(FRONTIER FUNDS, INC. LOGO)
Eighth Year
ANNUAL REPORT
For the Period Ended
September 30, 1999
(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.
Your Frontier Fund performed very well during the fiscal year ending
September 30, 1999, with a total increase of 76.58%. This increase is
substantially better than the 19.15% increase in the Russell 2000 Index and the
27.78% increase in the S&P 500 Index. Looking out over the next six months, we
are optimistic that we have reached a turning point where smaller-cap stocks
will perform well versus larger-capitalization stocks. We believe the improving
world economic picture will help sustain strong performance of small-cap stocks
going forward.
As we assess the next six months, we expect the U.S. economy to continue to
grow at a more moderate pace. Although we believe that Y2K concerns are
overstated, short-term economic dislocations are possible, and we plan to take
advantage of market volatility in an opportunistic manner.
Management believes that the actual operating expenses of the Fund are
reasonable and comparable to amounts typically paid for like services. However,
due to the Fund's current size, its expenses represent a higher percentage of
total net assets than that generally reported by larger mutual funds.
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, 1999
QUOTED
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 103.49%
APPAREL -- 4.71%
7,500 +<F1> Design Inc. $ 12,891
70,000 +<F1> Cygne Designs Inc. 10,150
--------
23,041
--------
AUTO EQUIPMENT -- 2.87%
5,000 +<F1> Miller Industries 14,063
--------
COMPUTER SOFTWARE -- 38.26%
5,000 +<F1> EGames, Inc. 12,344
40,000 +<F1> Mitek Systems Inc. 175,000
--------
187,344
--------
COSMETICS & TOILETRIES -- 4.43%
13,333 +<F1> Human Pheromone Sciences Inc. 21,667
--------
ELECTRONIC COMPONENTS -- SEMICONDUCTORS -- 15.75%
1,000 +<F1> Custom Tracks Corp. *<F2> 29,625
10,000 +<F1> Dense-Pac Microsystems Inc. 47,500
--------
77,125
--------
HEALTH CARE -- 10.21%
10,000 +<F1> Energy Biosystems Corp. 27,500
40,000 +<F1> Procyte Corp. 22,500
--------
50,000
--------
HEALTH CARE TECHNOLOGY -- 3.83%
10,000 +<F1> Cell Robotics International Inc. 18,750
--------
NETWORKING PRODUCTS -- 3.37%
6,000 +<F1> Openroute Network 16,500
--------
RECYCLING MANAGEMENT -- 6.51%
15,000 +<F1> Hi-Rise Recycling Systems Inc. 31,875
--------
TECHNOLOGY -- 3.34%
4,286 +<F1> Digital Video Systems Inc. 16,338
--------
TELECOMMUNICATIONS -- 10.21%
40,000 +<F1> RSI Systems Inc. 50,000
--------
TOTAL COMMON STOCK
(Cost $774,269) 506,703
--------
TOTAL INVESTMENTS
(Cost $774,269) 103.49% 506,703
------- --------
Liabilities in excess
of Other Assets (3.49%) (17,068)
------- --------
TOTAL NET ASSETS 100.00% $489,635
------- --------
------- --------
+<F1> Non-income producing security
*<F2> As of October 1, 1999 the security name changed to Zixit Corp.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
ASSETS:
Investments in securities at
value -- (cost $774,269) (Note 2) $ 506,703
Cash 7
Subscriptions receivable 3,685
Prepaid expenses 1,000
----------
Total Assets 511,395
----------
LIABILITIES:
Payables:
Accrued expenses 21,760
----------
Total Liabilities 21,760
----------
Net Assets $ 489,635
----------
----------
NET ASSETS CONSIST OF:
Additional paid in capital $1,049,410
Accumulated net realized loss from
investment transactions (Note 6 ) (292,209)
Net unrealized depreciation on investments (267,566)
----------
Net Assets $ 489,635
----------
----------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($489,635 / 175,213 shares of capital
stock outstanding) (Note 6 ) $ 2.79
----------
----------
Maximum offering price per share (net asset
value plus sales charge of 8%) $ 3.03
----------
----------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
EXPENSES:
Management fee $ 3,859
Administration fee 25,848
Legal fee 25,943
Transfer agent fee 17,130
Custody fee 7,644
Audit fee 9,773
Printing 7,957
Directors' fees and expenses 7,750
Registration fees 3,725
Insurance 1,497
Other 907
---------
Total expenses 112,033
Less: Waiver of management fee (3,859)
---------
Net expenses 108,174
---------
Net investment loss (108,174)
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS (Note 2)
Net realized gain from investment transactions 84,976
Net change in unrealized appreciation of investments 216,838
---------
Net realized and unrealized gain on investments 301,814
---------
Net increase in net assets resulting from operations $ 193,640
---------
---------
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
Net investment loss $(108,174) $(101,860)
Net realized gain (loss) from
investment transactions 84,976 (4,704)
Net change in unrealized appreciation
(depreciation) of investments 216,838 (372,835)
--------- ---------
Net increase (decrease) in net assets resulting
from operations 193,640 (479,399)
Net capital share transactions (Note 4) 40,152 (120,851)
--------- ---------
Net increase (decrease) in net assets 233,792 (600,250)
NET ASSETS:
Beginning of period 255,843 856,093
--------- ---------
End of period (including accumulated
undistributed net investment income
of $0, and $0, respectively) $ 489,635 $ 255,843
--------- ---------
--------- ---------
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.58 $ 4.28 $ 6.61 $ 8.06 $ 7.59
------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment loss (0.67) (0.58) (0.59) (0.51) (0.47)
Net realized and unrealized
gain (loss) on investments 1.88 (2.12) (1.74) (0.94) 0.94
------ ------ ------ ------ ------
Total from investment
operations 1.21 (2.70) (2.33) (1.45) 0.47
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- -- -- -- --
Distribution from realized gains
from security transactions -- -- -- -- --
Distributions in excess of
book realized gains -- -- -- -- --
------ ------ ------ ------ ------
Total distributions -- -- -- -- --
Net asset value, end of period $ 2.79 $ 1.58 $ 4.28 $ 6.61 $ 8.06
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return**<F3> 76.58% (63.08%) (35.25%) (17.99%) 6.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period (in 000's) 490 256 856 1,445 1,557
Ratio of expenses to
average net assets 28.93% 20.72% 13.29% 8.29% 8.08%
Ratio of net expenses
to average net assets 27.93% 19.72% 12.29% 7.29% 7.08%
Ratio of net investment income
(loss) to average net assets
before fee waiver (28.93%) (20.58%) (13.29%) (8.24%) (8.06%)
Ratio of net investment income
(loss) to average net assets
after fee waiver (27.93%) (19.58%) (12.29%) (7.26%) (7.06%)
Portfolio turnover rate 83.55% 47.78% 74.85% 133.42% 100.80%
</TABLE>
**<F3> Based on net asset value per share. The Funds's sales charge is not
reflected in total return in this table.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 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 Board of Directors 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.
NOTE 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, 1999, the Fund has
Federal Income Tax Capital Loss carryforwards of approximately $ 375,636,
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.
NOTE 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 of $3,859
for the year ended September 30, 1999 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, 1999 were approximately $8,751.
NOTE 4. CAPITAL SHARE TRANSACTIONS
As of September 30, 1999 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, 1999 SEPTEMBER 30, 1998
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 39,324 $101,040 18,066 $ 51,947
Shares issued in reinvestment of dividends -- -- -- --
Shares redeemed (26,107) (60,888) (56,072) (172,798)
------- -------- ------- ---------
Net increase (decrease) 13,217 $ 40,152 (38,006) ($120,851)
------- -------- ------- ---------
</TABLE>
NOTE 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 monthly fee of $2,268 on average net
assets under $5 million; $2,750 from $5 million to $10 million; $3.500 from $10
million to $20 million; and the greater of $5,000 or 1/12th of 0.0145% of
average net assets in excess of $20 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.
NOTE 6. INVESTMENT TRANSACTIONS
Purchases and sales, excluding short term securities, for the year
ended September 30, 1999 aggregated $346,083 and $414,282, respectively for the
Equity Fund.
NOTE 7. ACCUMULATED UNREALIZED DEPRECIATION
Aggregate gross unrealized appreciation (depreciation) as of September
30, 1999, based on investment cost ($774,269) for Federal Income Tax purposes is
as follows:
Aggregate gross unrealized appreciation $ 129,738
Aggregate gross unrealized depreciation (397,304)
---------
Net unrealized depreciation $(267,566)
---------
---------
NOTE 8. RECLASSIFICATION
In accordance with SOP 93-2, the Fund has recorded a reclassification
in the capital accounts. As of September 30, 1999 the fund recorded permanent
book/tax differences of $(108,174) 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:
The Frontier Equity Fund Portfolio (a series of Frontier Funds, Inc.)
We have audited the accompanying statement of assets and liabilities of The
Frontier Equity Fund (a series of Frontier Funds, Inc.), including the schedule
of portfolio investments, as of September 30, 1999, 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, 1999, 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 The
Frontier Equity Fund (a series of Frontier Funds, Inc.) as of September 30,
1999, 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
November 4, 1999
FRONTIER FUNDS, INC.
OFFICERS AND DIRECTORS
James R. Fay President and Director
Amy L. Siesennop Vice President and Director
Jeffrey S. Ackley Director
Kenneth W. Coshun Director
Matthew G. Drew 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.
