PROSPECTUS FEBRUARY 15, 2000
THE FRONTIER EQUITY FUND
a series of
(FRONTIER FUNDS, INC. LOGO)
101 West Wisconsin Avenue
Pewaukee, Wisconsin 53072-3433
(800) 759-6598 or (262) 691-1196
The FRONTIER EQUITY FUND seeks long-term capital appreciation through
investment primarily in the common stock and other equity securities of U.S.
companies.
TABLE OF CONTENTS
Basic Information About the Fund ......................... 2
Past Performance ......................................... 4
Fees and Expenses ........................................ 5
More About Investment Strategies and Objectives .......... 6
Investment Adviser ....................................... 7
Pricing and Distribution of the Fund ..................... 7
Purchasing Shares ........................................ 8
Redeeming Shares ......................................... 9
Dividends, Capital Gains Distributions and Taxes ......... 11
Financial Highlights ..................................... 12
Purchase Application ..................................... 13
For More Information ..............................Back Cover
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE
REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED
WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
BASIC INFORMATION ABOUT OF THE FUND
INVESTMENT OBJECTIVE
O The primary investment objective of the Frontier Equity Fund ("Fund")
is long-term capital appreciation. Production of current income is
incidental to this objective.
PRINCIPAL INVESTMENTS
O Freedom Investors Corp. ("Adviser") anticipates that, except for
temporary periods of defensive investing (as described below), at
least 75% of the Fund's assets will be invested in equity securities
of U.S. companies. While the Fund may invest in small, medium and
large capitalization companies, the Fund will invest primarily in
securities of companies having a market capitalization of less than
$1 billion (small-cap). The Fund may invest up to 25% of its assets
in securities of foreign companies and/or debt securities which are
not convertible into common stock or other equity securities.
O Equity securities include exchange-traded and over-the-counter (OTC)
common and preferred stocks, warrants, rights, convertible debt
securities, trust certificates, partnership interests and equity
participations.
SELECTION OF THE FUND'S INVESTMENTS
O The Fund invests primarily in common stocks of U.S. companies which
the Adviser believes have the potential for significant earnings
and/or revenue growth over a three-year to five-year period. The
Adviser bases its investment decisions on factors which are unique
to a specific company, not upon general economic or market
conditions. The Fund may invest in companies of widely varying
sizes and in any industry. At any given time, the Fund is likely to
hold both "growth" stocks and "value" stocks. While Fund
investments are not determined by any single standard or set of
criteria, the Adviser will look for the following characteristics,
among others, in selecting companies:
o above-average growth prospects
o excellent management
o leading position or product in a rapidly-growing industry
o adequate capitalization.
O In response to adverse market, economic or political conditions, the
Fund may take temporary defensive positions in debt securities. The
Fund may be unable to achieve its goal of capital appreciation while
defensively invested. The Adviser will not resort to defensive
investing unless it believes that such action is necessary to
minimize losses.
PRINCIPAL INVESTMENT RISKS
O The Fund will invest primarily in common stocks. While common stocks
have historically outperformed other classes of assets over the long
term, they tend to fluctuate in price more dramatically over the
shorter term. This price volatility may result from various factors
which affect individual companies, certain industries or the
securities market as a whole. Because the Fund's investment
portfolio is comprised primarily of common stocks, the value of an
investment in the Fund will go up and down and investors will make
or lose money with these fluctuations.
O The Fund will generally focus on smaller companies. As compared to
larger companies, smaller and less seasoned companies often have
more potential for rapid growth. However, they often involve
greater risk than larger companies. Smaller companies may not have
the management experience, financial resources, product
diversification and competitive strengths of larger companies.
While these risks cannot be entirely eliminated, the Adviser will
try to minimize them by diversifying the Fund's investment portfolio
-- spreading the risk by investing in a broad range of stocks.
O Smaller company stocks tend to be bought and sold less often and in
smaller amounts than larger company stocks. Because of this, if the
Fund wants to sell a large quantity of a smaller company stock, it
may have to sell at a lower price than it would like, or have to
sell in smaller quantities over a period of time. The Adviser
attempts to minimize this risk by investing in stocks that are
easily bought and sold at the time of purchase.
O Different types of investments shift in and out of favor depending on
market and economic conditions. At various times, stocks will be
more or less favored than bonds, and small company stocks will be
more or less favored than large company stocks. For any given
period of time, the performance of the Fund will be better or worse
than other types of funds depending on what is in "favor" during
that period.
INVESTOR SUITABILITY
O The Fund may be suitable for those investors:
o seeking growth of capital
o who have long-term investment goals and no need for current
income
o willing to accept stock market risk in exchange for the
opportunity to achieve higher long-term returns.
O An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency. An investor in the Fund may lose money.
PAST PERFORMANCE
The bar chart and table below show the Fund's annual returns and long-term
performance. The bar chart gives an indication of the risks of investing in the
Fund by showing how the performance of the Fund has varied from year to year (on
a calendar year basis). Results shown on the chart do not include sales
charges. If sales charges were reflected, returns would be less than those
shown. The table shows how the Fund's average annual returns compare to those
reported by the Standard & Poor's Composite Index of 500 Stocks ("S&P 500") and
the Russell 2000 Index ("Russell 2000"), both of which are widely-recognized
measures of stock performance. Both the chart and the table assume reinvestment
of all dividends and capital gain distributions. AS WITH ALL MUTUAL FUNDS, THE
PAST PERFORMANCE OF THE FUND IS NOT A PREDICTION OR GUARANTEE OF ITS FUTURE
RESULTS.
TOTAL RETURN AS OF DECEMBER 31
1992 1<F1> 1993 1994 1995 1996 1997 1998 1999
----------- ---- ---- ---- ---- ---- ---- ----
3.61% -24.80% -12.77% -1.26% -17.66% -39.53% -28.53% 48.88%
- ---------------
1<F1> Annualized.
During the period shown on the bar chart above, the Fund's highest total
return for a quarter was 41.14%, for the quarter ended December 31, 1998, and
the lowest total return for a quarter was -33.33%, for the quarter ended
September 30, 1998.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
SINCE INCEPTION
OF THE FUND
1 YEAR 5 YEARS (APRIL 1, 1992)
------ ------ ----------------
The Frontier Equity Fund......... 37.19% -12.60% -13.53%
Russell 2000 1<F2>............... 21.36% 16.44% 13.30%
S&P 500 2<F3>.................... 21.04% 28.81% 20.76%
- -------------------------
1<F2> The Russell 2000 is an unmanaged index of 2,000 publicly-traded common
stocks of small capitalization U.S. companies. The Russell 2000 assumes
the reinvestment of all dividends and/or other income. The results
reported by the Russell 2000 have been included to show the performance
of small-cap stocks such as those generally held by the Fund.
2<F3> The S&P 500 is an unmanaged index of 500 common stocks which are
considered by Standard & Poor's Corporation to represent the performance
of the U.S. stock market in general. The S&P 500 assumes the
reinvestment of all dividends and/or other income.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)...................... 8.00%
Maximum Deferred Sales Charge (Load)........................ None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends. None
Redemption Fee.............................................. None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
Management Fees............................................. 1.00%
Distribution (12b-1) and/or Service Fees ................... None
Other Expenses1<F4>......................................... 27.93%
-------
Total Annual Operating Costs2<F5>........................... 28.93%
- -------------------
1<F4>Management believes that the actual operating expenses of the Fund are
reasonable and comparable to amounts tipically 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.
2<F5>For the Fund's most recent fiscal year, actual total annual operating
expenses were less than the percentage shown above due to certain waivers
of fees and/or expense reimbursements. These waivers of fees and expense
reimbursements were granted voluntarily by the Adviser. Although these
waivers can be revoked at any time, the Adviser presently anticipates that
this arrangement will continue for the Fund's current fiscal year ending
September 30, 2000. After giving effect to waivers by the Adviser of fees
and expense reimbursements, the Fund's actual total annual operating
expenses for its last fiscal year were 27.93% of average daily net assets.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that:
o You invest $10,000 in the Fund for the time periods indicated;
o Your investment has a 5% return each year;
o The Fund's operating expenses remain the same; and
o You redeem your investment at the end of each period.
Although your actual costs may be higher or lower, under these assumptions,
your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------ -------- --------
$3,143 $6,281 $8,097 $9,956
MORE ABOUT INVESTMENT STRATEGIES AND OBJECTIVES
INVESTMENT GOAL
The Fund cannot change its investment goal, which is long-term capital
appreciation, without the approval of its shareholders. The Fund might not
succeed in achieving its goal.
DEFENSIVE INVESTING
In response to adverse market, economic or political conditions, the Fund may
take temporary defensive positions. This means that the Fund will invest in
nonconvertible debt securities, including money market instruments (such as U.S.
Treasury Bills and commercial paper). These debt securities may be of any
maturity and may be issued by the U.S. government or any of its agencies,
foreign governments, supranational entities (such as the World Bank) and U.S.
and foreign companies. Defensive investing may prevent the Fund from achieving
its goal of capital growth. Even when it is not investing defensively, the Fund
will hold some cash and/or money market instruments in order to pay its
expenses, fund redemptions or take advantage of investment opportunities.
PORTFOLIO TURNOVER
The Fund does not intend to engage in frequent short-term trading to achieve
its goal. However, if circumstances warrant, securities will be bought and sold
without regard to the length of time held. The Adviser does not anticipate that
the Fund's annual portfolio turnover rate will exceed 100%. (An annual portfolio
turnover rate of 100% would occur if the Fund replaced securities valued at 100%
of average total net assets within a one-year period.) Turnover rate may vary
from year to year. Higher turnover (100% or more) will increase transaction
costs and may increase short-term capital gains. Payment of these transaction
costs will reduce total return. Any distributions to Fund shareholders of
short-term capital gains will be taxed at ordinary income rates for federal
income tax purposes, not at lower capital gains rates.
ADDITIONAL INVESTMENT RISKS
The Fund could lose money or underperform for the reasons previously
described in this section or in the "Basic Information About the Fund" section,
or for the following additional reasons:
O Adviser risk. The Adviser's judgments about the value, attractiveness and/or
potential appreciation of particular investments proves to be wrong.
O Foreign investment risk. Prices of the Fund's foreign securities may go down
due to unfavorable changes in currency exchange rates, government actions,
political instability or the more limited availability of information about
foreign issuers.
O Interest rate risk. If interest rates go up, bond prices and the value of
the Fund's fixed income securities will go down.
O Credit risk. An issuer of a debt security could default on its obligation to
pay principal or interest, or its credit rating could be downgraded.
O Liquidity and valuation risks. Securities that were liquid when purchased by
the Fund may become temporarily illiquid and difficult to value, particularly in
declining markets.
YEAR 2000
The Fund would be adversely affected if the computer systems used by the
Adviser, Distributor, Custodian and/or Transfer Agent were unable to recognize
dates after 1999 ("Year 2000 Problems"). The Fund has no application systems of
its own, and is entirely dependent on its service providers' systems and
software. The Adviser and the other service providers have advised the Fund
that they are taking action to prevent, and do not expect the Fund to suffer
from, significant Year 2000 Problems. In addition, the companies in which the
Fund invests may have Year 2000 Problems. The value of their securities could
go down if they do not remedy these problems in time or if fixing them proves to
be unusually expensive.
INVESTMENT ADVISER
Freedom Investors Corp., the Adviser, provides continuous investment advice
and other portfolio management services to the Fund. Under the supervision of
the Fund's Board of Directors, the Adviser makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments.
Freedom Investors Corp., a registered investment adviser, was established in
1988 and has been the Fund's only investment adviser. The address of the
Adviser is:
101 West Wisconsin Avenue
Pewaukee, Wisconsin 53072-3433
The Adviser is a wholly-owned subsidiary of Freedom Financial, Inc. James R.
Fay, the majority shareholder of Freedom Financial, Inc., is also the President
of the Adviser (his principal occupation since 1988) and is responsible for the
day-to-day management of the Fund's investment portfolio. Neither the Adviser
nor Mr. Fay has advised any other mutual fund.
The Fund has agreed to pay the Adviser a monthly advisory fee at the
annual rate of 1.00% of the Fund's average daily net assets. The Adviser has
voluntarily waived payment of its advisory fee since the inception of the Fund.
Although this waiver can be revoked at any time, the Adviser plans to continue
this arrangement for the Fund's current fiscal year ending September 30, 2000.
The Adviser may, if it chooses to do so, pay any operating expenses of the
Fund which are in excess of the 1.00% advisory fee. These expenses must be the
responsibility of the Fund and may include taxes, interest, governmental charges
and fees (including the cost of registering the Fund and/or its shares with the
Securities and Exchange Commission and the various States), brokerage costs,
dues, and all extraordinary costs (including expenses arising out of anticipated
or actual litigation or administrative proceedings). Any such expense payments
on behalf of the Fund are reimbursable to the Adviser by the Fund. To date, the
Adviser has chosen not to accrue or seek reimbursement from the Fund for the
payment of any operating expenses.
PRICING AND DISTRIBUTION OF THE FUND
CALCULATION OF NET ASSET VALUE
The Fund's net asset value ("NAV") per share is determined by subtracting
from the Fund's total assets any liabilities and then dividing into this amount
the total outstanding shares as of the date of the calculation.
The NAV per share is computed once daily, Monday through Friday, at 3:00 p.m.
(Central Time) on days when the Fund is open for business (generally the same
days that the New York Stock Exchange is open for trading). Holidays when both
the New York Stock Exchange and the Fund are closed are listed in the Fund's
Statement of Additional Information.
Each security owned by the Fund that is listed on an exchange is valued at
its last sale price on that exchange on the date as of which assets are valued.
In the event that the security is listed on more than one exchange, the Fund
will use the price on that exchange which it generally considers to be the
principal exchange on which the stock is traded. If there are no sales, the
security is valued by the Fund at its last reported sale price. An unlisted
security for which over-the-counter market quotations are readily available is
valued by the Fund at the mean between the last current bid and asked prices.
When market quotations are not readily available, any security or other asset is
valued at its fair value as determined in good faith by the Board of Directors
of the Fund.
DISTRIBUTION OF THE FUND
Shares of the Fund are offered for sale through authorized investment
dealers. Freedom Investors Corp., the Adviser, is also the principal
underwriter and national distributor ("Distributor") for the Fund. In addition
to being a registered investment adviser, Freedom Investors Corp. is a
registered broker-dealer and member of the National Association of Securities
Dealers, Inc. The Distributor selects brokers and other financial professionals
to sell shares of the Fund and coordinates their marketing efforts.
The "offering price" of each share of the Fund includes a sales charge, as
follows:
Sales Charge As a Sales Charge As a
Percentage of the Percentage of the
Offering Price Net Amount Invested
--------------- --------------------
8.00% 8.70%
Neither dividend reinvestments nor redemptions are subject to the sales charge.
The sales charge is paid by the Fund to the Distributor. The Distributor may in
turn pay (reallow) all or part of the sales charge to the investment dealer that
makes the sale.
PURCHASING SHARES
HOW TO PURCHASE FUND SHARES
THE FUND WILL PROCESS PURCHASE ORDERS THAT IT RECEIVES PRIOR TO THE CLOSE OF
REGULAR TRADING ON A DAY THAT THE NEW YORK STOCK EXCHANGE IS OPEN AT THE NET
ASSET VALUE DETERMINED LATER THAT DAY, PLUS THE APPLICABLE SALES CHARGE. THE
FUND WILL PROCESS PURCHASE ORDERS THAT IT RECEIVES AFTER THE CLOSE OF TRADING AT
THE NET ASSET VALUE DETERMINED AT THE CLOSE OF REGULAR TRADING ON THE NEXT DAY
THAT THE NEW YORK STOCK EXCHANGE IS OPEN.
O Read this Prospectus carefully.
O Determine how much you want to invest, subject to the following minimums:
o New accounts $500
o Subsequent investments $50
O Complete the share purchase application in this Prospectus, unless the shares
are being purchased by a Fund-sponsored IRA. Purchase applications for use
by Fund-sponsored IRAs are available from the Fund or your authorized dealer.
If you have any questions concerning the purchase of shares (including
purchases by retirement plans) or would like to receive an IRA purchase
application, please contact the Fund at (800) 759-6598 for assistance.
O Make your check payable to THE FRONTIER EQUITY FUND. All checks must be
drawn on U.S. banks. The Fund will not accept cash or third party checks.
Firstar Bank, N.A., the Fund's Custodian, will charge a $20 service fee
against the account of any shareholder whose check is returned for
insufficient funds. The shareholder will also be responsible for any losses
suffered by the Fund as a result.
O Send the application and check to:
FOR FIRST CLASS MAIL
The Frontier Equity Fund
c/o Frontier Funds, Inc.
Post Office Box 68
Pewaukee, Wisconsin 53072-0068
FOR OVERNIGHT COURIER OR
REGISTERED MAIL
The Frontier Equity Fund
c/o Frontier Funds, Inc.
101 West Wisconsin Avenue
Pewaukee, Wisconsin 53072-3433
PLEASE DO NOT SEND YOUR SHARE PURCHASE APPLICATION BY OVERNIGHT COURIER
SERVICE OR REGISTERED MAIL TO THE POST OFFICE BOX ADDRESS.
O If you wish to open an account by wire, please call (800) 759-6598 prior to
wiring funds in order to obtain a confirmation number and to ensure prompt
and accurate handling of funds.
FUNDS SHOULD BE WIRED TO:
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
ABA 042000013
CREDIT:
The Frontier Equity Fund
Account 8512162
FURTHER CREDIT:
The Frontier Equity Fund
(shareholder account name as registered)
(shareholder account number)
You should then promptly send a properly signed share purchase application to
either of the mailing addresses listed above. Please remember that Firstar
Bank, N.A. must receive your wired funds prior to the close of regular trading
on the New York Stock Exchange for you to receive same day pricing.
The Fund and Firstar Bank, N.A. are not responsible for the consequences of
any delays resulting from the banking or Federal Reserve Wire system, or from
incorrect or incomplete wiring instructions.
OTHER INFORMATION ABOUT
PURCHASING FUND SHARES
The Fund may reject any share purchase applications for any reason. The Fund
will not accept purchase orders made by telephone, unless they are from an
authorized dealer which has an agreement with the Fund. The Fund will not issue
certificates evidencing shares purchased. The Fund will send investors a
written confirmation for all purchases of shares.
The Fund offers an automatic investment plan allowing shareholders to make
purchases on a regular and convenient basis. The Fund also offers the following
retirement plans:
o Traditional IRA
o Roth IRA
o Education IRA
Investors can obtain further information about the automatic investment plan
and the IRAs offered by the Fund by calling the Fund at (800) 759-6598. The
Fund may be an appropriate investment for retirement plans other than the IRAs
offered by it (such as 401(k) plans). However, the Fund does not currently
sponsor any plans other than the IRAs listed above. ANY RETIREMENT PLAN OTHER
THAN A FUND-SPONSORED IRA SHOULD USE THE PURCHASE APPLICATION INCLUDED IN THIS
PROSPECTUS. Please consult with a competent financial and tax advisor and
contact the Fund regarding investment by retirement plans.
REDEEMING SHARES
THE FUND WILL PROCESS REDEMPTION ORDERS THAT IT RECEIVES PRIOR TO THE CLOSE
OF REGULAR TRADING ON A DAY THAT THE NEW YORK STOCK EXCHANGE IS OPEN AT THE NET
ASSET VALUE DETERMINED LATER THAT DAY. THE FUND WILL PROCESS REDEMPTION ORDERS
THAT IT RECEIVES AFTER THE CLOSE OF TRADING AT THE NET ASSET VALUE DETERMINED AT
THE CLOSE OF REGULAR TRADING ON THE NEXT DAY THAT THE NEW YORK STOCK EXCHANGE IS
OPEN.
HOW TO REDEEM SHARES BY MAIL
O Prepare a letter of instructions containing
o account number(s)
o the amount of money or number of shares being redeemed
o the names on the account
o daytime phone number
o additional information that the Fund may require for redemptions by
corporations, executors, administrators, trustees, guardians, or others who
hold shares in a fiduciary or representative capacity.
Contact the Fund in advance at (800) 759-6598 or (262) 691-1196 if you have
any questions.
O Sign the letter of instructions exactly as the shares are registered. Joint
ownership accounts must be signed by all owners.
O Have the signatures guaranteed by a commercial bank or trust company in the
United States, a member firm of the New York Stock Exchange or other eligible
guarantor institution in the following situations:
o The redemption proceeds are to be sent to a person other than the person
in whose name the shares are registered.
o The redemption proceeds are to be sent to an address other than the
address of record, or the redemption is requested within 30 days following
a change of address.
o The redemption proceeds exceed $5,000.
A notarized signature is not an acceptable substitute for a signature
guarantee.
O Send the letter of instructions to:
FOR FIRST CLASS MAIL
The Frontier Equity Fund
c/o Frontier Funds, Inc.
Post Office Box 68
Pewaukee, Wisconsin 53072-0068
FOR OVERNIGHT COURIER OR
REGISTERED MAIL
The Frontier Equity Fund
c/o Frontier Funds, Inc
101 West Wisconsin Avenue
Pewaukee, Wisconsin 53072-3433
PAYMENT OF REDEMPTION PROCEEDS
The redemption price per share you receive is the next determined net asset
value after The Fund receives your written request in proper form with all
required information. The Fund (or its transfer agent) will mail you a check in
the amount of the redemption proceeds no later than the seventh day after the
Fund receives the written request in proper form with all required information.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan option may be activated if you have a minimum
of $10,000 in your Fund account. This option allows you to redeem a specific
dollar amount from your account on a regular basis. You may vary the amount or
frequency of the withdrawal payments or temporarily discontinue them. For
additional information or to request the appropriate form to establish a
Systematic Withdrawal Plan, please contact the Fund at (800) 759-6598 or (262)
691-1196.
OTHER REDEMPTION CONSIDERATIONS
When redeeming shares, Fund shareholders should consider the following:
O The redemption may result in a taxable gain.
O Shareholders who redeem shares that are held in an IRA must indicate on their
redemption request whether or not to withhold federal income taxes. If not,
these redemptions, as well as redemptions by other retirement plans not
involving a direct rollover to an eligible plan, will be subject to federal
income tax withholding.
O The Fund may delay the payment of redemption proceeds for up to seven days in
all cases.
O If you purchased shares by check, the Fund may delay the payment of
redemption proceeds until it is reasonably satisfied the check has cleared
(which may take up to 15 days from the date of purchase).
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
General. The Fund pays distributions to its shareholders from its net
investment income and from any net capital gains that it has realized on the
sale of securities. These distributions will be declared annually by the Fund,
on or before December 31.
Your distributions will be automatically reinvested in additional shares of
the Fund, unless you have elected on your original application, or by written
instructions filed with the Fund, to have them paid in cash. THERE ARE NO FEES
OR SALES CHARGES ON REINVESTMENTS.
Dividends from net investment income or net short-term gains will be taxable
(for investors subject to income taxes) as ordinary income, whether paid in cash
or in additional shares. Whether paid in cash or additional shares, and
regardless of the length of time Fund shares have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such,
but are not eligible for the dividends-received deduction for corporations.
Also, if purchases of shares in a Fund are made shortly before a record date for
a dividend or capital gains distribution, a portion of the investment will be
returned as a taxable distribution (for investors subject to tax).
Distributions declared in October, November or December and made payable to
shareholders of record in such a month are deemed to have been received by
shareholders on December 31 of such year, so long as the distributions are
actually paid before February 1 of the following year. You will be notified
each January as to the federal tax status of distributions paid by the Fund.
Such distributions may also be subject to state and local taxes.
Taxes on Transactions. Redemptions of Fund shares are taxable events for
federal income tax purposes. Any loss incurred on a sale of the Fund's shares
held for six months or less will be treated as a long-term capital loss to the
extent of capital gains received with respect to such shares. Starting as of
January 1, 2001, sales of certain securities held for more than five years will
be taxed at special lower rates. You may also be subject to state and municipal
taxes on such redemptions.
Dividends-Received Deduction for Corporations. Dividends from net investment
income and short-term capital gains will generally qualify in part for the 70%
dividends-received deduction for corporations. The Fund will send to
shareholders a statement each year advising the amount of the dividend income
which qualifies for such treatment.
Withholding. You must certify on your purchase application, or on a separate
form supplied by us, that your Social Security or Taxpayer Identification Number
provided is correct and that you are not currently subject to backup
withholding, or that you are exempt from backup withholding. Otherwise, we are
required by federal law to withhold 31% of reportable payments paid to you.
BECAUSE EVERYONE'S TAX SITUATION IS UNIQUE, ALWAYS CONSULT YOUR TAX
PROFESSIONAL ABOUT FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the Fund (assuming reinvestment of all dividends and distributions
and excluding sales charges). This information has been audited by McCurdy &
Associates CPA's, Inc., independent auditors, whose report, along with the
Fund's financial statements, is included in the Fund's Annual Report to
Shareholders, which is available upon request.
<TABLE>
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
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**<F6> 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>
**<F6> 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.
(THE FRONTIER EQUITY FUND)
PURCHASE APPLICATION
--- This is a follow-up application to an investment by wire transfer.
Mail to:
The Frontier Equity Fund
c/o Frontier Funds, Inc.
Post Office Box 68
Pelwaukee, WI 53072-0068
Overnight Express Mail to:
The Frontier Equity Fund
c/o Frontier Funds, Inc.
101 West Wisconsin Avenue
Pelwaukee, WI 53072-3433
Use this form for individual, custodial, trust, profit-sharing or pension plan
accounts. THIS FORM CANNOT BE USED TO ESTABLISH AN INDIVIDUAL RETIREMENT
ACCOUNT (IRA). For additional information, or to obtain an IRA application,
please call (800) 759-6598 or (262) 691-1196.
- ------------------------------------------------------------------------------
A. INVESTMENT Please indicate the amount you wish to invest $ -----------
($500 MINIMUM)
- --- By check enclosed payable to THE FRONTIER EQUITY FUND.
- --- By wire (call first): (800) 759-6598 or (262) 691-1196 for instructions.
Indicate total amount and date of wire $ --------------- Date ---------------
- ------------------------------------------------------------------------------
B. REGISTRATION
- --- Individual
CITIZENT OF
- ---------------- ---------------- -- U.S. -- OTHER ------------------
NAME SOCIAL SECURITY# BIRTHDATE
(Mo/Dy/Yr)
- --- Joint Owner*<F7> (cannot be a minor)
CITIZENT OF
- ---------------- ---------------- -- U.S. -- OTHER --------------------
NAME SOCIAL SECURITY# BIRTHDATE
(Mo/Dy/Yr)
*<F7>Registration will be Joint Tenancy with Rights of Survivorship (JTWROS)
unless otherwise specified.
- --- Gift to Minors
- ------------------------------------------ ---- --------------------------
CUSTODIAN'S FIRST NAME (ONLY ONE PERMITTED) M.I. LAST NAME
- --------------------------------------- ---- -----------------------------
MINOR'S FIRST NAME (ONLY ONE PERMITTED) M.I. LAST NAME
- -------------------------- ---------------------------- ------------------
MINOR'S SOCIAL SECURITY # MINOR'S BIRTHDATE (Mo/Dy/Yr) STATE OF RESIDENCE
- --- Corporation**<F8> (including Corporate Pension Plans),**<F8> Trust, Estate
or Guardianship ***<F9>
- ------------------------------------------------------------------------------
NAME OF TRUSTEE(S) (IF TO BE INCLUDED IN REGISTRATION)***<F8>
- --- Partnership***<F9>
- ------------------------------------------------------------------------------
NAME OF TRUST/CORPORATION**<F8>/PARTNERSHIP
- --- Other Entity***<F9>
- ---------------------------------------- -----------------------------------
SOCIAL SECURITY #/TAX ID # DATE OF AGREEMENT (Mo/Dy/Yr)
**<F8>Corporate Resolution is required. ***<F9>Additional documentation and
certification may be requested.
- ------------------------------------------------------------------------------
C. MAILING ADDRESS
- -------------------------------------- -------------------------------------
STREET APT/SUITE
- -------------------------------------- ------- ---------------------------
CITY STATE ZIP
- --------------------------------------- ------------------------------------
DAYTIME PHONE # EVENING PHONE #
- --- Duplicate Confirmation to:
- ------------------------------ ---- --------------------------------------
FIRST NAME M.I. LAST NAME
- -------------------------------------- -------------------------------------
STREET APT/SUITE
- -------------------------------------- ------- ---------------------------
CITY STATE ZIP
- ------------------------------------------------------------------------------
D. DISTRIBUTION OPTIONS
Capital gains & dividends will be reinvested if no option is selected.
--- Capital Gains & Dividends Reinvested
--- Capital Gains & Dividends in Cash
If the distribution is to be paid in cash, specify payment method below:
--- Send check to mailing address in Section C.
--- Automatic deposit to my bank account via Electronic Funds Transfer
(EFT). May take up to 3 business days to reach your bank account
(complete bank information following).
Your signed Application must be received at least 15 business days prior to
initial transaction.
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your Application.
- ------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- ---------------------------------- -----------------------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
To ensure proper crediting of your bank account, please attach a voided check
or a deposit slip.
- ------------------------------------------------------------------------------
E. INVESTMENT DEALER FOR COMPLETION BY YOUR INVESTMENT DEALER
I hereby authorize and direct Freedom Investors Corp. to act as agent for the
dealer named below (Dealer) in connection with transactions under the account of
the Investor in accordance with the following representations, terms and
conditions: The Dealer guarantees the signature(s) of the applicant(s) below
(Investor). To the best of the Dealer's knowledge and belief, the Investor is of
full age and is legally competent; and the Dealer may lawfully sell securities
in the state which the Investor has designated in such Application as his/her/
its mailing address. The Dealer represents that he/she/it has entered into a
Selected Dealer Agreement with Freedom Investors Corp., the principal
underwritter of the Fund, and appoints American Data Services, Inc. as his/her/
its agent to execute the purchase transactions in accordance with the terms of
the Fronties Equity Fund Purchase Application executed by the Investor and to
conform each purchase to the Investor and to the Dealer. American Data Servies,
Inc. will remit monthly to the Dealer the amount of concessions/sales charges
payable to such Dealer.
- --------------------------------------------------------------------------------
Firm Name Address
- --------------------------------------------------------------------------------
Dealer Number Branch Number
- --------------------------------------------------------------------------------
Branch Name Authorized Signature
- ------------------------ ----------------------------------------------------
Representative Number Represntative Last Name First Name M.I.
- --------------------------------------------------------------------------------
F. SIGNATURE AND CERTIFICATION REQUIRED BY THE INTERNAL REVENUE SERVICE
Neither the Fund nor its transfer agent will be responsible for the
authenticity of transaction instructions received by telephone, provided that
reasonable security procedures have been followed.
UNDER THE PENALTY OF PERJURY, I CERTIFY THAT (1) THE SOCIAL SECURITY NUMBER OR
TAXPAYER IDENTIFICATION NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER
IDENTIFICATION NUMBER, AND (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER AS
A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. THE IRSDOES NOT
REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
- ---------------------------- -----------------------------------------------
DATE (Mo/Dy/Yr) SIGNATURE OF OWNER*<F10>
- ---------------------------- -----------------------------------------------
DATE (Mo/Dy/Yr) SIGNATURE OF CO-OWNER, if any
*<F10>If shares are to be registered in (1) joint names, both persons should
sign, (2) a custodian for a minor, the custodian should sign, (3) a trust, the
trustee(s) should sign, or (4) a corporation or other entity, an officer should
sign and print name and title below.
- ------------------------------------------------------------------------------
PRINT NAME AND TITLE OF OFFICER SIGNING FOR A CORPORATION OR OTHER ENTITY
The a series of
FRONTIER Frontier Funds, Inc.
EQUITY 101 West Wisconsin Avenue
FUND Pewaukee, Wisconsin 53072-3433
(262) 691-1196
FOR MORE INFORMATION
The following documents contain more information about the Fund and are
available free upon request:
O Annual and Semi-annual Reports to Shareholders
Additional information about the Fund's investments is available in the
Fund's Annual and Semi-annual Reports to Shareholders. These Reports contain
a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
O Statement of Additional Information (SAI)
The SAI provides more detailed information about the Fund and is incorporated
into this Prospectus by reference.
The SAI and the Annual and Semi-annual Reports may be obtained by contacting:
THE FRONTIER EQUITY FUND
C/O FRONTIER FUNDS, INC.
101 WEST WISCONSIN AVENUE
POST OFFICE BOX 68
PEWAUKEE, WISCONSIN 53072
(800) 759-6598 OR (262) 691-1196
Prospective investors and shareholders who have questions about the Fund may
call or write to the Fund at the above telephone number or address.
You may review and copy information about the Fund (including the Fund's SAI and
Reports to Shareholders at the Public Reference Room of the Securities and
Exchange Commission. Information on the operation of the Public Reference Room
may be obtained by calling (800) SEC-0330. Text only copies are available:
O For a fee, by writing to the Public Reference Room of the Commission,
Washington, D.C. 20549-6009.
O Free from the Commission's Internet website at http://www.sec.gov.
Investment Company Act File No. 811-6449
The a series of
FRONTIER Frontier Funds, Inc.
EQUITY 101 West Wisconsin Avenue
FUND Pewaukee, Wisconsin 53072-3433
(262) 691-1196
STATEMENT OF ADDITIONAL INFORMATION
February 15, 2000
This Statement of Additional Information is not a Prospectus, but
expands upon and supplements the information contained in the Prospectus of the
Frontier Equity Fund ("Fund"), a series of Frontier Funds, Inc. ("Frontier"),
dated February 15, 2000. The Statement of Additional Information should be read
in conjunction with the Fund's Prospectus. The Fund's Prospectus and Annual
Report to Shareholders may be obtained free of charge by writing to the Fund at
Post Office Box 68, Pewaukee, Wisconsin 53072-0068, or by telephoning the Fund
toll free at (800) 759-6598 or in the Milwaukee area (262) 691-1196. Certain
information from the Fund's Annual Report to Shareholders is incorporated by
reference into this Statement.
TABLE OF CONTENTS
Investment Objective and Policies............................... 2
Investment Restrictions......................................... 5
Portfolio Transactions.......................................... 6
Investment Adviser.............................................. 7
Administrator, Transfer Agent and Dividend Disbursing Agent..... 8
Distribution.................................................... 8
Performance Measures............................................ 9
Purchase, Redemption and Determination of Net Asset Value....... 10
Purchase of Shares.......................................... 10
Redemption of Shares........................................ 11
Net Asset Value............................................. 11
Management of Frontier and the Fund............................. 12
Directors and Officers...................................... 12
Compensation Table.......................................... 12
Ownership of Management and Principal Shareholders.......... 12
Dividends, Distributions and Their Taxation..................... 13
General Information and History................................. 14
Custodian, Counsel and Independent Auditors..................... 15
Financial Statements............................................ 15
Additional Information.......................................... 15
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus of the Fund, dated February 15, 2000, and, if
given or made, such information or representations may not be relied upon as
having been authorized by Frontier or by the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Frontier Equity Fund ("Fund") is a separate series of Frontier Funds,
Inc. ("Frontier"), an open-end, diversified investment management company
registered under the Investment Company Act of 1940 ("1940 Act"). This
Statement of Additional Information pertains to the Fund only. The Fund's
investment objective is long-term growth of capital. The Fund seeks to achieve
its investment objective primarily by investing in equity securities of smaller
capitalization (less than $1 billion) U.S. companies. The following
considerations supplement the information concerning the Fund's investment
objective and policies appearing in the Prospectus.
FIXED INCOME SECURITIES
The value of fixed income securities, including U.S. government securities,
varies inversely with changes in interest rates. When interest rates decline,
the value of fixed income securities tends to rise. When interest rates rise,
the value of fixed income securities tends to decline. The market prices of
zero coupon, delayed coupon and payment-in-kind securities are affected to a
greater extent by interest rate changes and tend to be more volatile than the
market prices of securities providing for regular cash interest payments. In
addition, fixed income securities are subject to the risk that the issuer may
default on its obligation to pay principal and interest. The value of fixed
income securities may also be reduced by the actual or perceived deterioration
in an issuer's credit-worthiness, including credit rating downgrades.
Fixed income securities may be subject to both call (prepayment) risk and
extension risk. Call risk is the risk that an issuer of a security will
exercise its right to pay principal on an obligation earlier than scheduled.
Early principal payments tend to be made during periods of declining interest
rates. This forces the Fund to reinvest the unanticipated cash flow in lower
yielding securities. Extension risk is the risk that an issuer will exercise
its right to pay principal later than scheduled. This typically happens during
periods of rising interest rates and prevents the affected Fund from reinvesting
in higher yielding securities. Unscheduled principal prepayments and delays in
payment can both reduce the value of an affected security. Unlike most
conventional fixed income securities, mortgage-backed and asset-backed
securities are generally subject to both call (prepayment) risk and extension
risk.
Money Market Instruments. The Fund may invest in money market instruments,
including obligations issued or guaranteed by the United States government, its
agencies or instrumentalities; certificates of deposit, time deposits and
bankers' acceptances issued by or maintained at U.S. and foreign banks; and
commercial paper.
High Yield Securities. The Fund will not invest directly more than 5% of its
total assets in high yield, high-risk, lower-rated securities, commonly known as
"junk bonds." Junk bonds are securities rated below the top four bond rating
categories of Standard & Poor's Ratings Group, Moody's Investors Service, Inc.
or another nationally recognized statistical rating organization or, if unrated,
determined by the investment adviser to be of comparable credit quality. The
foregoing percentage limitation is not considered fundamental and may be changed
by the Fund without shareholder approval.
The high yield, high risk market is at times subject to substantial
volatility. An economic downturn or increase in interest rates may have a more
significant effect on the high yield, high risk securities in the Fund's
portfolio and their markets, as well as on the ability of securities, issuers to
repay principal and interest. Issuers of high yield, high risk securities may
be of low credit-worthiness and the high yield, high risk securities may be
subordinated to the claims of senior lenders. During periods of economic
downturn or rising interest rates, the issuers of high yield, high risk
securities may have greater potential for insolvency and a higher incidence of
high yield, high risk bond defaults may be experienced.
The prices of high yield, high risk securities may be more or less sensitive
to interest rate changes than higher-rated investments but are more sensitive to
adverse economic changes or individual corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the
issuer of a high yield, high risk security owned by the Fund defaults, the Fund
may incur additional expenses in seeking recovery. Periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high yield, high risk securities and the Fund's net asset
value. Yields on high yield, high risk securities will fluctuate over time.
Furthermore, in the case of high yield, high risk securities structured as zero
coupon or pay-in-kind securities, their market prices are affected to a greater
extent by interest rate changes and thereby tend to be more volatile than market
prices of securities which pay interest periodically and in cash.
The secondary market may at times become less liquid or respond to adverse
publicity or investor perceptions, making it more difficult for the Fund to
accurately value high yield, high risk securities or dispose of them. To the
extent the Fund owns or may acquire illiquid or restricted high yield, high risk
securities, these securities may involve special registration responsibilities,
liabilities and costs, and liquidity difficulties, and judgment will play a
greater role in valuation because there is less reliable and objective data
available.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in illiquid securities, including certain restricted and
private placement securities. It may be difficult to dispose of illiquid
securities quickly or at a price that fully reflects their fair value.
Restricted securities that are eligible for resale in reliance on Rule 144A
under the Securities Act of 1933 ("1933 Act"), and commercial paper offered
under Section 4(2) of the 1993 Act are not subject to the Fund's 5% limit on
illiquid investments, if they are determined to be liquid.
PORTFOLIO SECURITIES LOANS
The Fund may lend its portfolio securities as long as: (1) the loan is
continuously secured by collateral consisting of U.S. government securities or
cash or cash equivalents maintained on a daily mark-to-market basis in an amount
at least equal to the current market value of the securities loaned; (2) the
Fund may at any time call the loan and obtain the securities loaned; (3) the
Fund will receive any interest or dividends paid on the loaned securities; and
(4) the aggregate market value of the securities loaned will not at any time
exceed one-third of the total assets of the Fund. The Fund may pay fees in
connection with securities loans. Freedom Investors Corp. ("Adviser") will
evaluate the credit-worthiness of prospective institutional borrowers and
monitor the adequacy of the collateral to reduce the risk of default by
borrowers. Lending portfolio securities involves risk of delay in the recovery
of the loaned securities and in some cases, the loss of rights in the collateral
if the borrower fails.
REPURCHASE AGREEMENTS
The Fund may invest in securities subject to repurchase agreements. A
repurchase agreement involves the sale of securities to the Fund with the
concurrent agreement by the seller to repurchase the securities at the Fund's
cost plus interest at an agreed rate upon demand or within a specified time,
thereby determining the yield during the purchaser's period of ownership. The
result is a fixed rate of return insulated from market fluctuations during such
period. Under the 1940 Act, repurchase agreements are considered loans by the
Fund. The use of repurchase agreements involves certain risks. For example, if
the seller of the agreement defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has declined,
the Fund may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, disposition of the underlying securities may
be delayed pending court proceedings. Finally, it is possible that the Fund may
not be able to perfect its interest in the underlying securities. While the
Fund's management acknowledges these risks, it is expected that they can be
controlled through stringent security selection criteria and careful monitoring
procedures.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND LEVERAGE
The Fund may borrow money from banks or through reverse repurchase agreements
for emergency and/or leverage purposes. Using the cash proceeds of reverse
repurchase agreements to finance the purchase of additional investments is a
form of leverage. Leverage magnifies the sensitivity of the Fund's net asset
value to changes in the market prices of the Fund's portfolio securities.
However, the Fund will borrow solely for temporary or emergency (and not for
leverage) purposes. The aggregate amount of such borrowings and reverse
repurchase agreements may not exceed one-third of the Fund's total assets.
Under the 1940 Act, the Fund is required to maintain continuous asset
coverage of 300% with respect to such borrowings and to sell (within three days)
sufficient portfolio holdings in order to restore such coverage if it should
decline to less than 300% due to market fluctuation or otherwise. Such sale
must occur even if disadvantageous from an investment point of view. Leveraging
aggregates the effect of any increase or decrease in the value of portfolio
securities on the underlying net asset value. In addition, money borrowed is
subject to interest costs (which may include commitment fees and/or the cost of
maintaining minimum average balances) which may or may not exceed the income and
gains from the securities purchased with borrowed funds.
FOREIGN SECURITIES
The Fund may invest a portion of its assets in securities of foreign issuers.
These investments may be in the form of American Depositary Receipts ("ADRs") or
similar securities representing interests in an underlying foreign security.
ADRs are not necessarily denominated in the same currency as the underlying
foreign securities. If an ADR is not sponsored by the issuer of the underlying
foreign security, the institution issuing the ADR may have reduced access to
information about the issuer.
Investments in foreign securities involve special risks and considerations
that are not present when the Fund invests in domestic securities. These risks
include less publicly-available financial and other information about foreign
companies; less rigorous securities regulation; the potential imposition of
currency controls, foreign withholding and other taxes; and war, expropriation
or other adverse governmental actions. Foreign equity markets may be less
liquid than United States markets and may be subject to delays in the settlement
of portfolio transactions. Brokerage commissions and other transaction costs in
foreign markets tend to be higher than in the United States. The value of
foreign securities denominated in a foreign currency will vary in accordance
with changes in currency exchange rates, which can be very volatile. In
addition, the value of foreign fixed income investments will fluctuate in
response to changes in U.S. and foreign rates.
Exchange Rates. Since the Fund may purchase securities denominated in
foreign currencies, changes in foreign currency exchange rates will affect the
value of the assets from the perspective of U.S. investors. Changes in foreign
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to the investor by a mutual fund.
The rate of exchange between the U.S. dollar and other currencies is determined
by the forces of supply and demand in foreign exchange markets. These forces
are affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
The Fund may seek to protect itself against the adverse effects of currency
exchange rate fluctuations by entering into currency-forward or swaps contracts.
Hedging transactions will not, however, always be fully effective in protecting
against adverse exchange rate fluctuations. Furthermore, hedging transactions
involve transaction costs and the risk that the Fund will lose money, either
because exchange rates move in an unexpected direction, because another party to
a hedging contract defaults, or for other reasons.
Exchange Controls. The value of foreign investments and the investment
income derived from them may also be affected (either favorably or unfavorably)
by exchange control regulations. It is expected that the Fund will invest only
in securities denominated in foreign currencies that are fully exchangeable into
U.S. dollars without legal restriction at the time of investment. However,
there is no assurance that currency controls will not be imposed after the time
of investment.
Limitations of Foreign Markets. There is often less information publicly-
available about a foreign issuer than about a U.S. issuer. Foreign issuers are
not generally subject to accounting, auditing, and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions, custodial expenses, and
other fees are also generally higher than for securities traded in the United
States. Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the recovery of
the Fund's assets held abroad) and expenses not present in the settlement of
domestic investments. A delay in settlement could hinder the ability of the
Fund to take advantage of changing market conditions, with a possible adverse
effect on net asset value. There may also be difficulties in enforcing legal
rights outside the United States.
Foreign Laws, Regulations and Economies. There may be a possibility of
nationalization or expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability, and
diplomatic developments that could affect the value of the Fund's investments in
certain foreign countries. Legal remedies available to investors in certain
foreign countries may be more limited than those available with respect to
investments in the United States or in other foreign countries. The laws of
some foreign countries may limit the Fund's ability to invest in securities of
certain issuers located in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth or gross national product, inflation rate, capital
reinvestment, resource self-sufficiency and balance of payment positions.
Foreign Tax Considerations. Income (possibly including, in some cases,
capital gains) received by the Fund from sources within foreign countries may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes in some cases. Any such taxes paid by the Fund will reduce
the net income of the Fund available for distribution. Special tax
considerations apply to foreign securities.
Foreign Currency Transactions. The Fund may enter into forward contracts to
purchase or sell an agreed-upon amount of a specific currency at a future date
that may be any fixed number of days from the date of the contract agreed upon
by the parties at a price set at the time of the contract. Under such an
arrangement, the Fund could, at the time it enters into a contract to acquire a
foreign security for a specified amount of currency, purchase with U.S. dollars
the required amount of foreign currency for delivery at the settlement date of
the purchase; the Fund could enter into similar forward currency transactions in
connection with the sale of foreign securities. The effect of such transactions
would be to fix a U.S. dollar price for the security to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the particular foreign currency during the period between the
date the security is purchased or sold and the date on which payment is made or
received (usually 3 to 14 days). These contracts are traded in the interbank
market between currency traders (usually large commercial banks and other
financial institutions) and their customers. A forward contract usually has no
deposit requirement and no commissions are charged for trades. While forward
contracts tend to minimize the risk of loss due to a decline in the value of the
currency involved, they also tend to limit any potential gain that might result
if the value of such currency were to increase during the contract period.
INVESTMENT RESTRICTIONS
The Fund's principal investment objective and the following investment
restrictions are fundamental and cannot be changed without the approval of the
holders of a majority of the 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 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 Fund will not be considered a deviation
from policy.
The 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 on
margin, entering into reverse repurchase agreements or otherwise) 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 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, when-issued and forward commitment
transactions and similar investment strategies (the Fund's obligations under the
foregoing types of transactions and investment strategies not constituting
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 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 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.
PORTFOLIO TRANSACTIONS
Under the supervision of the Fund's Board of Directors, Freedom Investors
Corp., the Adviser, is responsible for decisions to buy and sell securities for
the Fund and for the placement of the Fund's portfolio business and negotiation
of commissions, if any, paid on these transactions. Portfolio turnover will be
no more than is necessary to meet the Fund's investment objectives. Under
normal circumstances, it is anticipated that the Fund's portfolio turnover will
not exceed 100%.
In instances where securities are purchased on a commission basis, the
Fund will seek competitive and reasonable commission rates based on
circumstances of the trade involved and to the extent that they do not detract
from the quality of the execution. The Fund, in purchasing and selling
portfolio securities, will seek the best available combination of execution and
overall price (which shall include the cost of the transaction) consistent with
the circumstances which exist at the time. The Fund does not intend to solicit
competitive bids on each transaction.
The Fund believes it is in its best interest and that of its shareholders
to have a stable and continuous relationship with a diverse group of financially
strong and technically qualified broker-dealers who will provide quality
executions at competitive rates. Broker-dealers meeting these qualifications
also will be selected for their demonstrated loyalty to the Fund, when acting on
its behalf, as well as for any research or other services provided to the Fund.
Substantially all of the portfolio transactions are through brokerage firms
which are members of the New York Stock Exchange which is typically the most
active market in the size of the Fund's transactions and for the types of
securities predominant in the Fund's portfolio. When buying securities in the
over-the-counter market, the Fund will select a broker who maintains a primary
market for the security unless it appears that a better combination of price and
execution may be obtained elsewhere. The Fund normally will not pay a higher
commission rate to broker-dealers providing benefits or services to it than it
would pay to broker-dealers who do not provide it such benefits or services.
However, the Fund reserves the right to do so within the principles set out in
Section 28(e) of the Securities Exchange Act of 1934 when it appears that this
would be in the best interests of the shareholders.
No commitment is made to any broker or dealer with regard to placing of
orders for the purchase or sale of Fund portfolio securities, and no specific
formula is used in placing such business. Allocation is reviewed regularly by
Board of Directors of the Fund It is not the Fund's practice to allocate
brokerage or principal business on the basis of sales of its shares which may be
made through broker-dealer firms. However, it may place portfolio orders with
qualified broker-dealers who recommend the Fund to other clients, or who act as
agents in the purchase of the Fund's shares for their clients.
Research services furnished by broker-dealers may be useful to the Adviser
in serving other clients, as well as the Fund. Conversely, the Fund may benefit
from research services obtained by the Adviser from the placement of portfolio
brokerage on behalf of other clients.
When it appears to be in the best interests of its shareholders, the Fund
may join with other clients of the Adviser in acquiring or disposing of a
portfolio holding. Securities acquired or proceeds obtained will be equitably
distributed between the Fund and other clients participating in the transaction.
In some instances, this investment procedure may affect the price paid or
received by the Fund or the size of the position obtained by the Fund.
INVESTMENT ADVISER
As set forth in the Prospectus under the caption "Investment Adviser," the
investment adviser to the Fund is Freedom Investors Corp. ("Adviser"). Pursuant
to an investment advisory agreement between the Fund and the Adviser ("Advisory
Agreement"), the Adviser furnishes continuous investment advisory and portfolio
management services to the Fund. The Adviser is controlled by James R. Fay, who
owns approximately 88% of the outstanding capital stock of Freedom Financial,
Inc., a holding company which owns 100% of the outstanding capital stock of the
Adviser. Mr. Fay is also President, Treasurer and a director of Frontier and
the Fund.
Under the Advisory Agreement, the Adviser, at its own expense and without
reimbursement from the Fund, will furnish office space and all necessary office
facilities, equipment and executive personnel for making the investment
decisions necessary for managing the Fund and maintaining its organization. As
compensation for the foregoing services, the Adviser is entitled to receive a
monthly fee of 1/12 of 1.00% (1.00% per annum) of the daily net assets of the
Fund.
The Adviser has voluntarily waived payment of its advisory fee since the
inception of the Fund. Although this waiver can be revoked at any time, the
Adviser presently anticipates that this arrangement will continue for the Fund's
current fiscal year ending September 30, 2000.
The Fund will pay all of its expenses not assumed by the Adviser
including, but not limited to, the costs of preparing and printing its
registration statements required under the 1933 Act and the 1940 Act and any
amendments thereto, the expenses of registering its shares with the Securities
and Exchange Commission and in the various states, the printing and distribution
cost of prospectuses mailed to shareholders, the cost of director and officer
liability insurance, reports to shareholders, reports to government authorities
and proxy statements, interest charges, brokerage commissions, and expenses
incurred in connection with portfolio transactions. The Fund will also pay the
fees of directors who are not affiliated with the Fund, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, fees and expenses of any custodian or trustees having
custody of Fund assets, expenses of calculating the net asset value of Fund
shares and repurchasing and redeeming such shares, and charges and expenses of
dividend disbursing agents, registrars, and share transfer agents, including the
cost of keeping all necessary shareholder records and accounts and handling any
problems relating thereto.
The Adviser has undertaken to reimburse the Fund to the extent that the
aggregate annual operating expenses, including the investment advisory fee but
excluding interest, taxes, brokerage commissions and extraordinary items, exceed
that percentage of the average net assets of the Fund for such year (as
determined by valuations made each business day of the year) which is the most
restrictive expense limitation imposed by the laws of the various states in
which the Fund's shares are qualified for sale. As of the date of this
Statement of Additional Information, the shares of the Fund are not qualified
for sale in any state that limits expenses.
The Adviser may, at its own discretion, pay any additional expenses of the
Fund which are in excess of the 1.00% advisory fee. These expenses must be (i)
reasonable and legitimate and (ii) the responsibility and obligation of the
Fund, not of the Adviser or any other party. Any such expense payments on
behalf of the Fund are reimbursable to the Adviser by the Fund. To date, the
Adviser has chosen not to accrue or seek reimbursement from the Fund for the
payment of any operating expenses.
The Advisory Agreement will remain in effect for as long as its
continuance is specifically approved at least annually by (i) the directors of
the Fund, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding shares of the Fund, and (ii) by the vote of a majority of the
directors of the Fund who are not parties to the Advisory Agreement or
interested persons of the Adviser, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement provides that it may
be terminated at any time without the payment of any penalty, by the directors
of the Fund or by vote of a majority of the Fund's shareholders, on sixty days'
written notice to the Adviser, and by the Adviser on the same notice to the
Fund, and that it shall be automatically terminated if it is assigned. The
Advisory Agreement provides that the Adviser shall not be liable to the Fund or
its shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties.
ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
ADMINISTRATOR
The administrator of the Fund is American Data Services, Inc.
("Administrator"), 150 Motor Parkway, Suite 109, Hauppauge, New York 11788.
Under administrative services and fund accounting agreements with the Fund
(collectively, the "Administration Agreement"), the Administrator provides
services necessary for the operation of the Fund, including, among other things,
(i) preparation of shareholder reports and communications, (ii) preparation of
certain reports and filings with the Securities and Exchange Commission and with
state securities administrators and (iii) general supervision of the operation
of the Fund, including coordination of the services performed by the Transfer
Agent, Custodian, independent accountants, legal counsel and others. Services
rendered by the Administrator do not include investment advisory or portfolio
management services. For its services under the Adminstration Agreement, the
Administrator receives a monthly fee (based upon the Fund's average daily net
assets), as follows: $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 1/12 of 0.0145% of average net assets in excess of $20
million. In addition, the Administrator is reimbursed by the Fund for
reasonable out-of-pocket expenses. For the fiscal years ended September 30,
1999, 1998 and 1997, the amounts of $25,848, $29,963 and $28,568 were paid,
respectively, to the Administrator by the Fund, pursuant to the Administration
Agreement.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
American Data Services also serves as the Fund's transfer agent and
dividend disbursing agent ("Transfer Agent") and performs other shareholder
services, pursuant to an agreement with the Fund ("Transfer Agency and Service
Agreement"). For its services rendered under the Transfer Agency and Service
Agreement, the Transfer Agent receives a monthly fee of approximately $1,418.
In addition, the Transfer Agent is reimbursed by the Fund for reasonable out-of-
pocket expenses.
The Administration Agreement and the Transfer Agency and Service Agreement
will each remain in effect for three (3) years commencing March 17, 1999, unless
earlier terminated by either party upon 90 days' written notice to the other.
The Administration Agreement and the Transfer Agency and Service Agreement
provide, respectively, that the Administrator and/or Transfer Agent, as the case
may be, shall not be liable to the Fund or its shareholders for any conduct
other than willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations or duties.
DISTRIBUTION
As described in the Prospectus under the caption "Pricing and Distribution
of the Fund," the Adviser, Freedom Investors Corp., is also the also the Fund's
principal underwriter and national distributor ("Distributor"). Pursuant to an
agreement with the Fund ("Distribution Agreement"), the Distributor, as agent,
offers the Fund's shares for sale on a continuous basis. The Distributor has
agreed to use its "best efforts" to sell Fund shares but is not obligated to
sell any specified number or amount of shares. The Distribution Agreement will
continue in effect from year to year as long as its renewal is approved at least
annually in the same manner as the Advisory Agreement discussed above under the
caption "Investment Adviser."
As compensation for its services rendered and related expenses borne
pursuant to the Distribution Agreement, the Distributor receives the sales
charges imposed on shares of the Fund and in turn pays (reallows) a portion of
such charges to brokers or dealers that have sold the shares (including the
Distributor functioning as a dealer). The sales charge reallowed to brokers or
dealers that sell shares of the Fund is equal to 7.50% of the offering price
(ie., net asset value plus sales charge) per share. Sales charges paid by the
Fund totaled $8,750, $4,234 and $3,782 for its fiscal years ended September 30,
1999, 1998 and 1997, respectively. Sales charges retained by the Distributor as
underwriter's fees and dealer's selling commissions were, respectively, $516 and
$18,234 for fiscal 1999; $324 and $3,910 for fiscal 1998; and $227 and $3,525
for fiscal 1997. The remaining sales charges for such years were paid to
brokers and dealers not affiliated with the Fund or the Distributor.
PERFORMANCE MEASURES
The Fund may advertise "average annual total return" over various periods
of time. Such total return figures show the average percentage change in value
of an investment in the Fund from the beginning date of the measuring period to
the end of the measuring period. These figures reflect changes in the price of
the Fund's shares and assume that any income dividends and/or capital gains
distributions made by the Fund during the period were reinvested in shares of
the Fund. Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year, it
is important to note that a Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
PERFORMANCE COMPARISONS
In advertisements or in reports to shareholders, the Fund may compare its
performance to that of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, it may compare its performance
to rankings prepared by Lipper Analytical Services, Inc. (Lipper), a widely
recognized independent service which monitors the performance of mutual funds.
The Fund may compare its performance to that of the Standard & Poor's 500 Stock
Index (S&P 500), an index of unmanaged groups of common stocks, the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange, the Russell 2000
Index, a small company stock index, or the Consumer Price Index. Performance
information, rankings, ratings, published editorial comments and listings as
reported in national financial publications such as Kiplinger's Personal Finance
Magazine, Business Week, Morningstar Mutual Funds, Investor's Business Daily,
Institutional Investor, The Wall Street Journal, Mutual Fund Forecaster, Money,
Forbes, Fortune and Barron's may also be used in comparing performance of the
Fund. Performance comparisons should not be considered as representative of the
future performance of any Fund.
Performance rankings, recommendations, published editorial comments and
listings reported in Money, Barron's, Kiplinger's Personal Finance Magazine,
Financial World, Forbes, U.S. News & World Report, Business Week, The Wall
Street Journal, Investors Business Daily, USA Today, Fortune and Stanger's may
also be cited (if the Fund is listed in any such publication) or used for
comparison, as well as performance listings and rankings from Morningstar Mutual
Funds, Personal Finance, Income and Safety, The Mutual Fund Letter, United
Mutual Fund Selector, Louis Rukeyser's Wall Street newsletter, Donoghue's Money
Letter, CDA Investment Technologies, Wiesenberger Investment Companies Service
and Donoghue's Mutual Fund Almanac.
TOTAL RETURN
The Fund's "average annual total return" figures described and shown below
are computed according to a formula prescribed by the Securities and Exchange
Commission. The formula can be expressed as follows:
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 Fund expenses (net of certain
expenses reimbursed by the Adviser) on an annual basis and will (i) assume that
all dividends and distributions are reinvested and (ii) reflect the maximum
applicable sales charge.
The table below shows the average total return for the Fund for the
specified periods.
Period Average Total Return
------ --------------------
One Year - October 1, 1997 through
September 30, 1999 ............................... 62.21%
Five Years - October 1, 1993 through
September 30, 1999 ............................... -19.48%
Commencement of Operations (April 1, 1992)
through September 30, 1999 ..................... -15.92%
PURCHASE, REDEMPTION AND DETERMINATION OF NET ASSET VALUE
Detailed information concerning the purchase and redemption of Fund shares
is included in the Prospectus.
The Fund reserves the right to:
O Waive or change the minimum investment requirements
and/or sales charge with respect to any person or class
of persons.
O Begin a telephone/telegraph redemption service at any
time.
O Begin charging a fee for any telephone/telegraph
redemption service and to cancel or change any such
service upon at least 15 days' written notice to
shareholders.
O Waive signature guarantee requirements in certain
instances where it appears reasonable to do so and will
not unduly affect the interests of other shareholders.
O Require signature guarantees if there appears to be a
pattern of redemptions designed to avoid the signature
guarantee requirement, or if the Fund has other reason
to believe that this requirement would be in the best
interests of the Fund and its shareholders.
PURCHASE OF SHARES
The Fund will not be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. The Fund cannot process
transaction requests that are not complete and in good order. Each order
accepted will be fully invested in whole and fractional shares, unless the
purchase of a certain number of whole shares is specified, at the net asset
value per share next effective after the order is received by the Fund. Each
investment is confirmed by a year-to-date statement which provides the details
of the immediate transaction, plus all prior transactions in your account during
the current year. This includes the dollar amount invested, the number of
shares purchased or redeemed, the price per share, and the aggregate shares
owned. A transcript of all activity in your account during the previous year
will be furnished each January.
Normally, the shares that an investor purchases are held by the Fund in an
open account, thereby relieving the investor of the responsibility of providing
for the safekeeping of a negotiable share certificate. Should an investor want
a certificate, one will be issued on request for all or a portion of the whole
shares in the account. There is no charge for the first certificate issued. A
charge of $5.00 will be made for any replacement certificates issued. In order
to protect the interests of the other Fund shareholders, share certificates will
be sent to those shareholders who request them only after the Fund has
determined that unconditional payment for the shares represented by the
certificate has been received in full by its custodian, Star Bank, N.A.
If an order to purchase shares must be canceled due to non-payment, the
purchaser will be responsible for any loss incurred by the Fund arising out of
such cancellation. To recover any such loss, the Fund reserves the right to
redeem shares owned by any purchaser whose order is canceled, and such purchaser
may be prohibited or restricted in the manner of placing further orders.
The Fund reserves the right in its sole discretion to withdraw all or any
part of the offering made by the Prospectus or to reject purchase orders when,
in the judgment of management, such withdrawal or rejection is in the best
interest of the Fund and its shareholders.
The Fund reserves the right to refuse to accept orders for Fund shares
unless accompanied by payment, except when a responsible person acceptable to
the Fund has indemnified the Fund in writing against losses resulting from the
failure of investors to make payment.
REDEMPTION OF SHARES
The Fund will not be responsible for the consequences of delays, including
delays in the banking or Federal Reserve Wire systems. The Fund cannot process
transaction requests that are not complete and in good order. In addition to
other conditions under which signature guarantees are required (as described in
the Prospectus under the caption "Redeeming Shares"), the Fund must receive an
endorsed share certificate with a signature guarantee where a certificate has
been issued.
The right of redemption may be suspended, or the date of payment postponed
beyond the normal three-day period by the Fund's Board of Directors under the
following conditions authorized by the 1940 Act: (1) for any period (a) during
which the New York Stock Exchange is closed, other than customary weekend and
holiday closing, or (b) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which (x) disposal by the Fund of securities owned by it is not reasonably
practicable or (y) it is not reasonably practicable for the Fund to determine
the fair value of its net assets; or (3) for such other periods as the
Securities and Exchange Commission may by order permit.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
pursuant to which the Fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day
period for any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Fund may redeem the excess in kind. If shares are redeemed
in kind, the redeeming shareholder may incur brokerage costs in converting the
assets to cash. The method of valuing securities used to make redemptions in
kind will be the same as the method of valuing portfolio securities described in
the Prospectus under the caption "Pricing and Distribution of the Fund --
Calculation of Net Asset Value" or in this section, and such valuation will be
made as of the same time the redemption price is determined.
NET ASSET VALUE
The Fund's net asset value ("NAV") per share is determined by subtracting
from the value of the Fund's total assets the amount of the Fund's liabilities
and dividing the remainder by the number of outstanding Fund shares. Each
security owned by the Fund is valued as described in the Prospectus under the
caption "Pricing and Distribution of the Fund -- Calculation of Net Asset Value"
or in this section.
The Fund computes the NAV of its shares once daily on days when the Fund
is open for business (generally the same days that the New York Stock Exchange
is open for trading). The holidays on which the New York Stock Exchange is
scheduled to be closed currently are: New Year's Day, Martin Luther King's
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Additionally, if any of the foregoing
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday, and when any such holiday falls on a Sunday,
the New York Stock Exchange will not be open for trading on the succeeding
Monday. However, the New York Stock Exchange will not close for trading on the
Friday preceding or the Monday following a holiday if unusual business
conditions exist on the Friday or Monday scheduled for closing (such as the end
of a monthly, quarterly or yearly accounting period). If the New York Stock
Exchange closes early, the time of computing the NAV and the deadlines for
purchasing and redeeming shares will be accelerated to the earlier closing time.
Foreign securities traded outside the United States are generally valued
as of the time their trading is complete, which is usually different from the
close of the New York Stock Exchange. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at the current rate of exchange.
Occasionally, events affecting the value of such securities may occur between
such times and the close of the New York Stock Exchange that will not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
these securities will be valued at their fair value according to procedures
decided upon in good faith by the Board of Directors of the Fund.
In addition, short-term investments are carried at amortized cost, which
approximates market value. Income, expenses and fees, including the advisory
and administration fees, are accrued daily and taken into account for the
purpose of determining the net asset value of the Fund's shares.
MANAGEMENT OF FRONTIER AND THE FUND
DIRECTORS AND OFFICERS
The officers of Frontier manage the Fund's day-to-day operations, subject
to the control and supervision of the Board of Directors. The directors and
officers of Frontier, their ages, their principal business occupations during
the past five years and their affiliations, if any, with the Adviser are shown
below. Directors deemed to be "interested persons" of Frontier for purposes of
the 1940 Act are indicated by an asterisk.
* James R. Fay, age 44, 101 West Wisconsin Avenue, Pewaukee, Wisconsin
53072, is the President, the Treasurer and a director of Frontier (since 1992);
the Adviser, Freedom Investors Corp. (since 1989); and Freedom Financial, Inc.
(since 1986).
* Amy L. Siesennop, age 40, 101 West Wisconsin Avenue, Pewaukee, Wisconsin
53072, is a Vice President, the Secretary and a director of Frontier (since
1999); since 1996, she has been employed in various administrative positions by
Frontier and as a registered general securities principal and representative of
the Adviser, Freedom Investors Corp. Prior to 1996, Ms. Siesennop taught
business courses at Stratton College (1995) and Santa Barbara Business College
(1988 to 1994).
Kenneth W. Coshun, age 67, 224 Lake Street, Pewaukee, Wisconsin 53072, is
a director of Frontier (since 1992). Mr. Coshun is a registered pharmacist. In
1997, he retired as President and a director of Lake Pharmacy of Pewaukee, Inc.,
positions he had held since 1958.
Jeffrey S. Ackley, age 36, 285 Forest Grove Drive, Pewaukee, Wisconsin
53072, is a director of Frontier (since 1992). Mr. Ackley is a certified public
accountant and owner of Ackley & Associates, CPAs (since 1991).
Matthew G. Drew, age 39, 1275 East Wisconsin Avenue, Pewaukee, Wisconsin
53072, is a director of Frontier (since 1999). Mr. Drew is the owner of Taylor
Systems, a manufacturer's representative (since 1995). From 1984 to 1995, he
was a sales representative for Professional Office Services, Inc.
Frontier pays each director who is not an officer or employee of the
Adviser or an affiliated company ("Disinterested Directors") 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 Adviser or an affiliated
company receive no compensation or expense reimbursement from Frontier.
Frontier does not maintain any pension or other retirement plan for its
directors, officers or employees.
COMPENSATION TABLE
The following table shows the amounts paid by Frontier to Disinterested
Directors for the fiscal year ended September 30, 1999:
Aggregate Compensation
From Frontier For the Year Ended
Name of Person, Position September 30, 1999
------------------------ ------------------
Kenneth W. Coshun, Director........................$3,000
Jeffrey S. Ackley, Director........................$3,000
Matthew G. Drew, Director..........................$2,250
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The officers and directors of Frontier as a group (5 persons) own less
than 1% of the shares of the Fund. As of January 24, 2000, each of the
following persons held of record 5% or more of the Fund shares then
outstanding. John A. Alford IRA, Firstar Bank, N.A., Custodian, 505 Lakeview
Drive, Hartland, Wisconsin 53029 (9.16%); Janice Lynn Griffin, 1177 Lowell
Drive, Oconomowoc, Wisconsin 53066 (8.34%); Robert F. and Burdette Ganschow,
Joint Tenants, c/o Linden Heights, 427 North University Drive, Waukesha,
Wisconsin 53188 (7.90%); and Antonia M. Pemberton, 4122 W. Mequon Road,
Mequon, Wisconsin 53092 (6.63%).
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
Election to be Taxed as a Regulated Investment Company. The Fund has
elected to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code ("Code"), has qualified as such for its most recent
fiscal year, and intends to so qualify during the current fiscal year. The
directors reserve the right not to maintain the qualification of the Fund as a
regulated investment company if they determine such course of action to be
beneficial to shareholders. In such case, the Fund will be subject to federal,
and possibly state, corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxed as ordinary dividend income to the
extent of the Fund's available earnings and profits.
All or a portion of any loss realized upon the redemption of Fund shares
will be disallowed to the extent that the redeeming shareholder purchases other
shares of the Fund (through reinvestment of dividends or otherwise) within 30
days before or after such redemption. Any loss disallowed under these rules
will be added to the tax basis in the new shares purchased.
U.S. Government Obligations. Many states grant tax-free status to
dividends paid from interest earned on direct obligations of the U.S.
Government, subject in some states to minimum investment requirements that must
be met by the Fund. Investments in GNMA/FNMA securities, bankers, acceptances,
commercial paper and repurchase agreements collateralized by U.S. Government
securities do not generally qualify for tax-free treatment.
At the end of each calendar year, the Fund will provide its shareholders
with the percentage of any dividends paid that may qualify for tax-free
treatment on their personal income tax returns. INVESTORS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE APPLICATION OF STATE AND LOCAL LAWS TO
THESE DISTRIBUTIONS. BECAUSE THE RULES ON EXCLUSION OF THIS INCOME ARE
DIFFERENT FOR CORPORATIONS, CORPORATE SHAREHOLDERS SHOULD CONSULT WITH THEIR
CORPORATE TAX ADVISORS ABOUT WHETHER ANY OF THEIR DISTRIBUTIONS MAY BE EXEMPT
FROM CORPORATE INCOME OR FRANCHISE TAXES.
Dividends-Received Deduction for Corporations. Corporate shareholders
should note that a percentage of the dividends paid by the Fund for its most
recent calendar year qualified for the dividends-received deduction. In some
circumstances, corporate shareholders will be permitted to deduct these
qualified dividends, thereby reducing the tax that they would otherwise be
required to pay on these dividends.
The dividends-received deduction will be available only with respect to
dividends designated by the Fund as eligible for such treatment. Dividends so
designated by the Fund must be attributable to dividends earned by the Fund from
U.S. corporations that were not debt-financed.
The amount that the Fund may designate as eligible for the dividends-
received deduction will be reduced or eliminated if the shares on which the
dividends were earned by the Fund were debt-financed or held by the Fund for
less than a 46-day period during a 90-day period beginning 45 days before the
ex-dividend date of the corporate stock. Similarly, if Fund shares are debt-
financed or held for less than this same 46-day period, then the dividends-
received deduction may also be reduced or eliminated. Even if designated as
dividends eligible for the dividends-received deduction, all dividends
(including the deducted portion) must be included in a shareholder's alternative
minimum taxable income calculation.
Conversion Transactions. Gains realized by the Fund from transactions
that are considered to be "conversion transactions" under the Code, and that
would otherwise produce capital gain may be recharacterized as ordinary income
to the extent that such gain does not exceed an amount defined as the
"applicable imputed income amount." A conversion transaction is any transaction
in which substantially all of the Fund's expected return is attributable to the
time value of the Fund's net investment in such transaction, and any one of the
following criteria are met:
(1) there is an acquisition of property with a
substantially contemporaneous agreement to sell the
same or substantially identical property in the future;
(2) the transaction was marketed or sold to the Fund on the
basis that it would have the economic characteristics
of a loan but would be taxed as capital gain; or
(3) the transaction is one of those specified in U.S.
Treasury regulations to be promulgated in the future.
The applicable imputed income amount, which represents the deemed return
on the conversion transaction based upon the time value of money, is computed
using a yield equal to 120% of the applicable federal rate, reduced by any prior
recharacterizations under this provision or the provisions of Section 263(g) of
the Code dealing with capitalized carrying costs.
Stripped Preferred Stock. Occasionally, the Fund may purchase "stripped
preferred stock" that is subject to special tax treatment. Stripped preferred
stock is defined as certain preferred stock issues where ownership of the stock
has been separated from the right to receive dividends that have not yet become
payable. The stock must have a fixed redemption price, must not participate
substantially in the growth of the issuer and must be limited and preferred as
to dividends. The difference between the redemption price and purchase price of
such stock is taken into Fund income over the term of the instrument as if it
were original issue discount. The amount that must be included in income for
each period generally depends on the original yield to maturity, adjusted for
any prepayments of principal.
Defaulted Obligations. The Fund may be required to accrue income on
defaulted obligations and to distribute such income even though it is not
currently receiving interest or principal payments on such obligations. In order
to generate cash to satisfy these distribution requirements, the Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares.
GENERAL INFORMATION AND HISTORY
The Fund is a separate series of stock of Frontier. Frontier was
incorporated under the laws of Maryland on October 24, 1991 and has an
authorized capitalization of 200,000,000 shares of $0.01 par value common stock.
Frontier's Board of Directors is empowered to divide the authorized shares into
one or more series and to fix the number of shares in each such series.
80,000,000 shares have been allocated to the Fund.
On certain matters, such as the election of directors, the shares of all
series vote together. On other matters affecting a particular series, such as
its fundamental policies, only shares of the affected series are entitled to
vote. Except for the election of directors (which requires a plurality), a
majority of the shares entitled to vote is required for the approval of any
matter submitted to a vote of shareholders. A "majority" (as defined in the
1940 Act) 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. Shares of all series, when
issued and outstanding, have equal voting, dividend, distribution and redemption
rights. All shares of Frontier have noncumulative voting rights. This means
that the holders of more than 50% of the shares can elect 100% of the directors
if the holders choose to do so; in that event, the holders of the remaining
shares will not be able to elect any directors. All shares when issued are
fully paid and non-assessable, and no shares have pre-emptive or conversion
rights. Frontier may create other series of stock but will not issue any senior
securities.
The Maryland General Corporation Law permits registered investment
companies, such as Frontier, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the 1940 Act. 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 at least 25% of the shares outstanding. The Frontier Board
of Directors will promptly call a meeting of stockholders to consider the
removal of a director or directors when requestyed in writing to do so by the
record holders of not less than 10% of all outstanding Frontier shares, and
stockholders will receive communication assistance in connection with calling
such a meeting, as required by Section 16(c) of the 1940 Act.
CUSTODIAN, COUNSEL AND INDEPENDENT AUDITORS
CUSTODIAN
The Fund's assets are held for safekeeping by an independent custodian,
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio ("Custodian"). This
means the bank, rather than the Fund, has possession of the Fund's cash and
securities. The Custodian is not responsible for the Fund's investment
management or administration. But, as directed by the Fund's officers, it
delivers cash to those who have sold securities to the Fund in return for such
securities, and to those who have purchased portfolio securities from the Fund,
it delivers such securities in return for their cash purchase price. The
Custodian also collects income directly from issuers of securities owned by the
Fund and holds this for payment to shareholders after deduction of the Fund's
expenses.
COUNSEL
Kranitz & Philipp, Milwaukee, Wisconsin, are legal counsel to the Fund.
INDEPENDENT AUDITORS
The Fund's financial statements are audited annually by independent
auditors approved by the Board of Directors each year, and in years in which an
annual meeting is held the directors may submit their selection of independent
auditors to the shareholders for ratification. McCurdy & Associates CPAs, Inc.,
27955 Clemens Road, Westlake, Ohio 44145, are the Fund's present independent
auditors.
FINANCIAL STATEMENTS
The following audited financial statements of the Fund are incorporated
herein by reference to the Fund's 1998 Annual Report to Shareholders, as filed
with the Securities and Exchange Commission on December 6, 1999:
Report of Independent Accountants
Schedule of Investments as of September 30, 1999
Statement of Assets and Liabilities as of September 30, 1999
Statement of Operations for the year ended September 30, 1999
Statements of Changes in Net Assets for the years ended September 30, 1999
and 1998
Financial Highlights for the years ended September 30, 1999, 1998, 1997,
1996 and 1995
Notes to Financial Statements
ADDITIONAL INFORMATION
Statements contained in the Prospectus and this Statement of Additional
Information as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Fund's registration
statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
