(Frontier Funds, Inc. Logo)
Seventh Year
ANNUAL REPORT
For the Period Ended
September 30, 1998
(Frontier Funds, Inc. Logo)
TO OUR INVESTORS
Dear Shareholders,
Thank you for your investment in Frontier Funds, Inc. Equity Portfolio. I
appreciate the opportunity to serve you.
The investment objective of the Equity Portfolio is capital appreciation.
The current strategy is to purchase common stock in undervalued companies and to
purchase common stock in companies that management believes has potential for
superior earnings growth. The stock market has, for the most part, overlooked
the potential capital appreciation of many small companies.
Small-cap stocks tumbled in the third quarter, with the Russell 2000 Growth
Index dropping over 20% and the S&P 500 Index declining nearly 10%. Hurting the
group were investors' continued preference for larger, more-liquid stocks, which
has weighed on smaller companies since the year began, and the market's rapidly
shrinking appetite for risk in any and all forms. The quarter compounded what
was already a difficult year for these stocks, with the Russell 2000 Growth
Index finishing September over 25% below its peak earlier in the year, decidedly
in bear-market territory.
Weighing on the group was investor aversion to risk, a sentiment that has
buffeted small-caps since October of last year and one that only intensified
during the quarter. Stocks were battered by a confluence of negative
developments, most notably widening financial and economic turmoil in emerging
markets.
Once the market does finally settle, we believe there is the potential for
small-caps to do very well, both relative to large-cap stocks and in absolute
terms. Relative valuations for these stocks are now, after the group's recent
downdraft, as attractive as they have been in over a decade and reflect an
extreme amount of bearishness on the part of investors. Assuming the market
does eventually calm, and smaller companies' earnings do not completely collapse
(in fact, the group's relative earnings prospects remain quite solid), as
current valuations would appear to suggest, the sector could see a strong pickup
in buying interest from both bargain hunters and more traditional small-cap
investors.
I invite your comments and suggestions. Feel free to write or telephone.
Again, thank you for your confidence in Frontier Funds, Inc.
Sincerely,
/s/James R. Fay
James R. Fay
President
SCHEDULE OF INVESTMENTS
AS OF SEPTEMBER 30, 1998
QUOTED
MARKET
SHARES VALUE
- ------ ------
COMMON STOCKS -- 106.74%
APPAREL -- 6.26%
70,000 +<F1> Cygne Designs Inc. $6,650
10,000 +<F1> Evans Inc. 9,375
---------
16,025
---------
BIOTECHNOLOGY -- 3.76%
14,000 +<F1> Energy Bio Systems Inc. 9,625
---------
COMPUTER SOFTWARE -- 7.33%
40,000 +<F1> Mitek Systems Inc. 18,750
---------
COSMETICS & TOILETRIES -- 6.84%
40,000 +<F1> Human Pheromone Sciences Inc. 17,500
---------
ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 5.62%
20,000 +<F1> Dense-Pac Microsystems Inc. 14,375
---------
HEALTH CARE -- 9.77%
40,000 +<F1> Procyte Corp. 25,000
---------
HEALTH CARE TECHNOLOGY -- 4.28%
10,000 +<F1> Cell Robotics International Inc. 10,938
---------
RECYCLING MANAGEMENT -- 11.73%
15,000 +<F1> Hi-Rise Recycling Systems Inc. 30,000
---------
TECHNOLOGY -- 7.33%
20,000 +<F1> Digital Video Systems Inc. 18,750
---------
TELECOMMUNICATIONS -- 38.25
2,000 +<F1> Microdyne Corp. 5,375
40,000 +<F1> RSI Systems Inc. 92,500
---------
97,875
---------
TOYS -- 5.57%
3,000 +<F1> Toymax International Inc. 14,250
---------
TOTAL COMMON STOCK (Cost $757,492) 273,088
---------
TOTAL INVESTMENTS (Cost $757,492) 106.74% 273,088
--------- ---------
Liabilities in excess of Other Assets (6.74%) (17,245)
--------- ---------
TOTAL NET ASSETS 100.00% $255,843
--------- ---------
--------- ---------
+<F1> Non-income producing security
The accompanying notes to financial statements are an integral part of this
schedule.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
ASSETS:
Investments in securities at value --
(cost $757,492) (Note 2) $273,088
Cash 300
---------
Total Assets 273,388
---------
LIABILITIES:
Payables:
Accrued expenses 17,544
---------
Total Liabilities 17,544
---------
Net Assets $255,843
---------
---------
NET ASSETS CONSIST OF:
Additional paid in capital $111,8156
Accumulated net realized loss from
investment transactions (Note 6 ) (377,909)
Net unrealized depreciation on investments (484,404)
---------
Net Assets $ 255,843
---------
---------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($255,843 / 161,996 shares
of capital stock outstanding) (Note 6 ) $ 1.58
---------
---------
Maximum offering price per share
(net asset value plus sales charge of 8%) $ 1.72
---------
---------
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
EXPENSES:
Management fee $ 5,173
Administration fee 29,963
Legal fee 20,571
Transfer agent fees 14,993
Custody fee 8,214
Audit fee 7,998
Printing 4,427
Directors' fee and expenses 4,271
Registration fees 4,033
Insurance 1,736
Other 5,654
---------
Total expenses 107,033
Less: Waiver of management fee (5,173)
---------
Net expenses 101,860
---------
Net investment loss (101,860)
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS (Note 2)
Net realized loss from investment transactions (4,704)
Net change in unrealized depreciation of investments (372,835)
---------
Net realized and unrealized loss on investments (377,539)
---------
Net decrease in net assets resulting from operations $(479,399)
---------
---------
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
OPERATIONS:
Net investment loss $ (101,860) $ (126,410)
Net realized loss from
investment transactions 4,704 (385,258)
Net change in unrealized
depreciation of investments (372,835) (4,396)
---------- ----------
Net decrease in net assets
resulting from operations (479,399) (516,064)
Net capital share
transactions (Note 4) (120,851) (72,650)
---------- ----------
Net decrease in net assets (600,250) (588,714)
NET ASSETS:
Beginning of period 856,093 1,444,807
---------- ----------
End of period $ 255,843 $ 856,093
---------- ----------
---------- ----------
The accompanying notes to financial statements are an integral part of these
statements.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 4.28 $ 6.61 $ 8.06 $ 7.59 $ 8.68
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment loss (0.58) (0.59) (0.51) (0.47) (0.77)
Net realized and unrealized
gain on investments (2.12) (1.74) (0.94) 0.94 0.13
-------- -------- -------- -------- --------
Total from investment
operations (2.70) (2.33) (1.45) 0.47 (0.64)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- -- -- -- --
Distribution from realized gains
from security transactions -- -- -- -- (0.27)
Distributions in excess of
book realized gains -- -- -- -- (0.18)
-------- -------- -------- -------- --------
Total distributions -- -- -- -- (0.45)
Net asset value, end of period $ 1.58 $ 4.28 $ 6.61 $ 8.06 $ 7.59
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total return**<F2> (63.08%) (35.25%) (17.99%) 6.19% (7.23%)
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period (in 000's) 256 856 1,445 1,557 1,188
Ratio of expenses to
average net assets 20.72% 13.29% 8.29% 8.08% 9.61%
Ratio of net expenses
to average net assets 19.72% 12.29% 7.29% 7.08% 9.55%
Ratio of net investment
income (loss) to average net assets (19.58%) (12.29%) (7.26%) (7.06%) (9.40%)
Portfolio turnover rate 47.78% 74.85% 133.42% 100.80% 121.48%
</TABLE>
**<F2> Based on net asset value per share. The Fund's sales charge is not
reflected in total return in this table.
The accompanying notes to financial statements are an integral part of these
statements.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) Organization --
Frontier Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management company. The Corporation was established under the laws of
Maryland on October 24, 1991. The Corporation permits the Trustees to
issue 200,000,000 shares of capital stock in separate series, with each
series representing interests in a separate portfolio of securities and
other assets, each with its own investment objectives and policies. The
Equity Fund Portfolio, to which Frontier's Board of Directors has
initially allocated 80,000,000 shares, is the only current series of the
Frontier Funds. The investment objective of the Equity Fund is to provide
capital appreciation on its assets.
(2) Significant Accounting Policies --
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements:
Security Valuation - Securities which are traded on any exchange or on the
NASDAQ over-the-counter market are valued at the last quoted sale price.
All other securities for which over-the-counter market quotations are
readily available are valued at their last bid price. When market
quotations are not readily available, when it is determined that the last
bid price does not accurately reflect the current value or when
restricted securities are being valued, such securities are valued as
determined in good faith under procedures established by and under the
general supervision of the Fund's directors.
Fixed income securities generally are valued by using market quotation,
but may be valued on the basis of prices furnished by a pricing service
when the Adviser believes such prices accurately reflect the fair market
value of such securities. A pricing service utilizes electronic data
processing techniques based on yield spreads relating to securities with
similar characteristics to determine prices for normal institutional-size
trading units of debt securities without regard to sale or bid prices.
Short term investments in fixed income securities with maturities of less
than 60 days when acquired, or which subsequently are within 60 days of
maturity, are valued by using the amortized cost method of valuation,
unless the Board of Directors determine that the amortized cost does not
reflect the securities' fair value, in which case these securities will
be valued at their fair value as determined by the Board of Directors.
Federal Income Taxes - It is the policy of The Fund to comply with the
requirements of The Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its net
investment income as dividends to its shareholders. In addition, The Fund
intends to distribute an amount sufficient to avoid imposition of any
excise tax under Section 4982 of The Internal Revenue Code. Therefore,
no provision for Federal income or excise taxes has been made.
Other - The Fund follows industry practice and records security
transactions on the trade date. The specific identification method is
used for determining gains or losses for financial statement and income
tax purposes. Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Discounts and premiums
on securities purchased are amortized over the life of the respective
securities.
Capital Loss Carryforwards - As of September 30, 1998, the Fund has
Federal Income Tax Capital Loss carryforwards of approximately $460,612,
expiring in 2006. It is management's intention to make no distribution
of any realized capital gains until the Federal Income Tax capital loss
carryforward is exhausted.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(3) Investment Advisory Agreement --
The Fund has an investment advisory agreement with Freedom Investors Corp.
("the Advisor", with whom certain officers and directors of the Fund are
affiliated). Under the terms of the management agreement, a monthly fee
is paid to the investment advisor based on 1/12th of 1% (1% on an annual
basis) of the average daily net asset value. The Advisor waived the
management fee for the year ended September 30, 1998 and has continued to
waive the fee until further notice to the Board of Directors.
The Fund pays Freedom Investors Corp. (the "Distributor") commissions on
sales of Fund shares. Total commissions paid to the Distributor for the
year ended September 30, 1998 were approximately $324.
(4) Capital Share Transactions --
As of September 30, 1998 there was 80,000,000, $0.01 par value shares of
capital stock authorized for the Equity Portfolio.
Transactions in capital stock were as follows:
<TABLE>
For the year ended For the year ended
September 30, 1998 September 30, 1997
--------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 18,066 $ 51,947 7,572 $ 44,323
Shares issued in reinvestment of dividends -- -- -- --
Shares redeemed (56,072) (172,798) (26,148) (116,973)
--------- --------- --------- ---------
Net decrease 38,006 $(120,851) (18,576) $ (72,650)
--------- --------- --------- ---------
</TABLE>
(5) Administration Agreement --
The Fund has agreements with American Data Services, Inc. (the
"Administrator") to provide shareholder servicing, fund accounting, and
administrative services to the Fund. For the administrative and fund
accounting services, the Fund pays the Administrator a fee computed daily
and payable monthly, the greater of approximately $2,268 per month, or
based upon the total net assets of the Fund, at the 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 monthly assets in excess of $175 million. For the
shareholder services, the Fund pays a monthly fee of approximately
$1,418. In addition, the Fund will reimburse the Administrator its
reasonable out-of-pocket expenses.
(6) Investment Transactions --
Purchases and sales, excluding short term securities, for the year ended
September 30, 1998 aggregated $251,033 and $445,995, respectively for the
Equity Fund.
(7) Accumulated Unrealized Depreciation --
Aggregate gross unrealized appreciation (depreciation) as of September 30,
1998, based on investment cost for Federal Income Tax purposes as
follows:
Aggregate gross unrealized appreciation $ 27,000
Aggregate gross unrealized depreciation (511,904)
-----------
Net unrealized depreciation $(484,404)
-----------
-----------
(8) Reclassifications --
In accordance with SOP 93-2, the Fund has recorded a reclassification in
the capital accounts. As of September 30, 1998 the fund recorded
permanent book/tax differences of $(101,860) from undistributed net
investment income to paid in capital. This reclassification has no
impact on the net asset value of the Fund and is designed generally to
present undistributed income on a tax basis which is considered to be
more informative to shareholders.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders and Board of Directors:
Equity Fund Portfolio (a series of Frontier Funds, Inc.)
We have audited the accompanying statement of assets and liabilities of
Equity Fund Portfolio (a series of Frontier Funds, Inc.), including the schedule
of portfolio investments, as of September 30, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held
by the custodian as of September 30, 1998, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Equity
Fund Portfolio (a series of Frontier Funds, Inc.) as of September 30, 1998, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
October 13, 1998
FRONTIER FUNDS, INC.
OFFICERS AND DIRECTORS
James R. Fay President and Director
William T. Duero Vice President and Director
Jeffrey S. Ackley Director
Kenneth W. Coshun Director
INVESTMENT ADVISOR
FREEDOM INVESTORS CORP.
NATIONAL DISTRIBUTOR
Freedom Investors Corp.
CUSTODIAN,
RETIREMENT PLAN CUSTODIAN
Star Bank, N.A.
SHAREHOLDER SERVICES
1-800-231-2901
SECURITIES DEALERS SERVICES
1-800-759-6598
(FRONTIER FUNDS, INC. LOGO)
FRONTIER FUNDS, INC.
P.O.Box 68
101 W. Wisconsin Ave.
Pewaukee, WI 53072-0068
(414) 691-1196
This report is intended solely for use by the shareholders of Frontier
Funds, Inc. If it is provided to any member of the public, it must be
preceded or accompanied by a currently effective prospectus of the Fund.
