a previous purchase
currently valued in the amount of $1,000,000 had been made subject to a sales
charge and the shares are still held, a current purchase of $4,000,000 will
qualify for a 0% sales charge. The reduced sales charge is applicable only to
current purchases.
The term "single purchaser" refers to (1) an individual, (2) an individual and
spouse purchasing shares of the Equity Fund for their own account or for trust
or custodial accounts for their minor children, or (3) a trustee or other
fiduciary purchasing for any one trust, estate, or fiduciary account (including
a pension, profit sharing or other employee benefit trust created pursuant to a
plan qualified under Sections 401 or 403 of the Internal Revenue Code (the
"Code") but not for a group formed to acquire shares). To be entitled to a
reduced sales charge for shares already owned, the investor must notify the
Distributor or the Transfer Agent at the time of the purchase that he or she
wishes to take advantage of such entitlement, and give the numbers of his or her
accounts, and those accounts held in the name of his or her spouse or for minor
children, the age of any such child and the specific relationship of each such
person to the investor.
Letter of Intent
- ----------------
By initially investing at least $1,000 and submitting an executed Letter of
Intent to the Distributor at the time of initial investment, a "single
purchaser" may make purchases of shares of the Equity Fund during a 13-month
period at the reduced sales charge rates applicable to the aggregate amount of
the intended purchases stated in the Letter.
INVESTMENT RISKS
- ----------------
The Advisor has not previously provided advisory services to an investment
company. Consequently, the Advisor will be continuing to develop its investment
analysis systems contemporaneous with providing investment advice to the Equity
Fund.
All investments, including those in mutual funds, have risks. No investment is
suitable for all investors. The Equity Fund is designed for long term investors
who can accept the fluctuations in portfolio value and other risks associated
with seeking to maximize capital appreciation through investment in securities.
There can be no assurance that the Equity Fund will achieve its objective.
The Equity Fund diversifies its securities holdings to reduce risk. Although
risk cannot be eliminated, diversification reduces the impact of any single
investment. The Equity Fund may invest in both large and small companies.
Investments in small companies involve greater risk than is customarily
associated with more established companies. Smaller companies often have
limited product lines, markets, management personnel, research and/or financial
resources. The securities of small companies, which may be thinly capitalized,
may have more limited marketability and be subject to more abrupt or erratic
market movements than securities of larger companies or the market averages in
general.
The Equity Fund is a start-up management investment company and may be merged,
sold or liquidated, at the discretion of its Board of Directors, if its net
assets are less than $1 million after two years of operation pursuant to SEC
Section 3.09(3), Wisconsin Administrative Code.
Any investment by the Equity Fund in medium or long term interest bearing
obligations has the risk of principal fluctuation due to changing interest rates
and the ability of the issuer to repay the obligation at maturity. Certain risk
factors are also associated with other investment practices of the Equity Fund
(none of which is expected to involve more than 25% of the Equity Fund's net
assets), including investing in debt securities and investing in foreign
securities. Although the Equity Fund does not purchase securities with a view
of rapid turnover, there are no limitations on the length of time portfolio
securities must be held. The Equity Fund's portfolio turnover rate is not
expected to exceed 100%. A high rate of portfolio turnover may result in
increased transaction expenses and the realization of capital gains and losses.
The Equity Fund's Advisor has not previously served as an advisor to a mutual
fund.
REDEMPTION OF SHARES
- --------------------
Upon receipt by the Transfer Agent of a redemption request in proper form as
described below in the next paragraph, shares of the Equity Fund will be
redeemed at their next determined net asset value (see "Purchase of Shares for
Determination of Net Asset Value"). Redemption requests received after the time
as of which the Equity Fund's net asset value is determined on a particular day
will be redeemed at the net asset value of the Equity Fund determined on the
next day that net asset value is determined. In the early stages of the Equity
Fund, a significant redemption could adversely affect the net asset value of the
Equity Fund. Checks for redemption process will normally be mailed to the
stockholder's address of record within seven days, but will not be mailed until
all checks in payment for the purchase of the shares to be redeemed have been
honored, which may take up to 15 days. The proceeds of a redemption may be more
or less than the amount invested and, therefore, a redemption may result in gain
or loss for income tax purposes. Redemptions of $5,000 or more require a
signature guarantee. Redemption requests in proper form may be made by letter
to the Transfer Agent, specifying: (1) the name of the Equity Fund, (2) the
dollar amount or number of shares to be redeemed and (3) the account number.
The letter must be signed in exactly the same way the account is registered (if
there is more than one owner of the shares, all must sign) and, if any
certificates for the shares to be redeemed are outstanding, presentation of such
certificates properly endorsed is also required. Signatures on a redemption
request that is going to other than the address of record or is made payable to
other than the registered owner(s) must be guaranteed in a manner acceptable to
the Transfer Agent. Other redemption restrictions may apply depending upon the
type of account. Please contact the Transfer Agent for information on other
redemption restrictions. Stockholders may also redeem Equity Fund shares
through certain registered broker-dealers at the net asset value next determined
after receipt of the order in proper form by the broker-dealer, who have made
arrangements with the Equity Fund permitting them to redeem shares by proper
written form and who may charge stockholders a fee for this service.
Further documentation, such as copies of corporate resolutions and instruments
of authority, are normally requested from corporations, administrators,
executors, personal representatives, trustees or custodians to evidence the
authority of the person or entity making the redemption request.
The Equity Fund may suspend the right of redemption or postpone the date of
payment for more than seven days during any period when (1) trading on the New
York Stock Exchange is restricted or the Exchange is closed, other than
customary weekend and holiday closings; (2) the Securities and Exchange
Commission has by order permitted such suspension or (3) an emergency, as
defined by rules of the Securities and Exchange Commission, exists making
disposal of portfolio investments or determination of the value of the net
assets of the Equity Fund not reasonably practicable.
To minimize expenses, the Equity Fund reserves the right to involuntarily
redeem, upon not less than 30 days notice, all shares of the Equity Fund in an
account (other than an Individual Retirement Account) which has a value below
$500. However, a stockholder will be allowed to make additional investments
prior to the date fixed for redemption to avoid liquidation of the account.
RETIREMENT PLANS
- ----------------
The Equity Fund has available a form of Individual Retirement Account ("IRA")
for investment in Equity Fund shares which may be obtained from the Distributor.
The minimum investment required to open an IRA for investment in shares of the
Equity Fund is $1,000 for an individual except that both the individual and his
or her spouse may establish separate IRAs if their combined investment is
$1,250. There is no minimum for additional investment in an IRA account.
Investors who are self-employed may purchase shares of the Equity Fund through
tax deductible contributions to retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. The Equity Fund does not currently act as
Sponsor for such plans.
Equity Fund shares may also be a suitable investment for other types of
qualified pension or profit sharing plans which are employer-sponsored,
including deferred compensation or salary reduction plans known as 401(k) Plans
which give participants the right to defer portions of their compensation for
investment on a tax deferred basis until distributions are made from the plans.
The minimum initial investment for an individual under such plans is $50.00 and
a $50.00 minimum for additional investments. Under the Internal Revenue Code of
1986 (the "Code"), individuals may make wholly or partly tax deductible IRA
contributions of up to $2,000 annually, depending on whether they are active
participants in an employer-sponsored retirement plan and on their income level.
However, dividends and distributions held in the account are not taxed until
withdrawn in accordance with the provisions of the Code. An individual with a
non-working spouse may establish a separate IRA for the spouse under the same
conditions and contribute a maximum of $4,000 annually to either or both IRAs
provided that no more than $2,000 may be contributed to the IRA of either
spouse.
Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Internal Revenue Code.
Persons desiring information concerning investments through IRA accounts or
other retirement plans should write or telephone the Distributor.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ----------------------------------
Each dividend and capital gains distribution, if any, declared by the Equity
Fund on its outstanding shares will, unless the stockholder elects otherwise, be
paid on the payment date fixed by the Board of Directors in additional shares of
the Equity Fund having an aggregate net asset value as to the ex-dividend date
of such dividend or distribution equal to the cash amount of such distribution.
An election to receive dividends and distributions may be changed by notifying
the Equity Fund in writing at any time prior to the record date for a particular
dividend or distribution. There are no sales or other charges in connection
with the reinvestment of dividends and capital gains distributions. There is no
fixed dividend rate, and there can be no assurance that the Equity Fund will pay
any dividends or realize any capital gains. However, the Equity Fund currently
intends to pay dividends and capital gains distributions, if any, on an annual
basis.
The Equity Fund intends to qualify for tax treatment as a "Regulated Investment
Company" under subchapter M of the Internal Revenue Code in order to be relieved
of Federal income tax on that part of its net investment income and realized
capital gains which it pays out to its stockholders. In order to qualify as a
Regulated Investment Company and to avoid payment of taxes at the fund level,
the Equity Fund will distribute substantially all of the net ordinary income and
net capital gains to its stockholders as described above.
The Equity Fund must meet the Code's diversification requirement that, at the
end of each calendar quarter, no more than 25% of the Fund's assets may be
invested in securities of a single issuer and at least 50% of the assets of the
Equity Fund must be invested in cash, cash items, receivables, U.S. Government
Securities, securities of other regulated investment companies and securities of
other issuers limited with respect to any one issuer to not more than 5% of the
assets of the Equity Fund. The Equity Fund (1) must also derive at least 90% of
its annual gross income from certain specified sources and (2) may not derive
30% or more of its annual gross income from the disposition of securities (or
foreign currency positions not directly related to the Equity Fund's principal
business of investing in securities) held for less than three months. The U.S.
Treasury Department is authorized to promulgate regulations under which certain
foreign currency gains realized by the Equity Fund may no longer be regarded as
qualifying income under the 90% requirement.
All distributions, other than long-term capital gain distributions and exempt-
interest dividends, are taxable as ordinary income. Distributions of long-term
capital gains, if designated as such by the Equity Fund, are taxable as such,
regardless of how long the stockholder has owned shares in the Equity Fund. If
a stockholder disposes of shares at a loss before having held the shares for
longer than six months, such loss will be treated as a long-term capital loss to
the extent a stockholder has received a long-term capital gains dividend on the
shares. Equity Fund distributions are taxable whether distributed to
stockholders in cash or additional shares. However, many tax-exempt entities
may not be subject to tax on Equity Fund distributions.
The Code generally requires the Equity Fund to distribute, prior to December 31
in each year without regard to its fiscal year end, 98% of its ordinary income
for that year and 98% of the capital gain net income, if any, realized in the
one-year period ending on October 31 in that year. Distributions declared and
payable to stockholders of record in October, November or December and paid in
January will be treated for Federal income tax purposes as if received by the
stockholder in December. To the extent that the distribution requirement for a
calendar year is not met, a 4% nondeductible excise tax on the undistributed
amount would be assessed against the Equity Fund.
The Transfer Agent will send stockholders and the Internal Revenue Service an
annual statement detailing federal tax information, including information about
dividends and distributions (both taxable and tax-exempt) paid to stockholders
during the preceding year. This statement should be kept as a permanent record.
A fee may be charged for any duplicate information requested.
Before investing in the Equity Fund individuals are advised to check the
consequences of local and state tax laws, and the consequences for any
retirement plan offering tax benefits.
GENERAL INFORMATION
- -------------------
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
- ----------------------------------------------------
The Equity Fund is a separate class or series of stock of Frontier Funds, Inc.,
a Maryland corporation ("Frontier"), incorporated on October 24, 1991, and
registered as an open-ended, diversified, load, management investment company
under the Investment Company Act of 1940. The authorized capital stock consists
of 200,000,000 shares of common stock having a par value of ($.01) per share.
Frontier's Board of Directors is authorized to divide the unissued shares into
one or more classes of common stock (which may be referred to as Portfolios,
Funds or series), each class representing a separate, additional Fund portfolio,
and to fix the number of shares in any such class. The Board of Directors has
initially designated one class or series of common stock to be known as "The
Equity Fund Portfolio," and has allocated 80,000,000 of the common shares to
this class.
Shares of all classes will have identical voting rights, except where by law,
certain matters must be approved by a majority of the shares of the affected
class. Each share of any class of shares when issued has equal dividend,
liquidation and voting rights within the class for which it was issued and each
fractional share has those rights in proportion to the percentage that the
fractional share represents of a whole share. Shares will be voted in the
aggregate.
There are no conversion or preemptive rights in connection with any shares of
the Equity Fund. All shares, when issued in accordance with the terms of the
offering, will be fully paid and nonassessable. Shares will be redeemed at net
asset value, at the option of the stockholder.
The Equity Fund sends semiannual and annual reports to all of its stockholders
which include a list of portfolio securities and the Equity Fund's financial
statements which shall be audited annually.
The shares of the Equity Fund have noncumulative voting rights which means that
the holders of more than 50% of the shares can elect 100% of the directors if
the holders choose to do so, and, in that event, the holders of the remaining
shares will not be able to elect any person or persons to the Board of
Directors. Unless specifically requested in writing to the Transfer Agent by an
investor who is a stockholder of record, the Equity Fund does not issue
certificates evidencing Equity Fund shares.
Frontier will hold annual stockholder meetings only in the years in which
directors are required to be elected. Special meetings of the stockholders will
be held for the consideration of proposals requiring stockholder approval by
law, such as changing fundamental policies or upon the written request of 25% of
the Equity Fund's outstanding shares. The directors will promptly call a
meeting of stockholders to consider the removal of a director or directors when
requested to do so by the holders of not less than 10% of the outstanding shares
and that stockholders will receive communication assistance in connection with
calling such a meeting.
The initial purchase of capital stock of the Equity Fund ("Initial Capital
Stock") was made on March 9, 1992, by Freedom Financial, Inc., a Wisconsin
corporation ("Freedom"), which is the parent company of the Advisor of the
Equity Fund. Freedom has disclosed to the Equity Fund its intention to redeem
the Initial Capital Stock on or before April 18, 1992, as permitted by law.
STOCKHOLDER APPROVAL
- --------------------
Other than elections of directors, which is by plurality, any matter for which
stockholder approval is required by the General Corporation Law of Maryland and
the Investment Company Act of 1940, requires the affirmative vote of at least a
"majority" (as defined by the Investment Company Act of 1940) of the outstanding
voting securities of the Equity Fund of Frontier at a meeting called for the
purpose of considering such approval. A majority of the Equity Fund's
outstanding securities is the lesser of (1) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are present in person
or by proxy or (2) more than 50% of the outstanding shares.
LEGAL PROCEEDINGS
- -----------------
There are currently no pending material legal proceedings against the Equity
Fund, Frontier Funds, Inc., Freedom Investors Corp., the Equity Fund's
Investment Advisor and Distributor and Freedom Financial, Inc., the Advisor's
parent corporation except as provided below.
PERFORMANCE INFORMATION
- -----------------------
The Equity Fund may furnish data about its investment performance in
advertisements, sales literature and reports to stockholders. "Total return"
represents the annual percentage change in value of $1,000 invested at the
maximum public offering price for the one and five year periods and the life of
the Equity Fund through the most recent calendar quarter, assuming reinvestment
of all dividends and distributions. Quotations of "yield" will be based on the
investment income per share earned during the particular 30 day period, less
expenses accrued during the period, with the remainder being divided by the
maximum offering price per share on the last day of such period. The Equity
Fund may also furnish total return and yield calculations for other periods
and/or based on investments at various sales charge levels or net asset values.
Any performance data which is based on the Equity Fund's net asset value per
share would be reduced if a sales charge were taken into account.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
- -------------------------------------------------------
Star Bank, N.A., is the Custodian for the Equity Fund's cash and securities.
The Custodian is located at the Star Bank Center, 425 Walnut Street, Cincinnati,
Ohio 45202. American Data Services, Inc. performs the Transfer Agent and
Stockholder Services on behalf of the Equity Fund and is located at 24 West
Carver Street, Huntington, New York 11743. Also, the Transfer Agent and
Custodian do not assist in and are not responsible for investment decisions
involving assets of the Equity Fund.
INDEPENDENT ACCOUNTANTS
- -----------------------
Arthur Andersen & Co. has been appointed independent accountants for the Equity
Fund.
INFORMATION FOR STOCKHOLDERS
- ----------------------------
All stockholder inquiries regarding administrative procedures including the
purchase and redemption of shares should be directed to the Distributor, Freedom
Investors Corp., 101 West Wisconsin Avenue, Pewaukee, Wisconsin 53072-3433. For
assistance, call 414-691-1196.
This Prospectus omits certain information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of the
Registration Statement, including items omitted herein, may be obtained from the
SEC by paying the charges prescribed under its rules and regulations. The
Statement of Additional Information included in such Registration Statement may
be obtained without charge from the Equity Fund or its Distributor.
FRONTIER FUNDS, INC.
101 WEST WISCONSIN AVENUE
PEWAUKEE, WISCONSIN 53072-3433
Telephone: 414-691-1196
STATEMENT OF ADDITIONAL INFORMATION
January 31, 1997
This Statement of Additional Information ("Additional Statement")
relates to The Equity Fund Portfolio (the "Equity Fund") which is a separate
class or series of Frontier Funds, Inc. ("Frontier"), a Maryland corporation
registered as an open ended, diversified, load, management investment company
under the Investment Company Act of 1940 (the "1940 Act"), and is not a
prospectus and is only authorized for distribution when preceded or accompanied
by the Equity Fund's Prospectus dated January 31, 1997, as supplemented from
time to time (the "Prospectus"). This Statement of Additional Information
contains additional and more detailed information than set forth in the
Prospectus and should be read in conjunction with the Prospectus, additional
copies of which may be obtained without charge by writing or telephoning the
Equity Fund at the address and telephone number as set forth above.
TABLE OF CONTENTS
Page
----
Investment Objective, Policies and Risk Considerations................25
Basic Investment Techniques...........................................25
Management of The Fund................................................27
Investment Restrictions...............................................29
Portfolio Transactions and Brokerage..................................30
Capital Stock and Other Securities....................................31
Purchase and Redemption of Shares.....................................31
Determination of Net Asset Value......................................32
Dividends, Distributions and Taxes....................................32
Investment Performance Information....................................34
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
- ------------------------------------------------------
The Equity Fund's investment objective is to seek capital appreciation on its
assets by investing primarily in the equity securities of growth-oriented
companies with total market values at the time of investment of greater than $10
million which the Advisor believes are likely to have growth in revenues and
earnings and potential for above average capital appreciation. Although the
Equity Fund may invest up to 25% of its total assets in nonconvertible debt
securities and may use various special investment techniques, under normal
market conditions, the Equity Fund will invest at least 75% of its total assets
in the equity securities of companies described above. For purposes of this
investment policy, equity securities are defined as: common stocks, preferred
stocks, warrants, convertible bonds and convertible debentures. The Equity Fund
will not permit loans to be made to affiliates of the Equity Fund.
BASIC INVESTMENT TECHNIQUES
- ---------------------------
Securities Subject to Reorganization
- ------------------------------------
The Equity Fund may invest in securities for which a tender or exchange offer
has been made or announced and in securities of companies for which a merger,
consolidation, liquidation or reorganization proposal has been announced if, in
the judgment of Freedom Investors Corp. (the "Advisor"), there is a reasonable
prospect of capital appreciation significantly greater than the brokerage and
other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal sell
at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by stockholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such consistencies requires unusually broad knowledge and experience on the
part of the Advisor which must appraise not only the value of the issuer and its
component businesses, as well as the assets or securities to be received as a
result of the contemplated transaction but also the financial resources and
business motivation of the offeror and the dynamics and business climate when
the offer or proposal is in process. In making these investments, the Equity
Fund will not violate any of its investment restrictions including the
requirement that: (1) as to 75% of its total assets, it will not invest more
than 5% of its total assets in the securities of any one issuer and (2) it will
not invest more than 25% of its total assets in any one industry. Since such
investments are ordinarily short-term in nature, they will tend to increase the
turnover ratio of the Equity Funds, thereby increasing its brokerage and other
transaction expenses, as well as make it more difficult for the Equity Fund to
meet the test for favorable tax treatment as a "Regulated Investment Company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code") (see
"Dividends, Distributions and Taxes" in the Prospectus). The Advisor intends to
select investments of the type described which, in its view, have a reasonable
prospect of capital appreciation which is significant in relation to both risk
involved and the potential of available alternative investments, as well as to
monitor the effect of such investments on the tax qualifications test of the
Code.
Nonconvertible Debt Securities
- ------------------------------
Under normal market conditions, the Equity Fund may invest up to 25% of its
assets in nonconvertible debt securities. For purposes of this investment
policy, nonconvertible debt securities are defined as: (1) Corporate Bonds,
both rated and unrated (unrated bonds are more speculative in nature than rated
bonds); (2) Government Securities which include securities of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities; (3) Commercial
Paper which include commercial paper of companies rated A-1 or A-2 by Standard &
Poor's Corporation ("S&P") or rated P-1 or P-2 by Moody's Investors Service,
Inc. ("Moody's"). Fixed income securities rated, at the time of investment,
less than BBB by Standard & Poor's Corporation ("S&P") or Baa by Moody's or
which are unrated but of comparable quality in the judgment of the Advisor, are
not investment grade and are viewed by the rating agencies as being
predominantly speculative in character and are characterized by substantial risk
concerning payments of interest and principal, sensitivity to economic
conditions and changes in interest rates, as well as by market price volatility
and/or relative lack of secondary market trading, among other risks.
The market values of fixed income securities generally fall when interest rates
rise and, conversely, rise when interest rates fall. The Advisor would want to
take advantage of rising bond prices. Lower rated and unrated fixed income
securities tend to reflect short term corporate and market developments to a
greater extent than higher rated fixed income securities, which react primarily
to fluctuations in the general level of interest rates. These lower rated or
unrated securities generally have higher yields, but as a result of factors such
as reduced creditworthiness of issuers, increased risk of default and a more
limited and less liquid secondary market, are subject to greater volatility and
risk of loss of income and principal than are higher rated securities. The
Advisor will attempt to reduce such risk through portfolio diversification,
credit analysis, and attention to trends in the economy, industries and
financial markets.
Investing in lower rated securities, which are often known as "junk bonds,"
entail certain risks which should be considered by investors contemplating an
investment in the Equity Fund. For a thorough discussion of those risks, please
see "Nonconvertible Debt Securities" in the Prospectus.
If the Advisor believes that stocks in general are overvalued, or that interest
rates may rise substantially, or that the general economic environment may be
deteriorating, the Advisor may assume a temporary defensive position and may
invest up to 100% of the Equity Fund's assets in high quality commercial paper
and short term U.S. government securities such as Treasury Bills and Treasury
Notes.
Warrants and Rights
- -------------------
The Equity Fund may invest up to 5% of its total assets in warrants or rights
(other than those acquired in units or attached to other securities) which
entitle the holder to buy equity securities at a specific price during or at the
end of a specific period of time. The Equity Fund will not invest more than 2%
of its total assets in warrants or rights which are not listed on the New York
or American Stock Exchanges.
When Issued, Delayed Delivery Securities and Forward Commitments
- ----------------------------------------------------------------
The Equity Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a "when" and "if" issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Equity Fund will only
enter into a forward commitment with the intention of actually acquiring the
security, the Equity Fund may sell the security before the settlement date if it
is deemed advisable.
Borrowing
- ---------
The Equity Fund may not borrow money except for (1) short-term credits from
banks as may be necessary for the clearance of portfolio transactions, and (2)
borrowings from banks for temporary or emergency purposes, including the meeting
of redemption requests, which would otherwise require the untimely disposition
of its portfolio securities. Borrowing for any purpose including redemptions
may not, in the aggregate, exceed 5% of assets after giving effect to the
borrowing and borrowing for purposes other than meeting redemptions may not
exceed 5% of the value of the Equity Fund's assets after giving effect to the
borrowing. The Equity Fund will not make additional investments when borrowings
exceed 5% of assets. The Equity Fund may mortgage, pledge or hypothecate assets
to secure such borrowings.
Loans of Portfolio Securities
- -----------------------------
To increase income, the Equity Fund may lend its portfolio securities to
securities broker-dealers or financial institutions if: (1) the loan is
collateralized in accordance with applicable regulatory requirements, (2) the
loan is subject to termination by the Equity Fund at any time, (3) the Equity
Fund receives reasonable interest or fee payments on the loan, (4) the Equity
Fund is able to exercise all voting rights with respect to the loaned securities
and (5) the loan will not cause the value of all loaned securities to exceed 33%
of the value of the Equity Fund's assets.
MANAGEMENT OF THE FUND
- ----------------------
The Advisor
- -----------
The Advisor, Freedom Investors Corp., is a Wisconsin corporation with principal
offices located at 101 West Wisconsin Avenue, Pewaukee, Wisconsin 53072-3433.
The Advisor is a wholly-owned subsidiary of Freedom Financial, Inc., a Wisconsin
corporation, incorporated on September 25, 1985. Freedom Financial, Inc.'s main
business is acting as a holding company, but does derive approximately 5% of its
revenues from the sale of life insurance. James R. Fay ("Mr. Fay") is the
majority stockholder of Freedom Financial, Inc. and serves as its President, as
well as President of the Advisor.
Pursuant to an Investment Advisory Agreement (the "Agreement"), which was
unanimously approved by Frontier's initial directors who are not a party to the
Agreement nor interested persons, on February 12, 1992, and by Freedom
Financial, Inc., the sole initial stockholder of the Equity Fund, on March 9,
1992, the Advisor furnishes a continuous investment program for the Equity
Fund's portfolio, makes the day-to-day investment decisions for the Equity Fund,
arranges the portfolio transactions for the Equity Fund and generally manages
the Equity Fund's investments in accordance with the stated policies of the
Equity Fund, subject to the general supervision of the Board of Directors of
Frontier.
The Agreement provides that absent willful misfeasance, bad faith, gross
negligence or reckless disregard of its duty, the Advisor and its employees,
officers, directors and controlling persons are not liable to the Equity Fund or
any of its investors for any act or omission by the Advisor or for any error of
judgment or for losses sustained by the Equity Fund. The Agreement in no way
restricts the Advisor from acting as advisor to others.
The Agreement is terminable without penalty by Frontier on not more than
60 days' written notice when authorized by the directors of Frontier, by the
holders of a majority, as defined in the 1940 Act, of the outstanding shares of
the Equity Fund, or by the Advisor. The Agreement will automatically terminate
in the event of its assignment, as defined in the 1940 Act, and rules thereunder
except to the extent otherwise provided by order of the Securities and Exchange
Commission or any rule under the 1940 Act and except to the extent the 1940 Act
no longer provides for automatic termination, in which case the approval of a
majority of the disinterested directors is required for any "assignment." The
Agreement provides that, unless terminated, it will remain in effect until two
years from the date of its execution and from year to year thereafter, so long
as continuance of the Agreement is approved annually by the Board of Directors
of the Frontier, or the stockholders of the Equity Fund and in either case, by a
majority vote of the directors who are not parties to the Agreement or
"interested persons" of any such person, as defined in the 1940 Act cast in
person at a meeting called specifically for the purpose of voting on the
continuance of the Agreement.
The Agreement also provides that the Advisor is obligated to reimburse to the
Equity Fund any amount up to the amount of its advisory fee, 1% of the average
daily net asset value of the Equity Fund, by which its aggregate expenses,
including advisory fees payable to the Advisor (but excluding interest, taxes,
brokerage commissions, extraordinary expenses and any other expenses not subject
to the applicable expense limitation), during the portion of any fiscal year in
which the Agreement is in effect, exceed the most restrictive expense limitation
imposed by the securities law of any jurisdiction in which the shares of the
Equity Fund are registered or qualified for sale. Such limitation is currently
believed to be 2.5% of the first $30 million of average net assets, 2% of the
next $70 million of average net assets and 1.5% of average net assets in excess
of $100 million. For purposes of this expense limitation, Equity Fund expenses
are accrued monthly and the monthly fee otherwise payable to the Advisor is
postponed to the extent that the includable Equity Fund expenses exceed the
proportionate amount of such limitation to date. The Advisor, at its own
discretion, may pay any additional expenses of the Equity Fund above the
management fee of 1% it deems necessary and appropriate for the operation of the
Equity Fund. The Equity Fund may reimburse the Advisor for any additional
expenses in excess of 1% as the Board of Directors of Frontier deem appropriate
and in accordance with applicable law.
The Administrator
- -----------------
Frontier has entered into an Administrative Services Agreement with American
Data Services, Inc. whose principal offices are located at 24 West Carver
Street, Huntington, New York 11743 (the "Administrator"), pursuant to which the
Administrator will coordinate administrative services necessary for the Equity
Fund's operations, between the Equity Fund's Custodian and Transfer Agent, legal
counsel and independent accountants. These administrative services do not
include the investment advisory and portfolio management services provided by
the Advisor. For such services and the related expenses borne by the
Administrator, the Fund pays a fee computed daily and payable monthly based upon
a percent of the average net assets of the Fund as described in the Prospectus
(See Management of the Fund) which, together with the services to be rendered,
both parties retain the right unilaterally to terminate the arrangement on not
less than 60 days' notice.
The Distributor
- ---------------
Frontier has entered into a Distribution Agreement with Freedom Investors Corp.
(the "Distributor"), a Wisconsin corporation, having its principal offices
located at 101 West Wisconsin Avenue, Pewaukee, Wisconsin 53072-3433. The
Distributor acts as agent of the Equity Fund for the continuous offering of its
shares on a best-efforts basis.
The Distribution Agreement is terminable by the Distributor or Frontier at any
time without penalty on not more than 60 nor less than 30 days' written notice,
provided that termination by Frontier must be directed or approved by the Board
of Directors of Frontier, by the votes of the holders of a majority of the
outstanding securities of the Equity Fund or by written consent of a majority of
the directors who are not "interested persons" as defined in the 1940 Act of
Frontier or the Distributor. The Distribution Agreement will automatically
terminate in the event of its assignment, as defined in the 1940 Act. The
Distribution Agreement provides that, unless terminated, it will remain in
effect one year from the date it is executed and from year to year thereafter,
so long as continuance of the Distribution Agreement is approved annually by
Frontier's Board of Directors or by a majority of the outstanding voting
securities of the Equity Fund, and in either case, by a majority of the
directors who are not interested persons of Frontier or the Distributor.
Directors and Officers
- ----------------------
The directors and executive officers of Frontier, their principal business
occupations during the past five years and their affiliations, if any, with the
Advisor are shown below. Directors deemed to be "interested persons" of
Frontier for purposes of the 1940 Act are indicated by an asterisk.
Principal Occupation
Position(s) held with During
Name and Address Registrant Last Five Years
- ---------------- --------------------- -------------------
*<F8>James Russell Fay President, Treasurer and President, Freedom
Frontier Funds, Inc. Director Investors Corp. and
101 West Wisconsin Avenue Freedom Financial, Inc.
Pewaukee, WI 53072-3433
*<F8>William Thomas Duero Vice President, Secretary Vice President, Freedom
Frontier Funds, Inc. and Director Investors Corp. and
101 West Wisconsin Avenue previously for Freedom
Pewaukee, WI 53072-3433 Financial, Inc.; Assistant
Manager, Handy Andy; Sales
Representative, Milliken
Millwork, Inc.
Kenneth Wayne Coshun Director Registered Pharmacist and
224 Lake Street President, Lake Pharmacy
Pewaukee, WI 53072-3433 of Pewaukee, Inc.
Scott Wayne Hanson Director President, Moll & Hanson
N56 W30983 County Highway K Builders, Inc.; President,
Hartland, WI 53029 S.W. Hanson, Inc.,
Construction Contractor
Jeffrey Scott Ackley, Director Owner/Accountant, Ackley &
Certified Public Associates, CPAs
Accountant
Ackley & Associates, CPAs
101 West Wisconsin Avenue
Pewaukee, WI 53072
Both Messrs. Fay and Duero hold officer and director positions with Freedom
Investors Corp., the Equity Funds' Investment Advisor and Distributor.
The officers and directors of Frontier as a group, own less than 1% of the
shares of stock of the Equity Fund.
As of the effective date of the Registration Statement, the initial
shareholder, Freedom Financial, Inc., owned all of the Equity Fund's outstanding
voting securities.
Frontier pays each director who is not an employee of the Advisor or an
affiliated company an annual fee of $1,000 and $500 for each meeting of the
Board of Directors attended by the director, and reimburses directors for
certain travel and other out-of-pocket expenses incurred by them in connection
with attending such meetings. Directors and officers of Frontier who are
employed by the Advisor or an affiliated company receive no compensation or
expense reimbursement from Frontier.
INVESTMENT RESTRICTIONS
- -----------------------
The Equity Fund's investment objective and the following investment restrictions
are fundamental and cannot be changed without the approval of the holders of a
majority of the Equity Fund's outstanding voting securities (defined in the 1940
Act as the lesser of (a) more than 50% of the outstanding shares or (b) 67% or
more of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented). All other investment policies or practices
are considered by the Equity Fund not to be fundamental and accordingly may be
changed without stockholder approval. If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing market values or
total assets of the Equity Fund will not be considered a deviation from policy.
The Equity Fund may not:
(1) with respect to 75% of its total assets, invest more than 5% of
the value of its total assets (taken at market value at time of
purchase) in the outstanding securities of any one issuer or own more
than 10% of the outstanding voting securities of any one issuer, in
each case other than securities issued or guaranteed by the U.S.
Government or any agency or instrumentality thereof;
(2) invest 25% or more of the value of its total assets in any one
industry;
(3) issue senior securities (including borrowing money, including on
margin if margin securities are owned and through entering into
reverse repurchase agreements) in excess of 5% of its total assets
(including the amount of senior securities issued but excluding any
liabilities and indebtedness not constituting senior securities)
except that the Equity Fund may borrow up to an additional 5% of its
total assets for temporary purposes; or pledge its assets other than
to secure such issuances or in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and
similar investment strategies. The Equity Fund's obligations under
the foregoing types of transactions and investment strategies are not
treated as senior securities;
(4) make loans of money or property to any person, except through
loans of portfolio securities, the purchase of fixed income securities
consistent with the Equity Fund's investment objective and policies or
the acquisition of securities subject to repurchase agreements;
(5) underwrite the securities of other issuers, except to the extent
that in connection with the disposition of portfolio securities or the
sale of its own shares the Equity Fund may be deemed to be an
underwriter;
(6) invest for the purpose of exercising control over management of
any company;
(7) purchase real estate or interests therein other than mortgage-
backed securities and similar instruments;
(8) purchase or sell commodities or commodity contracts;
(9) invest more than 5% of its total assets in restricted and
illiquid securities and security units that may not be offered or sold
to the public without registration under the Securities Act of 1933;
(10) make any short sale of securities, excluding short selling
against the box;
(11) invest more than 5% of its total assets in the securities of
unseasoned issuers, to include equity securities of issuers which are
not readily marketable;
(12) invest in puts, calls, straddles, spreads, and any combination
thereof;
(13) invest in oil, gas, or other mineral exploration or development
programs; or
(14) invest more than 10% of its total assets in the securities of one
or more investment companies or in one or more real estate investment
trusts.
In order to permit the sale of the Equity Fund's shares in certain states, the
Equity Fund may make commitments more restrictive than the investment policies
and limitations described above. Should the Equity Fund determine that any such
commitment is no longer in the best interests of the Equity Fund, it will revoke
the commitment by terminating sales of its shares in the state involved.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- ------------------------------------
The Advisor is authorized on behalf of the Equity Fund to employ brokers to
effect the purchase or sale of portfolio securities with the objective of
obtaining prompt, efficient and reliable execution and clearance of such
transactions at the most favorable price obtainable ("best execution") at
reasonable expense. Transactions in securities other than those for which a
securities exchange is the principal market are generally done through a
principal market maker. However such transactions may be effected through a
brokerage firm and a commission paid whenever it appears that the broker can
obtain a more favorable overall price. All brokerage commissions paid by the
Equity Fund will be paid to non-affiliated brokers. In general, there may be no
stated commission in the case of securities traded on the over-the-counter
markets, but the prices of those securities may include undisclosed commissions
or markups. The Equity Fund also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation generally referred to as the underwriter's concession or discount.
The Advisor may in the future act as advisor to others. It is the practice of
the Advisor to cause purchase and sale transactions to be allocated among the
Equity Fund and others whose assets they manage in such manner as it deems
equitable. In making such allocations among the Equity Fund and other client
accounts, the main factors considered are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Equity Fund and other client accounts.
The policy of the Equity Fund regarding purchases and sales of securities for
its portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient execution of transactions. In seeking to
implement the Equity Fund's policies, the Advisor effects transactions with
those brokers and dealers who the Advisor believes provide the most favorable
prices and are capable of providing efficient executions. If the Advisor
believes such price and execution are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Equity
Fund or the Advisor of the type described in section 28(e) of the Securities
Exchange Act of 1934. In doing so, the Equity Fund may also pay higher
commission rates than the lowest available when the Advisor believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction. Such services may include,
but are not limited to, any one or more of the following: (1) information as to
the availability of securities for purchase or sale; (2) statistical or factual
information or opinions pertaining to investment wire services; and (3)
appraisals or evaluations of portfolio securities.
CAPITAL STOCK AND OTHER SECURITIES
- ----------------------------------
The Capital Stock of the Equity Fund is summarized in the prospectus under
"General Information."
PURCHASE AND REDEMPTION OF SHARES
- ---------------------------------
The procedures for purchasing shares of the Equity Fund are summarized in the
prospectus under "Purchase of Shares" and the procedures for redemption of
shares are summarized in the prospectus under "Redemption of Shares."
The Equity Fund will redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value during any 90 day period for any one stockholder.
The Equity Fund reserves the right to pay other redemptions, either total or
partial, by a distribution in kind of readily marketable securities (instead of
cash) from the Equity Funds' Portfolio. The securities distributed in such a
distribution would be valued at the same amount as that assigned to them in
calculating the net asset value for the shares being redeemed. If a stockholder
receives a distribution in kind, he or she should expect to incur transaction
costs when he or she converts the securities to cash.
Cancellation of purchase orders for Equity Fund shares (as, for example, when
checks submitted to purchase shares are returned unpaid) cause a loss to be
incurred when the net asset value of the Equity Fund shares on the date of
cancellation is less than the original date of purchase. The investor is
responsible for such loss and the Equity Fund may reimburse itself or the
Distributor for such loss by automatically redeeming shares from any account
registered in that stockholder's name, or by seeking other redress.
Freedom Financial, Inc., a Wisconsin corporation and the initial stockholder of
the Equity Fund, has indicated its intention to redeem its initial capital
investment in the Equity Fund on or before April 18, 1992. In the early stages
of the Equity Fund, a significant redemption could adversely affect the net
asset value of the Equity Fund.
DETERMINATION OF NET ASSET VALUE
- --------------------------------
The net asset value per share of the Equity Fund is determined once daily as of
the close of business of the regular trading session of the New York Stock
Exchange, normally 4 p.m. New York time, on each day that the New York Stock
Exchange is open and on each other day in which there is a sufficient degree of
trading in the Equity Fund's investments to affect the net asset value, except
that the net asset value may not be computed on a day on which no orders to
purchase, or tenders to sell or redeem, Equity Fund shares have been received,
by taking the value of all assets of the Equity Fund, subtracting its
liabilities, dividing by the number of shares outstanding and adjusting to the
nearest cent. The New York Stock Exchange currently observes the following
holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
In the calculation of the Equity Fund's net asset value: (1) a portfolio
security listed or traded on the New York or American Stock Exchanges or quoted
by National Association of Securities Dealers Automated Quotations, Inc.
("NASDAQ") is valued at its last sale price on that exchange; (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid quotation; and (3) when market quotations
are not readily available, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Equity Fund's directors (valuation of debt securities
for which market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors).
Short-term debt securities are valued at amortized cost, unless the directors
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their fair value as determined by the directors.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ----------------------------------
GENERAL
- -------
The Equity Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and generally intends to take all other action required
to insure that little or no federal income or excise taxes will be payable by
the fund. If so qualified, the Equity Fund will not be subject to federal
income tax on its net investment income and net short-term capital gains, if
any, realized during any fiscal year in which it distributes such income and
capital gains to its stockholders.
The Equity Fund will determine either to distribute or to retain all or part of
any net long-term capital gains in any year for reinvestment. If any such gains
are retained, the Equity Fund will be subject to a tax of 34% of such amount.
In that event, the Equity Fund expects to designate the retained amount as
undistributed capital gains in a notice to its stockholders, each of whom (1)
will be required to include in income for tax purposes as long-term capital
gains, its share of such undistributed amount; (2) will be entitled to credit
its proportionate share of the tax paid by the Equity Fund against its federal
income tax liability and to claim the Equity Fund to the extent the credit
exceeds such liability; and (3) will increase its basis in its shares of the
Equity Fund by an amount equal to 66% of the amount of undistributed capital
gains included in such stockholder's gross income.
Under the Code, amounts not distributed on a timely basis in accordance with
distribution requirements are subject to a nondeductible 4% excise tax. To
avoid the tax, the Equity Fund must distribute, during each calendar year, an
amount equal to, at the minimum, the sum of (1) 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year; (2) 98%
of its capital gains in excess of its capital losses for the 12-month period
ending on October 31 of the calendar year; and (3) all ordinary income and net
capital gains for previous years that were not previously distributed. A
distribution will be treated as paid during the calendar year if it is paid
during the calendar year or declared by the Equity Fund in October, November or
December of the year, payable to stockholders of record on a date during such
month and paid by the Equity Fund during January of the following year. Any
such distributions paid during January of the following year will be deemed to
be received on December 31 of the year the distributions are declared, rather
than when the distributions are received.
Gains or losses on the sales of securities by the Equity Fund will be long-term
capital gains or losses if the securities have been held by the Equity Fund for
more than 12 months. Gains or losses on the sale of securities held for 12
months or less will be short-term capital gains or losses.
DISTRIBUTIONS
- -------------
Distributions of investment company taxable income (which includes taxable
interest income and the excess of net short-term capital gains over long-term
capital losses) are taxable to a U.S. stockholder as ordinary income, whether
paid in cash or shares. Dividends paid by the Equity Fund will qualify for the
70% deduction for dividends received by corporations to the extent the Equity
Fund's income consists of qualified dividends received from U.S. corporations.
Distributions of net capital gains (which consist of the excess of long-term
capital gains over net short-term capital losses), if any, are taxable as long-
term capital gains, whether paid in cash or in shares, regardless of how long
the stockholder has held the Equity Fund's shares, and are not eligible for the
dividends received deduction. Stockholders receiving distributions in the form
of newly issued shares will have a basis in such shares of the Equity Fund equal
to the fair market value of such shares on the distribution date. If the net
asset value of shares is reduced below a stockholder's cost as a result of a
distribution by the Equity Fund of current or accumulated earnings and profits,
such distribution will be taxable even though it represents a return of invested
capital. The price of shares purchased at this time may reflect the amount of
the forthcoming distribution. Those purchasing just prior to a distribution
will receive a distribution which will nevertheless be taxable to them.
SALES OF SHARES
- ---------------
Upon a sale or exchange of his or her shares, a stockholder will realize a
taxable gain or loss depending upon his or her basis in the shares. Such gain
or loss will be treated as capital gain or loss if the shares have been held for
more than one year. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the disposal of the shares.
In such case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a stockholder on the sale of Equity
Fund shares held by the stockholder for six months or less will be treated for
tax purposes as a long-term capital loss to the extent of any distributions of
net capital gains received by the stockholder with respect to such shares.
BACKUP WITHHOLDING
- ------------------
The Equity Fund may be required to withhold federal income tax at the rate of
20% of all taxable distributions payable to stockholders who fail to provide the
Equity Fund with their correct taxpayer identification number or to make
required certifications or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Backup withholding is not
an additional tax. Any amounts withheld may be credited against a stockholder's
federal income tax liability.
FOREIGN WITHHOLDING TAXES
- -------------------------
Income received by the Equity Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Equity Fund's assets to be invested in various
countries is not known. Because the Equity Fund will not have more than 50% of
its total assets invested in securities of foreign governments or corporations,
the Equity Fund will not be entitled to "pass-through" to stockholders as a
credit against their U.S. income tax liability the amount of foreign taxes paid
by the Equity Fund. Stockholders are urged to consult their attorneys or tax
advisors regarding specific questions as to federal, state or local taxes.
Frontier reserves the right to offer investors a range of investment
opportunities by providing a choice of investments in various portfolios and,
consequently, the right to create and issue a number of different series shares
each of which relate to the assets of the separate portfolios. In such case,
the shares of each series would participate equally in the earnings, dividends
and assets of a particular portfolio and would vote separately to approve
management agreements or changes in investment policies. However, shares of all
series would vote together in the election or selection of directors, principal
underwriters and accountants and on any proposed material amendment to
Frontier's Certificate of Incorporation. For federal tax purposes, each "fund"
of a series is treated as a separate corporation.
Upon liquidation of Frontier or any series, stockholders of the affected series
would be entitled to share pro rata in the net assets of their respective series
available for distribution to such stockholders.
INVESTMENT PERFORMANCE INFORMATION
- ----------------------------------
The Equity Fund may furnish data about its investment performance in
advertisements, sales literature and reports to stockholders. "Total return"
represents the annual percentage change in value of $1,000 invested at the
maximum public offering price for the one year period and the life of the Equity
Fund through the most recent calendar quarter, assuming reinvestment of all
dividends and distributions. The Equity Fund may also furnish total return
calculations for these and other periods based on investments at various sales
charge levels or net asset value.
Quotations of yield will be based on the investment income per share earned
during a particular 30-day (or one month) period, less expenses accrued during
the period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
6
2[(a-b + 1)-1]
YIELD= ---
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends and d =
the maximum offering price per share on the last day of the period.
Quotations of total return will reflect only the performance of a hypothetical
investment in the Equity Fund during the particular time period shown. The
Equity Fund's total return and current yield may vary from time to time
depending on market conditions, the compositions of the Equity Fund's portfolio
and operating expenses. These factors and possible differences in the methods
used in calculating yield should be considered when comparing the Equity Fund's
current yield to yields published for other investment companies and other
investment vehicles. Total return and yield should also be considered relative
to changes in the value of the Equity Fund's shares and the risks associated
with the Equity Fund's investment objectives and policies. At any time in the
future, total returns and yields may be higher or lower than past total returns
and yields and there can be no assurance that any historical return or yield
will continue.
From time to time, evaluations of performance are made by independent sources
that may be used in advertisements concerning the Equity Fund. These sources
include, but not limited to: Lipper Analytical Services, Weisenberger
Investment Company Service, Barrons, Business Week, Changing Times, Financial
------- ------------- -------------- ---------
World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's Personal
- ----- ------ ------- ----- ----------------- ------------------------
Finance, Bank Rate Monitor and The Wall Street Journal.
- ------- ---------------- -----------------------
In connection with communicating its yield or total return to current or
prospective stockholders, the Equity Fund may also compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Quotations of the Equity Fund's total return will represent the average annual
compounded rate of return of a hypothetical investment in the Equity Fund over
periods of one, five and ten years (up to the life of the Equity Fund), and are
calculated pursuant to the following formula:
n
P (1 + T) = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and ERV = the redeemable value at the end
of the period of a $1,000 payment made at the beginning of the period). All
total return figures will reflect the deduction of Equity Fund expenses (net of
certain expenses reimbursed by the Advisor) on an annual basis and will assume
that all dividends and distributions are reinvested and will deduct the maximum
sales charge, if any is imposed.
FINANCIAL STATEMENTS
- --------------------
The Equity Fund's audited financial statements were filed with the SEC on
December 5, 1996 as part of the Equity Fund's Annual Report to Shareholders.
The financial statements contained in such annual report are incorporated by
reference herein.
APPENDIX A TO STATEMENT OF ADDITIONAL INFORMATION
-------------------------------------------------
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE BOND
- ---------------------------------------------------------------------------
RATINGS
- -------
AAA: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. AA:
Bonds which are rated as Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. BAA:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well. BA: Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class. B:
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. CAA:
Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest. CA: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or there may be
marked shortcomings. C: Bonds which are rated C are the lowest rated class
of bonds and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P'S") CORPORATE DEBT RATINGS
- -------------------------------------------------------------------------------
AAA: Debt rated AAA has the highest rating assigned by S&P's.
Capacity to pay interest and repay principal is extremely strong. AA: Debt
rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in small degree. A: Debt rated A
has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories. BBB: Debt rated BBB
is regarded as having adequate capacity to pay interest and repay principal.
Whereas it normally exhibits protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in higher
rated categories. BB, B, CCC, CC, C: Debt rated BBB, B, CCC, CC and C is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. CL: The rating Cl is reserved for income
bonds on which no interest is being paid. D: Debt rated D is in payment
default. The D rating category is used when interest payments or principal
payments are not made on the date due even if the applicable grace period has
not expired, unless S&P's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
- ----------------------------------------------
AAA: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks. AA: An issue
which is rated aa is considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that earnings and asset protection
will remain relatively well maintained in the foreseeable future. A: An issue
which is rated a is considered to be an upper medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classifications, earnings and asset protection are nevertheless expected to be
maintained at adequate levels. BAA: An issue which is rated baa is considered
to be medium grade, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present, but may be questionable over great
length of time. BA: An issue which is rated ba is considered to have
speculative elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks in this
class. B: An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small. CAA: An issue
which is rated caa is likely to be in arrears on dividend payments. This rating
designation does not purport to indicate the future status of payment. CA: An
issue which is rated ca is speculative in a high degree and is likely to be in
arrears on dividends with the little likelihood of eventual payment. C: This
is the lowest rated class of preferred or preference stock. Issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S PREFERRED STOCK RATINGS
- --------------------------------------------
AAA: This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations. AA: A preferred stock issue rated AA also
qualifies as a high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for
issues rated AAA. A: An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effect of changes in circumstances and economic conditions. BBB: An
issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category. BB, B, CCC: Preferred stock
rated BB, B and CCC are regarded on balance as predominantly speculative with
respect to the issuer's capacity to pay preferred stock obligations. BB
indicates the lowest degree of speculation and CCC the highest degree of
speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. CC: The rating CC is reserved for a
preferred stock in arrears on dividends or sinking Equity Fund payments but that
is a non-paying issue with the issuer in default on debt instruments.
PLUS (+) OR MINUS (-): The ratings from "AA" to "B" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
Included in Part A of the Registration Statement:
Table of Fees and Expenses
Financial Highlights
Included in Part B of the Registration Statement: Audited
Financial Statements dated September 30, 1996 which contain:
Report of Independent Accountants
Statement of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statement
Financial Highlights
Schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because they
are not required under the related instructions, they are inapplicable, or the
required information is presented in the financial statements or notes thereto.
(b) Exhibits:
(l)Articles of Incorporation 5<F10>
(2)By-Laws 5<F10>
(3)Not Applicable
(4)Form of Stock Certificate of The Equity
Fund Portfolio of Frontier Funds, Inc. 5<F10>
(5)Investment Advisory Agreement with
Freedom Investors Corp. for Frontier Funds, Inc. 5<F10>
(6)Distribution Agreement 5<F10>
(7)Not Applicable
(8)Form of Custody Agreement 5<F10>
(9)Form of Shareholder Servicing Agent Agreement,5<F10> Fund
Accounting Services Agreement 5<F10>, Selected Dealers
Agreement 5<F10>, Administrative Services Agreement,5 <F10>
Organization Expense Agreement and IRA Custodial AccountA
Agreement and Disclosure Statement 5<F10>
(10) Opinion and Consent of Counsel 5<F10>
(11) Consent of Independent Accountants 5<F10>
(12) Not Applicable
(13) Not Applicable
(14) IRA Disclosure Document 5<F10>
(15) Not Applicable
(16) Not Applicable
5 <F10>Filed previously by Amendment.
Item 25. Persons Controlled by or Under Common Control with Registrant.
-------------------------------------------------------------
Insofar as the following have substantially identical Boards of
Directors, they may be deemed with Registrant to be under common control:
Freedom Financial, Inc., a Wisconsin corporation, is a holding Company owned
approximately 92% by James Russell Fay. Freedom Financial, Inc., owns 100% of
the outstanding stock of Freedom Investors Corp., which is a Wisconsin
corporation and the Equity Fund's Advisor and Distributor. Mr. Fay is an
officer and a director of both corporations. Mr. Duero is an officer and a
director of Freedom Investors Corp.
Item 26. Number of Holders of Securities.
-------------------------------
As of September 30, 1996, the approximate number of holders was:
(1) (2)
Title of Class Number of Record Holders
Equity Fund Portfolio 142
Item 27. Indemnification.
---------------
The basic effect of the respective indemnification provisions of the
Registrant's Certificate of Incorporation and By-Laws and section 2-418 of the
General Corporation Law of Maryland is to indemnify each officer and director of
both the Registrant and Freedom Investors Corp., to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant and the Advisor and Distributor pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1940 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant and the
principal underwriter in connection with the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person or the Advisor and Distributor in connection with the
shares being registered, the Registrant will, unless, in the opinion of its
counsel, the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor.
----------------------------------------------------
See "Management of the Equity Fund" in the Prospectus and "Directors
and Officers" in the Statement of Additional Information, as well as the
Advisor's current Form ADV, which is each incorporated herein by reference.
Item 29. Principal Underwriters.
----------------------
(a) The Distributor, Freedom Investors Corp., is not a distributor or
underwriter for any other investment company at this time. Occasionally, the
Distributor could be considered an underwriter or distributor for other
investment companies when other distributors of other investment companies pay
the Distributor 100% of the sales charge on the other unaffiliated investment
companies.
(b) The information required with respect to the directors and
executive officers of the Distributor is the same as is set forth under the
heading "Directors and Officers" in the Statement of Additional Information with
the exception that Messrs. Coshun, Hanson and Ackley are not officers or
directors of the Distributor.
(c) Not applicable. The Registrant's only principal underwriter is
an affiliated person of the Registrant.
Item 30. Location of Accounts and Records.
--------------------------------
All accounts, books and other documents required to be maintained and
preserved pursuant to section 31(a) of the Investment Company Act of 1940 and
the rules thereunder will be maintained at the offices of the Equity Fund's
Transfer Agent located at 24 West Carver Street, Huntington, New York 11743 or
at the offices of the Advisor, located at 101 West Wisconsin Avenue, Pewaukee,
Wisconsin 53072-3433.
Item 31. Management Services.
-------------------
The Registrant is not a party to any management-related service
contract not discussed in Part A or Part B hereof.
Item 32. Undertakings.
------------
(a) The Registrant will file an amendment to this Registration
Statement containing certified financial statements showing the initial capital
received before accepting subscriptions from any persons in excess of 25 if
Registrant proposes to raise its initial capital pursuant to section 14(a)(3) of
the 1940 Act.
(b) The Registrant will file a post-effective amendment containing
unaudited financial statements for Frontier Funds, Inc. within four to six
months from the effective date.
(c) The Registrant undertakes to provide its Annual Report to
Shareholders without charge to any recipient of its Prospectus who requests the
information.
(d) The Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of the removal of a director or
directors when requested in writing to do so by the holders of at least 10% of
the Registrant's outstanding shares and in connection with such meeting to
comply with the provisions of section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the Village of Pewaukee, and State of Wisconsin on the 31st
day of January, 1997.</R<
The undersigned does hereby certify that Post-Effective Amendment
No. 7 does hereby meet all of the requirements for effectiveness pursuant to
Section 485(b) of the Securities Act of 1933.
FRONTIER FUNDS, INC.
/s/ James Russell Fay
BY ------------------------------------
James Russell Fay, President
ON BEHALF OF THE BOARD OF DIRECTORS PURSUANT TO
POWER OF ATTORNEY GRANTED IN PRE-EFFECTIVE
AMENDMENT NO. 2
/s/ James Russell Fay
BY ------------------------------------
James Russell Fay, President
Board of Directors:
James R. Fay
Kenneth W. Coshun
James S. Ackley
William T. Duero
Scott W. Hanson
SCHEDULE OF EXHIBITS TO FORM N-lA
(pursuant to Securities Act Rule 483)
EXHIBIT NUMBER EXHIBIT
-------------- -------
(1) Articles of Incorporation 6<F11>
(2) By-Laws 6<F11>
(3) Not Applicable
(4) Form of Stock Certificate of The Equity Fund Portfolio
of Frontier Funds, Inc. 6<F11>
(5) Form of Investment Advisory Agreement with Freedom
Investors Corp. for Frontier Funds, Inc. 6<F11>
(6) Form of Distribution Agreement 6<F11>
(7) Not Applicable
(8) Form of Custody Agreement 6<F11>
(9) Form of Shareholder Servicing Agent Agreement, Fund
Accounting Service Agreement, Selected Dealers
Agreement, Administrative Services Agreement,
Organization Expense Agreement and IRS Custodial
Account Agreement and Disclosure Statement 6<F11>
(10) Opinion and Consent of Counsel 6<F11>
(11) Consent of Independent Accountant 6<F11>
(12) Not Applicable
(13) Not Applicable
(14) IRA Disclosure Documents6
(15) Not Applicable
(16) Not Applicable
6 <F11>Incorporated by reference.
