(FRONTIER FUNDS, INC. LOGO)
Ninth Year
ANNUAL REPORT
For the Period Ended
September 30, 2000
(FRONTIER FUNDS, INC. LOGO)
TO OUR INVESTORS
Dear Shareholders,
Volatility--swings in price movements of investment instruments such as
stocks--has become much more pronounced in the last few years as investors move
from one market sector to another. Small cap growth funds were stellar during
the first half of this year, but as the market started its current decline, so
did small cap funds.
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.
During the twelve months ended September 30, 2000, the Equity Fund's net
asset value per share increased from $2.79 as of September 30, 1999 to $3.23 as
of September 30, 2000. The increase represents a gain of approximately 15.77%.
It outperformed the S&P 500 Index which increased only 11.98%, while the Russell
2000 Index increased 23.1% over the same period.
As we assess the next six months, we expect the U.S. economy to continue to
grow at a more moderate pace. We are optimistic that we have reached a turning
point where small-cap stocks will perform well versus large-cap stocks.
Management believes that the investment community will continue to recognize
these small companies as a great place for investment opportunities.
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 generally reported by larger mutual funds.
Thank you for your investment in Frontier Funds, Inc. Equity Portfolio. I
appreciate the opportunity to serve you. I invite your comments and
suggestions. Please feel free to write or telephone.
Sincerely,
/s/James R. Fay
James R. Fay
President
SCHEDULE OF INVESTMENTS
AS OF SEPTEMBER 30, 2000
QUOTED
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 100.65%
APPAREL -- 22.07%
100,000 +<F1> Cygne Designs Inc. $ 25,500
10,000 +<F1> Design Inc. 23,125
10,000 +<F1> G-III Apparel Group Ltd. 72,188
15,000 +<F1> The Leslie Fay Company 52,500
--------
173,313
--------
BIOTECHNOLOGY & PHARMACEUTICALS -- 6.59%
20,000 +<F1> Human Pheromone Sciences Inc. 21,250
8,000 +<F1> Macrochem Corporation 30,500
--------
51,750
--------
COMPUTER SOFTWARE -- 23.88%
20,000 +<F1> eGames, Inc. 20,000
40,000 +<F1> Mitek Systems Inc. 167,500
--------
187,500
--------
HEALTH CARE TECHNOLOGY -- 12.74%
10,000 +<F1> Cell Robotics International Inc. 22,188
5,000 +<F1> Enchira Biotechnology Inc. 40,312
40,000 +<F1> Procyte Corporation 37,500
--------
100,000
--------
FINANCIAL SERVICES -- 4.86%
5,000 Conseco Inc. 38,125
--------
TELECOMMUNICATIONS -- 3.58%
100,000 +<F1> RSI Systems Inc. 28,125
--------
OFFICE EQUIPMENT -- 2.87%
15,000 +<F1> Gradco Systems Inc. 22,500
--------
RECREATIONAL PRODUCTS -- 7.96%
10,000 +<F1> Aldila Inc. 23,125
15,000 +<F1> Toymax International Inc. 39,375
--------
62,500
--------
RECYCLING MANAGEMENT -- 1.91%
30,000 +<F1> Hi-Rise Recycling Systems Inc. 15,000
--------
RETAIL -- 4.84%
8,000 +<F1> Samuels Jewelers Inc. 38,000
--------
SOFTWARE -- 3.78%
5,000 +<F1> Entrade Inc. 19,063
10,000 +<F1> Fortel Inc. 10,625
--------
29,688
--------
TECHNOLOGY -- 5.57%
7,001 +<F1> Digital Video Systems Inc. 43,754
--------
TOTAL COMMON STOCK
(Cost $1,218,123) 790,255
--------
TOTAL INVESTMENTS
(Cost $1,218,123) 100.65% 790,255
Liabilities in excess
of Other Assets (0.65%) (5,105)
------- --------
TOTAL NET ASSETS 100.00% $785,150
------- --------
------- --------
+<F1> Non-income producing security
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
ASSETS:
Investments in securities, at value
(cost $1,218,123) (Note 2) $ 790,255
Cash 21,920
Receivable for securities sold 53,636
Prepaid expenses 16,672
----------
Total Assets 882,483
----------
LIABILITIES:
Payables:
Securities purchased 60,200
Fund shares repurchased 1,586
Accrued directors fees 2,208
Other accrued expenses 33,339
----------
Total Liabilities 97,333
----------
Net Assets $ 785,150
----------
----------
NET ASSETS CONSIST OF:
Capital stock, $.01 par value; 80 million shares
authorized; 242,913 shares outstanding $1,327,597
Accumulated net realized loss from investment
transactions (Note 6) (114,579)
Net unrealized depreciation on investments (427,868)
----------
Net Assets $ 785,150
----------
----------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
Net asset value ($785,150 / 242,913) (Note 5) $ 3.23
----------
----------
Maximum offering price per share (net asset
value plus sales charge of 8%) $ 3.51
----------
----------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
INVESTMENT INCOME:
Dividends $ 75
---------
Total investment income 75
---------
EXPENSES:
Advisory fees (Note 3) 9,079
Administration fees (Note 4) 34,416
Legal fees 25,479
Registration fees 20,352
Transfer agent fees 17,378
Audit fees 11,000
Printing and postage expense 9,457
Custody fees 9,191
Directors fees 8,958
Other expenses 3,860
---------
Total expenses 149,170
Less: advisory fees waived (Note 3) (9,079)
---------
Net expenses 140,091
---------
Net investment loss. (140,016)
---------
NET REALIZED AND UNREALIZED GAINS/(LOSSES)
ON INVESTMENTS (NOTE 2)
Net realized gains on investment transactions 177,630
Net change in unrealized depreciation on investments (160,302)
---------
Net gain on investments 17,328
---------
Net decrease in net assets resulting from operations $(122,688)
---------
---------
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
---- ----
Net investment loss $(140,016) $(108,174)
Net realized gain from investment transactions 177,630 84,976
Net change in unrealized appreciation
(depreciation) on investments (160,302) 216,838
--------- ---------
Net increase (decrease) in net assets
resulting from operations (122,688) 193,640
--------- ---------
Net capital share transactions (Note 5) 418,203 40,152
--------- ---------
Net increase in net assets 295,515 233,792
NET ASSETS:
Beginning of Period 489,635 255,843
--------- ---------
End of Period (including accumulated
undistributed net investment income
of $0 and $0, respectively) $ 785,150 $ 489,635
--------- ---------
--------- ---------
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,
----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 2.79 $ 1.58 $ 4.28 $ 6.61 $ 8.06
------ ------ ------ ------ ------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment loss (0.66) (0.67) (0.58) (0.59) (0.51)
Net realized and unrealized
gain (loss) on investments 1.10 1.88 (2.12) (1.74) (0.94)
------ ------ ------ ------ ------
Total from investment
operations 0.44 1.21 (2.70) (2.33) (1.45)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- -- -- -- --
Distributions from
net realized gains -- -- -- -- --
------ ------ ------ ------ ------
Total dividends
and distributions -- -- -- -- --
------ ------ ------ ------ ------
Net asset value, end of period $ 3.23 $ 2.79 $ 1.58 $ 4.28 $ 6.61
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return**<F2> 15.77% 76.58% (63.08%) (35.25%) (17.99%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(in thousands) $785 $490 $256 $856 $1,445
RATIOS TO AVERAGE NET ASSETS:
Expenses (before reimbursement) 16.55% 28.93% 20.72% 13.29% 8.29%
Expenses (net of reimbursement) 15.55% 27.93% 19.72% 12.29% 7.29%
Net investment income
(before reimbursement) (16.54%) (28.93%) (20.58%) (13.29%) (8.24%)
Net investment income
(net of reimbursement) (15.54%) (27.93%) (19.58%) (12.29%) (7.26%)
Portfolio Turnover Rate 82.66% 83.55% 47.78% 74.85% 133.42%
</TABLE>
**<F2> Based on net asset value per share. The Fund's sales charge is not
reflected in total return on this table.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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 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 (the "Fund")
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. Generally accepted
accounting principles require that permanent financial reporting tax differences
relating to shareholder distributions be reclassified to paid-in-capital.
Capital Loss Carryforwards - As of September 30, 2000, the Fund has
Federal Income Tax Capital Loss carryforwards of approximately $114,579,
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 AND OTHER TRANSACTION WITH AFFILIATES
The Fund has an investment advisory agreement with Freedom Investors
Corp. ("the Adviser"), with whom certain officers and directors of the Fund are
affiliated. Under the terms of the investment advisory agreement, the Fund has
agreed to pay the adviser a monthly fee at the annual rate of 1.00% of the
Fund's average daily assets. The Adviser has voluntarily waived payments of its
advisory fee since the inception of the Fund. Although the waiver can be
revoked at any time, the Adviser plans to continue this arrangement until
further notice to the Board of Directors. During the year ended September 30,
2000, the Adviser waived its total fee amounting to $9,079.
Freedom Investors Corp. also serves as principal underwriter and
national distributor (the "Distributor") for the Fund. As Distributor, Freedom
Investors selects brokers and other financial professionals to sell shares of
the Fund and coordinate their marketing efforts. For the year ended September
30, 2000, the Distributor received $3,829 in commission from the sale of fund
shares.
NOTE 4. ADMINISTRATION AGREEMENT
Pursuant to an administration agreement between the Fund and American
Data Services, Inc. (the "Administrator") the Administrator provides fund
accounting, administration and shareholder servicing to the Fund. For its fund
accounting and administrative services, the Administrator receives a minimum
monthly fee of $2,268 plus out-of-pocket expenses. For its shareholder
services, the Administrator receives a monthly fee of $1,418 plus out-of-pocket
expenses.
NOTE 5. CAPITAL SHARE TRANSACTIONS
As of September 30, 2000 there were 80,000,000, $0.01 par value shares
of capital stock authorized for the Equity Portfolio. Paid in capital at
September 30, 2000 was $1,327,597.
Transactions in capital stock were as follows:
<TABLE>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 121,888 $723,594 39,324 $101,040
Shares issued in reinvestment of dividends -- -- -- --
Shares redeemed (54,188) (305,391) (26,107) (60,888)
------- -------- ------- --------
Net increase 67,700 $418,203 13,217 $ 40,152
------- -------- ------- --------
</TABLE>
NOTE 6. INVESTMENT TRANSACTIONS
During the year ended September 30, 2000, purchases and sales,
excluding short term securities, aggregated $1,028,670 and $762,446,
respectively.
NOTE 7. ACCUMULATED UNREALIZED APPRECIATION
Aggregate gross unrealized appreciation (depreciation) as of September
30, 2000, based on investment cost of $1,218,123 for Federal Income Tax purposes
is as follows:
Aggregate gross unrealized appreciation $ 140,874
Aggregate gross unrealized depreciation (568,742)
---------
Net unrealized depreciation $(427,868)
---------
---------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders and Board of Directors:
The Frontier Equity Fund (a series of Frontier Funds, Inc.)
We have audited the accompanying statement of assets and liabilities of the
Frontier Equity Fund, including the schedule of portfolio investments, as of
September 30, 2000, 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
audit.
We conducted our audit 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, 2000, by correspondence with the custodian
and brokers. 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 audit provides 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,
2000, 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 11, 2000
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
Firstar 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
(262) 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.
