As filed with the Securities and Exchange Commission on October 11, 1996
Securities Act Registration No. 333-7305
Investment Company Act Registration No. 811-7685
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. -- [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
FRONTEGRA FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
400 Skokie Blvd.
Suite 500 60062
Northbrook, Illinois (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 1-(847) 509-9860
William D. Forsyth III
400 Skokie Blvd., Suite 500
Northbrook, Illinois 60062
(Name and Address of Agent for Service)
Copies to:
Carol A. Gehl
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Approximate date of proposed public offering: As soon
as practicable after the Registration Statement becomes
effective.
In accordance with Rule 24f-2 under the Investment
Company Act of 1940, Registrant declares that an
indefinite number of shares of its common stock, $.01
par value, is being registered by this Registration
Statement.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall
file a further amendment which specifically states that
this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in
the Prospectus and the Statement of Additional
Information of the responses to the Items of Parts A
and B of Form N-1A).
Caption or Subheading in
Prospectus or Statement
Item No. on Form N-1A of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Summary; Summary of
Portfolio Expenses
3. Condensed Financial *
Information
4. General Description of Organization; Investment
Registrant Objectives and Policies;
Investment Techniques and
Risks; Investment
Restrictions
5. Management of the Fund Management; Portfolio
Expenses
5A. Management's Discussion
of Fund Performance *
6. Capital Stock and Other Dividends, Capital Gain
Securities Distributions and Tax
Treatment; Organization
7. Purchase of Securities How to Purchase Shares;
Being Offered Determination of Net Asset
Value; Exchange Privilege
8. Redemption or Repurchase How to Redeem Shares;
Determination of Net Asset
Value; Exchange Privilege
9. Pending Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Included in Prospectus
and History under the heading
Organization
13. Investment Investment Restrictions;
Objectives and Policies Investment Policies and
Techniques
14. Management of the Directors and Officers
Fund
15. Control Persons and Principal Shareholders;
Principal Holders of Directors and Officers;
Securities Investment Adviser
<PAGE>
16. Investment Advisory Investment Adviser;
and Other Services Management (in Prospectus);
Custodian; Transfer Agent and
Dividend-Disbursing Agent;
Independent Accountants
17. Brokerage Allocation Portfolio Transactions
and Other Practices and Brokerage
18. Capital Stock and Included in Prospectus
Other Securities under the heading Organization
19. Purchase, Redemption Included in Prospectus
and Pricing of under the headings How
Securities Being Offered to Purchase Shares;
Determination of Net Asset
Value; How to Redeem
Shares; Exchange Privilege;
and in the Statement of
Additional Information
under the heading Investment
Adviser
20. Tax Status Included in Prospectus
under the heading
Dividends, Capital Gain
Distributions and Tax
Treatment
21. Underwriters *
22. Calculations of Performance Information
Performance Data
23. Financial Financial Statements
Statements
________________________
* Answer Negative or inapplicable.
<PAGE>
PROSPECTUS
______, 1996
FRONTEGRA FUNDS, INC.
400 Skokie Blvd.
Suite 500
Northbrook, Illinois 60062
1-888-825-2100
FRONTEGRA FUNDS, INC. is an open-end, diversified,
management investment company, known as a mutual fund
(the "Company"). The Company is currently comprised of
two separate portfolios, the FRONTEGRA TOTAL RETURN
BOND FUND (the "Total Return Bond Fund") and the
FRONTEGRA OPPORTUNITY FUND (the "Opportunity Fund")
(hereinafter collectively referred to as the "Funds").
The investment objective of the Total Return Bond
Fund is a high level of total return, consistent with
the preservation of capital. The Total Return Bond
Fund invests primarily in a diversified portfolio of
fixed income securities of varying maturities. The
investment objective of the Opportunity Fund is capital
appreciation. The Opportunity Fund invests primarily
in a diversified portfolio of equity securities of
companies with small to mid-sized market
capitalizations. The Funds are 100% no-load. There
are no sales, redemption or 12b-1 fees.
This Prospectus sets forth concisely the
information that you should be aware of prior to
investing in the Funds. Please read this Prospectus
carefully and retain it for future reference.
Additional information regarding the Company and the
Funds is included in the Statement of Additional
Information dated ___________, which has been filed
with the Securities and Exchange Commission ("SEC") and
is incorporated in this Prospectus by reference. A
copy of the Company's Statement of Additional
Information is available without charge by writing to
the Company at the address listed above or by calling,
toll-free, 1-888-825-2100.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY 3
Investment Objective 3
Risk Factors 3
Investment Adviser 3
Purchases and Redemptions 3
Shareholder Services 3
SUMMARY OF EXPENSES 4
Fee Tables 4
Example 4
INVESTMENT OBJECTIVES AND POLICIES 5
TOTAL RETURN BOND FUND 5
OPPORTUNITY FUND 5
INVESTMENT TECHNIQUES AND RISKS 6
TOTAL RETURN BOND FUND 6
Fixed Income Securities 6
Reverse Repurchase Agreements and Mortgage Dollar
Rolls 9
When-Issued Securities 10
Illiquid Securities 10
Repurchase Agreements 10
Foreign Securities and Currencies 10
Derivative Instruments 11
Portfolio Turnover 11
OPPORTUNITY FUND 11
Small Companies 11
Short-Term Fixed Income Securities 12
Illiquid Securities 12
Repurchase Agreements 12
Foreign Securities and Currencies 13
Derivative Instruments 13
Portfolio Turnover 13
MANAGEMENT 14
HOW TO PURCHASE SHARES 15
Initial Investment - Minimum $100,000 15
Subsequent Investments - Minimum $1,000 16
HOW TO REDEEM SHARES 16
Written Redemption 16
Signature Guarantees 16
EXCHANGE PRIVILEGE 16
TAX-SHELTERED RETIREMENT PLANS 17
Individual Retirement Account 17
Simplified Employee Pension Plan 17
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX TREATMENT 17
FUND EXPENSES 18
DETERMINATION OF NET ASSET VALUE 18
SHAREHOLDER REPORTS 18
ORGANIZATION 19
ADMINISTRATOR AND FUND ACCOUNTANT 19
CUSTODIAN AND TRANSFER AGENT 19
COMPARISON OF INVESTMENT RESULTS 19
<PAGE>
No person has been authorized to give any information
or to make any representations other than those
contained in this Prospectus and the Statement of
Additional Information, and if given or made, such
information or representations may not be relied upon
as having been authorized by the Company. This
Prospectus does not constitute an offer to sell
securities in any state to any person to whom it is
unlawful to make such offer in such state.
<PAGE>
SUMMARY
Investment Objective
Frontegra Funds, Inc. currently is comprised of the
Frontegra Total Return Bond Fund and the Frontegra
Opportunity Fund. The investment objective of the
Total Return Bond Fund is a high level of total return,
consistent with the preservation of capital. The Total
Return Bond Fund invests primarily in a diversified
portfolio of fixed income securities of varying
maturities. The investment objective of the
Opportunity Fund is capital appreciation. The
Opportunity Fund invests primarily in a diversified
portfolio of equity securities of companies with small
to mid-sized market capitalizations. Each Fund's
investments are subject to market risk and the value of
its shares will fluctuate with changing market
valuations of its portfolio holdings. See "INVESTMENT
OBJECTIVES AND POLICIES" and "INVESTMENT TECHNIQUES AND
RISKS."
Risk Factors
The Funds are suitable for long-term investors only
and are not designed as a short-term investment. The
share price of each Fund is expected to fluctuate and
may, at redemption, be worth more or less than the
initial purchase price. Market risks associated with
equity investment include the possibility that stock
prices in general will decline over short or even
extended periods. This risk is in addition to the
risks inherent in individual stock selections. Market
risks associated with fixed income investments include
the possibility that bond prices in general will
decline when interest rates increase. While fixed
income securities normally fluctuate less in price than
stocks, there have been extended periods of increases
in interest rates that have caused significant declines
in fixed income securities prices. In addition to
market risks associated with fixed income investments,
individual issues of fixed income securities may be
subject to credit risk of the issuer. See "Investment
Techniques and Risks," for more information.
Investment Adviser
The Funds are managed by Frontegra Asset
Management, Inc. ("Frontegra"), which supervises the
management of each Fund's portfolio by the sub-adviser
and administers the Company's business affairs.
Investment advisory services are provided to the Funds
by Reams Asset Management Company, LLC ("Reams"). The
firm operated as a corporation (Reams Asset Management
Company, Inc.) from its founding in 1981 until March
31, 1994, when it became an Indiana limited liability
company (LLC), with no change in principals, employees
or clients. Reams primarily acts as investment adviser
to institutional clients with investment portfolios
totaling approximately $2.5 billion. See "MANAGEMENT."
Purchases and Redemptions
Shares of the Funds are sold and redeemed at net
asset value without the imposition of any sales or
redemption charges. The minimum initial investment
required by each Fund is $100,000. The minimum
subsequent investment is $1,000. These minimums may be
changed or waived at any time at the discretion of the
Funds. See "HOW TO PURCHASE SHARES" and "HOW TO REDEEM
SHARES." Shares in one Fund may be exchanged without
any charge for shares in another Fund at their
respective net asset values.
Shareholder Services
Questions regarding either of the Funds may be
directed to the Company at the address and telephone
number on the front page of this Prospectus.
<PAGE>
SUMMARY OF EXPENSES
Fee Tables
Shareholder Transaction Expenses
Total Return Bond Opportunity
Fund Fund
Sales Load Imposed on Purchases NONE NONE
Sales Load Imposed on Reinvested Dividends NONE NONE
Deferred Sales Load Imposed on Redemptions NONE NONE
Redemption Fees NONE NONE
Exchange Fees NONE NONE
Annual Operating Expenses (after waivers or
reimbursements) (as a percentage of average net assets)
Total Return Bond Opportunity
Fund Fund
Management Fees 0.40% 0.65%
12b-1 Fees NONE NONE
Other Expenses (Net of
Reimbursements) 0.10% 0.25%
TOTAL OPERATING EXPENSES 0.50% 0.90%
(after Waivers or Reimbursements)
For the Funds' first twelve months of operation,
Frontegra has agreed to waive its management fee and/or
reimburse each Fund's operating expenses to the extent
necessary to ensure that the Total Return Bond Fund's
and the Opportunity Fund's Total Operating Expenses do
not exceed 0.50% and 0.90% respectively of the Fund's
average daily net assets. Since the Funds did not
commence operations until _________, 1996, other
expenses have been estimated and are presented net of
reimbursements. Absent these reimbursements, the Other
Expenses and Total Operating Expenses for the Total
Return Bond Fund are estimated to be 0.36% and .76%,
respectively; Other Expenses and Total Operating
Expenses for the Opportunity Fund are estimated to be
0.35% and 1.00%, respectively. For additional
information concerning fees and expenses, see
"MANAGEMENT."
The Fund will charge a service fee of $9 for
redemptions effected via wire transfer, and $20 for
checks that do not clear. See "HOW TO REDEEM SHARES."
Example
You would pay the following expenses on a $1,000
investment, assuming (i) 5% annual return and (ii)
redemption at the end of each time period:
Total Return Bond Opportunity
Fund Fund
1 Year $ 5 $ 9
3 Years $16 $30
The Fee Tables, including the Example, are included
to assist you in understanding the various costs and
expenses that an investor in the Funds bears directly
or indirectly. The Example is based on the Total
Operating Expenses specified in the table above. The
amounts in the Example may increase absent the waivers
or reimbursements. Please remember that the Example
should not be considered representative of past or
future
<PAGE>
expenses and that actual expenses may be greater
or lesser than those shown. The assumption in the
Example of a 5% annual rate of return is required by
regulations of the SEC applicable to all mutual funds.
This return is hypothetical and should not be
considered representative of past or future performance
of the Funds.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives presented below may not
be changed without shareholder approval. Since all
investments are subject to inherent market risks, there
is no assurance that these objectives will be realized.
Other investment restrictions which may not be changed
without shareholder approval are contained in the
Company's Statement of Additional Information. Except
for each Fund's investment objective and the investment
restrictions enumerated in the Company's Statement of
Additional Information, a Fund's policies may be
changed without a vote of the Fund's shareholders.
TOTAL RETURN BOND FUND The Total Return Bond Fund's
investment objective is a high level of total return,
consistent with the preservation of capital.
The Total Return Bond Fund will seek, under normal
market conditions, to achieve its investment objective
by investing in a diversified portfolio of fixed income
securities of varying maturities. The Fund will invest
at least 65% of its net assets in bonds. The Fund
considers a bond to be any debt instrument. These
instruments include: short-term fixed income
securities; U.S. government securities; corporate debt
securities, including convertible securities and
corporate commercial paper; mortgage-backed and other
asset-backed securities; structured notes and loan
participations; bank certificates of deposit, fixed
time deposits and bankers' acceptances; repurchase
agreements; obligations of foreign governments or their
subdivisions, agencies and instrumentalities; and
obligations of international agencies or supranational
entities. Although the Fund primarily will invest in
investment grade fixed income securities, the Fund may
invest up to 25% of its assets in fixed income
securities that are rated below investment grade. The
Fund may invest up to 20% of its assets in securities
denominated in foreign currencies and may invest beyond
this limit in U.S. dollar-denominated securities of
foreign issuers. The portfolio duration of the Fund
will normally fall between three to seven years based
on market conditions. Duration is a measure of a fixed
income security's average life that reflects the
present value of the security's cash flow, and
accordingly is a measure of price sensitivity to
interest rate changes.
Reams attempts to maximize total return over a long-
term horizon through opportunistic investing in a broad
array of eligible securities. The investment process
combines active duration and yield-curve management
with bottom-up issue selection, focusing on undervalued
issues in the fixed income market. Reams employs a two-
step process in managing the Total Return Bond Fund.
The first step is to establish the portfolio's duration
on the basis of whether the bond market is under or
over priced. Emphasis is placed on inflation and
monetary policy in the formulation of Reams'
strategies. Reams determines market attractiveness by
comparing current interest rates to historical interest
rates. Once Reams has determined an overall market
strategy, the second step is to select the most
attractive bonds for the Fund. The portfolio
management team screens hundreds of issues to determine
how each will perform in various interest-rate
environments. The firm's outlook for interest rates,
fundamental credit analysis and option-adjusted spread
analysis are the primary tools used when constructing
these scenarios. Investment opportunities are compared
and the Fund's portfolio is assembled from the best
available values.
OPPORTUNITY FUND
The Opportunity Fund's investment objective is
capital appreciation.
The Opportunity Fund will seek, under normal market
conditions, to achieve its investment objective by
investing its assets primarily in equity securities of
companies with small to mid-sized market
capitalizations. The Fund will invest at least 80% of
its net assets in equity securities. These securities
include: common stocks; preferred stocks; warrants to
purchase common stocks or preferred stocks; depositary
receipts; and securities convertible into common or
preferred stocks, such as convertible bonds and
debentures rated Baa or higher by Moody's Investors
Service
<PAGE>
("Moody's") or BBB or higher by Standard &
Poor's ("S&P"), Duff & Phelps, Inc. ("D&P") or Fitch
Investors Service, Inc. ("Fitch"). At least 65% of the
Opportunity Fund's total assets will normally be
invested in equity securities of small to mid-sized
market capitalization companies, which for the purposes
of this Fund are those companies with a market
capitalization of $2 billion or less at the time of the
Fund's investment. In general, smaller-capitalization
companies often involve greater risks than investments
in larger capitalized companies. (See "INVESTMENT
TECHNIQUES AND RISKS - Small Companies"). The Fund may
invest up to 15% of its net assets directly in the
securities of foreign issuers. It may also invest,
without limitation, in foreign securities in domestic
markets through depositary receipts. However, as a
matter of policy, the Opportunity Fund intends to limit
its total foreign exposure, including both direct
investments and depositary receipts, to no more than
25% of the Fund's net assets. In addition, the Fund
may invest up to 20% of its total assets in cash and
short-term fixed income securities for any purpose and
up to 100% of its total assets may be invested in such
instruments for temporary defensive purposes.
In seeking to achieve the Opportunity Fund's
investment objective, Reams uses a value-oriented
discipline. Reams evaluates the small and mid-cap
markets by using a number of valuation criteria,
including both current and historical measures, for
ratios comparing price to earnings, price to book
value, and price to sales. The portfolio management
team then constructs a focus list based in part on each
company's competitive position, capital structure, cash
flow and management. The team then determines a target
price for the stock, thus providing a specific expected
rate of return. The approximately 75 securities with
the highest expected rates of return would be among
those securities selected for the Fund's portfolio. On
average, a security will be held by the Fund for
approximately 12 months. Ultimately, securities will
be sold due to the emergence of superior alternatives.
INVESTMENT TECHNIQUES AND RISKS
In addition to the investment policies described
above (and subject to certain restrictions described
below), the Funds may invest in the following
securities and employ the following investment
techniques, some of which may present special risks as
described below. A more complete discussion of certain
of these securities and investment techniques and the
associated risks is contained in the Company's
Statement of Additional Information.
TOTAL RETURN BOND FUND
Fixed Income Securities
The Fund may invest in a wide variety of fixed
income securities. Issuers of fixed income securities
have a contractual obligation to pay interest at a
specified rate on specified dates and to repay
principal on a specified maturity date. Certain
securities (usually intermediate- and long-term bonds)
have provisions that allow the issuer to redeem or
"call" a bond before its maturity. Issuers are most
likely to call such securities during periods of
falling interest rates. As a result, the Fund may be
required to invest the unanticipated proceeds of the
called security at lower interest rates, which may
cause the Fund's income to decline.
In general, the longer the maturity of a fixed
income security the higher its yield and the greater
its sensitivity to changes in interest rates.
Conversely, the shorter the maturity the lower the
yield but the greater the price stability. The values
of fixed income securities also may be affected by
changes in the credit rating or financial condition of
their issuers. Generally, the lower the quality rating
of a security the higher the degree of risk as to the
payment of interest and return of principal. To
compensate investors for taking on such increased risk,
issuers deemed to be less creditworthy generally must
offer investors higher interest rates than do issuers
with better credit ratings.
Commercial paper generally is considered the
shortest form of fixed income security. Notes whose
original maturities are one year or less are considered
short-term obligations. The term "bond" generally
refers to securities with maturities longer than two
years. Bonds with maturities of three years or less
are considered short-term, bonds with maturities
between three and seven years are considered
intermediate-term, and bonds with maturities greater
than seven years are considered long-term.
Investment Grade Debt Obligations. Investment
grade debt obligations include: (i) U.S. government
securities (ii) commercial paper rated in one of the
three highest rating categories (e.g., A-2 or higher by
S&P); (iii) short-term
<PAGE>
notes rated in one of the three
highest rating categories (e.g., SP-2 or higher by
S&P); (iv) bonds rated in one of the four highest
rating categories (e.g., rated BBB or higher by S&P);
and (v) unrated securities determined by Reams to be of
comparable quality. Investment grade securities are
generally believed to have relatively low degrees of
credit risk. However, certain investment- grade
securities may have some speculative characteristics,
since their issuers' capacity for repayment may be more
vulnerable to adverse economic conditions or changing
circumstances than that of higher-rated issuers.
Non-investment Grade Debt Obligations. Non-
investment grade debt obligations, also referred to as
"junk bonds", are those securities that are rated
lower than investment grade and unrated securities of
comparable quality. Although they generally offer
higher yields than investment grade securities with
similar maturities, lower-quality securities involve
greater risks, including the possibility of default or
bankruptcy. In general, they are regarded to be
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal.
For a more extensive discussion of debt ratings,
see the Company's Statement of Additional Information.
Debt Obligations-General. Debt obligations
include: (i) corporate debt securities, including
bonds, debentures, and notes; (ii) bank obligations,
such as certificates of deposit, banker's acceptances
and time deposits of domestic and foreign banks,
domestic savings associations and their subsidiaries
and branches (in amounts in excess of the current
$100,000 per account insurance coverage provided by the
Federal Deposit Insurance Corporation); (iii)
commercial paper (including variable-amount master
demand notes); (iv) repurchase agreements; (v) loan
interests; (vi) foreign debt obligations issued by
foreign issuers traded either in foreign markets or in
domestic markets through depositary receipts; (vii)
convertible securities - debt obligations convertible
into or exchangeable for equity securities or debt
obligations that carry with them the right to acquire
equity securities, as evidenced by warrants attached to
such securities, or acquired as part of units of the
securities; (viii) preferred stocks - securities that
represent an ownership interest in a corporation and
that give the owner a prior claim over common stock on
the company's earnings or assets; (ix) U.S. government
securities; (x) mortgage-backed securities,
collateralized mortgage obligations and similar
securities; and (xi) municipal obligations.
Short-Term Fixed Income Securities. Short-term
fixed income securities must be rated at least A or
higher by S&P, Moody's or Fitch or A- or higher by D&P.
These securities (each of which has a stated maturity
of one year or less from the date of purchase unless
otherwise indicated) include: U.S. government
securities, including bills, notes and bonds, differing
as to maturity and rate of interest, which are either
issued or guaranteed by the U.S. Treasury or by U.S.
governmental agencies or instrumentalities;
certificates of deposit issued against funds deposited
in a U.S. bank or savings and loan association; bank
time deposits, which are monies kept on deposit with
U.S. banks or savings and loan associations for a
stated period of time at a fixed rate of interest;
bankers' acceptances which are short-term credit
instruments used to finance commercial transactions;
commercial paper and commercial paper master notes
(which are demand instruments without a fixed maturity
bearing interest at rates which are fixed to known
lending rates and automatically adjusted when such
lending rates change) rated A-1 or better by S&P, Prime-
1 or better by Moody's, Duff 2 or higher by D&P, or
Fitch 2 or higher by Fitch; or repurchase agreements
entered into only with respect to obligations of the
U.S. government, its agencies or instrumentalities.
The Fund may also invest in the short-term investment
fund of its custodial bank.
U.S. Government Securities. U.S. government
securities are issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
Securities issued or guaranteed by government agencies
or instrumentalities include: (i) the Federal Housing
Administration, Farmers Home Administration, Export-
Import Bank of the United States, Small Business
Administration and Government National Mortgage
Association ("GNMA"), including GNMA pass-through
certificates, whose securities are supported by the
full faith and credit of the United States; (ii) the
Federal Home Loan Banks, Federal Intermediate Credit
Banks and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to
borrow from the U.S. Treasury; (iii) the Federal
National Mortgage Association and Federal Home Loan
Mortgage Corporation, whose securities are supported by
the discretionary authority of the U.S. government to
purchase certain obligations of the agency or
instrumentality; and (iv) the Student Loan Marketing
Association, the Interamerican Development Bank and
International Bank for Reconstruction and Development,
whose securities are supported only by the credit of
such agencies. Although the U.S. government provides
financial support to these U.S. government-sponsored
agencies and instrumentalities, no assurance can be
given that it will always do so.
<PAGE>
The U.S. government
and its agencies and instrumentalities do not guarantee
the market value of their securities. Consequently,
the value of these securities will fluctuate.
Corporate Debt Securities. Corporate debt
securities include investment grade and non-investment
grade corporate bonds, debentures, notes and other
similar corporate debt instruments, including
convertible securities. Corporate debt securities may
be acquired with warrants attached. Income producing
corporate debt securities may also include forms of
preferred or preference stock. The rate of interest on
a corporate debt security may be fixed, floating or
variable, and may vary inversely with respect to a
reference rate. See "Variable and Floating Rate
Securities" below.
Variable and Floating Rate Securities. The Fund
may invest in variable, floating and inverse floating
rate debt instruments. Variable and floating rate
securities provide for a periodic adjustment of the
interest rate paid on the obligations. These
obligations must provide that interest rates are
adjusted periodically based on a specified interest
rate adjustment index. The adjustment intervals may be
regular (ranging from daily to annually) or may be
based on certain events (such as a change in the prime
rate). The interest rate on a floating rate security is
a variable rate which is tied to another interest rate,
such as a money-market index or U.S. Treasury bill rate
and resets periodically, typically every six months.
While floating rate securities provide the Fund with a
certain degree of protection against rises in interest
rates because of the interest rate reset feature, the
Fund will be subject to any decline in interest rates
as well. The interest rate on an inverse floater
resets in the opposite direction from the market rate
of interest to which the inverse floater is indexed.
An inverse floating rate security may exhibit greater
price volatility than a fixed rate obligation of
similar credit quality. The Fund will not invest more
than 5% of its net assets in any combination of inverse
floaters, interest only or principal only securities.
See "Mortgage- and Other Asset-Backed Securities" for a
discussion of interest only and principal only
securities.
Mortgage- and Other Asset-Backed Securities.
Mortgage-backed securities represent direct or indirect
participation in, or are secured by and payable from,
mortgage loans secured by real property, and include
single- and multi-class pass-through securities and
collateralized mortgage obligations. Such securities
may be issued or guaranteed by U.S. government agencies
or instrumentalities or by private issuers, generally
originators in mortgage loans, including savings
associations, mortgage bankers, commercial banks,
investment bankers and special purpose entities
(collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported
by pools of mortgage loans or other mortgage-backed
securities that are directly or indirectly guaranteed
by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any
governmental guarantee of the underlying mortgage
assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural
characteristics similar to mortgage-backed securities.
However, the underlying assets are not first-lien
mortgage loans or interests therein. Instead, they
include assets such as motor vehicle installment sales
contracts, installment loan contracts, home equity
loans, leases of various types of property and
receivables from credit card issuers or other revolving
credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may
be supported by non-governmental credit enhancements
similar to those utilized in connection with mortgage-
backed securities.
The yield characteristics of mortgage- and asset-
backed securities differ from those of traditional debt
obligations. Among the principal differences are that
interest and principal payments are made more
frequently on mortgage- and asset-backed securities,
usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other
assets generally may be prepaid at any time. As a
result, if the Fund purchases these securities at a
premium, a prepayment rate that is faster than expected
will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite
effect of increasing the yield to maturity.
Conversely, if the Fund purchases these securities at a
discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a
prepayment rate that is slower than expected will
reduce yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium
may not have been fully amortized at the time the
principal is prepaid in full. The market for privately
issued mortgage- and asset-backed securities is smaller
and less liquid than the market for government
sponsored mortgage-backed securities.
<PAGE>
The Fund may invest in stripped mortgage- or asset-
backed securities, which receive differing proportions
of the interest and principal payments from the
underlying assets. The market value of such securities
generally is more sensitive to changes in prepayment
and interest rates than is the case with traditional
mortgage- and asset-backed securities, and in some
cases the market value may be extremely volatile. With
respect to certain stripped securities, such as
interest only and principal only classes, a rate of
prepayment that is faster or slower than anticipated
may result in the Fund failing to recover all or a
portion of its investment, even though the securities
are rated investment grade.
Loan Interests. The Fund may invest its assets in
loan interests, which are interests in amounts owed by
a corporate, governmental or other borrower to lenders
or lending syndicates. Loan interests purchased by the
Fund may have a maturity of any number of days or years
and may be secured or unsecured. Loan interests, which
may take the form of interests in, assignments of, or
novations of a loan, may be acquired from U.S. and
foreign banks, insurance companies, finance companies
or other financial institutions that have made loans or
are members of a lending syndicate or from the holders
of loan interests. Loan interests involve the risk of
loss in the case of default or bankruptcy of the
borrower and, in the case of participation interests,
involve a risk of insolvency of the agent lending bank
or other financial intermediary. Loan interests are
not rated by any nationally recognized statistical
rating organization, and are, at present, not readily
marketable and may be subject to contractual
restrictions on resale.
Zero-Coupon, Step-Coupon and Pay-In-Kind
Securities. The Fund may invest in zero-coupon, step-
coupon and pay-in-kind securities. These securities
are debt securities that do not make regular cash
interest payments. Zero-coupon and step-coupon
securities are sold at a deep discount to their face
value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because these
securities do not pay current cash income, their price
can be volatile when interest rates fluctuate. Federal
income tax law requires the holders of zero-coupon,
step-coupon and pay-in-kind securities to include in
income each year the portion of the original issue
discount (or deemed discount) and other non-cash income
on such securities accrued during that year. In order
to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as
amended (the "Code") and avoid a certain excise tax,
the Fund may be required to distribute a portion of
such discount and income and may be required to dispose
of other portfolio securities (which may occur in
periods of adverse market prices) in order to generate
cash to meet these distribution requirements.
Reverse Repurchase Agreements and Mortgage Dollar Rolls
The Total Return Bond Fund may engage in reverse
repurchase agreements to facilitate portfolio liquidity
(a practice common in the mutual fund industry) or for
arbitrage transactions. In a reverse repurchase
agreement, the Fund would sell a security and enter
into an agreement to repurchase the security at
specified future date and price. The Fund generally
retains the right to interest and principal payments on
the security. Since the Fund receives cash upon
entering into a reverse repurchase agreement, it may be
considered a borrowing. When required by SEC
guidelines, the Fund will set aside permissible liquid
assets in a segregated account to secure its obligation
to repurchase the security.
The Total Return Bond Fund also may enter into
mortgage dollar rolls, in which the Fund would sell
mortgage-backed securities for delivery in the current
month and simultaneously contract to purchase
substantially similar securities on a specified future
date. While the Fund would forego principal and
interest paid on the mortgage-backed securities during
the roll period, it would be compensated by the
difference between the current sale price and the lower
price for the future purchase as well as by any
interest earned on the proceeds of the initial sale.
The Fund also could be compensated through the receipt
of fee income equivalent to a lower forward price.
When required by SEC guidelines, the Fund will set
aside permissible liquid assets in a segregated account
to secure its obligation for the forward commitment to
buy mortgage-backed securities. Mortgage dollar roll
transactions may be considered a borrowing by the Fund.
The mortgage dollar rolls and reverse repurchase
agreements entered into by the Fund may be used as
arbitrage transactions in which the Fund will maintain
an offsetting position in investment grade debt
obligations or repurchase agreements that mature on or
before the settlement date of the related mortgage
dollar roll or reverse repurchase agreement. Since the
Fund will receive interest on the securities or
repurchase agreements in which it invests the
transaction proceeds, the transactions may involve
leverage.
<PAGE>
When-Issued Securities
The Fund may invest without limitation in
securities purchased on a when-issued or delayed
delivery basis ("When-Issued Securities"). Although
the payment and terms of these securities are
established at the time the purchaser enters into the
commitment, these securities may be delivered and paid
for at a future date, generally within 45 days.
Purchasing When-Issued Securities allows the Fund to
lock in a fixed price on a security it intends to
purchase. The Fund will segregate and maintain cash,
cash equivalents, U.S. government securities, or other
liquid securities in an amount at least equal to the
amount of outstanding commitments for When-Issued
Securities at all times. Such securities involve a
risk of loss if the value of the security to be
purchased declines prior to the settlement date.
Illiquid Securities
The Total Return Bond Fund may invest up to 15% of
the value of its net assets in illiquid securities.
Illiquid securities include: restricted securities
(securities the disposition of which is restricted
under the federal securities laws); securities which
may only be resold pursuant to Rule 144A under the
Securities Act of 1933; and repurchase agreements with
maturities in excess of seven days. Risks associated
with restricted securities include the potential
obligation to pay all or part of the registration
expenses in order to sell restricted securities. A
considerable period of time may elapse between the time
of the decision to sell a restricted security and the
time the Fund may be permitted to sell under an
effective registration statement or otherwise. If,
during such a period, adverse conditions were to
develop, the Fund might obtain a less favorable price
than that which prevailed when it decided to sell. The
Board of Directors of the Company, or its delegate, has
the ultimate authority to determine, to the extent
permissible under the federal securities laws, which
securities are liquid or illiquid. Rule 144A
securities will be treated as illiquid securities,
subject to the liquidity guidelines. The Board of
Directors has adopted guidelines and delegated this
determination to Frontegra.
Repurchase Agreements
The Fund may enter into repurchase agreements with
certain banks and non-bank dealers. In a repurchase
agreement, a Fund buys a security at one price and at
the time of sale, the seller agrees to repurchase the
obligation at a mutually agreed upon time and price
(usually within seven days). The repurchase agreement
determines the yield during the purchaser's holding
period, while the seller's obligation to repurchase is
secured by the value of the underlying security. The
Fund may enter into repurchase agreements with respect
to any security in which it may invest. Repurchase
agreements could involve certain risks in the event of
a default or insolvency of the other party to the
agreement, including possible delays or restrictions
upon a Fund's ability to dispose of the underlying
securities. Under certain circumstances, the Fund may
deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S.
government securities.
Foreign Securities and Currencies
The Fund may invest directly or indirectly in foreign
securities. Investments in securities of foreign
issuers involve risks which are in addition to the usual
risks inherent in domestic investment. In many
countries there is less publicly available information
about issuers than is available in the reports and ratings
published about companies in the U.S. Additionally,
foreign companies are not subject to the same
uniform accounting, auditing and financial reporting
standards as companies in the U.S. Other risks inherent
in foreign investment include: expropriation; confiscatory
taxation; capital gains taxes; withholding taxes on
dividends and interest; less extensive regulation of foreign
brokers, securities markets and issuers; costs incurred
in conversions between currencies; the possibility of
delays in settlement in foreign securities markets;
limitations on the use or transfer of assets (including
suspension of the ability to transfer currency from a
given country); the difficulty of enforcing obligations
in other countries; diplomatic developments; and
political or social instability. Foreign economies may
differ favorably or unfavorably from the U.S. economy
in various respects, and many foreign securities are
less liquid and their prices are more volatile than
comparable U.S. securities. From time to time, foreign
securities may be difficult to liquidate rapidly
without adverse price effects. Certain costs
attributable to foreign investing, such as custody
charges and brokerage costs, are higher than those
attributable to domestic investing.
<PAGE>
Because most foreign securities are denominated in
non-U.S. currencies, the investment performance of the
Fund could be affected by changes in foreign currency
exchange rates to some extent. The value of the Fund's
assets denominated in foreign currencies will increase
or decrease in response to fluctuations in the value of
those foreign currencies relative to the U.S. dollar.
Currency exchange rates can be volatile at times in
response to various political and economic conditions.
In addition, the Fund may purchase and sell foreign
currency on a spot basis and may engage in forward
currency contracts, currency options and futures
transactions for hedging or any other lawful purpose.
(See "Derivative Instruments.")
Derivative Instruments
The Fund may engage in options, futures and options
on futures transactions which are sometimes referred to
as derivative transactions. Derivative transactions
may also include short sales against the box, in which
the Fund sells a security it owns for delivery at a
future date; swaps, in which two parties agree to
exchange a series of cash flows in the future, such as
interest-rate payments; interest-rate caps, under
which, in return for a premium, one party agrees to
make payments to the other to the extent that interest
rates exceed a specified rate, or "cap"; and interest-
rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the
extent that interest rates fall below a specified
level, or "floor". Derivative transactions may also
include forward currency contracts and foreign currency
exchange-related securities.
Derivative instruments may be used by the Fund for
any lawful purpose consistent with the Fund's
investment objective, including hedging or managing
risk but not for speculation. Derivative instruments
are securities or agreements whose value is derived
from the value of some underlying asset, for example,
securities, currencies, reference indexes, or
commodities. Derivatives generally have investment
characteristics that are based upon either forward
contracts or option contracts. The change in value of
a forward-based derivative generally is proportional to
the change in value of the underlying asset while the
change in value of an option-based derivative generally
is related to favorable movements in the price of the
underlying asset, without the corresponding exposure to
adverse movements in the value of the underlying asset.
The seller of an option-based derivative generally will
receive fees or premiums but is exposed to losses due
to changes in the value of the underlying asset. When
required by guidelines of the SEC, the Fund will set
aside permissible liquid assets in a segregated account
to secure its potential obligations under its
derivative positions. Such liquid assets may include
cash, U.S. government securities and high grade liquid
debt securities. The ability of the Fund to use
derivatives effectively is largely dependent upon
Reams' ability to use such instruments correctly which
may involve different skills than are associated with
securities generally. For a further discussion of
derivative transactions, please see the Statement of
Additional Information.
Portfolio Turnover
Under normal market conditions, the Fund
anticipates that its portfolio turnover rate will
generally not exceed 125% and is expected to be between
75% and 125%. A portfolio turnover rate of 100% would
occur, for example, if all of the securities held by
the Fund were replaced within one year. In the event
the Fund has a portfolio turnover rate of 100% or more
in any year, it would result in the payment by the Fund
of increased brokerage costs and could result in the
payment by shareholders of increased taxes on realized
investment gains.
OPPORTUNITY FUND
Small Companies
The Opportunity Fund may invest a substantial
portion of its assets in small companies. While
smaller companies generally have the potential for
rapid growth, investments in smaller companies often
involve greater risks than investments in larger, more
established companies because smaller companies may
lack the management experience, financial resources,
product diversification and competitive strengths of
larger companies. In addition, in many instances the
securities of smaller companies are traded only over-
the-counter or on a regional securities
<PAGE>
exchange, and
the frequency and volume of their trading is
substantially less than is typical of larger companies.
Therefore, the securities of smaller companies may be
subject to greater and more abrupt price fluctuations.
When making large sales, the Opportunity Fund may have
to sell portfolio holdings at discounts from quoted
prices or may have to make a series of small sales over
an extended period of time due to the trading volume of
smaller company securities. An investment in the
Opportunity Fund may be subject to greater price
fluctuations than an investment in a fund that invests
primarily in larger companies.
Short-Term Fixed Income Securities
The Fund may invest in short-term fixed income
securities. Short-term fixed income securities must be
rated at least A or higher by S&P, Moody's or Fitch or
A- or higher by D&P. These securities (each of which
has a stated maturity of one year or less from the date
of purchase unless otherwise indicated) include: U.S.
government securities, including bills, notes and
bonds, differing as to maturity and rate of interest,
which are either issued or guaranteed by the U.S.
Treasury or by U.S. governmental agencies or
instrumentalities; certificates of deposit issued
against funds deposited in a U.S. bank or savings and
loan association; bank time deposits, which are monies
kept on deposit with U.S. banks or savings and loan
associations for a stated period of time at a fixed
rate of interest; bankers' acceptances which are short-
term credit instruments used to finance commercial
transactions; commercial paper and commercial paper
master notes (which are demand instruments without a
fixed maturity bearing interest at rates which are
fixed to known lending rates and automatically adjusted
when such lending rates change) rated A-1 or better by
S&P, Prime-1 or better by Moody's, Duff 2 or higher by
D&P, or Fitch 2 or higher by Fitch; or repurchase
agreements entered into only with respect to
obligations of the U.S. government, its agencies or
instrumentalities. The Fund may also invest in the
short-term investment fund of its custodial bank.
Illiquid Securities
The Opportunity Fund may invest up to 5% of the
value of its net assets in illiquid securities.
Illiquid securities include restricted securities
(securities the disposition of which is restricted
under the federal securities laws); and repurchase
agreements with maturities in excess of seven days.
Risk associated with restricted securities include the
potential obligation to pay all or part of the
registration expenses in order to sell restricted
securities. A considerable period of time may elapse
between the time of the decision to sell a restricted
security and the time the Fund may be permitted to sell
under an effective registration statement or otherwise.
If, during such a period, adverse conditions were to
develop, the Fund might obtain a less favorable price
than that which prevailed when it decided to sell. The
Board of Directors of the Company, or its delegate, has
the ultimate authority to determine, to the extent
permissible under the federal securities laws, which
securities are liquid or illiquid. Rule 144A
securities will be treated as illiquid, subject to the
liquidity guidelines. The Board of Directors has
adopted guidelines and delegated this determination to
Frontegra.
Repurchase Agreements
The Fund may enter into repurchase agreements with
certain banks and non-bank dealers. In a repurchase
agreement, a Fund buys a security at one price and at
the time of sale, the seller agrees to repurchase the
obligation at a mutually agreed upon time and price
(usually within seven days). The repurchase agreement
determines the yield during the purchaser's holding
period, while the seller's obligation to repurchase is
secured by the value of the underlying security. The
Fund may enter into repurchase agreements with respect
to any security in which it may invest. Repurchase
agreements could involve certain risks in the event of
a default or insolvency of the other party to the
agreement, including possible delays or restrictions
upon a Fund's ability to dispose of the underlying
securities. Under certain circumstances, the Fund may
deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S.
government securities.
<PAGE>
Foreign Securities and Currencies
The Fund may invest directly or indirectly in
foreign securities or indirectly through depositary
receipts. Depositary receipts are typically issued
by banks or trust companies evidencing ownership
of the underlying foreign security. Investments in
securities of foreign issuers involve risks which are
in addition to the usual risks inherent in domestic
investment. In many countries there is less publicly
available information about issuers than is available
in the reports and ratings published about companies
in the U.S. Additionally, foreign companies are not subject
to the same uniform accounting, auditing and financial
reporting standards as companies in the U.S. Other
risks inherent in foreign investment include:
expropriation; confiscatory taxation; capital gains
taxes; withholding taxes on dividends and interest;
less extensive regulation of foreign brokers,
securities markets and issuers; costs incurred in
conversions between currencies; the possibility of
delays in settlement in foreign securities markets;
limitations on the use or transfer of assets (including
suspension of the ability to transfer currency from a
given country); the difficulty of enforcing obligations
in other countries; diplomatic developments; and
political or social instability. Foreign economies may
differ favorably or unfavorably from the U.S. economy
in various respects, and many foreign securities are
less liquid and their prices are more volatile than
comparable U.S. securities. From time to time, foreign
securities may be difficult to liquidate rapidly
without adverse price effects. Certain costs
attributable to foreign investing, such as custody
charges and brokerage costs, are higher than those
attributable to domestic investing.
Because most foreign securities are denominated in
non-U.S. currencies, the investment performance of the
Fund could be affected by changes in foreign currency
exchange rates to some extent. The value of the Fund's
assets denominated in foreign currencies will increase
or decrease in response to fluctuations in the value of
those foreign currencies relative to the U.S. dollar.
Currency exchange rates can be volatile at times in
response to various political and economic conditions.
Derivative Instruments
The Fund may engage in options, futures and options
on futures transactions which are sometimes referred to
as derivative transactions. Derivative transactions
may also include forward currency contracts and foreign
currency exchange-related securities.
Derivative instruments may be used by the Fund for
any lawful purpose consistent with the Fund's
investment objective, including hedging or managing
risk but not for speculation. Derivative instruments
are securities or agreements whose value is derived
from the value of some underlying asset, for example,
securities, currencies, reference indexes, or
commodities. Derivatives generally have investment
characteristics that are based upon either forward
contracts or option contracts. The change in value of
a forward-based derivative generally is proportional to
the change in value of the underlying asset, while the
change in value of an option-based derivative generally
is related to favorable movements in the price of the
underlying asset, without the corresponding exposure to
adverse movements in the value of the underlying asset.
The seller of an option-based derivative generally will
receive fees or premiums but is exposed to losses due
to changes in the value of the underlying asset. When
required by guidelines of the SEC, the Fund will set
aside permissible liquid assets in a segregated account
to secure its potential obligations under its
derivative positions. Such liquid assets may include
cash, U.S. government securities and high grade liquid
debt securities. The ability of the Fund to use
derivatives effectively is largely dependent upon
Reams' ability to use such instruments correctly which
may involve different skills than are associated with
securities generally. For a further discussion of
derivative transactions, please see the Statement of
Additional Information.
Portfolio Turnover
Under normal market conditions, the Fund
anticipates that its portfolio turnover rate will
generally not exceed 125% and is expected to be between
75% and 125%. A portfolio turnover rate of 100% would
occur, for example, if all of the securities held by
the Fund were replaced within one year. In the event
the Fund has a portfolio turnover rate of 100% or more
in any year, it would result in the payment by the Fund
of increased brokerage costs and could result in the
payment by shareholders of increased taxes on realized
investment gains.
<PAGE>
MANAGEMENT
Under the laws of the State of Maryland, the Board
of Directors of the Company (the "Board of Directors")
is responsible for managing the Company's business and
affairs. The Board of Directors also oversees duties
required by applicable state and federal law. The
Company has entered into an investment advisory
agreement with Frontegra Asset Management, Inc. dated
__________, 1996 (the "Investment Advisory Agreement")
pursuant to which Frontegra supervises the management
of each Fund's investments and business affairs,
subject to the supervision of the Company's Board of
Directors. Frontegra has entered into an agreement
with Reams Asset Management Company, LLC under which
Reams serves as each Fund's portfolio manager and,
subject to Frontegra's supervision, manages the Funds'
portfolio assets. Frontegra provides office facilities
for the Funds and pays the salaries, fees, and expenses
of all officers and directors of the Funds who are
interested persons of Frontegra.
Frontegra was organized in 1996 and is located at
400 Skokie Blvd., Suite 500, Northbrook, Illinois
60062. Mr. William D. Forsyth III and Mr. Thomas J.
Holmberg, Jr. each own 50% of Frontegra. Under the
Investment Advisory Agreement, the Opportunity Fund
compensates Frontegra for its management services at
the annual rate of 0.65% of the Opportunity Fund's
average daily net assets; and the Total Return Bond
Fund compensates Frontegra at the annual rate of 0.40%
of that Fund's average daily net assets. Frontegra has
voluntarily agreed to waive its management fee and/or
reimburse each Fund's operating expenses to the extent
necessary to ensure that the Opportunity Fund's Total
Operating Expenses for the first twelve months do not
exceed 0.90% of the Fund's average daily net assets and
the Total Return Bond Fund's Total Operating Expenses
for the first twelve months do not exceed 0.50% of the
Fund's average daily net assets. Any such waiver or
reimbursement will have the effect of lowering the
overall expense ratio for a Fund and increasing the
Fund's overall return to investors at the time any such
amounts are waived and/or reimbursed.
Reams operated as a corporation (Reams Asset
Management Company, Inc.) from its founding in 1981
until March 31, 1994, when it became an Indiana limited
liability company (LLC), with no change in principals,
employees or clients. Reams is located at 227
Washington Street, Columbus, Indiana 47201. Under the
subadvisory agreement, and with certain exceptions
described herein, Reams is compensated by Frontegra for
its investment advisory services at the annual rate of
0.45% of the Opportunity Fund's average daily net
assets; and 0.20% of the Total Return Bond Fund's
average daily net assets. In recognition of the
economies of scale that will be gained by the Funds and
Frontegra, and with the exception of defined
contribution or 401(k) investments in the Funds, for
initial investments of over $15 million Frontegra will
compensate Reams an extra 0.10% on the average daily
net assets of such investments. Reams provides
continuous advice and recommendations concerning each
Fund's investments and is responsible for selecting the
broker/dealers who execute the portfolio transactions.
In executing such transactions, Reams seeks to obtain
the best net results for the Funds. While Reams has
not previously provided investment advice to a mutual
fund, Reams serves as investment adviser to pension and
profit-sharing plans, and other institutional
investors. As of October 1, 1996, Reams had
approximately $2.5 billion under management. Mr. Fred
W. Reams owns units representing a majority of the
voting rights of Reams.
The day-to-day management responsibilities for the
Funds' portfolios are primarily handled by Reams'
portfolio management teams. The portfolio management
teams are managed primarily by Mr. Reams, Mr. Robert A.
Crider, Mr. David R. Milroy and Mr. Mark M. Egan. Mr.
Reams, as chief investment officer, is involved in all
aspects of the firm's investment activities on a
strategic level. The firm's global economic forecast
is a collaborative effort by Mr. Reams, Mr. Crider, the
firm's senior fixed income portfolio manager, Mr.
Milroy, the firm's senior equity portfolio manager and
Mr. Egan, the firm's fixed- income portfolio
manager. The prior five year business experience
history for these individuals is as follows: Mr. Reams
has been President of Reams from April, 1994 until the
present and was President of Reams Asset Management
Company, Inc. until March, 1994; Mr. Crider has been
Senior Vice President, Fixed Income Management, of
Reams since April, 1994 until the present and was
Senior Vice President, Fixed Income Management, of
Reams Asset Management, Inc. until March, 1994; Mr.
Milroy has been Senior Vice President, Equity
management, of Reams since April, 1994, was Vice
President and Senior Vice President, Equity Management,
of Reams Asset Management Company, Inc. from
<PAGE>
June, 1990
until March, 1994, and was Portfolio Manager of Loomis,
Sayles & Co. until May, 1990; and Mr. Egan has been
Vice President, Portfolio Manager of Reams since April,
1994, was Vice President, Portfolio Manager, of Reams
Asset Management Company, Inc. from June, 1990 until
March, 1994, and was Portfolio Manager of National
Investment Services, until May, 1990. The global
economic forecast is incorporated into the construction
of scenarios firm-wide. With respect to the
Opportunity Fund, the portfolio management team
approves scenarios established for individual
securities submitted by each analyst, and makes the
final buy and sell decisions. With respect to the
Total Return Bond Fund, the fixed income portfolio
managers implement decisions on a team basis with
respect to the Fund's portfolio structure and issue
selection. Portfolio strategy is reviewed weekly by
the fixed income committee.
HOW TO PURCHASE SHARES
Shares of the Funds are sold on a continuous basis
at the next offering price after receipt of the order
by the Fund. This price is the net asset value of the
Fund and is determined as of the close of trading
(currently 4:00 p.m., Eastern Standard Time) on each
day the New York Stock Exchange is open. See
"DETERMINATION OF NET ASSET VALUE." The price at which
your purchase will be effected is based on the Fund's
net asset value next determined after the Fund receives
your request in proper form. A confirmation indicating
the details of the transaction will be sent to you
promptly. Shares are credited to your account, but
certificates are not issued. However, you will have
full shareholder rights.
The minimum initial investment required by each
Fund is $100,000. Subsequent investments may be made
by mail or wire with a minimum subsequent investment of
$1,000. Each Fund reserves the right to change or
waive these minimums at any time. Shareholders will be
given at least 30 days' notice of any increase in the
minimum dollar amount of purchases.
If you purchase shares of either Fund by check and
request the redemption of such shares within 15 days of
the initial purchase, the Fund will not forward the
portion of your redemption proceeds which has not been
collected by the Fund. This is a security precaution
only and does not affect your investment.
Initial Investment - Minimum $100,000
You may purchase shares of the Funds by completing
an application and mailing it along with a check or
money order payable to "Frontegra Funds" to: Frontegra
Funds, Inc., c/o Sunstone Financial Group, Inc., P.O.
Box 2142, Milwaukee, Wisconsin 53201-2142. For
overnight deliveries, please use 207 E. Buffalo Street,
Suite 315, Milwaukee, Wisconsin 53202. Purchases must
be made in U.S. dollars and all checks must be drawn on
a U.S. bank. If your check does not clear, you will be
charged a $20 service fee. You will also be
responsible for any losses suffered by a Fund as a
result. All applications to purchase shares of the
Funds are subject to acceptance by the Company and are
not binding until so accepted. The Company reserves
the right to decline to accept a purchase order
application in whole or in part.
In addition, you may purchase shares of the Funds
by wire. To establish a new account by wire transfer,
please call the Transfer Agent at 1-888-825-2100. The
Transfer Agent will assign an account number to you at
that time. Funds should be wired through the Federal
Reserve System as follows:
United Missouri Bank
ABA Number 101000 695
For credit to Frontegra Funds, Inc.
Account Number 9870610221
For further credit to Frontegra Funds, Inc.
(investor account number)
(name or account registration)
(social security or tax identification number)
(identify which Fund to purchase)
The Funds are not responsible for the consequences of
delays resulting from the banking or Federal Reserve
wire system.
<PAGE>
Subsequent Investments - Minimum $1,000
Additions to your account in amounts of $1,000 or
more may be made by mail or by wire. When making an
additional purchase by mail, enclose a check payable to
"Frontegra Funds" along with the Additional Investment
Form provided on the lower portion of your account
statement. To make an additional purchase by wire,
please follow the instructions listed above.
HOW TO REDEEM SHARES
You may request redemption of part or all of your
Fund shares at any time. The price you receive will be
the net asset value next determined after the Fund
receives your request in proper form. Once your
redemption request is received in proper form, the Fund
normally will mail or wire your redemption proceeds the
next business day and, in any event, no later than
seven days after receipt of a redemption request.
However, the Fund may hold payment of that portion of
an investment which was made by check which has not
been collected.
Written Redemption
To request redemption of Fund shares, you must
furnish a written, unconditional request to: Frontegra
Funds, Inc., c/o Sunstone Financial Group, Inc., P.O.
Box 2142, Milwaukee, Wisconsin 53201-2142. For written
redemption requests sent via overnight delivery, please
use 207 E. Buffalo Street, Suite 315, Milwaukee,
Wisconsin 53202. The request must (i) be signed
exactly as the shares are registered, including the
signature of each owner and (ii) specify the number of
Fund shares or dollar amount to be redeemed.
Additional documentation may be requested from
corporations, executors, administrators, trustees, guar
dians, agents or attorneys-in-fact. Redemption
proceeds may be wired to a commercial bank authorized
on your account application. However, you will be
charged a $9 service fee for such redemptions.
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests to be mailed or wired to a person
other than the registered owner(s) of the shares and
(ii) redemption requests to be mailed or wired to other
than the address of record. A signature guarantee may
be obtained from any eligible guarantor institution, as
defined by the SEC. These institutions include banks,
savings associations, credit unions, brokerage firms
and others.
Your account may be terminated by a Fund on not
less than 30 days' notice if, at the time of any
redemption of shares in your account, the value of the
remaining shares in the account falls below $10,000.
Upon any such termination, a check for the redemption
proceeds will be sent to the account of record within
seven days of the redemption.
EXCHANGE PRIVILEGE
You may exchange your shares in a Fund for shares
in any other Fund of the Company at any time by written
request. The value of the shares to be exchanged and
the price of the shares being purchased will be the net
asset value next determined after receipt of
instructions for exchange. An exchange from one Fund
to another is treated the same as an ordinary sale and
purchase for federal income tax purposes and you will
realize a capital gain or loss. This is not a tax-free
exchange. Exchange requests should be directed to:
Frontegra Funds, Inc., c/o Sunstone Financial Group,
Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-2142.
For written exchange requests sent via overnight
delivery, please use 207 E. Buffalo Street, Suite 315,
Milwaukee, Wisconsin 53202. Exchange requests may be
subject to limitations, including those relating to
frequency, that may be established from time to time to
ensure that the exchanges do not disadvantage the Funds
or their investors. The Company reserves the right to
modify or terminate the exchange privilege upon 60
days' written notice to each shareholder prior to the
modification or termination taking effect.
<PAGE>
TAX-SHELTERED RETIREMENT PLANS
The Company offers through its Custodian, United
Missouri Bank, n.a., certain qualified retirement plans
for adoption by individuals and employers.
Participants in these plans can accumulate shares of a
Fund on a tax-deferred basis. Contributions to these
plans are tax-deductible as provided by law and
earnings are tax-deferred until distributed.
Individual Retirement Account
Individuals who receive compensation or earned
income, even if they are active participants in a
qualified retirement plan (or certain similar
retirement plans), may establish their own tax-
sheltered Individual Retirement Account ("IRA"). The
Company offers a prototype IRA plan which may be
adopted by individuals to establish a new IRA or to
roll-over funds from an existing IRA. There may be a
charge for establishing an IRA account and there is
also an annual maintenance fee.
Earnings on amounts held in an IRA are not taxed
until withdrawn. However, the amount of deduction, if
any, allowed for IRA contributions is limited for an
individual who is, or whose spouse is, an active
participant in an employer-sponsored retirement plan
and whose income exceeds specific limits.
Simplified Employee Pension Plan
The Company also offers a simplified employee
pension ("SEP") plan for employers, including self-
employed individuals, who wish to purchase Fund shares
with tax-deductible contributions. Under the SEP plan,
employer contributions are made directly to the IRA
accounts of eligible participants.
A complete description of the above plans and other
plans, including 401(k) plans, as well as a description
of the applicable service fees may be obtained by
calling, toll-free, 1-888-825-2100 or writing to
Frontegra Funds, Inc. at 400 Skokie Blvd., Suite 500,
Northbrook, Illinois 60062. Please note that early
withdrawals from a retirement plan may result in
adverse tax consequences.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX TREATMENT
Each Fund intends to operate as a "Regulated
Investment Company" under Subchapter M of the Internal
Revenue Code, and therefore will not be liable for
federal income taxes to the extent earnings are
distributed on a timely basis. For federal income tax
purposes, all dividends paid by the Funds and net
realized short-term capital gains are taxable as
ordinary income whether reinvested or received in cash
unless you are exempt from taxation or entitled to a
tax deferral. Distributions paid by a Fund from net
realized long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as
a capital gain unless you are exempt from taxation or
entitled to a tax deferral. The capital gain holding
period is determined by the length of time the Fund has
held the security and not the length of time you have
held shares in the Fund. Investors are informed
annually as to the amount and nature of all dividends
and capital gains paid during the prior year. Such
capital gains and dividends may also be subject to
state or local taxes. If you are not required to pay
taxes on your income, you are generally not required to
pay federal income taxes on the amounts distributed to
you.
Dividends are usually distributed annually by the
Opportunity Fund and quarterly by the Total Return Bond
Fund. Capital gains are usually distributed annually
in December. When a dividend or capital gain is
distributed, a Fund's net asset value decreases by the
amount of the payment. If you purchase shares shortly
before a distribution, you will, nonetheless, be
subject to income taxes on the distribution, even
though the value of your investment (plus cash
received, if any) remains the same. All dividends or
capital gain distributions will automatically be
reinvested in shares of the Funds at the then
prevailing net asset value unless an investor
specifically requests that either dividends or capital
gains or both be paid in cash. The election to receive
dividends or reinvest them may be changed by writing
to: Frontegra Funds, Inc., c/o Sunstone Financial
Group, Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-
2142. For
<PAGE>
overnight deliveries, please use 207
E. Buffalo Street, Suite 315, Milwaukee, Wisconsin
53202. Such notice must be received at least five days
prior to the record date of any dividend or capital
gain distribution.
If you do not furnish a Fund with your correct
social security number or employer identification
number, the Fund is required by federal law to withhold
federal income tax from your distributions and
redemption proceeds at a rate of 31%.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state,
or local tax considerations applicable to a particular
investor. You are urged to consult your own tax
advisor.
FUND EXPENSES
Each Fund is responsible for its own expenses,
including, without limitation: interest charges; taxes;
brokerage commissions; organizational expenses;
expenses of registering or qualifying shares for sale
with the states and the SEC; expenses of issue, sale,
repurchase or redemption of shares; expenses of
printing and distributing prospectuses and annual and
semi-annual reports to existing shareholders; charges
of custodians; expenses for accounting, administrative,
audit, and legal services; fees for directors who are
not interested persons of Frontegra; expenses of
fidelity bond coverage and other insurance; expenses of
indemnification; extraordinary expenses; and costs of
shareholder and director meetings.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value per share is determined
as of the close of trading (currently 4:00 p.m.,
Eastern Standard Time) on each day the New York Stock
Exchange is open for business. A Fund's net asset
value may not be calculated on days during which a Fund
receives no orders to purchase shares and no shares are
tendered for redemption. Net asset value is calculated
by taking the fair value of the Fund's total assets,
including interest or dividends accrued, but not yet
collected, less all liabilities, and dividing by the
total number of shares outstanding. The result,
rounded to the nearest cent, is the net asset value per
share. In determining net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Common stocks and other equity-
type securities are valued at the last trade price on
the national securities exchange or Nasdaq on which
such securities are primarily traded; however,
securities traded on a national securities exchange or
Nasdaq for which there were no transactions on a given
day or securities not listed on a national securities
exchange or Nasdaq are valued at the most recent bid
prices. Debt securities are valued by a pricing
service that utilizes electronic data processing
techniques to determine values for normal institutional-
sized trading units of debt securities without regard
to the existence of sale or bid prices when such values
are believed by Reams to reflect more accurately the
fair market value of such securities; otherwise, actual
sale or bid prices are used. Debt securities having
remaining maturities of 60 days or less when purchased
are valued by the amortized cost method when the Board
of Directors determines that the fair market value of
such securities is their amortized cost. Under this
method of valuation, a security is initially valued at
its acquisition cost, and thereafter, amortization of
any discount or premium is assumed each day, regardless
of the impact of fluctuating interest rates on the
market value of the security. Any securities for which
market quotations are not readily available are valued
at their fair value as determined in good faith by the
Board of Directors or its delegate.
SHAREHOLDER REPORTS
You will be provided at least semi-annually with a
report showing the Fund's holdings and annually after
the close of the Company's fiscal year, which ends
October 31, with an annual report containing audited
financial statements. An individual account statement
will be sent to you by the Transfer Agent after each
purchase or redemption of Fund shares as well as on a
monthly basis. You will also receive an annual
statement after the end of the calendar year listing
all transactions during such year.
<PAGE>
If you have questions about your account(s), you
should call the Funds' Transfer Agent at 1-847-509-
9860. Investors who have general questions about the
Funds or the Company or desire additional information
should write to Frontegra Funds, Inc., 400 Skokie Blvd,
Suite 500, Northbrook, Illinois 60062.
ORGANIZATION
The Company was organized as a Maryland corporation
on May 24, 1996. The Company is authorized to issue
300,000,000, $.01 par value shares, in addition to the
100,000,000, $.01 par value shares of the Total Return
Bond Fund and the 100,000,000, $.01 par value shares of
the Opportunity Fund. The assets belonging to each
Fund will be held separately by the Custodian, and if
the Company issues additional series, each additional
series will be held separately. In effect, each series
will be a separate fund.
Each share, irrespective of series, is entitled to
one vote on all questions, except that certain matters
must be voted on separately by the series of shares
affected, and matters affecting only one series are
voted upon only by that series. Shares have non-
cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election
of Directors can elect all of the Directors if they
choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any person
or persons to the Board of Directors.
The Company will not hold annual shareholders
meetings except when required by the Investment Company
Act of 1940. The Company has adopted procedures in its
Bylaws for the removal of Directors by the shareholders
as well as by the Board of Directors. As of September
30, 1996, Frontegra and Reams each owned a controlling
interest in the Company.
ADMINISTRATOR AND FUND ACCOUNTANT
Pursuant to an Administration and Fund Accounting
Agreement, Sunstone Financial Group, Inc. (the
"Administrator"), 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202, calculates the daily net
asset value of each Fund and provides administrative
services (which include clerical, compliance and
regulatory services such as filing all federal income
and excise tax returns and state income tax returns,
assisting with regulatory filings, preparing financial
statements and monitoring expense accruals). For the
foregoing, the Administrator receives from the Funds a
fee, computed daily and payable monthly based on each
Fund's average net assets at the annual rate of 17.5
basis points on the first $50,000,000 of average net
assets and 4.0 basis points of average net assets in
excess of $50,000,000, subject to an annual minimum of
$60,000 per Fund, plus out of pocket expenses.
CUSTODIAN AND TRANSFER AGENT
United Missouri Bank, n.a., 928 Grand Avenue,
Kansas City, Missouri 64141 acts as Custodian of each
Fund's assets. Sunstone Investor Services, LLC, 207
E. Buffalo Street, Suite 315, P.O. Box 2142, Milwaukee,
Wisconsin 53201-2142 acts as Dividend-Disbursing and
Transfer Agent for the Funds.
COMPARISON OF INVESTMENT RESULTS
Each Fund may from time to time compare its
investment results to various passive indices or other
mutual funds and cite such comparisons in reports to
shareholders, sales literature, and advertisements.
The results may be calculated on the basis of average
annual total return, total return or cumulative total
return.
All total return figures assume the reinvestment of
all dividends and measure the net investment income
generated by, and the effect of, any realized and
unrealized appreciation or depreciation of the
underlying investments in each Fund over a specified
period of time. Average annual total return figures
are annualized and therefore represent
<PAGE>
the average
annual percentage change over the specified period.
Total return figures are not annualized and represent
the aggregate percentage or dollar value change over
the period. Cumulative total return simply reflects a
Fund's performance over a stated period of time.
Quotations of yield for the Total Return Bond Fund
will be based on the net investment income per share
(as defined by the SEC) during a particular 30-day (or
one month) period (including dividends and interest),
less expenses accrued during the period, and will be
computed by dividing net investment income by the
public offering price per share on the last day of the
period.
Average annual total return, total return,
cumulative total return, and yield are based upon the
historical results of the respective Fund and are not
necessarily representative of the future performance of
the Fund. Additional information concerning the
performance of each Fund appears in the Statement of
Additional Information.
The Company reserves the right to change any of the
policies, practices and procedures described in this
Prospectus with respect to either Fund, including the
Statement of Additional Information, without
shareholder approval except in those instances where
shareholder approval is expressly required.
<PAGE>
DIRECTORS
William D. Forsyth III
Thomas J. Holmberg, Jr.
David L. Heald
OFFICERS
William D. Forsyth III
Thomas J. Holmberg, Jr.
INVESTMENT ADVISER
Frontegra Asset Management, Inc.
400 Skokie Blvd.
Suite 500
Northbrook, IL 60062
SUB-ADVISER
Reams Asset Management Company, LLC
227 Washington Street
Columbus, IN 47201
CUSTODIAN
United Missouri Bank, n.a.
928 Grand Avenue
Kansas City, Missouri 64141
DIVIDEND-DISBURSING AND TRANSFER AGENT
Sunstone Investor Services, LLC
207 East Buffalo Street, Suite 315
P.O. Box 2142
Milwaukee, WI 53201-2142
ADMINISTRATOR AND FUND ACCOUNTANT
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
<PAGE>
AUDITORS
Ernst & Young, LLP
Sears Tower
233 South Wacker Drive
Chicago, IL 60606-6301
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FRONTEGRA FUNDS, INC.
Frontegra Total Return Bond Fund
Frontegra Opportunity Fund
400 Skokie Blvd.
Suite 500
Northbrook, Illinois 60062
1-888-825-2100
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the
Prospectus of Frontegra Funds, Inc. (the "Company"),
dated __________, 1996. Requests for copies of the
Prospectus should be made by writing to the Company at
the address listed above; or by calling 1-888-825-2100.
This Statement of Additional Information is dated ________, 1996.
<PAGE>
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS 1
INVESTMENT POLICIES AND TECHNIQUES 3
Illiquid Securities 3
Short-Term Fixed Income Securities 4
Short Sales Against the Box 5
Warrants 5
Variable- or Floating-Rate Securities 6
When-Issued Securities 7
Unseasoned Companies 7
Non-Investment Grade Debt Securities (Junk Bonds) 7
Hedging Strategies 9
Foreign Investment Companies 17
Depositary Receipts 17
Lending of Portfolio Securities 18
Mortgage-and Asset-Backed Securities 18
Mortgage Dollar Rolls and Reverse Repurchase
Agreements 19
Repurchase Agreements 20
DIRECTORS AND OFFICERS 20
PRINCIPAL SHAREHOLDERS 22
INVESTMENT ADVISER 22
FUND TRANSACTIONS AND BROKERAGE 23
CUSTODIAN 24
AGENT AND DIVIDEND-DISBURSING AGENT 25
TAXES 25
DETERMINATION OF NET ASSET VALUE 25
SHAREHOLDER MEETINGS 25
PERFORMANCE INFORMATION 26
Total Return 26
Yield 27
Volatility 27
Comparisons 28
INDEPENDENT AUDITORS 28
FINANCIAL STATEMENTS 29
APPENDIX - BOND RATINGS A-1
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 dated ________, 1996, and if given
or made, such information or representations may not be
relied upon as having been authorized by the Company.
This Statement of Additional Information does not
constitute an offer to sell securities in any state to
any person to whom it is unlawful to make such offer in
such state.
<PAGE>
INVESTMENT RESTRICTIONS
The investment objective of the Frontegra Total
Return Bond Fund (the "Total Return Bond Fund") is a
high level of total return, consistent with the
preservation of capital. The investment objective of
the Frontegra Opportunity Fund (the "Opportunity Fund")
is capital appreciation. The investment objective and
policies of each Fund are described in detail in the
Prospectus under the captions "Total Return Bond Fund"
and "Opportunity Fund".
The following is a complete list of each Fund's
fundamental investment limitations which cannot be
changed without shareholder approval.
Each Fund:
1.May not with respect to 75% of its total
assets, purchase the securities of any issuer
(except securities issued or guaranteed by the
U.S. government or its agencies or
instrumentalities) if, as a result, (i) more
than 5% of the Fund's total assets would be
invested in the securities of that issuer or
(ii) the Fund would hold more than 10% of the
outstanding voting securities of that issuer.
2.May (i) borrow money from banks and (ii) make
other investments or engage in other
transactions permissible under the Investment
Company Act of 1940 (the "1940 Act") which may
involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed 33-
1/3% of the value of the Fund's total assets
(including the amount borrowed), less the
Fund's liabilities (other than borrowings).
The Fund may also borrow money from other
Frontegra Funds or other persons to the extent
permitted by applicable law.
3.May not issue senior securities, except as
permitted under the 1940 Act.
4.May not act as an underwriter of another
issuer's securities, except to the extent the
Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in
connection with the purchase and sale of
portfolio securities.
5.May not purchase or sell physical commodities
unless acquired as a result of ownership of
securities or other instruments (but this
limitation shall not prevent the Fund from
purchasing or selling options, futures
contracts, or other derivative instruments, or
from investing in securities or other
instruments backed by physical commodities).
6.May not make loans if, as a result, more than
33-1/3% of the Fund's total assets would be
lent to other persons, except through (i)
purchases of debt securities or other debt
instruments or (ii) engaging in repurchase
agreements.
7.May not purchase the securities of any issuer
if, as a result, more than 25% of the Fund's
total assets would be invested in the
securities of issuers, the principal business
activities of which are in the same industry.
8.May not purchase or sell real estate unless
acquired as a result of ownership of securities
or other instruments (but this limitation shall
not prohibit the Fund from purchasing or
selling securities or other instruments backed
by real estate or of issuers engaged in real
estate activities).
<PAGE>
9.May, notwithstanding any other fundamental
investment policy or restriction, invest all of
its assets in the securities of a single open-
end management investment company with
substantially the same fundamental investment
objective, policies, and restrictions as the
Fund.
With the exception of the investment restriction
set out in item 2 above, if a percentage restriction is
adhered to at the time of investment, a later increase
in percentage resulting from a change in market value
of the investment or the total assets will not
constitute a violation of that restriction.
The following are the Funds' non-fundamental
operating policies which may be changed by the Board of
Directors of the Company (the "Board of Directors")
without shareholder approval.
Each Fund may not:
1.Sell securities short, unless the Fund owns
or has the right to obtain securities
equivalent in kind and amount to the securities
sold short or unless it covers such short sale
as required by the current rules and positions
of the Securities and Exchange Commission or
its staff, and provided that transactions in
options, futures contracts, options on futures
contracts, or other derivative instruments are
not deemed to constitute selling securities
short.
2.Purchase securities on margin, except that
the Fund may obtain such short-term credits as
are necessary for the clearance of
transactions, and provided that margin deposits
in connection with futures contracts, options
on futures contracts, or other derivative
instruments shall not constitute purchasing
securities on margin.
3.Invest in illiquid securities if, as a result
of such investment, more than 15% of its net
assets would be invested in illiquid
securities, or such other amounts as may be
permitted under the 1940 Act.
4.Purchase securities of other investment
companies except in compliance with the 1940
Act and applicable state law.
5.Invest all of its assets in the securities of
a single open-end investment management company
with substantially the same fundamental
investment objective, restrictions and policies
as the Fund.
6.Purchase the securities of any issuer (other
than securities issued or guaranteed by
domestic or foreign governments or political
subdivisions thereof) if, as a result, more
than 5% of its total assets would be invested
in the securities of issuers that, including
predecessor or unconditional guarantors, have a
record of less than three years of continuous
operation. This policy does not apply to
securities of pooled investment vehicles or
mortgage or asset-backed securities.
7.Invest in direct interests in oil, gas, or
other mineral exploration programs or leases;
however, the Fund may invest in the securities
of issuers that engage in these activities.
8.Engage in futures or options on futures
transactions which are impermissible pursuant
to Rule 4.5 under the Commodity Exchange Act
and, in accordance with Rule 4.5, will use
futures or options on futures transactions
solely for bona fide hedging transactions
(within the meaning of the Commodity Exchange
Act), provided, however, that the Fund may, in
addition to bona fide hedging transactions, use
futures and options on futures transactions if
the aggregate initial margin and premiums
required to establish such positions, less the
amount by which any such options positions are
in the money (within the meaning of the
Commodity Exchange Act), do not exceed 5% of
the Fund's net assets. In addition, (i) the
aggregate value of securities underlying call
options on securities written by the Fund or
obligations
<PAGE>
underlying put options on
securities written by the Fund determined as of
the date the options are written will not
exceed 50% of the Fund's net assets; (ii) the
aggregate premiums paid on all options
purchased by the Fund and which are being held
will not exceed 20% of the Fund's net assets;
(iii) the Fund will not purchase put or call
options, other than hedging positions if, as a
result thereof, more than 5% of its total
assets would be so invested; and (iv) the
aggregate margin deposits required on all
futures and options on futures transactions
being held will not exceed 5% of the Fund's
total assets.
9.Pledge, mortgage or hypothecate any assets
owned by the Fund except as may be necessary in
connection with permissible borrowings or
investments and then such pledging, mortgaging,
or hypothecating may not exceed 33-1/3% of the
Fund's total assets at the time of the
borrowing or investment.
10. Purchase warrants, valued at the lower of
cost or market value, in excess of 5% of the
Fund's net assets. Included in that amount,
but not to exceed 2% of the Fund's net assets,
may be warrants that are not listed on any
stock exchange. Warrants acquired by the Fund
in units or attached to securities are not
subject to these restrictions.
11. Borrow money, except (i) from banks or
(ii) through reverse repurchase agreements or
mortgage dollar rolls, and will not purchase
securities when bank borrowings exceed 5% of
its total assets.
12. Make any loans other than loans of
portfolio securities, except through (i)
purchases of debt securities or other debt
instruments, or (ii) engaging in repurchase
agreements.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the
discussion of the Funds' investment objectives,
policies, and techniques that are described in the
Prospectus under the captions "Total Return Bond Fund,"
and "Opportunity Fund," and "INVESTMENT TECHNIQUES
AND RISKS."
Illiquid Securities
The Funds may invest in illiquid securities (i.e.,
securities that are not readily marketable). For
purposes of this restriction, illiquid securities
include, but are not limited to, restricted securities
(securities the disposition of which is restricted
under the federal securities laws), securities which
may only be resold pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "Securities
Act"), and repurchase agreements with maturities in
excess of seven days. However, neither Fund will
acquire illiquid securities if, as a result, such
securities would comprise more than 15% of the value of
the Fund's net assets. The Opportunity Fund does not
currently intend to invest more than 5% of its net
assets in illiquid securities. Rule 144A securities
will be treated as illiquid securities, subject to the
liquidity guidelines. The Board of Directors or its
delegate has the ultimate authority to determine, to
the extent permissible under the federal securities
laws, which securities are liquid or illiquid for
purposes of this 15% limitation. The Board of
Directors has delegated to Frontegra Asset Management,
Inc. ("Frontegra") the day-to-day determination of the
liquidity of any security, although it has retained
oversight and ultimate responsibility for such
determinations. Although no definitive liquidity
criteria are used, the Board of Directors has directed
Frontegra to look to such factors as (i) the nature of
the market for a security (including the institutional
private resale market), (ii) the terms of certain
securities or other instruments allowing for the
disposition to a third party or the issuer thereof
(e.g., certain repurchase obligations and demand
instruments), (iii) the availability of market
quotations (e.g., for securities quoted in the PORTAL
system) and (iv) other permissible relevant factors.
<PAGE>
Restricted securities may be sold only in
privately negotiated transactions or in a public
offering with respect to which a registration statement
is in effect under the Securities Act. Where
registration is required, a Fund may be obligated to
pay all or part of the registration expenses and a
considerable period may elapse between the time of the
decision to sell and the time the Fund may be permitted
to sell a security under an effective registration
statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a
less favorable price than that which prevailed when it
decided to sell. Restricted securities will be priced
at fair value as determined in good faith by the Board
of Directors. If, through the appreciation of
restricted securities or the depreciation of
unrestricted securities, the Opportunity Fund and the
Total Return Bond Fund should be in a position where
more than 5% and 15% of the value of their respective
net assets are invested in illiquid securities,
including restricted securities which are not readily
marketable, the affected Fund will take such steps as
is deemed advisable, if any, to protect liquidity.
Short-Term Fixed Income Securities
The Total Return Bond Fund may invest without
limitation in cash and short-term fixed income
securities. The Opportunity Fund may invest up to 20%
of its total assets in cash and short-term fixed income
securities for any purpose and up to 100% of its total
assets may be invested in such instruments for
temporary defensive purposes. Short-term fixed income
securities are defined to include without limitation,
the following:
1.U.S. government securities, including bills,
notes and bonds differing as to maturity and
rates of interest, which are either issued or
guaranteed by the U.S. Treasury or by U.S.
government agencies or instrumentalities. U.S.
government agency securities include securities
issued by: (a) the Federal Housing
Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small
Business Administration and the Government
National Mortgage Association, whose securities
are supported by the full faith and credit of
the United States; (b) the Federal Home Loan
Banks, Federal Intermediate Credit Banks and
the Tennessee Valley Authority, whose
securities are supported by the right of the
agency to borrow from the U.S. Treasury; (c)
the Federal National Mortgage Association,
whose securities are supported by the
discretionary authority of the U.S. government
to purchase certain obligations of the agency
or instrumentality; and (d) the Student Loan
Marketing Association, whose securities are
supported only by its credit. While the U.S.
government provides financial support to such
U.S. government-sponsored agencies or
instrumentalities, no assurance can be given
that it always will do so since it is not so
obligated by law. The U.S. government, its
agencies and instrumentalities do not guarantee
the market value of their securities and
consequently the value of such securities may
fluctuate.
2.Certificates of Deposit issued against funds
deposited in a bank or savings and loan
association. Such certificates are for a
definite period of time, earn a specified rate
of return and are normally negotiable. If such
certificates of deposit are non-negotiable,
they will be considered illiquid securities and
be subject to each Fund's restriction on
investments in illiquid securities. Pursuant
to the certificate of deposit, the issuer
agrees to pay the amount deposited plus
interest to the bearer of the certificate on
the date specified thereon. Under current FDIC
regulations, the maximum insurance payable as
to any one certificate of deposit is $100,000;
therefore, certificates of deposit purchased by
a Fund may not be fully insured.
3.Bankers' acceptances which are short-term
credit instruments used to finance commercial
transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face
value of the instrument on its maturity date.
The acceptance may then be held by the
accepting bank as an asset or it may be sold in
the secondary market at the going rate of
interest for a specific maturity.
<PAGE>
4.Repurchase agreements which involve purchases
of debt securities. In such an action, at the
time a Fund purchases the security, it
simultaneously agrees to resell and redeliver
the security to the seller, who also
simultaneously agrees to buy back the security
at a fixed price and time. This assures a
predetermined yield for the Fund during its
holding period since the resale price is always
greater than the purchase price and reflects an
agreed-upon market rate. Such actions afford
an opportunity for the Fund to invest
temporarily available cash. The Funds may
enter into repurchase agreements only with
respect to obligations of the U.S. government,
its agencies or instrumentalities, certificates
of deposit, or bankers acceptances in which the
Funds may invest. Repurchase agreements may be
considered loans to the seller, collateralized
by the underlying securities. The risk to the
Funds is limited to the ability of the seller
to pay the agreed-upon sum on the repurchase
date. In the event of default, the repurchase
agreement provides that the affected Fund is
entitled to sell the underlying collateral.
However, if the value of the collateral
declines after the agreement is entered into,
and if the seller defaults under a repurchase
agreement when the value of the underlying
collateral is less than the repurchase price,
the Fund could incur a loss of both principal
and interest. The Fund monitors the value of
the collateral at the time the transaction is
entered into and at all times during the term
of the repurchase agreement and does so
in an effort to determine that the value of the
collateral always equals or exceeds the agreed-
upon repurchase price to be paid to the Fund.
If the seller were to be subject to a federal
bankruptcy proceeding, the ability of a Fund to
liquidate the collateral could be delayed or
impaired because of certain provisions of the
bankruptcy laws.
5.Bank time deposits, which are monies kept on
deposit with banks or savings and loan
associations for a stated period of time at a
fixed rate of interest. There may be penalties
for the early withdrawal of such time deposits,
in which case the yields of these investments
will be reduced.
6.Commercial paper consists of short-term
unsecured promissory notes, including variable
rate master demand notes issued by corporations
to finance their current operations. Master
demand notes are direct lending arrangements
between a Fund and a corporation. There is no
secondary market for the notes. However, they
are redeemable by the Funds at any time.
The Funds will consider the financial condition
of the corporation (e.g., earning power, cash
flow and liquidity ratios) and will
continuously monitor the corporation's ability
to meet all of its financial obligations,
because a Fund's liquidity might be impaired if
the corporation were unable to pay principal
and interest on demand. Investments in
commercial paper will be limited to commercial
paper rated in the two highest categories by a
major rating agency or unrated commercial paper
which is, in the opinion of Frontegra, of
comparable quality.
Short Sales Against the Box
When Reams believes that the price of a
particular security held by the Total Return Bond Fund
may decline, it may make "short sales against the box"
to hedge the unrealized gain on such security. Selling
short against the box involves selling a security which
the Fund owns for delivery at a specified date in the
future. The Total Return Bond Fund will limit its
transactions in short sales against the box to 5% of
its net assets.
Warrants
Each Fund may invest in warrants if, after giving
effect thereto, not more than 5% of its net assets will
be invested in warrants other than warrants acquired in
units or attached to other securities. Of such 5%, not
more than 2% of its assets at the time of purchase may
be invested in warrants that are not listed on the New
York Stock Exchange or the American Stock Exchange.
Investing in warrants is purely speculative in that
they have no voting rights, pay no dividends and have
no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to
purchase equity securities at a specific price for a
specific period of time. They do not
<PAGE>
represent
ownership of the securities but only the right to buy
them. Warrants are issued by the issuer of the
security, which may be purchased on their exercise.
The prices of warrants do not necessarily parallel the
prices of the underlying securities.
Variable- or Floating-Rate Securities
The Total Return Bond Fund may invest in
securities which offer a variable- or floating-rate of
interest. Variable-rate securities provide for
automatic establishment of a new interest rate at fixed
intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for
automatic adjustment of the interest rate whenever some
specified interest rate index changes. The interest
rate on variable- or floating-rate securities is
ordinarily determined by reference to or is a
percentage of a bank's prime rate, the 90-day U.S.
Treasury bill rate, the rate of return on commercial
paper or bank certificates of deposit, an index of
short-term interest rates, or some other objective
measure.
Variable- or floating-rate securities frequently
include a demand feature entitling the holder to sell
the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time on 7
days notice; in other cases, the demand feature is
exercisable at any time on 30 days notice or on similar
notice at intervals of not more than one year. Some
securities which do not have variable or floating
interest rates may be accompanied by puts producing
similar results and price characteristics. When
considering the maturity of any instrument which may be
sold or put to the issuer or a third party, the Fund
may consider that instrument's maturity to be shorter
than its stated maturity.
Variable-rate demand notes include master demand
notes which are obligations that permit the Fund to
invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements
between the Fund, as lender, and the borrower. The
interest rates on these notes fluctuate from time to
time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in
its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified
number of days' notice to the holders of such
obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate,
such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The
interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by
banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be
traded. There generally is not an established
secondary market for these obligations, although they
are redeemable at face value. Accordingly, where these
obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to
redeem is dependent on the ability of the borrower to
pay principal and interest on demand.
The Total Return Bond Fund will not invest more
than 5% of its net assets in variable- and
floating-rate demand obligations that are not readily
marketable (a variable- or floating-rate demand
obligation that may be disposed of on not more than
seven days notice will be deemed readily marketable and
will not be subject to this limitation). In addition,
each variable- or floating-rate obligation must meet
the credit quality requirements applicable to all the
Fund's investments at the time of purchase. When
determining whether such an obligation meets the Fund's
credit quality requirements, the Fund may look to the
credit quality of the financial guarantor providing a
letter of credit or other credit support arrangement.
In determining the Fund's weighted average
portfolio maturity, the Fund will consider a floating
or variable rate security to have a maturity equal to
its stated maturity (or redemption date if it has been
called for redemption), except that it may consider (i)
variable rate securities to have a maturity equal to
the period remaining until the next readjustment in the
interest rate, unless subject to a demand feature, (ii)
variable rate securities subject to a demand feature to
have a remaining maturity equal to the longer of (a)
the next readjustment in the interest rate or (b) the
period remaining until the principal can be recovered
through demand, and (iii) floating rate securities
subject to a
<PAGE>
demand feature to have a maturity equal to
the period remaining until the principal can be
recovered through demand. Variable and floating rate
securities generally are subject to less principal
fluctuation than securities without these attributes
since the securities usually trade at par following the
readjustment in the interest rate.
When-Issued Securities
The Total Return Bond Fund may from time to time
purchase securities on a "when-issued" basis. The
price of securities purchased on a when-issued basis is
fixed at the time the commitment to purchase is made,
but delivery and payment for the securities take place
at a later date. Normally, the settlement date occurs
within 45 days of the purchase. During the period
between the purchase and settlement, no payment is made
by the Fund to the issuer and no interest is accrued on
debt securities or dividend income is earned on equity
securities. Forward commitments involve a risk of loss
if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition
to the risk of decline in value of the Fund's other
assets. While when-issued securities may be sold prior
to the settlement date, the Fund intends to purchase
such securities with the purpose of actually acquiring
them. At the time the Fund makes the commitment to
purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the
security in determining its net asset value. The Fund
does not believe that net asset value will be adversely
affected by purchases of securities on a when-issued
basis.
The Fund will maintain cash, U.S. government
securities and liquid securities equal in value to
commitments for when-issued securities. Such
segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
When the time comes to pay for when-issued securities,
the Fund will meet its obligations from then available
cash flow, sale of the securities held in the separate
account, described above, sale of other securities or,
although it would not normally expect to do so, from
the sale of the when-issued securities themselves
(which may have a market value greater or less than the
Fund's payment obligation).
Unseasoned Companies
Neither Fund may invest more than 5% of its net
assets in unseasoned companies. While smaller
companies generally have potential for rapid growth,
they often involve higher risks because they lack the
management experience, financial resources, product
diversification and competitive strengths of larger
corporations. In addition, in many instances, the
securities of smaller companies are traded only over-
the-counter or on regional securities exchanges, and
the frequency and volume of their trading is
substantially less than is typical of larger companies.
Therefore, the securities of smaller companies may be
subject to wider price fluctuations. When making large
sales, the Funds may have to sell portfolio holdings of
small companies at discounts from quoted prices or may
have to make a series of smaller sales over an extended
period of time due to the trading volume in smaller
company securities.
Non-Investment Grade Debt Securities (Junk Bonds)
The Total Return Bond Fund may invest up to 25% of
its net assets in junk bonds. While generally offering
higher yields than investment grade securities with
similar maturities, non-investment grade debt
securities involve greater risks, including the
possibility of default or bankruptcy. They are
regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay
principal. The special risk considerations in
connection with investments in these securities are
discussed below. Refer to the Appendix of this
Statement of Additional Information for a discussion of
securities ratings.
Effect of Interest Rates and Economic Changes.
The junk bond market is relatively new and its growth
has paralleled a long economic expansion. As a result,
it is not clear how this market may withstand a
prolonged recession or economic downturn. Such an
economic downturn could severely disrupt the market for
and adversely affect the value of such securities.
<PAGE>
All interest-bearing securities typically
experience appreciation when interest rates decline and
depreciation when interest rates rise. The market
values of junk bond securities tend to reflect
individual corporate developments to a greater extent
than do higher rated securities, which react primarily
to fluctuations in the general level of interest rates.
Junk bond securities also tend to be more sensitive to
economic conditions than are higher-rated securities.
As a result, they generally involve more credit risks
than securities in the higher-rated categories. During
an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of junk bond
securities may experience financial stress and may not
have sufficient revenues to meet their payment
obligations. The risk of loss due to default by an
issuer of these securities is significantly greater
than issuers of higher-rated securities because such
securities are generally unsecured and are often
subordinated to other creditors. Further, if the
issuer of a junk bond security defaulted, a Fund might
incur additional expenses to seek recovery. Periods of
economic uncertainty and changes would also generally
result in increased volatility in the market prices of
these securities and thus in the Fund's net asset
value.
As previously stated, the value of a junk bond
security will generally decrease in a rising interest
rate market, and accordingly so will the Fund's net
asset value. If the Fund experiences unexpected net
redemptions in such a market, it may be forced to
liquidate a portion of its portfolio securities without
regard to their investment merits. Due to the limited
liquidity of junk bond securities, the Fund may be
forced to liquidate these securities at a substantial
discount. Any such liquidation would reduce the Fund's
asset base over which expenses could be allocated and
could result in a reduced rate of return for the Fund.
Payment Expectations. Junk bond securities
typically contain redemption, call or prepayment
provisions which permit the issuer of such securities
containing such provisions to redeem the securities at
its discretion. During periods of falling interest
rates, issuers of these securities are likely to redeem
or prepay the securities and refinance them with debt
securities with a lower interest rate. To the extent
an issuer is able to refinance the securities, or
otherwise redeem them, the Fund may have to replace the
securities with a lower yielding security, which could
result in a lower return for the Fund.
Credit Ratings. Credit ratings issued by credit-
rating agencies evaluate the safety of principal and
interest payments of rated securities. They do not,
however, evaluate the market value risk of junk bond
securities and, therefore may not fully reflect the
true risks of an investment. In addition, credit
rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the
condition of the issuer that affect the market value of
the security. Consequently, credit ratings are used
only as a preliminary indicator of investment quality.
Investments in junk bond securities will be more
dependent on the subadviser's credit analysis than
would be the case with investments in investment-grade
debt securities. The subadviser employs its own credit
research and analysis, which includes a study of
existing debt, capital structure, ability to service
debt and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history and the
current trend of earnings. The subadviser continually
monitors the Fund's investments and carefully evaluates
whether to dispose of or to retain junk bond securities
whose credit ratings or credit quality may have
changed.
Liquidity and Valuation. The Fund may have
difficulty disposing of certain junk bond securities
because there may be a thin trading market for such
securities. Because not all dealers maintain markets
in all junk bond securities there is no established
retail secondary market for many of these securities.
The Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional
investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the
secondary market for higher-rated securities. The lack
of a liquid secondary market may have an adverse impact
on the market price of the security. The lack of a
liquid secondary market for certain securities may also
make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing the Fund.
Market quotations are generally available on many junk
bond issues only from a limited number of dealers and
may not necessarily represent firm bids of such dealers
or prices for actual sales. During periods of thin
trading, the spread between bid and asked prices is
likely to increase significantly. In
<PAGE>
addition, adverse
publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values
and liquidity of junk bond securities, especially in a
thinly traded market.
New and Proposed Legislation. Recent legislation
has been adopted and, from time to time, proposals have
been discussed regarding new legislation designed to
limit the use of certain junk bond securities by
certain issuers. An example of such legislation is a
law which requires federally insured savings and loan
associations to divest their investments in these
securities over time. It is not currently possible to
determine the impact of the recent legislation or the
proposed legislation on the junk bond securities
market. However, it is anticipated that if additional
legislation is enacted or proposed, it could have a
material affect on the value of these securities and
the existence of a secondary trading market for the
securities.
Hedging Strategies
General Description of Hedging Strategies. The
Funds may engage in hedging activities, including
options, futures contracts (sometimes referred to as
"futures") and options on futures contracts to attempt
to hedge a Fund's holdings.
Hedging instruments on securities generally are
used to hedge against price movements in one or more
particular securities positions that a Fund owns or
intends to acquire. Hedging instruments on stock
indices, in contrast, generally are used to hedge
against price movements in broad equity market sectors
in which a Fund has invested or expects to invest. The
use of hedging instruments is subject to applicable
regulations of the Securities and Exchange Commission
(the "SEC"), the several options and futures exchanges
upon which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state
regulatory authorities. In addition, a Fund's ability
to use hedging instruments will be limited by tax
considerations.
General Limitations on Futures and Options
Transactions. The Company has filed a notice of
eligibility for exclusion from the definition of the
term "commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in
the futures markets. Pursuant to Section 4.5 of the
regulations under the Commodity Exchange Act (the
"CEA"), the notice of eligibility for the Funds
includes the representation that the Funds will use
futures contracts and related options solely for bona
fide hedging purposes within the meaning of CFTC
regulations, provided that the Funds may hold other
positions in futures contracts and related options that
do not fall within the definition of bona fide hedging
transactions (i.e., for speculative purposes) if
aggregate initial margins and premiums paid do not
exceed 5% of the net asset value of the respective
Funds. In addition, neither Fund will enter into
futures contracts and options transactions if more than
50% of its net assets would be committed to such
instruments.
The foregoing limitations are not fundamental
policies of the Funds and may be changed without
shareholder approval as regulatory agencies permit.
Various exchanges and regulatory authorities have
undertaken reviews of options and futures trading in
light of market volatility. Among the possible actions
that have been presented are proposals to adopt new or
more stringent daily price fluctuation limits for
futures and options transactions and proposals to
increase the margin requirements for various types of
futures transactions.
Asset Coverage for Futures and Options Positions.
Each Fund will comply with the regulatory requirements
of the SEC and the CFTC with respect to coverage of
options and futures positions by registered investment
companies and, if the guidelines so require, will set
aside cash, U.S. government securities, high grade
liquid debt securities and/or other liquid assets
permitted by the SEC and CFTC in a segregated custodial
account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or
options position is outstanding, unless replaced with
other permissible assets, and will be marked-to-market
daily.
<PAGE>
Stock Index Options. Each Fund may (i) purchase
stock index options for any purpose, (ii) sell stock
index options in order to close out existing positions,
and/or (iii) write covered options on stock indexes for
hedging purposes. Stock index options are put options
and call options on various stock indexes. In most
respects, they are identical to listed options on
common stocks. The primary difference between stock
options and index options occurs when index options are
exercised. In the case of stock options, the
underlying security, common stock, is delivered.
However, upon the exercise of an index option,
settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises
the index option receives an amount of cash if the
closing level of the stock index upon which the option
is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of
the option. This amount of cash is equal to the
difference between the closing price of the stock index
and the exercise price of the option expressed in
dollars times a specified multiple.
A stock index fluctuates with changes in the
market values of the stocks included in the index. For
example, some stock index options are based on a broad
market index, such as the Standard & Poor's 500 or the
Value Line Composite Index or a narrower market index,
such as the Standard & Poor's 100. Indexes may also be
based on an industry or market segment, such as the
AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on stock indexes are
currently traded on the following exchanges: the
Chicago Board of Options Exchange, the New York Stock
Exchange, the American Stock Exchange, the Pacific
Stock Exchange, and the Philadelphia Stock Exchange.
A Fund's use of stock index options is subject to
certain risks. Successful use by the Funds of options
on stock indexes will be subject to the ability of the
subadviser to correctly predict movements in the stock
market. This requires different skills and techniques
than predicting changes in the prices of individual
securities. In addition, a Fund's ability to
effectively hedge all or a portion of the securities in
its portfolio, in anticipation of or during a market
decline through transactions in put options on stock
indexes, depends on the degree to which price movements
in the underlying index correlate with the price
movements of the securities held by a Fund. Inasmuch
as a Fund's securities will not duplicate the
components of an index, the correlation will not be
perfect. Consequently, each Fund will bear the risk
that the prices of its securities being hedged will not
move in the same amount as the prices of its put
options on the stock indexes. It is also possible that
there may be a negative correlation between the index
and a Fund's securities which would result in a loss on
both such securities and the options on stock indexes
acquired by the Fund.
The hours of trading for options may not conform
to the hours during which the underlying securities are
traded. To the extent that the options markets close
before the markets for the underlying securities,
significant price and rate movements can take place in
the underlying markets that cannot be reflected in the
options markets. The purchase of options is a highly
specialized activity which involves investment
techniques and risks different from those associated
with ordinary portfolio securities transactions. The
purchase of stock index options involves the risk that
the premium and transaction costs paid by a Fund in
purchasing an option will be lost as a result of
unanticipated movements in prices of the securities
comprising the stock index on which the option is
based.
Certain Considerations Regarding Options. There
is no assurance that a liquid secondary market on an
options exchange will exist for any particular option,
or at any particular time, and for some options no
secondary market on an exchange or elsewhere may exist.
If a Fund is unable to close out a call option on
securities that it has written before the option is
exercised, the Fund may be required to purchase the
optioned securities in order to satisfy its obligation
under the option to deliver such securities. If a Fund
is unable to effect a closing sale transaction with
respect to options on securities that it has purchased,
it would have to exercise the option in order to
realize any profit and would incur transaction costs
upon the purchase and sale of the underlying
securities.
The writing and purchasing of options is a highly
specialized activity which involves investment
techniques and risks different from those associated
with ordinary portfolio securities transactions.
Imperfect correlation
<PAGE>
between the options and
securities markets may detract from the effectiveness
of attempted hedging. Options transactions may result
in significantly higher transaction costs and portfolio
turnover for the Funds.
Federal Tax Treatment of Options. Certain option
transactions have special tax results for the Funds.
Expiration of a call option written by a Fund will
result in short-term capital gain. If the call option
is exercised, the Fund will realize a gain or loss from
the sale of the security covering the call option and,
in determining such gain or loss, the option premium
will be included in the proceeds of the sale.
If a Fund writes options other than "qualified
covered call options," as defined in Section 1092 of
the Internal Revenue Code of 1986, as amended (the
"Code"), or purchases puts, any losses on such options
transactions, to the extent they do not exceed the
unrealized gains on the securities covering the
options, may be subject to deferral until the
securities covering the options have been sold.
In the case of transactions involving "nonequity
options," as defined in Code Section 1256, the Funds
will treat any gain or loss arising from the lapse,
closing out or exercise of such positions as 60% long-
term and 40% short-term capital gain or loss as
required by Section 1256 of the Code. In addition,
such positions must be marked-to-market as of the last
business day of the year, and gain or loss must be
recognized for federal income tax purposes in
accordance with the 60%/40% rule discussed above even
though the position has not been terminated. A
"nonequity option" includes an option with respect to
any group of stocks or a stock index if there is in
effect a designation by the CFTC of a contract market
for a contract based on such group of stocks or
indexes. For example, options involving stock indexes
such as the Standard & Poor's 500 and 100 indexes would
be "nonequity options" within the meaning of Code
Section 1256.
Futures Contracts. The Funds may enter into
futures contracts (hereinafter referred to as "Futures"
or "Futures Contracts"), including index and interest
rate Futures as a hedge against movements in the equity
and bond markets, in order to establish more definitely
the effective return on securities held or intended to
be acquired by the Funds or for other purposes
permissible under the CEA. Each Fund's hedging may
include sales of Futures as an offset against the
effect of expected declines in stock prices and
purchases of Futures as an offset against the effect of
expected increases in stock or bond prices. The Funds
will not enter into Futures Contracts which are
prohibited under the CEA and will, to the extent
required by regulatory authorities, enter only into
Futures Contracts that are traded on national futures
exchanges and are standardized as to maturity date and
underlying financial instrument. The principal
interest rate Futures exchanges in the United States
are the Board of Trade of the City of Chicago and the
Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the CEA by the CFTC.
An index Futures Contract is an agreement pursuant
to which the parties agree to take or make delivery of
an amount of cash equal to the difference between the
value of the index at the close of the last trading day
of the contract and the price at which the index
Futures Contract was originally written. An interest
rate futures contract provides for the future sale by
one party and purchase by another party of a specified
amount of a specific financial instrument (e.g. debt
security) for a specified price at a designated date,
time, and place. Transaction costs are incurred when a
Futures Contract is bought or sold and margin deposits
must be maintained. A Futures Contract may be
satisfied by delivery or purchase, as the case may be,
of the instrument or by payment of the change in the
cash value of the index. More commonly, Futures
Contracts are closed out prior to delivery by entering
into an offsetting transaction in a matching Futures
Contract. Although the value of an index might be a
function of the value of certain specified securities,
no physical delivery of those securities is made. If
the offsetting purchase price is less than the original
sale price, a gain will be realized; if it is more, a
loss will be realized. Conversely, if the offsetting
sale price is more than the original purchase price, a
gain will be realized; if it is less, a loss will be
realized. The transaction costs must also be included
in these calculations. There can be no assurance,
however, that the Funds will be able to enter into an
offsetting transaction with respect to a particular
Futures Contract at a particular time. If the Funds
are not able to enter into an offsetting transaction,
the Funds will continue to be required to maintain the
margin deposits on the Futures Contract.
<PAGE>
Margin is the amount of funds that must be
deposited by each Fund with its custodian in a
segregated account in the name of the futures
commission merchant in order to initiate Futures
trading and to maintain the Fund's open positions in
Futures Contracts. A margin deposit is intended to
ensure the Fund's performance of the Futures Contract.
The margin required for a particular Futures Contract
is set by the exchange on which the Futures Contract is
traded and may be significantly modified from time to
time by the exchange during the term of the Futures
Contract. Futures Contracts are customarily purchased
and sold on margins that may range upward from less
than 5% of the value of the Futures Contract being
traded.
If the price of an open Futures Contract changes
(by increase in the case of a sale or by decrease in
the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit
does not satisfy margin requirements, the broker will
require an increase in the margin. However, if the
value of a position increases because of favorable
price changes in the Futures Contract so that the
margin deposit exceeds the required margin, the broker
will pay the excess to the Fund. In computing daily
net asset value, each Fund will mark to market the
current value of its open Futures Contracts. The Funds
expect to earn interest income on their margin
deposits.
Because of the low margin deposits required,
Futures trading involves an extremely high degree of
leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate
and substantial loss, as well as gain, to the investor.
For example, if at the time of purchase, 10% of the
value of the Futures Contract is deposited as margin, a
subsequent 10% decrease in the value of the Futures
Contract would result in a total loss of the margin
deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the
original margin deposit, if the Futures Contract were
closed out. Thus, a purchase or sale of a Futures
Contract may result in losses in excess of the amount
initially invested in the Futures Contract. However, a
Fund would presumably have sustained comparable losses
if, instead of the Futures Contract, it had invested in
the underlying financial instrument and sold it after
the decline.
Most United States Futures exchanges limit the
amount of fluctuation permitted in Futures Contract
prices during a single trading day. The daily limit
establishes the maximum amount that the price of a
Futures Contract may vary either up or down from the
previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a
particular type of Futures Contract, no trades may be
made on that day at a price beyond that limit. The
daily limit governs only price movement during a
particular trading day and therefore does not limit
potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures Contract
prices have occasionally moved to the daily limit for
several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of
Futures positions and subjecting some Futures traders
to substantial losses.
There can be no assurance that a liquid market
will exist at a time when the Funds seek to close out a
Futures position. The Funds would continue to be
required to meet margin requirements until the position
is closed, possibly resulting in a decline in the
Funds' net asset value. In addition, many of the
contracts discussed above are relatively new
instruments without a significant trading history. As
a result, there can be no assurance that an active
secondary market will develop or continue to exist.
A public market exists in Futures Contracts
covering a number of indexes, including, but not
limited to, the Standard & Poor's 500 Index, the
Standard & Poor's 100 Index, the NASDAQ 100 Index, the
Value Line Composite Index and the New York Stock
Exchange Composite Index.
Options on Futures. The Funds may also purchase
or write put and call options on Futures Contracts and
enter into closing transactions with respect to such
options to terminate an existing position. A futures
option gives the holder the right, in return for the
premium paid, to assume a long position (call) or short
position (put) in a Futures Contract at a specified
exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder acquires a
long position in the Futures Contract and the writer is
assigned the opposite short position. In the
<PAGE>
case of a
put option, the opposite is true. Prior to exercise or
expiration, a futures option may be closed out by an
offsetting purchase or sale of a futures option of the
same series.
The Funds may use options on Futures Contracts in
connection with hedging strategies. Generally, these
strategies would be employed under the same market and
market sector conditions in which the Funds use put and
call options on securities or indexes. The purchase of
put options on Futures Contracts is analogous to the
purchase of puts on securities or indexes so as to
hedge the Funds' securities holdings against the risk
of declining market prices. The writing of a call
option or the purchasing of a put option on a Futures
Contract constitutes a partial hedge against declining
prices of the securities which are deliverable upon
exercise of the Futures Contract. If the futures price
at expiration of a written call option is below the
exercise price, the Fund will retain the full amount of
the option premium which provides a partial hedge
against any decline that may have occurred in the
Fund's holdings of securities. If the futures price
when the option is exercised is above the exercise
price, however, the Fund will incur a loss, which may
be offset, in whole or in part, by the increase in the
value of the securities held by the Fund that were
being hedged. Writing a put option or purchasing a
call option on a Futures Contract serves as a partial
hedge against an increase in the value of the
securities the Fund intends to acquire.
As with investments in Futures Contracts, each
Fund is required to deposit and maintain margin with
respect to put and call options on Futures Contracts
written by it. Such margin deposits will vary
depending on the nature of the underlying Futures
Contract (and the related initial margin requirements),
the current market value of the option, and other
futures positions held by the Fund. The Funds will set
aside in a segregated account at the Funds' custodian
liquid assets, such as cash, U.S. government securities
or other high grade liquid debt obligations equal in
value to the amount due on the underlying obligation.
Such segregated assets will be marked to market daily,
and additional assets will be placed in the segregated
account whenever the total value of the segregated
account falls below the amount due on the underlying
obligation.
The risks associated with the use of options on
Futures Contracts include the risk that a Fund may
close out its position as a writer of an option only if
a liquid secondary market exists for such options,
which cannot be assured. The Funds' successful use of
options on Futures Contracts depends on the
subadviser's ability to correctly predict the movement
in prices of Futures Contracts and the underlying
instruments, which may prove to be incorrect. In
addition, there may be imperfect correlation between
the instruments being hedged and the Futures Contract
subject to the option. For additional information, see
"Futures Contracts."
Federal Tax Treatment of Futures Contracts. For
federal income tax purposes, each Fund is required to
recognize as income for each taxable year its net
unrealized gains and losses on Futures Contracts as of
the end of the year, as well as gains and losses
actually realized during the year. Except for
transactions in Futures Contracts that are classified
as part of a "mixed straddle" under Code Section 1256,
any gain or loss recognized with respect to a Futures
Contract is considered to be 60% long-term capital gain
or loss and 40% short-term capital gain or loss,
without regard to the holding period of the Futures
Contract. In the case of a Futures transaction not
classified as a "mixed straddle," the recognition of
losses may be deferred to a later taxable year.
Sales of Futures Contracts that are intended to
hedge against a change in the value of securities held
by a Fund may affect the holding period of such
securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
Each Fund intends to operate as a "Regulated
Investment Company" under Subchapter M of the Code, and
therefore will not be liable for federal income taxes
to the extent earnings are timely distributed. As a
result of being a Regulated Investment Company, net
capital gain that the Funds distribute to shareholders
will retain their original capital gain character in
the shareholders' individual tax returns.
<PAGE>
In order for each Fund to qualify for federal
income tax treatment as a Regulated Investment Company,
at least 90% of the gross income of each Fund for a
taxable year must be derived from qualifying income;
i.e., dividends, interest, income derived from loans of
securities and gains from the sale of securities, and
other income (including gains on options and futures
contracts) derived with respect to the Fund's business
of investing in stock or securities. In addition,
gains realized on the sale or other disposition of
securities or Futures Contracts held for less than
three months must be limited to less than 30% of the
Fund's annual gross income. It is anticipated that any
net gain realized from the closing out of Futures
Contracts will be considered gain from the sale of
securities and therefore be qualifying income for
purposes of the 90% requirement. For purposes of
applying these tests, any increase in value on a
position that is part of a designated hedge will be
offset by any decrease in value (whether or not
realized) on any other position that is part of such
hedge. It is anticipated that unrealized gains on
Futures Contracts which have been open for less than
three months as of the end of a Fund's fiscal year and
which are recognized for tax purposes will not be
considered gains on securities held less than three
months for purposes of the 30% test.
The Funds will distribute to shareholders annually
any net capital gains which have been recognized for
federal income tax purposes (including unrealized gains
at the end of the Fund's fiscal year) on Futures
transactions. Such distributions will be combined with
distributions of capital gains realized on the Funds'
other investments and shareholders will be advised of
the nature of the payments.
Foreign Currency - Related Derivative Strategies -
Special Considerations. The Funds may purchase and
sell foreign currency on a spot basis, and may use
currency-related derivatives instruments such as
options on foreign currencies, futures on foreign
currencies, options on futures on foreign currencies
and forward currency contracts (i.e., an obligation to
purchase or sell a specific currency at a specified
future date, which may be any fixed number of days from
the contract date agreed upon by the parties, at a
price set at the time the contract is entered into).
The Funds may use these instruments for hedging or any
other lawful purpose consistent with its investment
objective, including transaction hedging, anticipatory
hedging, cross hedging, proxy hedging, and position
hedging. A Fund's use of currency-related derivative
instruments will be directly related to the Fund's
current or anticipated portfolio securities, and the
Fund may engage in transactions in currency-related
derivative instruments as a means to protect against
some or all of the effects of adverse changes in
foreign currency exchange rates on its portfolio
investments. In general, if the currency in which a
portfolio investment is denominated appreciates against
the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate
of the currency would adversely affect the value of the
portfolio investment expressed in U.S. dollars.
For example, a Fund might use currency-related
derivative instruments to "lock in" a U.S. dollar price
for a portfolio investment, thereby enabling the Fund
to protect itself against a possible loss resulting
from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or
sold and the date on which payment is made or received.
The Fund also might use currency-related derivative
instruments when the Advisor believes that one currency
may experience a substantial movement against another
currency, including the U.S. dollar, and it may use
currency-related derivative instruments to sell or buy
the amount of the former foreign currency,
approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign
currency. Alternatively, where appropriate, the Fund
may use currency-related derivative instruments to
hedge all or part of its foreign currency exposure
through the use of a basket of currencies or a proxy
currency where such currency or currencies act as an
effective proxy for other currencies. The use of this
basket hedging technique may be more efficient and
economical than using separate currency-related
derivative instruments for each currency exposure held
by a Fund. Furthermore, currency-related derivative
instruments may be used for short hedges - for example,
a Fund may sell a forward currency contract to lock in
the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign
currency.
<PAGE>
In addition, a Fund may use a currency-related
derivative instrument to shift exposure to foreign
currency fluctuations from one foreign country to
another foreign country where it's anticipated that the
foreign currency exposure purchased will appreciate
relative to the U.S. dollar and thus better protect the
Fund against the expected decline in the foreign
currency exposure sold. For example, if a Fund owns
securities denominated in a foreign currency and it is
anticipated that the currency will decline, it might
enter into a forward contract to sell an appropriate
amount of the first foreign currency, with payment to
be made in a second foreign currency that would better
protect the Fund against the decline in the first
security than would a U.S. dollar exposure. Hedging
transactions that use two foreign currencies are
sometimes referred to as "cross hedges." The effective
use of currency-related derivative instruments by a
Fund in a cross hedge is dependent upon a correlation
between price movements of the two currency instruments
and the underlying security involved, and the use of
two currencies magnifies the risk that movements in the
price of one instrument may not correlate or may
correlate unfavorably with the foreign currency being
hedged. Such a lack of correlation might occur due to
factors unrelated to the value of the currency
instruments used or investments being hedged, such as
speculative or other pressures on the markets in which
these instruments are traded.
The Funds also might seek to hedge against changes
in the value of a particular currency when no hedging
instruments on that currency are available or such
hedging instruments are more expensive than certain
other hedging instruments. In such cases, a Fund may
hedge against price movements in that currency by
entering into transactions using currency-related
derivative instruments on another foreign currency or a
basket of currencies, the values of which are believed
to have a high degree of positive correlation to the
value of the currency being hedged. The risk that
movements in the price of the hedging instrument will
not correlate perfectly with movements in the price of
the currency being hedged is magnified when this
strategy is used.
The use of currency-related derivative instruments
by a Fund involves a number of risks. The value of
currency-related derivative instruments depends on the
value of the underlying currency relative to the U.S.
dollar. Because foreign currency transactions
occurring in the interbank market might involve
substantially larger amounts than those involved in the
use of such derivative instruments, a Fund could be
disadvantaged by having to deal in the odd lot market
(generally consisting of transactions of less than $1
million) for the underlying foreign currencies at
prices that are less favorable than for round lots
(generally consisting of transactions of greater than
$1 million).
There is no systematic reporting of last sale
information for foreign currencies or any regulatory
requirement that quotations available through dealers
or other market sources be firm or revised on a timely
basis. Quotation information generally is
representative of very large transactions in the
interbank market and thus might not reflect odd-lot
transactions where rates might be less favorable. The
interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options
or futures markets are closed while the markets for the
underlying currencies remain open, significant price
and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the
derivative instruments until they re-open.
Settlement of transactions in currency-related
derivative instruments might be required to take place
within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in
accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to
pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
When a Fund engages in a transaction in a currency-
related derivative instrument, it relies on the
counterparty to make or take delivery of the underlying
currency at the maturity of the contract or otherwise
complete the contract. In other words, a Fund will be
subject to the risk that a loss may be sustained by the
Fund as a result of the failure of the counterparty to
comply with the terms of the transaction. The
counterparty risk for exchange-traded instruments is
generally less than for privately-negotiated or OTC
currency instruments, since generally a clearing
agency, which is the issuer or counterparty to each
instrument, provides a guarantee of performance. For
privately-
<PAGE>
negotiated instruments, there is no similar
clearing agency guarantee. In all transactions, a Fund
will bear the risk that the counterparty will default,
and this could result in a loss of the expected benefit
of the transaction and possibly other losses to the
Fund. The Fund will enter into transactions in
currency-related derivative instruments only with
counterparties that are reasonably believed to be
capable of performing under the contract.
Purchasers and sellers of currency-related
derivative instruments may enter into offsetting
closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument
purchased or sold. Secondary markets generally do not
exist for forward currency contracts, with the result
that closing transactions generally can be made for
forward currency contracts only by negotiating directly
with the counterparty. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward
currency contract (or any other currency-related
derivative instrument) at a time and price favorable to
the Fund. In addition, in the event of insolvency of
the counterparty, a Fund might be unable to close out a
forward currency contract at any time prior to
maturity. In the case of an exchange-traded
instrument, the Fund will be able to close the position
out only on an exchange which provides a market for the
instruments. The ability to establish and close out
positions on an exchange is subject to the maintenance
of a liquid market, and there can be no assurance that
a liquid market will exist for any instrument at any
specific time. In the case of a privately-negotiated
instrument, the Fund will be able to realize the value
of the instrument only by entering into a closing
transaction with the issuer or finding a third party
buyer for the instrument. While the Funds will enter
into privately-negotiated transactions only with
entities who are expected to be capable of entering
into a closing transaction, there can be no assurance
that a Fund will in fact be able to enter into such
closing transactions.
The precise matching of currency-related
derivative instrument amounts and the value of the
portfolio securities involved generally will not be
possible because the value of such securities, measured
in the foreign currency, will change after the currency-
related derivative instrument position has been
established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market. The
projection of short-term currency market movements is
extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain.
Permissible foreign currency options will include
options traded primarily in the OTC market. Although
options on foreign currencies are traded primarily in
the OTC market, the Funds will normally purchase or
sell OTC options on foreign currency only when it is
believed that a liquid secondary market will exist for
a particular option at any specific time.
There will be a cost to the Funds of engaging in
transactions in currency-related derivative instruments
that will vary with factors such as the contract or
currency involved, the length of the contract period,
and the market conditions then prevailing. A Fund may
have to pay a fee or commission or, in cases where the
instruments are entered into on a principal basis,
foreign exchange dealers or other counterparties will
realize a profit based on the difference ("spread")
between the prices at which they are buying and selling
various currencies. Thus, for example, a dealer may
offer to sell a foreign currency to a Fund at one rate,
while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
When required by the SEC guidelines, a Fund will
set aside permissible liquid assets in segregated
accounts or otherwise cover its potential obligations
under currency-related derivatives instruments. To the
extent a Fund's assets are so set aside, they cannot be
sold while the corresponding currency position is open,
unless they are replaced with similar assets. As a
result, if a large portion of a Fund's assets are so
set aside, this could impede portfolio management or
the Fund's ability to meet redemption requests or other
current obligations.
The decision to engage in a particular currency-
related derivative instrument will reflect the
portfolio manager's judgment that the transaction will
provide value to the Fund and its shareholders and is
consistent with the Fund's objective and policies. In
making such a judgment, the benefits and risks of the
transaction will be weighed in
<PAGE>
the context of the
Fund's entire portfolio and objective. The
effectiveness of any transaction in a currency-related
derivative instrument is dependent on a variety of
factors, including the portfolio manager's skill in
analyzing and predicting currency values and upon a
correlation between price movements of the currency
instrument and the underlying security. There might be
imperfect correlation, or even no correlation, between
price movements of an instrument and price movements of
investments being hedged. Such a lack of correlation
might occur due to factors unrelated to the value of
the investments being hedged, such as speculative or
other pressures on the markets in which these
instruments are traded. In addition, a Fund's use of
currency-related derivative instruments is always
subject to the risk that the currency in question could
be devalued by the foreign government. In such a case,
any long currency positions would decline in value and
could adversely affect any hedging position maintained
by a Fund.
A Fund's dealing in currency-related derivative
instruments will generally be limited to the
transactions described above. However, the Funds
reserve the right to use currency-related derivatives
instruments for different purposes and under different
circumstances. It also should be realized that use of
these instruments does not eliminate, or protect
against, price movements in a Fund's securities that
are attributable to other (i.e., non-currency related)
causes. Moreover, while the use of currency-related
derivatives instruments may reduce the risk of loss due
to a decline in the value of a hedged currency, at the
same time the use of these instruments tends to limit
any potential gain which may result from an increase in
the value of that currency.
Foreign Investment Companies
Some of the countries in which the Funds may
invest may not permit direct investment by outside
investors. Investments in such countries may only be
permitted through foreign government-approved or -
authorized investment vehicles, which may include other
investment companies. Investing through such vehicles
may involve frequent or layered fees or expenses and
may also be subject to limitation under the 1940 Act.
Under the 1940 Act, a Fund may invest up to 10% of its
assets in shares of investment companies and up to 5%
of its assets in any one investment company as long as
the investment does not represent more than 3% of the
voting stock of the acquired investment company.
Depositary Receipts
As indicated in the Prospectus, the Opportunity
Fund may invest in foreign securities by purchasing
depositary receipts, including American Depositary
Receipts ("ADRs") and European Depositary Receipts
("EDRs") or other securities convertible into
securities or issuers based in foreign countries.
These securities may not necessarily be denominated in
the same currency as the securities into which they may
be converted. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in
the U.S. securities markets, while EDRs, in bearer
form, may be denominated in other currencies and are
designed for use in European securities markets. ADRs
are receipts typically issued by a U.S. Bank or trust
company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a
similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have
the same classification as the underlying securities
they represent. Thus, an ADR or EDR representing
ownership of common stock will be treated as common
stock.
ADR facilities may be established as either
"unsponsored" or "sponsored." While ADRs issued under
these two types of facilities are in some respects
similar, there are distinctions between them relating
to the rights and obligations of ADR holders and the
practices of market participants. A depositary may
establish an unsponsored facility without participation
by (or even necessarily the acquiescence of) the issuer
of the deposited securities, although typically the
depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the
costs of such facilities. The depositary usually
charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into
U.S. dollars, the disposition of non-cash distribution,
and the performance of other services. The depositary
of an unsponsored facility frequently is under no
obligation to distribute shareholder communications
received from the issuer of the deposited
<PAGE>
securities or
to pass through voting rights to ADR holders in respect
of the deposited securities. Sponsored ADR facilities
are created in generally the same manner as unsponsored
facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the
depositary. The deposit agreement sets out the rights
and responsibilities of the issuer, the depositary and
the ADR holders. With sponsored facilities, the issuer
of the deposited securities generally will bear some of
the costs relating to the facility (such as dividend
payment fees of the depositary), although ADR holders
continue to bear certain other costs (such as deposit
and withdrawal fees). Under the terms of most
sponsored arrangements, depositaries agree to
distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications
and other information to the ADR holders at the request
of the issuer of the deposited securities.
Lending of Portfolio Securities
Each Fund is authorized to lend up to 33 1/3% of
the total value of its portfolio securities to broker-
dealers or institutional investors, but only when the
borrower maintains with the Fund's custodian bank
collateral either in cash or money market instruments
in an amount at least equal to the market value of the
securities loaned, plus accrued interest and dividends,
determined on a daily basis and adjusted accordingly.
However, the Funds do not presently intend to engage in
such lending. In determining whether to lend
securities to a particular broker-dealer or
institutional investor, the portfolio manager will
consider, and during the period of the loan will
monitor, all relevant facts and circumstances,
including the creditworthiness of the borrower. The
Fund will retain authority to terminate any loans at
any time. The Funds may pay reasonable administrative
and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the
cash or money market instruments held as collateral to
the borrower or placing broker. The Funds will receive
reasonable interest on the loan or a flat fee from the
borrower and amounts equivalent to any dividends,
interest or other distributions on the securities
loaned. The Funds will retain record ownership of
loaned securities to exercise beneficial rights, such
as voting and subscription rights and rights to
dividends, interest or other distributions, when
retaining such rights is considered to be in a Fund's
interest.
Mortgage-and Asset-Backed Securities
Mortgage-backed securities represent direct or
indirect participations in, or are secured by and
payable from, mortgage loans secured by real property,
and include single- and multi-class pass-through
securities and collateralized mortgage obligations.
Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the
Government National Mortgage Association and the
Federal National Mortgage Association, or by private
issuers, generally originators and investors in
mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers,
and special purpose entities (collectively, "private
lenders"). Mortgage-backed securities issued by
private lenders may be supported by pools of mortgage
loans or other mortgage-backed securities that are
guaranteed, directly or indirectly, by the U.S.
government or one of its agencies or instrumentalities,
or they may be issued without any governmental
guarantee of the underlying mortgage assets but with
some form of non-governmental credit enhancement.
Asset-backed securities have structural
characteristics similar to mortgage-backed securities.
However, the underlying assets are not first lien
mortgage loans or interests therein, but include assets
such as motor vehicle installment sales contracts,
other installment loan contracts, home equity loans,
leases of various types of property, and receivables
from credit card or other revolving credit
arrangements. Payments or distributions of principal
and interest on asset-backed securities may be
supported by non-governmental credit enhancements
similar to those utilized in connection with mortgage-
backed securities.
The yield characteristics of mortgage- and asset-
backed securities differ from those of traditional debt
securities. Among the principal differences are that
interest and principal payments are made more
frequently on mortgage- and asset-backed securities,
usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other
assets generally may be prepaid at any time. As a
result, if the Total Return
<PAGE>
Bond Fund purchases these
securities at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected
will have the opposite effect of increasing the yield
to maturity. Conversely, if the Fund purchases these
securities at a discount, a prepayment rate that is
faster than expected will increase yield to maturity,
while a prepayment rate that is slower than expected
will reduce yield to maturity. Amounts available for
reinvestment by the Fund are likely to be greater
during a period of declining interest rates and, as a
result are likely to be reinvested at lower interest
rates than during a period of rising interest rates.
Accelerated prepayments on securities purchased by the
Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully
amortized at the time the principal is prepaid in full.
The market for privately issued mortgage- and asset-
backed securities is smaller and less liquid than the
market for government-sponsored mortgage-backed
securities.
The Total Return Bond Fund may also invest in
stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and
principal payments from the underlying assets. The
market value of such securities generally is more
sensitive to changes in prepayment and interest rates
than is the case with traditional mortgage- and asset-
backed securities, and in some cases such market value
may be extremely volatile. With respect to certain
stripped securities, such as interest only and
principal only classes, a rate of prepayment that is
faster or slower than anticipated may result in the
Fund failing to recover all or a portion of its
investment, even though the securities are rated
investment grade.
Mortgage Dollar Rolls and Reverse Repurchase Agreements
The Total Return Bond Fund may engage in reverse
repurchase agreements to facilitate portfolio
liquidity, a practice common in the mutual fund
industry, or for arbitrage transactions discussed
below. In a reverse repurchase agreement, a Fund would
sell a security and enter into an agreement to
repurchase the security at a specified future date and
price. The Fund generally retains the right to
interest and principal payments on the security. Since
the Fund receives cash upon entering into a reverse
repurchase agreement, it may be considered a borrowing.
When required by guidelines of the SEC, a Fund will set
aside permissible liquid assets in a segregated account
to secure its obligations to repurchase the security.
The Total Return Bond Fund may also enter into
mortgage dollar rolls, in which the Fund would sell
mortgage-backed securities for delivery in the current
month and simultaneously contract to purchase
substantially similar securities on a specified future
date. While the Fund would forego principal and
interest paid on the mortgage-backed securities during
the roll period, the Fund would be compensated by the
difference between the current sales price and the
lower price for the future purchase as well as by any
interest earned on the proceeds of the initial sale.
The Fund also could be compensated through the receipt
of fee income equivalent to a lower forward price. At
the time the Fund would enter into a mortgage dollar
roll, it would set aside permissible liquid assets in a
segregated account to secure its obligation for the
forward commitment to buy mortgage-backed securities.
Mortgage dollar roll transactions may be considered a
borrowing by the Fund.
The mortgage dollar rolls and reverse repurchase
agreements entered into by the Fund may be used as
arbitrage transactions in which the Fund will maintain
an offsetting position in investment grade debt
obligations or repurchase agreements that mature on or
before the settlement date on the related mortgage
dollar roll or reverse repurchase agreements. Since
the Fund will receive interest on the securities or
repurchase agreements in which it invests the
transaction proceeds, such transactions may involve
leverage. However, since such securities or repurchase
agreements will be high quality and will mature on or
before the settlement date of the mortgage dollar roll
or reverse repurchase agreement, the portfolio manager
believes that such arbitrage transactions do not
present the risks to the Fund that are associated with
other types of leverage.
<PAGE>
Repurchase Agreements
The Funds may enter into repurchase agreements
with certain banks or non-bank dealers. In a
repurchase agreement, a Fund buys a security at one
price, and at the time of sale, the seller agrees to
repurchase the obligation at a mutually agreed upon
time and price (usually within seven days). The
repurchase agreement, thereby, determines the yield
during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the
value of the underlying security. The portfolio
manager will monitor, on an ongoing basis, the value of
the underlying securities to ensure that the value
always equals or exceeds the repurchase price plus
accrued interest. Repurchase agreements could involve
certain risks in the event of a default or insolvency
of the other party to the agreement, including possible
delays or restrictions upon the Fund's ability to
dispose of the underlying securities. Although no
definitive creditworthiness criteria are used, the
portfolio manager reviews the creditworthiness of the
banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate those risks.
The Funds may, under certain circumstances, deem
repurchase agreements collateralized by U.S. government
securities to be investments in U.S. government
securities.
DIRECTORS AND OFFICERS
The directors and officers of the Company,
together with information as to their principal
business occupations during the last five years, and
other information, are shown below. Each director who
is deemed an "interested person," as defined in the
Investment Company Act of 1940 ("Investment Company
Act"), is indicated by an asterisk.
*William D. Forsyth, III, Co-President, Treasurer,
Assistant Secretary and a Director of the Company.
Mr. Forsyth was born in 1963 and received his B.S.
in Finance from the University of Illinois in 1986
and his M.B.A. from the University of Chicago in
1988. Mr. Forsyth has served as Co-President,
Treasurer, Assistant Secretary, Portfolio Manager
and a Director of Frontegra since May 1996. From
July 1993 until the present, Mr. Forsyth has also
served as a Partner of Frontier Partners, Inc., a
consulting/marketing firm. From April 1987 until
June 1993, Mr. Forsyth served as a Partner of
Brinson Partners, Inc., an investment advisor, and
from June 1986 until April 1987, he served as a
product marketing representative of Harris Trust &
Savings Bank. Mr. Forsyth received his CFA
designation in 1991.
*Thomas J. Holmberg, Jr., Co-President, Secretary,
Assistant Treasurer and a Director of the Company.
Mr. Holmberg was born in 1958 and received his
B.A. in Economics from the College of William and
Mary in 1980 and his M.P.P.M. from Yale University
in 1987. Mr. Holmberg has served as Co-President,
Secretary, Assistant Treasurer, Portfolio Manager
and a Director of Frontegra since May 1996. From
July 1993 until the present, Mr. Holmberg has also
served as a Partner of Frontier Partners, Inc., a
consulting/marketing firm. From February 1989
until July 1993, Mr. Holmberg served as a Partner
of, and Account Manager for, Brinson Partners,
Inc., an investment advisor. From July 1987 until
January 1989, Mr. Holmberg served as an associate
in the fixed income sales area of Goldman, Sachs,
and from May 1986 until August 1986, he served as
a summer associate in the corporation finance area
of Lehman Brothers. Mr. Holmberg received his CFA
designation in 1991.
<PAGE>
David L. Heald, a Director of the Company.
Mr. Heald was born in 1943 and received his
B.A. in English from Denison University in
1966 and his J.D. from Vanderbilt University
School of Law in 1969. Mr. Heald has been a
principal of Consulting Fiduciaries, Inc.
("CFI"), a registered investment adviser,
since August of 1994. CFI provides
professional, independent, fiduciary decision
making, consultation and alternative dispute
resolution services to ERISA plans, plan
sponsors and investment managers. Between
April 1994 and August 1994, Mr. Heald engaged
in the private practice of law. From August
1992 until April 1994, Mr. Heald was a
managing director and the chief
administrative officer of Calamos Asset
Management, Inc., a registered investment
adviser specializing in convertible
securities, and he served as an officer and
director of CFS Investment Trust, a
registered investment company comprised of
four series. From January 1990 until August
1992, Mr. Heald was a partner in the Chicago
based law firm of Gardner, Carton & Douglas.
The address of Mr. Forsyth and Mr. Holmberg is
Frontegra Asset Management, Inc., 400 Skokie Blvd.,
Suite 500, Northbrook, Illinois 60062. Mr. Heald's
address is 2745 Riverwoods Road, Riverwoods, Illinois
60015.
As of September 30, 1996, officers and directors
of the Company did not own any shares of common stock
of the Total Return Bond Fund or the Opportunity Fund.
Directors and officers of the Company who are also
officers, directors, employees, or shareholders of
Frontegra do not receive any remuneration from either
of the Funds for serving as directors or officers.
The following table provides information relating
to compensation intended to be paid to directors of the
Company for their services as such for the fiscal year
ending September 30, 1997:
Name Cash Compensation1 Other Compensation Total
David L. Heald $ 2,000 $ 0 $ 2,000
All directors as a $ 2,000 $ 0 $ 2,000
group (3 persons)
_____________________
<PAGE>
PRINCIPAL SHAREHOLDERS
As of September 30, 1996, the following persons
owned of record or are known by the Company to own of
record or beneficially 5% or more of the outstanding
shares of each Fund:
Name and Address Fund No. Shares Percentage
Frontegra Asset Management, Inc. Total Return 1,666.667 50%
400 Skokie Blvd., Suite 500 Bond Fund
Northbrook, IL 60062
Reams Asset Management Company, LLC Total Return 1,666.666 50%
227 Washington Street Bond Fund
Columbus, IN 47201
As of September 30, 1996, Frontegra and Reams each
owned a controlling interest in the Company.
Shareholders with a controlling interest could effect
the outcome of proxy voting or the direction of
management of the Company.
INVESTMENT ADVISER
Frontegra Asset Management, Inc. ("Frontegra") is
the investment adviser to the Funds. Mr. William D.
Forsyth III and Mr. Thomas J. Holmberg, Jr., each own
50% of Frontegra. A brief description of the Funds'
investment advisory agreement is set forth in the
Prospectus under "MANAGEMENT."
The Funds' advisory agreement is dated
____________________, 1996 (the "Advisory Agreement").
The Advisory Agreement has an initial term of two years
and thereafter is required to be approved annually by
the Board of Directors of the Company or by vote of a
majority of each of the Fund's outstanding voting
securities (as defined in the Investment Company Act).
Each annual renewal must also be approved by the vote
of a majority of the Company's directors who are not
parties to the Advisory Agreement or interested persons
of any such party, cast in person at a meeting called
for the purpose of voting on such approval. The
Advisory Agreement was approved by the vote of a
majority of the Company's directors who are not parties
to the Advisory Agreement or interested persons of any
such party on October 9, 1996 and by the initial
shareholders of each Fund on October 9, 1996. The
Advisory Agreement is terminable without penalty, on 60
days' written notice by the Board of Directors of the
Company, by vote of a majority of each of the Fund's
outstanding voting securities or by Frontegra, and will
terminate automatically in the event of its assignment.
Under the terms of the Advisory Agreement,
Frontegra supervises the management of the Funds'
investments and business affairs, subject to the
supervision of the Company's Board of Directors. At
its expense, Frontegra provides office space and all
necessary office facilities, equipment and personnel
for servicing the investments of the Funds. As
compensation for its services, the Opportunity Fund
pays to Frontegra a monthly advisory fee at the annual
rate of 0.65% of the average daily net asset value of
the Fund and the Total Return Bond Fund pays to
Frontegra a monthly advisory fee at the annual rate of
0.40% of the average daily net asset value of the Fund.
From time to time, Frontegra may voluntarily waive all
or a portion of its management fee for the Funds. In
fact, Frontegra has agreed to waive its management fee
and/or reimburse each Fund's operating expenses to the
extent necessary to ensure that the Opportunity and
Total Return Bond Fund's total operating expenses do
not exceed 0.90% and 0.50% of the respective Fund's
average daily net assets for the first twelve months of
each Fund's operations.
<PAGE>
The organizational expenses of
each Fund were advanced by Frontegra and will be
reimbursed by the Funds over a period of not more than
60 months. The organizational expenses were
approximately $40,000 for the Total Return Bond Fund.
The Advisory Agreement requires Frontegra to
reimburse the Funds in the event that the expenses and
charges payable by the Funds in any fiscal year,
including the advisory fee but excluding taxes,
interest, brokerage commissions, and similar fees,
exceed those set forth in any statutory or regulatory
formula prescribed by any state in which shares of the
Funds are registered. Such excess is determined by
valuations made as of the close of each business day of
the year. The most restrictive percentage limitation
currently applicable to the Funds will be 2-1/2% of
each Fund's average net asset value up to $30,000,000,
2% on the next $70,000,000 of each Fund's average net
asset value and 1-1/2% of each Fund's average net asset
value in excess of $100,000,000. Reimbursement of
expenses in excess of the applicable limitation will be
made on a monthly basis and will be paid to the Funds
by reduction of Frontegra's fee, subject to later
adjustment, month by month, for the remainder of the
Funds' fiscal year. Frontegra may from time to time
voluntarily absorb expenses for the Funds in addition
to the reimbursement of expenses in excess of
applicable limitations.
Frontegra has entered into an agreement with Reams
Asset Management Company, LLC ("Reams") under which
Reams serves as each Fund's portfolio manager and,
subject to Frontegra's supervision, manages the Funds'
portfolio assets. (Reams operated as a corporation
(Reams Asset Management Company, Inc.) from its
founding in 1981 until March 31, 1994, when it became
an Indiana limited liability company (LLC), with no
change in principals, employees or clients.) Under
this agreement, and with certain exceptions described
herein, Reams is compensated by Frontegra for its
investment advisory services at the annual rate of
0.45% of the Opportunity Fund's average daily net
assets; and 0.20% of the Total Return Bond Fund's
average daily net assets. In recognition of the
economies of scale that will be gained by the Funds and
Frontegra, and with the exception of defined
contribution or 401(k) investments in the Funds, for
initial investments of over $15 million Frontegra will
compensate Reams an extra 0.10% on the average daily
net assets of such investments. Frontier Partners, Inc.
acts as a third party solicitor on behalf of Reams and
has a 2.2% nonvoting ownership interest in Reams.
[/R]
FUND TRANSACTIONS AND BROKERAGE
Reams is responsible for decisions to buy and sell
securities for the Funds and for the placement of the
Funds' securities business, the negotiation of the
commissions to be paid on such transactions and the
allocation of portfolio brokerage and principal
business. Reams seeks the best execution at the best
security price available with respect to each
transaction, in light of the overall quality of
brokerage and research services provided to Reams or
the Funds. The best price to the Funds means the best
net price without regard to the mix between purchase or
sale price and commission, if any. Purchases may be
made from underwriters, dealers and, on occasion, the
issuers. Commissions will be paid on the Funds'
futures and options transactions. The purchase price
of portfolio securities purchased from an underwriter
or dealer may include underwriting commissions and
dealer spreads. The Funds may pay mark-ups on
principal transactions. In selecting broker-dealers
and in negotiating commissions, Reams considers the
firm's reliability, the quality of its execution
services on a continuing basis and its financial
condition. Brokerage will not be allocated based on
the sale of a Fund's shares.
Section 28(e) of the Securities Exchange Act of
1934 ("Section 28(e)") permits an investment adviser,
under certain circumstances, to cause an account to pay
a broker or dealer who supplies brokerage and research
services a commission for effecting a transaction in
excess of the amount of commission another broker or
dealer would have charged for effecting the
transaction. Brokerage and research services include
(a) furnishing advice as to the value of securities,
the advisability of investing, purchasing or selling
securities and the availability of securities or
purchasers or sellers of securities; (b) furnishing
analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio
strategy and the performance of accounts; and (c)
effecting securities transactions and performing
functions incidental thereto (such as clearance,
settlement, and custody).
<PAGE>
In selecting brokers, Reams considers investment
and market information and other research, such as
economic, securities and performance measurement
research provided by such brokers and the quality and
reliability of brokerage services, including execution
capability, performance and financial responsibility.
Accordingly, the commissions charged by any such broker
may be greater than the amount another firm might
charge if Reams determines in good faith that the
amount of such commissions is reasonable in relation to
the value of the research information and brokerage
services provided by such broker to the Funds. Reams
believes that the research information received in this
manner provides the Funds with benefits by
supplementing the research otherwise available to the
Funds. The Subadvisory Agreement provides that such
higher commissions will not be paid by the Funds unless
(a) Reams determines in good faith that the amount is
reasonable in relation to the services in terms of the
particular transaction or in terms of Reams' overall
responsibilities with respect to the accounts as to
which it exercises investment discretion; (b) such
payment is made in compliance with the provisions of
Section 28(e), other applicable state and federal laws,
and the Subadvisory Agreement; and (c) in the opinion
of Reams, the total commissions paid by the Funds will
be reasonable in relation to the benefits to the Funds
over the long term. The investment advisory fees paid
by the Funds under the Advisory Agreement are not
reduced as a result of Reams' receipt of research
services.
Reams places portfolio transactions for other
advisory accounts managed by Reams. Research services
furnished by firms through which the Funds effect their
securities transactions may be used by Reams in
servicing all of its accounts; not all of such services
may be used by Reams in connection with the Funds.
Reams believes it is not possible to measure separately
the benefits from research services to each of the
accounts (including the Funds) managed by it. Because
the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each
account for brokerage and research services will vary.
However, Reams believes such costs to the Funds will
not be disproportionate to the benefits received by the
Funds on a continuing basis. Reams seeks to allocate
portfolio transactions equitably whenever concurrent
decisions are made to purchase or sell securities by
the Funds and another advisory account. In some cases,
this procedure could have an adverse effect on the
price or the amount of securities available to the
Funds. In making such allocations between the Fund and
other advisory accounts, the main factors considered by
Reams are the respective investment objectives, the
relative size of portfolio holdings of the same or
comparable securities, the availability of cash for
investment and the size of investment commitments
generally held.
Each Fund anticipates that its portfolio turnover
rate will not exceed 125%, and is expected to be
between 75% and 125%. The annual portfolio turnover
rate indicates changes in each Fund's securities
holdings; for instance, a rate of 100% would result if
all the securities in a portfolio (excluding securities
whose maturities at acquisition were one year or less)
at the beginning of an annual period had been replaced
by the end of the period. The turnover rate may vary
from year to year, as well as within a year, and may be
affected by portfolio sales necessary to meet cash
requirements for redemptions of the Funds' shares.
CUSTODIAN
As custodian of the Funds' assets, United Missouri
Bank, n.a., 928 Grand Avenue, Kansas City, Missouri
64141, has custody of all securities and cash of each
Fund, delivers and receives payment for securities
sold, receives and pays for securities purchased,
collects income from investments and performs other
duties, all as directed by the officers of the Company.
<PAGE>
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Sunstone Investor Services, LLC ("SIS") acts as
transfer agent and dividend-disbursing agent for the
Funds. SIS is compensated based on an annual fee per
open account per $14, plus out of pocket expenses such as
postage and printing expenses inc connection with share-
holder communications, subject to a minimum fee of $12,000.
TAXES
Each Fund will be treated as a separate entity for
Federal income tax purposes since the Tax Reform Act of
1986 requires that all portfolios of a series fund be
treated as separate taxpayers. As indicated under
"DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAX STATUS"
in the Prospectus, each Fund intends to qualify
annually as a "regulated investment company" under the
Code. This qualification does not involve government
supervision of the Funds' management practices or
policies.
A dividend or capital gain distribution received
shortly after the purchase of shares reduces the net
asset value of shares by the amount of the dividend or
distribution and, although in effect a return of
capital, will be subject to income taxes. Net gains on
sales of securities when realized and distributed are
taxable as capital gains. If the net asset value of
shares were reduced below a shareholder's cost by
distribution of gains realized on sales of securities,
such distribution would be a return of investment
although taxable as stated above.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the same
caption, the net asset value of each of the Funds will
be determined as of the close of trading on each day
the New York Stock Exchange is open for trading. The
Funds do not determine net asset value on days the New
York Stock Exchange is closed and at other times
described in the Prospectus. The New York Stock
Exchange is closed on New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if
any of the aforementioned holidays falls on a Saturday,
the New York Stock Exchange will not be open for
trading on the preceding Friday and when such holiday
falls on a Sunday, the New York Stock Exchange will not
be open for trading on the succeeding Monday, unless
unusual business conditions exist, such as the ending
of a monthly or the yearly accounting period.
SHAREHOLDER MEETINGS
Maryland law permits registered investment
companies, such as the Company, to operate without an
annual meeting of shareholders under specified
circumstances if an annual meeting is not required by
the Investment Company Act. The Company has adopted
the appropriate provisions in its Bylaws and may, at
its discretion, not hold an annual meeting in any year
in which the election of directors is not required to
be acted on by shareholders under the Investment
Company Act.
The Company's Bylaws also contain procedures for
the removal of directors by shareholders of the
Company. At any meeting of shareholders, duly called
and at which a quorum is present, the shareholders may,
by the affirmative vote of the holders of a majority of
the votes entitled to be cast thereon, remove any
director or directors from office and may elect a
successor or successors to fill any resulting vacancies
for the unexpired terms of removed directors.
<PAGE>
Upon the written request of the holders of shares
entitled to not less than ten percent (10%) of all the
votes entitled to be cast at such meeting, the
Secretary of the Company shall promptly call a special
meeting of shareholders for the purpose of voting upon
the question of removal of any director. Whenever ten
or more shareholders of record who have been such for
at least six months preceding the date of application,
and who hold in the aggregate either shares having a
net asset value of at least $25,000 or at least one
percent (1%) of the total outstanding shares, whichever
is less, shall apply to the Company's Secretary in
writing, stating that they wish to communicate with
other shareholders with a view to obtaining signatures
to a request for a meeting as described above and
accompanied by a form of communication and request
which they wish to transmit, the Secretary shall within
five business days after such application either: (1)
afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the
books of the Company; or (2) inform such applicants as
to the approximate number of shareholders of record and
the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course
specified in clause (2) of the last sentence of the
preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of
the material to be mailed and of the reasonable
expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at
their addresses as recorded on the books unless within
five business days after such tender the Secretary
shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a
written statement signed by at least a majority of the
Board of Directors to the effect that, in their
opinion, either such material contains untrue
statements of fact or omits to state facts necessary to
make the statements contained therein not misleading,
or would be in violation of applicable law, and
specifying the basis of such opinion.
After opportunity for hearing upon the objections
specified in the written statement so filed, the SEC
may, and if demanded by the Board of Directors or by
such applicants shall, enter an order either sustaining
one or more of such objections or refusing to sustain
any of them. If the SEC shall enter an order refusing
to sustain any of such objections, or if, after the
entry of an order sustaining one or more of such
objections, the SEC shall find, after notice and
opportunity for hearing, that all objections so
sustained have been met, and shall enter an order so
declaring, the Secretary shall mail copies of such
material to all shareholders with reasonable promptness
after the entry of such order and the renewal of such
tender.
PERFORMANCE INFORMATION
As described in the "COMPARISON OF INVESTMENT
RESULTS" section of the Funds' Prospectus, the Funds'
historical performance or return may be shown in the
form of various performance figures. The Funds'
performance figures are based upon historical results
and are not necessarily representative of future
performance. Factors affecting the Funds' performance
include general market conditions, operating expenses
and investment management.
Total Return
The average annual total return of each Fund is
computed by finding the average annual compounded rates
of return over the periods that would equate the
initial amount invested to the ending redeemable value,
according to the following formula:
<PAGE>
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of
a hypothetical $1,000 payment made at
the beginning of the stated periods at
the end of the stated periods.
Performance for a specific period is calculated by
first taking an investment (assumed to be $1,000)
("initial investment") in a Fund's shares on the first
day of the period and computing the "ending value" of
that investment at the end of the period. The total
return percentage is then determined by subtracting the
initial investment from the ending value and dividing
the remainder by the initial investment and expressing
the result as a percentage. The calculation assumes
that all income and capital gains dividends paid by a
Fund have been reinvested at the net asset value of the
Fund on the reinvestment dates during the period.
Total return may also be shown as the increased dollar
value of the hypothetical investment over the period.
Cumulative total return represents the simple
change in value of an investment over a stated period
and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their
components of income and capital (including capital
gains and changes in share price) in order to
illustrate the relationship between
these factors and their contributions to total return.
Yield
The Total Return Bond Fund's yield is computed in
accordance with a standardized method prescribed by
rules of the SEC. Under that method, the current yield
quotation for the Fund is based on a one month or 30-
day period. The yield is computed by dividing the net
investment income per share earned during the 30-day or
one month period by the maximum offering price per
share on the last day of the period, according to the
following formula:
YIELD=2[(a-b +1)6-1]
cd
Where: a=dividends and interest earned during the period.
b=expenses accrued for the period (net of reimbursements).
c=the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d=the maximum offering price per share on the last day of the period.
Volatility
Occasionally statistics may be used to specify a
Fund's volatility or risk. Measures of volatility or
risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One
measure of volatility is beta. Beta is the volatility
of a fund relative to the total market as represented
by the Standard & Poor's 500 Stock Index. A beta of
more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates
volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset
value or total return around an average, over a
specified period of time. The premise is that greater
volatility connotes greater risk undertaken in
achieving performance.
<PAGE>
Comparisons
From time to time, in marketing and other Fund
literature, the Funds' performance may be compared to
the performance of other mutual funds in general or to
the performance of particular types of mutual funds
with similar investment goals, as tracked by
independent organizations. Among these organizations,
Lipper Analytical Services, Inc. ("Lipper"), a widely
used independent research firm which ranks mutual funds
by overall performance, investment objectives, and
assets, may be cited. Lipper performance figures are
based on changes in net asset value, with all income
and capital gains dividends reinvested. Such
calculations do not include the effect of any sales
charges imposed by other funds. The Funds will be
compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings.
The Funds' performance may also be compared to the
performance of other mutual funds by Morningstar, Inc.,
which ranks funds on the basis of historical risk and
total return. Morningstar's rankings range from five
stars (highest) to one star (lowest) and represent
Morningstar's assessment of the historical risk level
and total return of a fund as a weighted average for 3,
5 and 10 year periods. Rankings are not absolute or
necessarily predictive of future performance.
Evaluations of Fund performance made by independent
sources may also be used in advertisements concerning
the Funds, including reprints of or selections from,
editorials or articles about the Funds. Sources for
Fund performance and articles about the Funds may
include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News
and World Report, the Wall Street Journal, Barron's and
a variety of investment newsletters.
The Funds may compare their performance to a wide
variety of indices and measures of inflation including
the Standard & Poor's Index of 500 Stocks, the NASDAQ
Over-the-Counter Composite Index, the Russell 2500
Index and the Lehman Aggregate Bond Index. There are
differences and similarities between the investments
that the Funds may purchase for their respective
portfolios and the investments measured by these
indices.
Investors may want to compare the Funds'
performance to that of certificates of deposit offered
by banks and other depositary institutions.
Certificates of deposit may offer fixed or variable
interest rates and principal is guaranteed and may be
insured. Withdrawal of the deposits prior to maturity
normally will be subject to a penalty. Rates offered
by banks and other depositary institutions are subject
to change at any time specified by the issuing
institution. Investors may also want to compare
performance of the Funds to that of money market funds.
Money market fund yields will fluctuate and shares are
not insured, but share values usually remain stable.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 233 South Wacker
Drive, Chicago, IL 60606-6301, have been selected as
the independent auditors for the Funds. Ernst & Young
will audit and report on the Funds' annual financial
statements, review certain regulatory reports and the
Funds' federal income tax returns, and perform other
professional accounting auditing, tax and advisory
services when engaged to do so by the Funds.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements of the Total
Return Bond Fund are contained herein:
(a) Report of Independent Auditors.
Report of Independent Auditors
To the Shareholders and
Board of Directors of
Frontegra Funds, Inc.
We have audited the accompanying statement of assets
and liabilities of the Total Return Bond Fund,
comprising the Frontegra Funds, Inc. (the "Company"),
as of September 30, 1996. This statement of assets and
liabilities is the responsibility of the Company's
management. Our responsibility is to express an
opinion on this statement of assets and liabilities
based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement
of assets and liabilities. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall statement of assets and
liabilities presentation. We believe that our audit of
the statement of assets and liabilities provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material
respects, the financial position of the Total Return
Bond Fund at September 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 30, 1996
<PAGE>
(b) Statement of Assets and Liabilities.
FRONTEGRA FUNDS, INC.
Total Return Bond Fund
Statement of Assets and Liabilities
September 30, 1996
Assets:
Cash $100,000
Unamortized organization costs 39,762
Prepaid initial registration expense 5,888
Total assets 145,650
Liabilities:
Accrued organizational costs 28,042
Payable to Adviser 17,608
Total liabilities 45,650
Net assets $100,000
Represented by:
Capital stock, $0.01 par value (100,000 000 shares
authorized and 3,333 shares outstanding) $ 33
Additional paid-in capital 99,967
Net assets $100,000
Offering price, redemption price and
net asset value per share (based
on 3,333 shares of capital stock) $30.00
See accompanying notes to Statement of Assets and
Liabilities.
<PAGE>
(c) Notes to Statement of Assets and
Liabilities.
Frontegra Funds, Inc.
Notes to Statement of Assets and Liabilities
September 30, 1996
(1) Organization
Frontegra Funds, Inc. ("Frontegra") was organized
in May, 1996 as a Maryland corporation and is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end
management investment company issuing its shares in
series, each series representing a distinct
portfolio with its own investment objectives and
policies. The only series presently authorized is
the Total Return Bond Fund (the "Fund"). The Fund
has had no operations other than those relating to
organizational matters, including the sale of 3,333
shares to capitalize the Fund of which 1,667 shares
were sold to Frontegra Asset Management, Inc. (the
"Adviser") and 1,666 shares were sold to Reams
Asset Management LLC (the "Sub-Adviser") on
September 30, 1996 for cash in the amount of
$50,000 each.
(2)Significant Accounting Policies
(a)Organization Costs
Costs incurred by the Fund in connection with
their organization, registration and the
initial public offering of shares have been
deferred and will be amortized over the period
of benefit, but not to exceed five years from
the date upon which the Fund commenced its
investment activities. If any of the original
shares of the Fund purchased by the Adviser or
Sub-Adviser are redeemed by any holder thereof
prior to the end of the amortization period,
the redemption proceeds will be reduced by the
pro rata share of the unamortized costs as of
the date of redemption. The pro rata share by
which the proceeds are reduced will be derived
by dividing the number of original shares of
the Fund being redeemed by the total number of
original shares outstanding at the time of
redemption.
(b)Federal Income Taxes
The Fund intends to comply with the
requirements of the Internal Revenue Code
necessary to qualify as a regulated investment
company and to make the requisite distributions
of income to its shareholders which will be
sufficient to relieve it from all or
substantially all Federal income taxes.
(3) Investment Adviser
The Fund has an agreement with the Adviser to
furnish investment advisory services to the Fund.
Under the terms of this agreement, the Adviser is
compensated at 0.40% of average daily net assets of
the Fund. The Adviser has agreed to voluntarily
reduce its fees for expenses (exclusive of
brokerage, interest, taxes and extraordinary
expenses) that exceed the expense limitation of
0.50% for the Fund during the first twelve months
of operations.
<PAGE>
(4)Sub-Adviser
The Adviser has entered into an agreement with the
Sub-Adviser to serve as the Fund's portfolio
manager, subject to the Adviser's supervision.
Under the terms of the agreement, the Sub-Adviser
is compensated by the Adviser at 0.20% of average
daily net assets of the Fund. For initial
investments of over $15 million, the Adviser will
compensate the Sub-Adviser an extra 0.10% on the
average daily net assets of such investments
(excluding defined contribution or 401(k)
investments).
(5)Administrator
Sunstone Financial Group, Inc. (the
"Administrator") acts as Administrator for the
Fund. As compensation for its administrative
services and the assumption of certain
administrative expenses, the Administrator is
entitled to a fee computed daily and payable
monthly, at an annual rate of 0.20% on the first
$50,000,000 of average net assets and 0.07% in
excess of $50,000,000 of average net assets subject
to an annual minimum of $65,000 per Fund, plus out
of pocket expenses.
The Administrator may periodically volunteer to
reduce all or a portion of its administrative fee
with respect to the Fund. These waivers may be
terminated at any time at the Administrator's
discretion. The Administrator may not seek
reimbursement of such voluntarily reduced fees at a
later date. The reduction of such fee will cause
the yield of the Fund to be higher than it would be
in the absence of such reduction.
(6)Capital Stock
Frontegra is authorized to issue a total of
500,000,000 shares of common stock in series with a
par value of $0.01 per share. 100,000,000 of these
shares have been authorized by the Board of
Directors to be issued in total for the series
designated as Total Return Bond shares. The Board
of Directors is empowered to issue other series of
Frontegra's shares without shareholder approval.
Each share of stock will have a pro rata interest
in the assets of the Fund to which the stock of
that series relates and will have no interest in
the assets of any other Fund.
<PAGE>
APPENDIX
BOND RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt
rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors
such as guarantors, insurers, or lessees.
The debt rating is not a recommendation to
purchase, sell or hold a security, as it does not
comment as to market price or suitability for a
particular investor.
The ratings are based on current information
furnished by the issuer or obtained by S&P from other
sources it considers reliable. S&P does not perform an
audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the
following considerations:
1. Likelihood of default -- capacity and
willingness of the obligor as to the timely
payment of interest and repayment of
principal in accordance with the terms of the
obligation;
2.Nature of and provisions of the
obligation; and
3.Protection afforded by, and relative
position of, the obligation in the event
of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy
and other laws affecting creditors'
rights.
Investment Grade
AAA Debt rated 'AAA' has the highest rating
assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to
pay interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated 'A' has a strong capacity to pay
interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated 'BBB' is regarded as having an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Speculative grade
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is
regarded as having predominantly speculative
characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least
degree of speculation and 'C' the
<PAGE>
highest. While such
debt will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
BB Debt rated 'BB' has less near-term
vulnerability to default than other speculative issues.
However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'BBB-
' rating.
B Debt rated 'B' has a greater vulnerability to
default but currently has the capacity to meet interest
payments and principal repayments. Adverse business,
financial or economic conditions will likely impair
capacity or willingness to pay interest and repay
principal. The 'B' rating category is also used for
debt subordinated to senior debt that is assigned an
actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a currently identifiable
vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of
principal. In the event of adverse business,
financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal.
The 'CCC' rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied 'B' or 'B-' rating.
CC Debt rated 'CC' typically is applied to debt
subordinated to senior debt that is assigned an actual
or implied 'CCC' rating.
C Debt rated 'C' typically is applied to debt
subordinated to senior debt which is assigned an actual
or implied 'CCC-' debt rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are
continued.
CI The rating 'CI' is reserved for income bonds on
which no interest is being paid.
D Debt rated 'D' is in payment default. The 'D'
rating category is used when interest payments or
principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P
believes that such payments will be made during such
grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition if debt service
payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds which are rated Aaa are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or
by an exceptionally stable margin and principal is
secure. While the various protective elements are
likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other
elements present which make the long-term risk appear
somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper-
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
<PAGE>
Baa - Bonds which are rated Baa are considered as
medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such Bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered
as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes
Bonds in this class.
B - Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of
other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may
be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent
obligations which are speculative in a high degree.
Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond ratings provide a
guide to investors in determining the credit risk
associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class
of debt in a timely manner.
The rating takes into consideration special
features of the issue, its relationship to other
obligations of the issuer, the current and prospective
financial condition and operating performance of the
issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit
enhancement that may be provided by insurance policies
or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but
not necessarily identical credit quality since the
rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy,
sell, or hold any security. Ratings do not comment on
the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt
nature or taxability of payments made in respect of any
security.
Fitch ratings are based on information obtained
from issuers, other obligors, underwriters, their
experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or
accuracy of such information. Ratings may be changed,
suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other
reasons.
AAA Bonds considered to be investment grade
and of the highest credit quality. The
obligor has an exceptionally strong ability
to pay interest and repay principal, which is
unlikely to be affected by reasonably
foreseeable events.
<PAGE>
AA Bonds considered to be investment grade
and of very high credit quality. The
obligor's ability to pay interest and repay
principal is very strong, although not quite
as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories
are not significantly vulnerable to
foreseeable future developments, short-term
debt of the issuers is generally rated 'F-
1+'.
A Bonds considered to be investment grade
and of high credit quality. The obligor's
ability to pay interest and repay principal
is considered to be strong, but may be more
vulnerable to adverse changes in economic
conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade
and of satisfactory credit quality. The
obligor's ability to pay interest and repay
principal is considered to be adequate.
Adverse changes in economic conditions and
circumstances, however, are more likely to
have adverse impact on these bonds and,
therefore, impair timely payment. The
likelihood that the ratings of these bonds
will fall below investment grade is higher
than for bonds with higher ratings.
Fitch speculative grade bond ratings provide a
guide to investors in determining the credit risk
associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the
likelihood of timely payment of principal and interest
in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating
('DDD' to 'D') is an assessment of the ultimate
recovery value through reorganization or liquidation.
The rating takes into consideration special
features of the issue, its relationship to other
obligations of the issuer, the current and prospective
financial condition and operating performance of the
issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but
not necessarily identical credit quality since the
rating categories cannot fully reflect the differences
in the degrees of credit risk.
BB Bonds are considered speculative. The
obligor's ability to pay interest and repay
principal may be affected over time by
adverse economic changes. However, business
and financial alternatives can be identified
which could assist the obligor in satisfying
its debt service requirements.
B Bonds are considered highly speculative.
While bonds in this class are currently
meeting debt service requirements, the
probability of continued timely payment of
principal and interest reflects the obligor's
limited margin of safety and the need for
reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable
characteristics which, if not remedied, may
lead to default. The ability to meet
obligations requires an advantageous business
and economic environment.
CC Bonds are minimally protected. Default
in payment of interest and/or principal seems
probable over time.
C Bonds are in imminent default in payment
of interest or principal.
DDD,
DD
and D Bonds are in default on interest
and/or principal payments. Such bonds are
extremely speculative and should be valued on
the basis of their ultimate recovery value in
liquidation or reorganization of the obligor.
'DDD' represents the highest potential for
recovery of these bonds, and 'D' represents
the lowest potential for recovery.
<PAGE>
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the
issuer's long-term fundamental quality. Rating
determination is based on qualitative and quantitative
factors which may vary according to the basic economic
and financial characteristics of each industry and each
issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such
factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The
projected viability of the obligor at the trough of the
cycle is a critical determination.
Each rating also takes into account the legal form
of the security, (e.g., first mortgage bonds,
subordinated debt, preferred stock, etc.). The extent
of rating dispersion among the various classes of
securities is determined by several factors including
relative weightings of the different security classes
in the capital structure, the overall credit strength
of the issuer, and the nature of covenant protection.
The Credit Rating Committee formally reviews all
ratings once per quarter (more frequently, if
necessary). Ratings of 'BBB-' and higher fall within
the definition of investment grade securities, as
defined by bank and insurance supervisory authorities.
Structured finance issues, including real estate, asset-
backed and mortgage-backed financings, use this same
rating scale. Duff & Phelps Credit Rating claims
paying ability ratings of insurance companies use the
same scale with minor modification in the definitions.
Thus, an investor can compare the credit quality of
investment alternatives across industries and
structural types. A "Cash Flow Rating" (as noted for
specific ratings) addresses the likelihood that
aggregate principal and interest will equal or exceed
the rated amount under appropriate stress conditions.
Rating Scale Definition
AAA Highest credit quality. The risk
factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors
are strong. Risk is modest, but may
AA vary slightly from time to time because
of economic conditions.
AA-
A+ Protection factors are average but
adequate. However, risk factors are more
A variable and greater in periods of
economic stress.
A-
BBB+ Below average protection factors but
still considered sufficient for prudent
BBB investment. Considerable variability in
risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely
to meet obligations when due.
BB Present or prospective financial
protection factors fluctuate according to
BB- industry conditions or company fortunes.
Overall quality may move up or
down frequently within this category.
<PAGE>
B+ Below investment grade and possessing
risk that obligations will not be met
B when due. Financial protection factors
will fluctuate widely according to
B- economic cycles, industry conditions
and/or company fortunes. Potential
exists for frequent changes in the
rating within this category or into a higher
or lower rating grade.
CCC Well below investment grade securities.
Considerable uncertainty exists as to
timely payment of principal, interest or
preferred dividends.
Protection factors are narrow and risk
can be substantial with unfavorable
economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer
failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend
arrearages.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a
current assessment of the likelihood of timely payment
of debt considered short-term in the relevant market.
Ratings graded into several categories, ranging
from 'A-1' for the highest quality obligations to 'D'
for the lowest. These categories are as follows:
A-1 This highest category indicates that the
degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with
this designation is satisfactory. However, the
relative degree of safety is not as high as for issues
designated 'A-1'.
A-3 Issues carrying this designation have adequate
capacity for timely payment. They are, however, more
vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
B Issues rated 'B' are regarded as having only
speculative capacity for timely payment.
C This rating is assigned to short-term debt
obligations with doubtful capacity for payment.
D Debt rated 'D' is in payment default. The 'D'
rating category is used when interest payments or
principal payments are not made on the date due, even
if the applicable grace period has not expired, unless
S&P believes that such payments will be made during
such grace period.
<PAGE>
Moody's Commercial Paper Ratings
The term "commercial paper" as used by Moody's
means promissory obligations not having an original
maturity in excess of nine months. Moody's makes no
representation as to whether such commercial paper is
by any other definition "commercial paper" or is exempt
from registration under the Securities Act of 1933, as
amended.
Moody's commercial paper ratings are opinions on
the ability of issuers to repay punctually promissory
obligations not having an original maturity in excess
of nine months. Moody's makes no representation that
such obligations are exempt from registration under the
Securities Act of 1933, nor does it represent that any
specific note is a valid obligation of a rated issuer
or issued in conformity with any applicable law.
Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following
characteristics: (i) leading market positions in well
established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization
structures with moderate reliance on debt and ample
asset protection, (iv) broad margins in earnings
coverage of fixed financial charges and high internal
cash generation, and (v) well established access to a
range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment
of short-term promissory obligations. The effect of
industry characteristics and market composition may be
more pronounced. Variability in earnings and
profitability may result in changes in the level of
debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Issuers rated Not Prime do not fall within any of
the Prime rating categories.
Fitch Investors Service, Inc. Short-Term Ratings
Fitch's short-term ratings apply to debt
obligations that are payable on demand or have original
maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term
notes, and municipal and investment notes.
The short-term rating places greater emphasis than
a long-term rating on the existence of liquidity
necessary to meet the issuer's obligations in a timely
manner.
F-1+ Exceptionally Strong Credit Quality
Issues assigned this rating are regarded as
having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality Issues
assigned this rating reflect an assurance of
timely payment only slightly less in degree
than issues rated 'F-1+'.
F-2 Good Credit Quality Issues assigned this
rating have a satisfactory degree of
assurance for timely payment but the margin
of safety is not as great as for issues
assigned 'F-1+' and 'F-1' ratings.
<PAGE>
F-3 Fair Credit Quality Issues assigned this
rating have characteristics suggesting that
the degree of assurance for timely payment is
adequate; however, near-term adverse changes
could cause these securities to be rated
below investment grade.
F-S Weak Credit Quality Issues assigned this
rating have characteristics suggesting a
minimal degree of assurance for timely
payment and are vulnerable to near-term
adverse changes in financial and economic
conditions.
D Default Issues assigned this rating are
in actual or imminent payment default.
LOC The symbol LOC indicates that the rating is
based on a letter of credit issued by a commercial
bank.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps' short-term ratings are consistent
with the rating criteria used by money market
participants. The ratings apply to all obligations
with maturities of under one year, including commercial
paper, the uninsured portion of certificates of
deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial
paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined
as not only cash from operations, but also access to
alternative sources of funds including trade credit,
bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on
short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps Credit
Ratings' short-term ratings is the refinement of the
traditional '1' category. The majority of short-term
debt issuers carry the highest rating, yet quality
differences exist within that tier. As a consequence,
Duff & Phelps Credit Rating has incorporated gradations
of '1+' (one plus) and '1-' (one minus) to assist
investors in recognizing those differences.
These ratings are recognized by the SEC for broker-
dealer requirements, specifically capital computation
guidelines. These ratings meet Department of Labor
ERISA guidelines governing pension and profit sharing
investments. State regulators also recognize the
ratings of Duff & Phelps Credit Rating for insurance
company investment portfolios.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely
payment. Short-term liquidity,
including internal operating factors
and/or access to alternative sources of
funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-
term obligations.
D-1 Very high certainty of timely
payment. Liquidity factors are
excellent and supported by good
fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment.
Liquidity factors are strong and
supported by good fundamental protection
factors. Risk factors are very small.
<PAGE>
Good Grade
D-2 Good certainty of timely payment.
Liquidity factors and company
fundamentals are sound. Although
ongoing funding needs may enlarge total
financing requirements, access to
capital markets is good. Risk factors
are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other
protection factors qualify issue as to
investment grade. Risk factors are
larger and subject to more variation.
Nevertheless, timely payment is
expected.
Non-investment Grade
D-4 Speculative investment
characteristics. Liquidity is not
sufficient to insure against disruption
in debt service. Operating factors and
market access may be subject to a high
degree of variation.
Default
D-5 Issuer failed to meet scheduled
principal and/or interest payments.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (All included in
Parts A and B)
Financial Statements - Total Return Bond Fund
Report of Independent Auditors
Notes to Statements of Assets and Liabilities
(b) Exhibits
(1) Registrant's Articles of Incorporation
(2) Registrant's By-Laws
(3) None
(4) None
(5.1) Investment Advisory Agreement
(5.2) Subadvisory Agreement
(6) None
(7) None
(8) Custodian Agreement with United Missouri Bank, n.a.
(9.1) Transfer Agency Agreement with Sunstone Investor
Services, LLC
(9.2) Administration and Fund
Accounting Agreement with Sunstone
Financial Group, Inc.
(10) Opinion and Consent of
Godfrey & Kahn, S.C.
(11) Consent of Ernst & Young LLP
(12) None
(13) Subscription Agreements
(14) Individual Retirement Trust Account
(15) None
<PAGE>
(16) None
(17) None
(18) None
(19) Powers of Attorney for Directors and
Officers (see signature page)
Item 25. Persons Controlled by or under Common Control
with Registrant
Registrant neither controls any person nor is under common control with
any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Securities as of September 30, 1996
Common Stock, $.01 par value 2
Item 27. Indemnification
Article VI of Registrant's By-Laws provides as
follows:
ARTICLE VI INDEMNIFICATION
The Corporation shall indemnify (a) its
Directors and officers, whether serving the
Corporation or at its request any other entity, to
the full extent required or permitted by (i)
Maryland law now or hereafter in force, including
the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) the
Investment Company Act of 1940, as amended, and
(b) other employees and agents to such extent as
shall be authorized by the Board of Directors and
be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any
other rights to which those seeking
indemnification may be entitled. The Board of
Directors may take such action as is necessary to
carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend
from time to time such resolutions or contracts
implementing such provisions or such further
indemnification arrangements as may be permitted
by law.
Item 28. Business and Other Connections of Investment
Adviser
None.
Item 29. Principal Underwriters
(a) None
(b) None
(c) None
Item 30. Location of Accounts and Records
<PAGE>
All accounts, books or other documents
required to be maintained by section 31(a) of the
Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of
Frontegra Asset Management, Inc., Registrant's
investment adviser, at Registrant's corporate
offices, except (1) records held and maintained
by United Missouri Bank, n.a., 928 Grand Avenue,
Kansas City, Missouri 64141, relating to its
function as custodian and (2) records held and
maintained by Sunstone Financial Group, Inc., 207
E. Buffalo Street, Suite 400, Milwaukee,
Wisconsin 53202, relating to its function as
transfer agent, administrator, and fund
accountant.
Item 31. Management Services
All management-related service contracts
entered into by Registrant are discussed in Parts
A and B of this Registration Statement.
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting
of shareholders, if requested to do so by the
holders of at least 10% of the Registrant's
outstanding shares, for the purpose of voting
upon the question of removal of a director or
directors. The Registrant also undertakes to
assist in communications with other
shareholders as required by Section 16(c) of
the Investment Company Act of 1940; and
(b) Registrant undertakes to file a post-
effective amendment to this Registration
Statement within four to six months of the
effective date of this Registration Statement
which will contain financial statements
(which need not be certified) as of and for
the time period reasonably close or as soon
as practicable to the date of such post-
effective amendment.
(c) Registrant undertakes to furnish each
person to whom a prospectus is delivered with
a copy of the Registrant's latest annual
report to shareholders, upon request and
without charge, when information relating to
management's discussion of fund performance
is contained in the latest annual report to
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant has duly caused this Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of
Illinois on the 9th day of October, 1996.
FRONTEGRA FUNDS, INC. (Registrant)
By: /s/ William D. Forsyth III
____________________________
William D. Forsyth III
Co-President
Each person whose signature appears below
constitutes and appoints William D. Forsyth III and
Thomas J. Holmberg, Jr., and each of them, his true and
lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to
sign any and all pre-effective amendments to this
Registration Statement and to file the same, with all
exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission
and any other regulatory body, granting unto said
attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act
of 1933, this Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A has been signed
below by the following persons in the capacities and on
the date(s) indicated.
Name Title Date
/s/ William D. Forsyth III Co-President and a Director October 9, 1996
- - - --------------------------
William D. Forsyth III
/s/ Thomas J. Holmberg, Jr. Co-President and a Director October 9, 1996
- - - ---------------------------
Thomas J. Holmberg, Jr.
/s/ David L. Heald Director October 9, 1996
___________________________
David L. Heald
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(1) Registrant's Articles of Incorporation
(previously filed as Exhibit No. 1 to the
Registration Statement on Form N-1A; File Nos.
333-703 and 811-7685)
(2) Registrant's By-Laws (previously filed as
Exhibit No. 2 to the Registration
Statement on Form N-1A; File Nos. 333-7305
and 811-7685)
(3) None
(4) None
(5.1) Investment Advisory Agreement
(5.2) Subadvisory Agreement
(6) None
(7) None
(8) Custodian Agreement with United Missouri Bank, n.a.
(9.1) Transfer Agency Agreement with Sunstone
Investor Services, LLC
(9.2) Administration and Fund Accounting Agreement
with Sunstone Financial Group,Inc.
(10) Opinion and Consent of Godfrey & Kahn, S.C.
(11) Consent of Ernst & Young LLP
(12) None
(13.1) Subscription Agreement (Reams Asset
Management Company, LLC)
(13.2) Subscription Agreement (Frontegra Asset
Management, Inc.)
(14) Individual Retirement Trust Account
(15) None
(16) None
(17) None
(18) None
(19) Powers of Attorney for Directors and
Officers (see signature page)
_______________________________
1 The director who is not deemed an "interested
person," as defined in the Investment Company Act, will
receive $500 for each board of directors meeting
attended by that person. At such time as the Company's
assets equal or exceed $100,000,000, the disinterested
director will receive $2,500 for each board of
directors meeting attended. The board intends to hold
4 meetings during fiscal 1997, and the Funds are not
expected to have assets equal to or exceeding
$100,000,000 at such time. Thus, the disinterested
director described above is expected to receive $2,000
during such time period from the Company.
FRONTEGRA FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is entered into as of the ____ day
of _________, 1996, between Frontegra Funds, Inc., a
Maryland corporation (the "Corporation"), and Frontegra
Asset Management, Inc., an Illinois corporation
("Frontegra").
W I T N E S S E T H
WHEREAS, the Corporation is an open-end investment
company registered under the Investment Company Act of
1940, as amended (the "Act"). The Corporation is
authorized to create separate series, each with its own
separate investment portfolio (the "Funds"), and the
beneficial interest in each such series will be
represented by a separate series of shares (the
"Shares").
WHEREAS, Frontegra is a registered investment
adviser, engaged in the business of rendering
investment advisory services.
WHEREAS, in managing the Corporation's assets, as
well as in the conduct of certain of its affairs, the
Corporation seeks the benefit of Frontegra's services
and its assistance in performing certain managerial
functions. Frontegra desires to furnish such services
and to perform the functions assigned to it under this
Agreement for the consideration provided for herein.
NOW THEREFORE, the parties mutually agree as
follows:
1. Appointment. The Corporation hereby appoints
Frontegra as investment adviser for each of the Funds
of the Corporation on whose behalf the Corporation
executes an Exhibit to this Agreement, and Frontegra,
by execution of each such Exhibit, accepts the
appointments. Subject to the direction of the Board of
Directors (the "Directors") of the Corporation,
Frontegra shall manage the investment and reinvestment
of the assets of each Fund in accordance with the
Fund's investment objective and policies and
limitations, for the period and upon the terms herein
set forth. The investment of funds shall also be
subject to all applicable restrictions of the Articles
of Incorporation and Bylaws of the Corporation as may
from time to time be in force. Frontegra is hereby
authorized to delegate its duties hereunder to a
subadviser pursuant to a written agreement under which
the subadviser shall furnish the services specified
therein to Frontegra. Frontegra will continue to have
responsibility for all investment advisory services
furnished pursuant to any agreement with a subadviser.
2. Management Functions. In addition to the
expenses which Frontegra may incur in the performance
of its responsibilities under this Agreement, and the
expenses which it may expressly undertake to incur and
pay, Frontegra shall incur and pay the following
expenses:
(a) Reasonable compensation, fees and
related expenses of the Corporation's officers and its
Directors, except for such Directors who are not
interested persons (as that term is defined in Section
2(a)(19) of the Act) of Frontegra;
(b) Rental of offices of the Corporation; and
(c) All expenses of promoting the sale of
Shares of the Funds other than expenses incurred in
complying with federal and state laws and the law of
any foreign country applicable to the issue, offer, or
sale of Shares of the Funds.
3. Investment Advisory Functions. In its
capacity as investment adviser, Frontegra shall have
the following responsibilities:
(a) To furnish continuous advice and
recommendations to the Funds, as to the acquisition,
holding or disposition of any or all of the securities
or other assets which the Funds may own or contemplate
acquiring from time to time;
(b) To cause its officers to attend meetings
and furnish oral or written reports, as the Corporation
may reasonably require, in order to keep the Directors
and appropriate officers of the Corporation fully
informed as to the condition of the investments of the
Funds, the investment recommendations of Frontegra, and
the investment considerations which have given rise to
those recommendations; and
(c) To supervise the purchase and sale of
securities or other assets as directed by the
appropriate officers of the Corporation.
The services of Frontegra are not to be deemed
exclusive and Frontegra shall be free to render similar
services to others as long as its services for others
does not in any way hinder, preclude or prevent
Frontegra from performing its duties and obligations
under this Agreement. In the absence of willful
misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the
part of Frontegra, Frontegra shall not be subject to
liability to the Corporation, the Funds, or to any
shareholder for any act or omission in the course of,
or connected with, rendering services hereunder or for
any losses that may be sustained in the purchase,
holding or sale of any security.
4. Obligations of the Corporation. The
Corporation shall have the following obligations under
this Agreement:
(a) To keep Frontegra continuously and fully
informed as to the composition of the Funds'
investments and the nature of all of its assets and
liabilities;
(b) To furnish Frontegra with a copy of any
financial statement or report prepared for it by
certified or independent public accountants, and with
copies of any financial statements or reports made to
the Funds' shareholders or to any governmental body or
securities exchange;
(c) To furnish Frontegra with any further
materials or information which Frontegra may reasonably
request to enable it to perform its functions under
this Agreement; and
(d) To compensate Frontegra for its services
in accordance with the provisions of paragraph 5
hereof.
5. Compensation. Each Fund shall pay to
Frontegra for its services a monthly fee, as set forth
on the Exhibits hereto, payable on the last day of each
month during which or during part of which this
Agreement is in effect. For the month during which
this Agreement becomes effective and any month during
which it terminates, however, there shall be an appro
priate proration of the fee payable for such month
based on the number of calendar days of such month
during which this Agreement is effective. Frontegra
may from time to time and for such periods as it deems
appropriate reduce its compensation (and/or assume
expenses) for one or more of the Funds.
6. Expenses Paid by Corporation.
(a) Except as provided in this paragraph,
nothing in this Agreement shall be construed to impose
upon Frontegra the obligation to incur, pay, or
reimburse the Corporation for any expenses not
specifically assumed by Frontegra under paragraph 2
above. Each Fund shall pay or cause to be paid all of
its expenses and the Fund's allocable share of the
Corporation's expenses, including, but not limited to,
investment adviser fees; any compensation, fees, or
reimbursements which the Corporation pays to its
Directors who are not interested persons (as that
phrase is defined in Section 2(a)(19) of the Act) of
Frontegra; fees and expenses of the custodian, transfer
agent, registrar or dividend disbursing agent; current
legal, accounting and printing expenses;
administrative, clerical, recordkeeping and bookkeeping
expenses; brokerage commissions and all other expenses
in connection with the execution of Fund transactions;
interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes); expenses of
shareholders' meetings and of preparing, printing and
distributing proxy statements, notices and reports to
shareholders; expenses of preparing and filing reports
and tax returns with federal and state regulatory
authorities; and all expenses incurred in complying
with all federal and state laws and the laws of any
foreign country applicable to the issue, offer, or sale
of Shares of the Funds, including but not limited to,
all costs involved in the registration or qualification
of Shares of the Funds for sale in any jurisdiction and
all costs involved in preparing, printing and
distributing prospectuses and statements of additional
information to existing shareholders of the Funds.
(b) if expenses borne by a Fund in any
fiscal year (including Frontegra's fee, but excluding
interest, taxes, fees incurred in acquiring and
disposing of Fund securities and, to the extent
permitted, extraordinary expenses), exceed those set
forth in any statutory or regulatory formula prescribed
by any state in which Shares of a Fund are registered
at such time, Frontegra will reimburse the Fund for any
excess.
7. Brokerage Commissions. For purposes of this
Agreement, brokerage commissions paid by a Fund upon
the purchase or sale of securities shall be considered
a cost of the securities of the Fund and shall be paid
by the respective Fund. Frontegra is authorized and
directed to place Fund transactions only with brokers
and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at
reasonable commission rates, provided, however, that
Frontegra may pay a broker or dealer an amount of
commission for effecting a securities transaction in
excess of the amount of commission another broker or
dealer would have charged for effecting that
transaction, if Frontegra determines in good faith that
such amount of commission was reasonable in relation to
the value of the brokerage and research services
provided by such broker or dealer viewed in terms of
either that particular transaction or the overall
responsibilities of Frontegra. In placing Fund
business with such broker or dealers, Frontegra shall
seek the best execution of each transaction, and all
such brokerage placement shall be made in compliance
with Section 28(e) of the Securities Exchange Act of
1934 and other applicable state and federal laws.
Notwithstanding the foregoing, the Corporation shall
retain the right to direct the placement of all Fund
transactions, and the Directors may establish policies
or guidelines to be followed by Frontegra in placing
Fund transactions for the Funds pursuant to the
foregoing provisions.
8. Proprietary Rights. Frontegra has
proprietary rights in each Fund's name and the
Corporation's name. Frontegra may withdraw the use of
such names from the Fund or the Corporation.
9. Termination. This Agreement may be
terminated at any time, without penalty, by the
Directors of the Corporation or by the shareholders of
a Fund acting by the vote of at least a majority of its
outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the Act), provided in
either case that 60 days' written notice of termination
be given to Frontegra at its principal place of
business. This Agreement may be terminated by
Frontegra at any time by giving 60 days' written notice
of termination to the Corporation, addressed to its
principal place of business.
10. Assignment. This Agreement shall terminate
automatically in the event of any assignment (as the
term is defined in Section 2(a)(4) of the Act) of this
Agreement.
11. Term. This Agreement shall begin for each
Fund as of the date of execution of the applicable
Exhibit and shall continue in effect with respect to
each Fund (and any subsequent Funds added pursuant to
an Exhibit during the initial term of this Agreement)
for two years from the date of this Agreement and
thereafter for successive periods of one year, subject
to the provisions for termination and all of the other
terms and conditions hereof if such continuation shall
be specifically approved at least annually by the vote
of a majority of the Directors of the Corporation,
including a majority of the Directors who are not
parties to this Agreement or interested persons of any
such party (other than as Directors of the
Corporation), cast in person at a meeting called for
that purpose. If a Fund is added after the first
approval by the Directors as described above, this
Agreement will be effective as to that Fund upon
execution of the applicable Exhibit and will continue
in effect until the next annual approval of this
Agreement by the Directors and thereafter for
successive periods of one year, subject to approval as
described above.
12. Amendments. This Agreement may be amended by
the mutual consent of the parties, provided that the
terms of each such amendment shall be approved by the
Directors or by of the affirmative vote of a majority
of the outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the Act) of each Fund.
This Agreement will become binding on the parties
hereto upon their execution of the Exhibits to this
Agreement.
EXHIBIT A
to the
Investment Advisory Agreement
FRONTEGRA OPPORTUNITY FUND
For all services rendered by Frontegra hereunder,
the above-named Fund of the Corporation shall pay
Frontegra and Frontegra agrees to accept as full
compensation for all services rendered hereunder, an
annual investment advisory fee equal to 0.65 of 1% of
the average daily net assets of the Fund.
The portion of the fee based upon the average
daily net assets of the Fund shall be accrued daily at
the rate of 1/365th of 0.65 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to
Frontegra monthly.
Executed this _____ day of _________________,
19___.
FRONTEGRA ASSET
MANAGEMENT, INC.
By:________________________________
William D. Forsyth, Co-President
FRONTEGRA FUNDS, INC.
By:________________________________
Thomas J. Holmberg, Co-President
EXHIBIT B
to the
Investment Advisory Agreement
FRONTEGRA TOTAL RETURN BOND FUND
For all services rendered by Frontegra hereunder,
the above-named Fund of the Corporation shall pay
Frontegra and Frontegra agrees to accept as full
compensation for all services rendered hereunder, an
annual investment advisory fee equal to 0.40 of 1% of
the average daily net assets of the Fund.
The portion of the fee based upon the average
daily net assets of the Fund shall be accrued daily at
the rate of 1/365th of 0.40 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to
Frontegra monthly.
Executed this _____ day of _________________,
19___.
FRONTEGRA ASSET
MANAGEMENT, INC.
By:________________________________
William D. Forsyth, Co-President
FRONTEGRA FUNDS, INC.
By:________________________________
Thomas J. Holmberg, Co-President
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT dated ____________,
1996, between Frontegra Asset Management, Inc., an Illinois
corporation (the "Adviser"), and Reams Asset Management
Company, LLC, a limited liability company organized under the
laws of the State of Indiana (the "Sub-Adviser").
WHEREAS the Adviser has entered into an
Investment Advisory Agreement dated ____________, 1996
(the "Advisory Agreement") with Frontegra Funds, Inc.
(the "Fund"), an open-end management investment company
registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), with respect to certain of
the Fund's investment portfolios; and
WHEREAS the Adviser wishes to retain the Sub-
Adviser to furnish certain investment advisory services
to such portfolios, and the Sub-Adviser is willing to
furnish those services;
NOW, THEREFORE, in consideration of the
premises and mutual covenants herein contained, the
parties agree as follows:
1. Appointment. The Adviser hereby appoints
the Sub-Adviser as an investment sub-adviser with
respect to each of the Fund's portfolios named on an
Exhibit to this Agreement (each, a "Portfolio") for the
period and on the terms set forth in this Agreement.
The Sub-Adviser accepts such appointment and agrees to
render the services herein set forth, for the
compensation herein provided.
2. Duties as Sub-Adviser. (a) Subject to
the supervision of and any guidelines adopted by the
Fund's Board of Directors (the "Board") and the
Adviser, the Sub-Adviser will provide a continuous
investment program for the Portfolios, including
investment research and management. The Sub-Adviser
will determine from time to time what investments will
be purchased, retained or sold by the Portfolios. The
Sub-Adviser will be responsible for placing purchase
and sell orders for investments and for other related
transactions. The Sub-Adviser will provide services
under this Agreement in accordance with each
Portfolio's investment objectives, policies and
restrictions as stated with respect to such Portfolio
in the Fund's Registration Statement on Form N-1A.
(b) The Sub-Adviser agrees that, in placing
orders with brokers, it will obtain the best net result
in terms of price and execution; provided that, on
behalf of the Portfolio's, the Sub-Adviser may, in its
discretion, use brokers who provide the Sub-Adviser
with research, analysis, advice and similar services to
execute transactions with respect to a Portfolio, and
the Sub-Adviser may pay to those brokers in return for
brokerage and research services a higher commission
than may be charged by other brokers, so long as (i)
such commission is paid in compliance with all
applicable state and Federal laws and in accordance
with this Agreement and (ii) the Sub-Adviser has
determined in good faith that such commission is
reasonable in terms either of the particular
transaction or of the overall responsibility of the Sub-
Adviser to such Portfolio and its other clients and
that the total commissions paid by such Portfolio will
be reasonable in relation to the benefits to such
Portfolio over the long term. In no instance will
securities of any Portfolio be purchased from or sold
to the Sub-Adviser, or any affiliated person thereof
except in accordance with the Federal securities laws
and the rules and regulations thereunder. The Sub-
Adviser may aggregate sales and purchase orders with
respect to the assets of the Portfolios with similar
orders being made simultaneously for other accounts
advised by the Sub-Adviser or its affiliates. Whenever
the Sub-Adviser simultaneously places orders to
purchase or sell the same security on behalf of a
Portfolio and one or more other accounts advised by the
Sub-Adviser, the orders will be allocated as to price
and amount among all such accounts in a manner believed
to be equitable over time to each such account. The
Adviser recognizes that in some cases this procedure
may adversely affect the results obtained for such
Portfolio.
(c) The Sub-Adviser will maintain all books
and records required to be maintained by the Sub-
Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to
transactions by the Sub-Adviser on behalf of the
Portfolios, and will furnish the Board and the Adviser
with such periodic and special reports as the Board or
the Adviser may reasonably request. In compliance with
the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records which it
maintains for the Portfolios are the property of the
Fund, agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records which it
maintains for the Fund and which are required to be
maintained by Rule 31a-1 under the 1940 Act, and
further agrees to surrender promptly to the Fund any
records which it maintains for the Portfolios upon
request by the Fund.
(d) At such times as shall be reasonably
requested by the Board or the Adviser, the Sub-Adviser
will provide the Board and the Adviser with economic
and investment analyses and reports as well as
quarterly reports setting forth the performance of the
Portfolios and make available to the Board and the
Adviser any economic, statistical and investment
services normally available to institutional or other
customers of the Sub-Adviser. Upon reasonable advance
notice, twice each calendar year the Sub-Adviser will
make its officers and employees available to meet with
the Board and employees of the Fund at the Fund's
principal place of business or another mutually agreed
upon location to review the securities of the
Portfolios.
(e) In accordance with procedures adopted by
the Board, as amended from time to time, the Sub-
Adviser is responsible for assisting in the fair
valuation of all securities constituting the Portfolios
and will use its reasonable efforts to arrange for the
provision of a price from a party or parties
independent of the Sub-Adviser for each security
constituting part of a Portfolio for which the Fund or
the Fund's administrator is unable to obtain prices in
the ordinary course of business from an automated
pricing service.
3. Further Duties. In all matters relating
to the performance of this Agreement, the Sub-Adviser
will act in conformity with the Fund's Articles of
Incorporation, By-laws and currently effective
registration statement under the 1940 Act and any
amendments or supplements thereto (the "Registration
Statement") and with the written instructions and
written directions of the Board and the Adviser and
will comply with the requirements of the 1940 Act, the
Investment Advisers Act of 1940, as amended (the
"Advisers Act"), the rules under each, Subchapter M of
the Internal Revenue Code of 1986 (the "Code") as
applicable to regulated investment companies, the
diversification requirements applicable to the
Portfolios under Section 817(h) of the Code and all
other applicable Federal and state laws and
regulations. The Adviser agrees to provide to the Sub-
Adviser copies of the Fund's Articles of Incorporation,
By-laws, Registration Statement, written instructions
and directions of the Board and the Adviser, and any
amendments or supplements to any of these materials as
soon as practicable after such materials become
available; provided, however, that the Sub-Adviser's
duty under this Agreement to act in conformity with any
document, instruction or guidelines produced by the
Fund or the Adviser shall not arise until it has been
delivered to the Sub-Adviser. In making any changes to
a Portfolio's objectives, policies or restrictions the
Board will make due allowance for the time within which
the Sub-Adviser shall have to bring such Portfolio into
compliance with such changes.
4. Proxies. The Sub-Adviser shall have the
power to vote all securities constituting a Portfolio
and shall not be required to seek or take instruction
from the Adviser or the Fund with respect to any such
vote.
5. Expenses. During the term of this
Agreement, the Sub-Adviser will bear all expenses
incurred by it in connection with its services under
this Agreement other than commissions, taxes, fees or
other charges or expenses directly related to the
purchase, sale or exchange of any securities for the
Portfolios. The Sub-Adviser shall not be responsible
for any expenses incurred by the Fund, the Portfolios
or the Adviser.
6. Compensation. (a) For the services
provided by the Sub-Adviser with respect to a Portfolio
pursuant to this Agreement, the Adviser will pay to the
Sub-Adviser a fee, computed daily and payable monthly,
at an annual rate of (i) the fee percentage of such
Portfolio's average daily net assets (computed in the
manner specified in the Advisory Agreement) set forth
on the Exhibit relating to such Portfolio plus (ii)
0.10% of the average daily net assets of such Portfolio
attributable to investors in such Portfolio whose
initial investment in such Portfolio (other than
defined contribution or 401(k) plan investments) was
equal to or greater than $15,000,000, regardless of the
value of such investments following their initial
investment.
(b) The fee due the Sub-Advisor with respect
to each Portfolio shall be computed daily and shall be
paid monthly to the Sub-Adviser on or before the last
business day of the next succeeding calendar month.
Along with each such monthly payment the Adviser shall
provide the Sub-Adviser with a schedule showing the
manner in which such fee was computed.
(c) If during a Portfolio's first twelve
months of operation the Adviser waives any portion of
the management fee due to the Adviser pursuant to the
terms of the Advisory Agreement for the purpose of
limiting such Portfolio's total operating expenses to
the maximum expense percentage of such Portfolio's
average daily net assets for such period set forth on
the Exhibit relating to such Portfolio, and the
resulting net management fee received by the Adviser is
less than the compensation due to the Sub-Adviser
pursuant to subparagraph (a) above (the difference
between such net management fee and such compensation
being hereinafter referred to as the "Difference"), the
Sub-Adviser shall refund to the Adviser an amount equal
to the Difference; provided, however, that (i) the Sub-
Adviser shall not be required to refund to the Adviser
an amount greater than the fees paid by the Adviser to
the Sub-Adviser during such 12-month period; and (ii)
such Difference shall be reduced to the extent that in
such 12-month period the net management fee received by
the Adviser with respect to all Portfolios exceeds the
compensation due to the Sub-Adviser with respect to
such Portfolios.
(d) If this Agreement becomes effective or
terminates with respect to a Portfolio before the end
of any month, the fee relating to such Portfolio for
the period from the effective date with respect to such
Portfolio to the end of the month or from the beginning
of such month to the date of termination, as the case
may be, shall be prorated according to the proportion
which such period bears to the full month in which such
effectiveness or termination occurs.
7. Limitation of Liability. The Sub-Adviser
shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any
Portfolio, the Fund or its shareholders or by the
Adviser in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part
in the performance of its duties or from reckless
disregard by it of its obligations and duties under
this Agreement.
8. Representations of Sub-Adviser. The Sub-
Adviser represents, warrants and agrees as follows:
(a) The Sub-Adviser (i) is registered as an Investment
Adviser under the Advisers Act and will continue to be
so registered for so long as this Agreement remains in
effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated
by this Agreement; (iii) has met, and will seek to
continue to meet for so long as this Agreement remains
in effect, any other applicable Federal or state
requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency,
necessary to be met in order to perform the services
contemplated by this Agreement; (iv) has the authority
to enter into and perform the services contemplated by
this Agreement; and (v) will promptly notify the
Adviser of the occurrence of any event that would
disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
(b) The Sub-Adviser has adopted a written
code of ethics complying with the requirements of Rule
17j-1 under the 1940 Act and will provide the Adviser
and the Board with a copy of such code of ethics,
together with evidence of its adoption. Within 15
calendar days of the end of the last calendar quarter
of each year that this Agreement is in effect, the
President of the Sub-Adviser shall certify to the
Adviser that the Sub-Adviser has complied with the
requirements of Rule 17j-1 during the previous year and
that there has been no violation of the Sub-Adviser's
code of ethics or, if such a violation has occurred,
that appropriate action was taken in response to such
violation. Upon the written request of the Adviser,
the Sub-Adviser shall permit the Adviser, its employees
or its agents to examine the reports required to be
made to the Sub-Adviser by Rule 17j-1(c)(1) and all
other records relevant to the Sub-Adviser's code of
ethics.
(c) The Sub-Adviser has provided the Adviser
with a copy of its Form ADV as most recently filed with
the Securities and Exchange Commission (the "SEC") and
promptly will furnish a copy of all amendments to the
Adviser at least annually.
9. Trademark. The Sub-Adviser shall have no
rights relating to the name of the Fund or the word
"Frontegra" used in connection with investment
products, services or otherwise, and shall make no use
of such names without the express written consent of
the Fund or Adviser, as the case may be.
10. Services Not Exclusive. The Sub-Adviser
may act as an investment adviser to any other person,
firm or corporation, excluding any registered
investment company, and may perform management and any
other services for any other person, association,
corporation, firm or other entity, excluding any
registered investment company, pursuant to any contract
or otherwise, and take any action or do anything in
connection therewith or related thereto, except as
prohibited by applicable law; and no such performance
of management or other services or taking of any such
action or doing of any such thing shall be in any
manner restricted or otherwise affected by any aspect
of any relationship of the Sub-Adviser to or with the
Fund, the Portfolios or the Adviser or deemed to
violate or give rise to any duty or obligation of the
Sub-Adviser to the Fund, the Portfolios or the Adviser
except as otherwise imposed by law or by this
Agreement.
11. Duration and Termination. (a) This
Agreement shall become effective with respect to a
Portfolio upon the date of execution of the Exhibit
relating to such Portfolio; provided that this
Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those
members of the Board who are not parties to this
Agreement or interested persons of the Adviser, the Sub-
Adviser or the Fund, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by
vote of a majority of the outstanding voting securities
issued by such Portfolio.
(b) Unless sooner terminated with respect to
a Portfolio as provided herein, this Agreement shall
continue in effect for two years from its effective
date. Thereafter, if not terminated, this Agreement
shall continue automatically for successive periods of
12 months each, provided that such continuance is
specifically approved at least annually (i) by a vote
of a majority of those members of the Board who are not
parties to this Agreement or interested persons of the
Adviser, the Sub-Adviser or the Fund, cast in person at
a meeting called for the purpose of voting on such
approval, and (ii) by the Board or by vote of a
majority of the outstanding voting securities issued by
such Portfolio.
(c) Notwithstanding the foregoing, this
Agreement may be terminated with respect to a Portfolio
at any time, without the payment of any penalty, by
vote of the Board or by a vote of a majority of the
outstanding voting securities issued by such Portfolio
upon 60 calendar days written notice to the Sub-
Adviser. This Agreement may also be terminated,
without the payment of any penalty, by either party
hereto upon 180 calendar days written notice. This
Agreement will terminate automatically in the event of
its assignment or upon termination of the Advisory
Agreement.
12. Amendment. No provision of this
Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No
amendment of this Agreement with respect to a Portfolio
shall be effective until approved (a) by a vote of a
majority of those members of the Board who are not
parties to this Agreement or interested persons of the
Adviser, the Sub-Adviser or the Fund, and (b) if
required by the 1940 Act, by a vote of a majority of
the outstanding voting securities issued by such
Portfolio (in the case of (b), the Fund may rely upon
an SEC order or no-action letter permitting it to
modify this Agreement without such vote).
13. Governing Law. This Agreement shall be
construed in accordance with the 1940 Act and the laws
of the State of Indiana, without giving effect to the
conflicts of laws principles thereof. To the extent
that the applicable laws of the State of Indiana
conflict with the applicable provisions of the 1940
Act, the latter shall control.
14. Independent Contractor. In performing
its duties under this Agreement the Sub-Adviser shall
act as an independent contractor and unless otherwise
expressly provided herein or authorized in writing, the
Sub-Adviser will have no authority to represent the
Fund, the Portfolios or the Adviser in any way or
otherwise be deemed an agent of the Fund, the Portfolio
or the Adviser.
15. Miscellaneous. The captions in this
Agreement are included for convenience of reference
only and in no way define or delimit any of the
provisions hereof or otherwise affect their
construction or effect. If any provision of this
Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective
successors. As used in this Agreement, the terms
"majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment,"
"broker," "investment adviser," "net assets," "sale,"
"sell" and "security" shall have the same meaning as
such terms have in the 1940 Act, subject to such
exemption as may be granted by the SEC by any rule,
regulation or order. Where the effect of a requirement
of the Federal securities laws reflected in any
provision of this Agreement is made less restrictive by
a rule, regulation or order of the SEC, whether of
special or general application, such provision shall be
deemed to incorporate the effect of such rule,
regulation or order. This Agreement may be signed in
counterpart.
16. Notices. Any written notice herein
required to be given to the Sub-Adviser or the Adviser
shall be deemed to have been given upon receipt of the
same at their respective addresses set forth below.
IN WITNESS WHEREOF, the parties hereto have
caused this instrument to be executed by their duly
authorized signatories as of the date and year first
above written.
FRONTEGRA ASSET MANAGEMENT, INC.
400 Skokie Boulevard
Suite 500
Northbrook, Illinois 69062
by__________________________
Name:
Title:
Attest:_______________________
REAMS ASSET MANAGEMENT COMPANY, LLC
227 Washington Street
Columbus, Indiana 47201
by__________________________
Name:
Title:
Attest:______________________
Exhibit A to the Sub-Advisory Agreement
FRONTEGRA OPPORTUNITY FUND
Fee percentage: 0.45%
Maximum expense percentage: not to exceed 0.90% for the first
12 months
Executed this ___ day of ___________, 19__.
FRONTEGRA ASSET MANAGEMENT, INC.
by __________________________
Name:
Title:
REAMS ASSET MANAGEMENT COMPANY, LLC
by__________________________
Name:
Title:
Exhibit B to the Sub-Advisory Agreement
FRONTEGRA TOTAL RETURN BOND FUND
Fee percentage: 0.20%
Maximum expense percentage: not to exceed 0.50% for the first
12 months
Executed this ___ day of ___________, 19__.
FRONTEGRA ASSET MANAGEMENT, INC.
by__________________________
Name:
Title:
REAMS ASSET MANAGEMENT COMPANY, LLC
by__________________________
Name:
Title:
CUSTODY AGREEMENT
Dated , 1995
Between
UMB BANK, N.A.
and
FRONTEGRA FUNDS, INC.
Prototype Custody Agreement
for
Registered Investment Companies
Table of Contents
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 2
(c) Instructions and Special Instructions 2
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic
Subcustodian 3
(a) Safekeeping 3
(b) Manner of Holding Securities 4
(c) Free Delivery of Assets 5
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 7
(h) Futures Contracts 8
(i) Segregated Accounts 8
(j) Depositary Receipts 9
(k) Corporate Actions, Put Bonds, Called
Bonds, Etc. 9
(l) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions 10
(n) Pledges or Loans of Securities 11
(o) Stock Dividends, Rights, Etc. 12
(p) Routine Dealings 12
(q) Collections 12
(r) Bank Accounts 12
(s) Dividends, Distributions and Redemptions 13
(t) Proceeds from Shares Sold 13
(u) Proxies and Notices; Compliance with the
Shareholders Communication Act of 1985 13
(v) Books and Records 14
(w) Opinion of Fund's Independent Certified
Public Accountants 14
(x) Reports by Independent Certified Public
Accountants 14
(y) Bills and Others Disbursements 14
5. Subcustodians 14
(a) Domestic Subcustodians 15
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 16
(d) Special Subcustodians 17
(e) Termination of a Subcustodian 17
(f) Certification Regarding Foreign
Subcustodians 17
6. Standard of Care 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law,
Events Beyond Custodian's Control,
Armed Conflict, Sovereign Risk, Etc. 17
(c) Liability for Past Records 18
(d) Advice of Counsel 18
(e) Advice of the Fund and Others 18
(f) Instructions Appearing to be Genuine 18
(g) Exceptions from Liability 19
7. Liability of the Custodian for Actions of
Others 19
(a) Domestic Subcustodians 19
(b) Liability for Acts and Omissions of
Foreign Subcustodians 19
(c) Securities Systems, Interim Subcustodians,
Special Subcustodians, Securities
Depositories and Clearing Agencies 19
(d) Defaults or Insolvencies of Brokers,
Banks, Etc. 20
(e) Reimbursement of Expenses 20
8. Indemnification 20
(a) Indemnification by Fund 20
(b) Indemnification by Custodian 20
9. Advances 21
10. Liens 21
11. Compensation 22
12. Powers of Attorney 22
13. Termination and Assignment 22
14. Additional Funds 22
15. Notices 23
16. Miscellaneous 23
CUSTODY AGREEMENT
This agreement made as of this day of
, 199 , between UMB Bank, n.a., a national banking
association with its principal place of business
located at Kansas City, Missouri (hereinafter
"Custodian"), and each of the Funds which have executed
the signature page hereof together with such additional
Funds which shall be made parties to this Agreement by
the execution of a separate signature page hereto
(individually, a "Fund" and collectively, the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end
management investment company under the Investment
Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as
its custodian for the custody of Assets (as hereinafter
defined) owned by such Fund which Assets are to be held
in such accounts as such Fund may establish from time
to time; and
WHEREAS, Custodian is willing to accept such
appointment on the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual
promises contained herein, the parties hereto,
intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the
Custodian as custodian of Assets belonging to each such
Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such
appointment as a custodian and agrees to perform the
duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following
terms shall have the meanings so indicated:
(a) "Security" or "Securities" shall mean
stocks, bonds, bills, rights, script, warrants, interim
certificates and all negotiable or nonnegotiable paper
commonly known as Securities and other instruments or
obligations.
(b) "Assets" shall mean Securities, monies
and other property held by the Custodian for the
benefit of a Fund.
(c)(1) "Instructions", as used herein, shall
mean: (i) a tested telex, a written (including, without
limitation, facsimile transmission) request, direction,
instruction or certification signed or initialed by or
on behalf of a Fund by an Authorized Person; (ii) a
telephonic or other oral communication from a person
the Custodian reasonably believes to be an Authorized
Person; or (iii) a communication effected directly
between an electro-mechanical or electronic device or
system (including, without limitation, computers) on
behalf of a Fund. Instructions in the form of oral
communications shall be confirmed by the appropriate
Fund by tested telex or in writing in the manner set
forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by
the Custodian in reliance upon such oral Instructions
prior to the Custodian's receipt of such confirmation.
Each Fund authorizes the Custodian to record any and
all telephonic or other oral Instructions communicated
to the Custodian.
(2) "Special Instructions", as used herein,
shall mean Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of
a Fund or any other person designated by the Treasurer
of such Fund in writing, which countersignature or
confirmation shall be included on the same instrument
containing the Instructions or on a separate instrument
relating thereto.
(3) Instructions and Special Instructions
shall be delivered to the Custodian at the address
and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian
and each Fund.
(4) Where appropriate, Instructions and
Special Instructions shall be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents
that its execution does not violate any of the
provisions of its respective charter, articles of
incorporation, articles of association or bylaws and
all required corporate action to authorize the
execution and delivery of this Agreement has been
taken.
Each Fund has furnished the Custodian with copies,
properly certified or authenticated, with all
amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund
as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with
copies of any updates, amendments or supplements to the
foregoing documents.
In addition, each Fund has delivered or will
promptly deliver to the Custodian, copies of the
Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly
certified or authenticated, designating certain
officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a)
the names, titles, signatures and scope of authority of
all persons authorized to give Instructions or any
other notice, request, direction, instruction,
certificate or instrument on behalf of each Fund, and
(b) the names, titles and signatures of those persons
authorized to countersign or confirm Special
Instructions on behalf of each Fund (in both cases
collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such
Resolutions and certificates may be accepted and relied
upon by the Custodian as conclusive evidence of the
facts set forth therein and shall be considered to be
in full force and effect until delivery to the
Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes
or does not include the name(s) of a person previously
authorized to give Instructions or to countersign or
confirm Special Instructions, such persons shall no
longer be considered an Authorized Person authorized to
give Instructions or to countersign or confirm Special
Instructions. Unless the certificate specifically
requires that the approval of anyone else will first
have been obtained, the Custodian will be under no
obligation to inquire into the right of the person
giving such Instructions or Special Instructions to do
so. Notwithstanding any of the foregoing, no
Instructions or Special Instructions received by the
Custodian from a Fund will be deemed to authorize or
permit any director, trustee, officer, employee, or
agent of such Fund to withdraw any of the Assets of
such Fund upon the mere receipt of such authorization,
Special Instructions or Instructions from such
director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC
SUBCUSTODIAN.
Except for Assets held by any Subcustodian
appointed pursuant to Sections 5(b), (c), or (d) of
this Agreement, the Custodian shall have and perform
the powers and duties hereinafter set forth in this
Section 4. For purposes of this Section 4 all
references to powers and duties of the "Custodian"
shall also refer to any Domestic Subcustodian appointed
pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of
each Fund which are delivered to it from time to time.
The Custodian shall not be responsible for any property
of a Fund held or received by such Fund and not
delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold
Securities of each Fund either: (i) by physical
possession of the share certificates or other
instruments representing such Securities in registered
or bearer form; or (ii) in book-entry form by a
Securities System (as hereinafter defined) in
accordance with the provisions of sub-paragraph (3)
below.
(2) The Custodian may hold registrable
portfolio Securities which have been delivered to it in
physical form, by registering the same in the name of
the appropriate Fund or its nominee, or in the name of
the Custodian or its nominee, for whose actions such
Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the
Custodian shall hold such Securities in street
certificate form, so called, with or without any
indication of fiduciary capacity. However, unless it
receives Instructions to the contrary, the Custodian
will register all such portfolio Securities in the name
of the Custodian's authorized nominee. All such
Securities shall be held in an account of the Custodian
containing only assets of the appropriate Fund or only
assets held by the Custodian as a fiduciary, provided
that the records of the Custodian shall indicate at all
times the Fund or other customer for which such
Securities are held in such accounts and the respective
interests therein.
(3) The Custodian may deposit and/or
maintain domestic Securities owned by a Fund in, and
each Fund hereby approves use of: (a) The Depository
Trust Company; (b) The Participants Trust Company; and
(c) any book-entry system as provided in (i) Subpart O
of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No.
27-76, 31 CFR 350.2, or (iii) the book-entry
regulations of federal agencies substantially in the
form of 31 CFR 306.115. Upon the receipt of Special
Instructions, the Custodian may deposit and/or maintain
domestic Securities owned by a Fund in any other
domestic clearing agency registered with the Securities
and Exchange Commission ("SEC") under Section 17A of
the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the
capacity of depository or clearing agent for the
Securities or other assets of investment companies)
which acts as a Securities depository. Each of the
foregoing shall be referred to in this Agreement as a
"Securities System", and all such Securities Systems
shall be listed on the attached Appendix A. Use of a
Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following
provisions:
(i) The Custodian may deposit the Securities directly or through one or
more agents or Subcustodians which are also qualified to act as custodians
for investment companies.
(ii)The Custodian shall deposit and/or maintain the Securities in a
Securities System, provided that such Securities are represented in an
account ("Account") of the Custodian in the Securities System that includes
only assets held by the Custodian as a fiduciary, custodian or otherwise
for customers.
(iii)The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds which are
maintained in a Securities System.
(iv)The Custodian shall pay for Securities purchased for the account
of a Fund only upon (a) receipt of advice from the Securities System that
such Securities have been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and (b) the making of
an entry on the records of the Custodian to reflect such payment and
transfer for the account of such Fund. The Custodian shall transfer
Securities sold for the account of a Fund only upon (a) receipt of advice
from the Securities System that payment for such Securities has been
transferred to the Account of the Custodian in accordance with the rules
of the Securities System, and (b) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the account of such
Fund. Copies of all advices from the Securities System relating to
transfers of Securities for the account of a Fund shall be maintained for
such Fund by the Custodian. The Custodian shall deliver to a Fund on the
next succeeding business day daily transaction reports which shall include
each day's transactions in the Securities System for the account of such
Fund. Such transaction reports shall be delivered to such Fund or any
agent designated by such Fund pursuant to Instructions, by computer or in
such other manner as such Fund and Custodian may agree.
(v)The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian or
any Subcustodian with respect to a Securities System's accounting system,
internal accounting control and procedures for safeguarding Securities
deposited in the Securities System.
(vi)Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as promptly
as practicable and shall take all actions reasonably practicable to
safeguard the Securities of such Fund maintained with such Securities
System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this
Agreement and except as provided in Section 3 hereof,
the Custodian, upon receipt of Special Instructions,
will undertake to make free delivery of Assets,
provided such Assets are on hand and available, in
connection with a Fund's transactions and to transfer
such Assets to such broker, dealer, Subcustodian, bank,
agent, Securities System or otherwise as specified in
such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian
will exchange portfolio Securities held by it for a
Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger,
consolidation, or conversion of convertible Securities,
and will deposit any such Securities in accordance with
the terms of any reorganization or protective plan.
Without Instructions, the Custodian is
authorized to exchange Securities held by it in
temporary form for Securities in definitive form, to
surrender Securities for transfer into a name or
nominee name as permitted in Section 4(b)(2), to effect
an exchange of shares in a stock split or when the par
value of the stock is changed, to sell any fractional
shares, and, upon receiving payment therefor, to
surrender bonds or other Securities held by it at
maturity or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance
with Instructions, the Custodian shall, with respect to
a purchase of Securities, pay for such Securities out
of monies held for a Fund's account for which the
purchase was made, but only insofar as monies are
available therein for such purpose, and receive the
portfolio Securities so purchased. Unless the
Custodian has received Special Instructions to the
contrary, such payment will be made only upon receipt
of Securities by the Custodian, a clearing corporation
of a national Securities exchange of which the
Custodian is a member, or a Securities System in
accordance with the provisions of Section 4(b)(3)
hereof. Notwithstanding the foregoing, upon receipt of
Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from
the Securities System that the Securities underlying
such repurchase agreement have been transferred by
book-entry into the Account maintained with such
Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System
require that the Securities System may make payment of
such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the
Securities underlying the repurchase agreement into
such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits,
foreign exchange transactions, futures contracts or
options, pursuant to Sections 4(g), 4(h), 4(l), and
4(m) hereof, the Custodian may make payment therefor
before receipt of an advice of transaction; and (iii)
in the case of Securities as to which payment for the
Security and receipt of the instrument evidencing the
Security are under generally accepted trade practice or
the terms of the instrument representing the Security
expected to take place in different locations or
through separate parties, such as commercial paper
which is indexed to foreign currency exchange rates,
derivatives and similar Securities, the Custodian may
make payment for such Securities prior to delivery
thereof in accordance with such generally accepted
trade practice or the terms of the instrument
representing such Security.
(2) Other Assets Purchased. Upon receipt of
Instructions and except as otherwise provided herein,
the Custodian shall pay for and receive other Assets
for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with
Instructions, the Custodian will, with respect to a
sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person
specified in the Instructions relating to such sale.
Unless the Custodian has received Special Instructions
to the contrary, such delivery shall be made only upon
receipt of payment therefor in the form of: (a) cash,
certified check, bank cashier's check, bank credit, or
bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national
Securities exchange of which the Custodian is a member;
or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of
Section 4(b)(3) hereof. Notwithstanding the foregoing,
Securities held in physical form may be delivered and
paid for in accordance with "street delivery custom" to
a broker or its clearing agent, against delivery to the
Custodian of a receipt for such Securities, provided
that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return
of, such Securities by the broker or its clearing
agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure
or inability to perform of such broker or its clearing
agent or for any related loss arising from delivery or
custody of such Securities prior to receiving payment
therefor.
(2) Other Assets Sold. Upon receipt of
Instructions and except as otherwise provided herein,
the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in
Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to
the purchase of an option or sale of a covered call
option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing
the purchase or writing of the option by a Fund; (b) if
the transaction involves the sale of a covered call
option, deposit and maintain in a segregated account
the Securities (either physically or by book-entry in a
Securities System) subject to the covered call option
written on behalf of such Fund; and (c) pay, release
and/or transfer such Securities, cash or other Assets
in accordance with any notices or other communications
evidencing the expiration, termination or exercise of
such options which are furnished to the Custodian by
the Options Clearing Corporation (the "OCC"), the
securities or options exchanges on which such options
were traded, or such other organization as may be
responsible for handling such option transactions.
(2) Upon receipt of Instructions relating to
the sale of a naked option (including stock index and
commodity options), the Custodian, the appropriate Fund
and the broker-dealer shall enter into an agreement to
comply with the rules of the OCC or of any registered
national securities exchange or similar
organizations(s). Pursuant to that agreement and such
Fund's Instructions, the Custodian shall: (a) receive
and retain confirmations or other documents, if any,
evidencing the writing of the option; (b) deposit and
maintain in a segregated account, Securities (either
physically or by book-entry in a Securities System),
cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in
accordance with any such agreement and with any notices
or other communications evidencing the expiration,
termination or exercise of such option which are
furnished to the Custodian by the OCC, the securities
or options exchanges on which such options were traded,
or such other organization as may be responsible for
handling such option transactions. The appropriate
Fund and the broker-dealer shall be responsible for
determining the quality and quantity of assets held in
any segregated account established in compliance with
applicable margin maintenance requirements and the
performance of other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall
enter into a futures margin procedural agreement among
the appropriate Fund, the Custodian and the designated
futures commission merchant (a "Procedural Agreement").
Under the Procedural Agreement the Custodian shall:
(a) receive and retain confirmations, if any,
evidencing the purchase or sale of a futures contract
or an option on a futures contract by such Fund; (b)
deposit and maintain in a segregated account cash,
Securities and/or other Assets designated as initial,
maintenance or variation "margin" deposits intended to
secure such Fund's performance of its obligations under
any futures contracts purchased or sold, or any options
on futures contracts written by such Fund, in
accordance with the provisions of any Procedural
Agreement designed to comply with the provisions of the
Commodity Futures Trading Commission and/or any
commodity exchange or contract market (such as the
Chicago Board of Trade), or any similar
organization(s), regarding such margin deposits; and
(c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such
Procedural Agreements. The appropriate Fund and such
futures commission merchant shall be responsible for
determining the type and amount of Assets held in the
segregated account or paid to the broker-dealer in
compliance with applicable margin maintenance
requirements and the performance of any futures
contract or option on a futures contract in accordance
with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian
shall establish and maintain on its books a segregated
account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred Assets of
such Fund, including Securities maintained by the
Custodian in a Securities System
pursuant to Paragraph (b)(3) of this Section 4, said
account or accounts to be maintained (i) for the
purposes set forth in Sections 4(g), 4(h) and 4(n) and
(ii) for the purpose of compliance by such Fund with
the procedures required by the SEC Investment Company
Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated
accounts by registered investment companies, or (iii)
for such other purposes as may be set forth, from time
to time, in Special Instructions. The Custodian shall
not be responsible for the determination of the type or
amount of Assets to be held in any segregated account
referred to in this paragraph, or for compliance by the
Fund with required procedures noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall
surrender or cause to be surrendered Securities to the
depositary used for such Securities by an issuer of
American Depositary Receipts or International
Depositary Receipts (hereinafter referred to,
collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and
written evidence satisfactory to the organization
surrendering the same that the depositary has
acknowledged receipt of instructions to issue ADRs with
respect to such Securities in the name of the Custodian
or a nominee of the Custodian, for delivery in
accordance with such instructions.
Upon receipt of Instructions, the Custodian shall
surrender or cause to be surrendered ADRs to the issuer
thereof, against a written receipt therefor adequately
describing the ADRs surrendered and written evidence
satisfactory to the organization surrendering the same
that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such
instructions.
(k) Corporate Actions, Put Bonds, Called
Bonds, Etc.
Upon receipt of Instructions, the Custodian shall:
(a) deliver warrants, puts, calls, rights or similar
Securities to the issuer or trustee thereof (or to the
agent of such issuer or trustee) for the purpose of
exercise or sale, provided that the new Securities,
cash or other Assets, if any, acquired as a result of
such actions are to be delivered to the Custodian; and
(b) deposit Securities upon invitations for tenders
thereof, provided that the consideration for such
Securities is to be paid or delivered to the Custodian,
or the tendered Securities are to be returned to the
Custodian.
Notwithstanding any provision of this Agreement to
the contrary, the Custodian shall take all necessary
action, unless otherwise directed to the contrary in
Instructions, to comply with the terms of all mandatory
or compulsory exchanges, calls, tenders, redemptions,
or similar rights of security ownership, and shall
notify the appropriate Fund of such action in writing
by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing.
The Fund agrees that if it gives an Instruction
for the performance of an act on the last permissible
date of a period established by any optional offer or
on the last permissible date for the performance of
such act, the Fund shall hold the Bank harmless from
any adverse consequences in connection with acting upon
or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the
Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to, collectively,
as "Interest Bearing Deposits") for the account of a
Fund, the Custodian shall purchase such Interest
Bearing Deposits in the name of such Fund with such
banks or trust companies, including the Custodian, any
Subcustodian or any subsidiary or affiliate of the
Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may
direct pursuant to Instructions. Such Interest Bearing
Deposits may be denominated in U.S. dollars or other
currencies, as such Fund may determine and direct
pursuant to Instructions. The responsibilities of the
Custodian to a Fund for Interest Bearing Deposits
issued by the Custodian shall be that of a U.S. bank
for a similar deposit. With respect to Interest
Bearing Deposits other than those issued by the
Custodian, (a) the Custodian shall be responsible for
the collection of income and the transmission of cash
to and from such accounts; and (b) the Custodian shall
have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking
Institution to pay upon demand.
(m) Foreign Exchange Transactions.
(l) Each Fund hereby appoints the
Custodian as its agent in the execution of all currency
exchange transactions. The Custodian agrees to provide
exchange rate and U.S. Dollar information, in writing,
to the Funds. Such information shall be supplied by
the Custodian at least by the business day prior to the
value date of the foreign exchange transaction,
provided that the Custodian receives the request for
such information at least two business days prior to
the value date of the transaction.
(2) Upon receipt of Instructions, the
Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for
spot and future delivery on behalf of and for the
account of a Fund with such currency brokers or Banking
Institutions as such Fund may determine and direct
pursuant to Instructions. If, in its Instructions, a
Fund does not direct the Custodian to utilize a
particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker
or Banking Institution as it deems appropriate to
execute the Fund's foreign currency transaction.
(3) Each Fund accepts full
responsibility for its use of third party foreign
exchange brokers and for execution of said foreign
exchange contracts and understands that the Fund shall
be responsible for any and all costs and interest
charges which may be incurred as a result of the
failure or delay of its third party broker to deliver
foreign exchange. The Custodian shall have no
responsibility or liability with respect to the
selection of the currency brokers or Banking
Institutions with which a Fund deals or the performance
of such brokers or Banking Institutions.
(4) Notwithstanding anything to the
contrary contained herein, upon receipt of Instructions
the Custodian may, in connection with a foreign
exchange contract, make free outgoing payments of cash
in the form of U.S. Dollars or foreign currency prior
to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency
completing such contract has been delivered or
received.
(5) The Custodian shall not be
obligated to enter into foreign exchange transactions
as principal. However, if the Custodian has made
available to a Fund its services as a principal in
foreign exchange transactions and subject to any
separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign
exchange contracts or options to purchase and sell
foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the
Custodian as principal.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a
Fund, the Custodian will release or cause to be
released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or
hypothecation to secure loans incurred by such Fund
with various lenders including but not limited to UMB
Bank, n.a.; provided, however, that the Securities
shall be released only upon payment to the Custodian of
the monies borrowed, except that in cases where
additional collateral is required to secure existing
borrowings, further Securities may be released or
delivered, or caused to be released or delivered for
that purpose upon receipt of Instructions. Upon
receipt of Instructions, the Custodian will pay, but
only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged
or hypothecated therefor and upon surrender of the note
or notes evidencing such loan. In lieu of delivering
collateral to a pledgee, the Custodian, on the receipt
of Instructions, shall transfer the pledged Securities
to a segregated account for the benefit of the pledgee.
(2) Upon receipt of Special Instructions,
and execution of a separate Securities Lending
Agreement, the Custodian will release Securities held
in custody to the borrower designated in such
Instructions and may, except as otherwise provided
below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that,
in case of loans of Securities held by a Securities
System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall
require that the Securities System deliver the
Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such
borrowing. The Custodian shall have no responsibility
or liability for any loss arising from the delivery of
Securities prior to the receipt of collateral. Upon
receipt of Instructions and the loaned Securities, the
Custodian will release the collateral to the borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all
stock dividends, rights, and other items of like nature
and, upon receipt of Instructions, take action with
respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all
routine and mechanical matters in accordance with
industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other
dealings with Securities or other property of each Fund
except as may be otherwise provided in this Agreement
or directed from time to time by Instructions from any
particular Fund. The Custodian may also make payments
to itself or others from the Assets for disbursements
and out-of-pocket expenses incidental to handling
Securities or other similar items relating to its
duties under this Agreement, provided that all such
payments shall be accounted for to the appropriate
Fund.
(q) Collections.
The Custodian shall (a) collect amounts
due and payable to each Fund with respect to portfolio
Securities and other Assets; (b) promptly credit to the
account of each Fund all income and other payments
relating to portfolio Securities and other Assets held
by the Custodian hereunder upon Custodian's receipt of
such income or payments or as otherwise agreed in
writing by the Custodian and any particular Fund; (c)
promptly endorse and deliver any instruments required
to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all
federal, state, local and foreign tax purposes in
connection with receipt of income or other payments
with respect to portfolio Securities and other Assets,
or in connection with the transfer of such Securities
or other Assets; provided, however, that with respect
to portfolio Securities registered in so-called street
name, or physical Securities with variable interest
rates, the Custodian shall use its best efforts to
collect amounts due and payable to any such Fund. The
Custodian shall notify a Fund in writing by facsimile
transmission or in such other manner as such Fund and
Custodian may agree in writing if any amount payable
with respect to portfolio Securities or other Assets is
not received by the Custodian when due. The Custodian
shall not be responsible for the collection of amounts
due and payable with respect to portfolio Securities or
other Assets that are in default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open
and operate a bank account or accounts on the books of
the Custodian; provided that such bank account(s) shall
be in the name of the Custodian or a nominee thereof,
for the account of one or more Funds, and shall be
subject only to draft or order of the Custodian. The
responsibilities of the Custodian to any one or more
such Funds for deposits accepted on the Custodian's
books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and
Redemptions.
To enable each Fund to pay dividends or other
distributions to shareholders of each such Fund and to
make payment to shareholders who have requested
repurchase or redemption of their shares of each such
Fund (collectively, the "Shares"), the Custodian shall
release cash or Securities insofar as available. In
the case of cash, the Custodian shall, upon the receipt
of Instructions, transfer such funds by check or wire
transfer to any account at any bank or trust company
designated by each such Fund in such Instructions. In
the case of Securities, the Custodian shall, upon the
receipt of Special Instructions, make such transfer to
any entity or account designated by each such Fund in
such Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds
representing cash payments received for shares issued
or sold from time to time by each Fund, and shall
credit such funds to the account of the appropriate
Fund. The Custodian shall notify the appropriate Fund
of Custodian's receipt of cash in payment for shares
issued by such Fund by facsimile transmission or in
such other manner as such Fund and the Custodian shall
agree. Upon receipt of Instructions, the Custodian
shall: (a) deliver all federal funds received by the
Custodian in payment for shares as may be set forth in
such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds
available to a Fund as of specified times agreed upon
from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares
which are deposited to the accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985.
The Custodian shall deliver or cause to be
delivered to the appropriate Fund all forms of proxies,
all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned
by such Fund that are received by the Custodian, any
Subcustodian, or any nominee of either of them, and,
upon receipt of Instructions, the Custodian shall
execute and deliver, or cause such Subcustodian or
nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed
pursuant to Instructions, neither the Custodian nor any
Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect
thereto.
The Custodian will not release the identity
of any Fund to an issuer which requests such
information pursuant to the Shareholder Communications
Act of 1985 for the specific purpose of direct
communications between such issuer and any such Fund
unless a particular Fund directs the Custodian
otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records
relating to its activities under this Agreement as are
required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and to
preserve them for the periods prescribed in Rule 31a-2
under the 1940 Act. These records shall be open for
inspection by duly authorized officers, employees or
agents (including independent public accountants) of
the appropriate Fund during normal business hours of
the Custodian.
The Custodian shall provide accountings
relating to its activities under this Agreement as
shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified
Public Accountants.
The Custodian shall take all reasonable
action as each Fund may request to obtain from year to
year favorable opinions from each such Fund's
independent certified public accountants with respect
to the Custodian's activities hereunder and in
connection with the preparation of each such Fund's
periodic reports to the SEC and with respect to any
other requirements of the SEC.
(x) Reports by Independent Certified Public
Accountants.
At the request of a Fund, the Custodian shall
deliver to such Fund a written report prepared by the
Custodian's independent certified public accountants
with respect to the services provided by the Custodian
under this Agreement, including, without limitation,
the Custodian's accounting system, internal accounting
control and procedures for safeguarding cash,
Securities and other Assets, including cash, Securities
and other Assets deposited and/or maintained in a
Securities System or with a Subcustodian. Such report
shall be of sufficient scope and in sufficient detail
as may reasonably be required by such Fund and as may
reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian
shall pay, or cause to be paid, all bills, statements,
or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the
relevant provisions of this Agreement, the Custodian
may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim
Subcustodians (as each are hereinafter defined) to act
on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this
Agreement, may also appoint a Foreign Subcustodian,
Special Subcustodian, or Interim Subcustodian to act on
behalf of any one or more Funds. For purposes of this
Agreement, all Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as
"Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time
to time, appoint any bank as defined in Section 2(a)(5)
of the 1940 Act or any trust company or other entity,
any of which meet the requirements of a custodian under
Section 17(f) of the 1940 Act and the rules and
regulations thereunder, to act for the Custodian on
behalf of any one or more Funds as a subcustodian for
purposes of holding Assets of such Fund(s) and
performing other functions of the Custodian within the
United States (a "Domestic Subcustodian"). Each Fund
shall approve in writing the appointment of the
proposed Domestic Subcustodian; and the Custodian's
appointment of any such Domestic Subcustodian shall not
be effective without such prior written approval of the
Fund(s). Each such duly approved Domestic Subcustodian
shall be listed on Appendix A attached hereto, as it
may be amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a
Domestic Subcustodian to appoint, any bank, trust
company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the
1940 Act and the rules and regulations thereunder to
act for the Custodian on behalf of any one or more
Funds as a subcustodian or sub-subcustodian (if
appointed by a Domestic Subcustodian) for purposes of
holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the
United States of America (hereinafter referred to as a
"Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the
Custodian shall have obtained written confirmation from
each Fund of the approval of the Board of Directors or
other governing body of each such Fund (which approval
may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with
respect to (i) the identity of any proposed Foreign
Subcustodian (including branch designation), (ii) the
country or countries in which, and the securities
depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if
any, through which, the Custodian or any proposed
Foreign Subcustodian is authorized to hold Securities
and other Assets of each such Fund, and (iii) the form
and terms of the subcustodian agreement to be entered
into with such proposed Foreign Subcustodian. Each
such duly approved Foreign Subcustodian and the
countries where and the Securities Depositories and
Clearing Agencies through which they may hold
Securities and other Assets of the Fund(s) shall be
listed on Appendix A attached hereto, as it may be
amended, from time to time. Each Fund shall be
responsible for informing the Custodian sufficiently in
advance of a proposed investment which is to be held in
a country in which no Foreign Subcustodian is
authorized to act, in order that there shall be
sufficient time for the Custodian, or any Domestic
Subcustodian, to effect the appropriate arrangements
with a proposed Foreign Subcustodian, including
obtaining approval as provided in this Section 5(b).
In connection with the appointment of any Foreign
Subcustodian, the Custodian shall, or shall cause the
Domestic Subcustodian to, enter into a subcustodian
agreement with the Foreign Subcustodian in form and
substance approved by each such Fund. The Custodian
shall not consent to the amendment of, and shall cause
any Domestic Subcustodian not to consent to the
amendment of, any agreement entered into with a Foreign
Subcustodian, which materially affects any Fund's
rights under such agreement, except upon prior written
approval of such Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event
that a Fund shall invest in an Asset to be held in a
country in which no Foreign Subcustodian is
authorized to act, the Custodian shall notify such Fund
in writing by facsimile transmission or in such other
manner as such Fund and the Custodian shall agree in
writing of the unavailability of an approved Foreign
Subcustodian in such country; and upon the receipt of
Special Instructions from such Fund, the Custodian
shall, or shall cause its Domestic Subcustodian to,
appoint or approve an entity (referred to herein as an
"Interim Subcustodian") designated in such Special
Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the
Custodian shall, on behalf of a Fund, appoint one or
more banks, trust companies or other entities
designated in such Special Instructions to act for the
Custodian on behalf of such Fund as a subcustodian for
purposes of: (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other
entities through the use of a common custodian or
subcustodian; (ii) providing depository and clearing
agency services with respect to certain variable rate
demand note Securities, (iii) providing depository and
clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other
transactions designated by such Fund in such Special
Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian")
shall be listed on Appendix A attached hereto, as it
may be amended from time to time. In connection with
the appointment of any Special Subcustodian, the
Custodian shall enter into a subcustodian agreement
with the Special Subcustodian in form and substance
approved by the appropriate Fund in Special
Instructions. The Custodian shall not amend any
subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement,
except upon prior approval pursuant to Special
Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its
discretion upon notification to the appropriate
Fund(s), terminate any Subcustodian of such Fund(s) in
accordance with the termination provisions under the
applicable subcustodian agreement, and upon the receipt
of Special Instructions, the Custodian will terminate
any Subcustodian in accordance with the termination
provisions under the applicable subcustodian agreement.
(f) Certification Regarding Foreign
Subcustodians.
Upon request of a Fund, the Custodian shall
deliver to such Fund a certificate stating: (i) the
identity of each Foreign Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which
and the Securities Depositories and Clearing Agencies
through which each such Foreign Subcustodian is then
holding cash, Securities and other Assets of such Fund;
and (iii) such other information as may be requested by
such Fund, and as the Custodian shall be reasonably
able to obtain, to evidence compliance with rules and
regulations under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to a Fund for
all losses, damages and reasonable costs and expenses
suffered or incurred by such Fund resulting from the
gross negligence or willful misfeasance of the
Custodian; provided, however, in no event shall the
Custodian be liable for special, indirect or
consequential damages arising under or in connection
with this Agreement.
(b) Actions Prohibited by Applicable Law,
Events Beyond Custodian's Control, Sovereign Risk, Etc.
In no event shall the Custodian or any
Domestic Subcustodian incur liability hereunder (i) if
the Custodian or any Subcustodian or Securities System,
or any subcustodian, Securities System, Securities
Depository or Clearing Agency utilized by the Custodian
or any such Subcustodian, or any nominee of the
Custodian or any Subcustodian (individually, a
"Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which
this Agreement provides shall be performed or omitted
to be performed, by reason of: (a) any provision of any
present or future law or regulation or order of the
United States of America, or any state thereof, or of
any foreign country, or political subdivision thereof
or of any court of competent jurisdiction (and neither
the Custodian nor any other Person shall be obligated
to take any action contrary thereto); or (b) any event
beyond the control of the Custodian or other Person
such as armed conflict, riots, strikes, lockouts, labor
disputes, equipment or transmission failures, natural
disasters, or failure of the mails, transportation,
communications or power supply; or (ii) for any loss,
damage, cost or expense resulting from "Sovereign
Risk." A "Sovereign Risk" shall mean nationalization,
expropriation, currency devaluation, revaluation or
fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental
authority, de facto or de jure; or enactment,
promulgation, imposition or enforcement by any such
governmental authority of currency restrictions,
exchange controls, taxes, levies or other charges
affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act
or event beyond the Custodian's or such other Person's
control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic
Subcustodian shall have any liability in respect of any
loss, damage or expense suffered by a Fund, insofar as
such loss, damage or expense arises from the
performance of the Custodian or any Domestic
Subcustodian in reliance upon records that were
maintained for such Fund by entities other than the
Custodian or any Domestic Subcustodian prior to the
Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians
shall be entitled to receive and act upon advice of
counsel of its own choosing on all matters. The
Custodian and all Domestic Subcustodians shall be
without liability for any actions taken or omitted in
good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian
may rely upon the advice of any Fund and upon
statements of such Fund's accountants and other persons
believed by it in good faith to be expert in matters
upon which they are consulted, and neither the
Custodian nor any Domestic Subcustodian shall be liable
for any actions taken or omitted, in good faith,
pursuant to such advice or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians
shall be fully protected and indemnified in acting as a
custodian hereunder upon any Resolutions of the Board
of Directors or Trustees, Instructions, Special
Instructions, advice, notice, request, consent,
certificate, instrument or paper appearing to it to be
genuine and to have been properly executed and shall,
unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or
matter required to be ascertained from any Fund
hereunder a certificate signed by any officer of such
Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
Without limiting the generality of any other
provisions hereof, neither the Custodian nor any
Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i)the validity of the issue of any Securities purchased by or for any
Fund, the legality of the purchase thereof or evidence of ownership
required to be received by any such Fund, or the propriety of the
decision to purchase or amount paid therefor;
(ii)the legality of the sale of any Securities by or for any Fund, or
the propriety of the amount for which the same were sold; or
(iii)any other expenditures, encumbrances of Securities, borrowings or
similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that
all Instructions or Special Instructions received by it
are not in conflict with or in any way contrary to any
provisions of any such Fund's Declaration of Trust,
Partnership Agreement, Articles of Incorporation or
By-Laws or votes or proceedings of the shareholders,
trustees, partners or directors of any such Fund, or
any such Fund's currently effective Registration
Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF
OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or
omissions of any Domestic Subcustodian to the same
extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of
Foreign Subcustodians.
The Custodian shall be liable to a Fund for
any loss or damage to such Fund caused by or resulting
from the acts or omissions of any Foreign Subcustodian
to the extent that, under the terms set forth in the
subcustodian agreement between the Custodian or a
Domestic Subcustodian and such Foreign Subcustodian,
the Foreign Subcustodian has failed to perform in
accordance with the standard of conduct imposed under
such subcustodian agreement and the Custodian or
Domestic Subcustodian recovers from the Foreign
Subcustodian under the applicable subcustodian
agreement.
(c) Securities Systems, Interim
Subcustodians, Special Subcustodians, Securities
Depositories and Clearing Agencies.
The Custodian shall not be liable to any Fund
for any loss, damage or expense suffered or incurred by
such Fund resulting from or occasioned by the actions
or omissions of a Securities System, Interim
Subcustodian, Special Subcustodian, or Securities
Depository and Clearing Agency unless such loss, damage
or expense is caused by, or results from, the gross
negligence or willful misfeasance of the Custodian.
(d) Defaults or Insolvencies of Brokers,
Banks, Etc.
The Custodian shall not be liable for any
loss, damage or expense suffered or incurred by any
Fund resulting from or occasioned by the actions,
omissions, neglects, defaults or insolvency of any
broker, bank, trust company
or any other person with whom the Custodian may deal
(other than any of such entities acting as a
Subcustodian, Securities System or Securities
Depository and Clearing Agency, for whose actions the
liability of the Custodian is set out elsewhere in this
Agreement) unless such loss, damage or expense is
caused by, or results from, the gross negligence or
willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian
for all out-of-pocket expenses incurred by the
Custodian in connection with this Agreement, but
excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this
Agreement, each Fund agrees to indemnify and hold
harmless the Custodian and its nominees from all
losses, damages and expenses (including attorneys'
fees) suffered or incurred by the Custodian or its
nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance
of its duties and obligations under this Agreement,
including, but not limited to, any indemnification
obligations undertaken by the Custodian under any
relevant subcustodian agreement; provided, however,
that such indemnity shall not apply to the extent the
Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take
any action with respect to Securities, which action
involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or
its nominee assigned to such Fund being liable for the
payment of money or incurring liability of some other
form, such Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity
to the Custodian in an amount and form satisfactory to
it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this
Agreement and in addition to the obligations provided
in Sections 6 and 7, the Custodian agrees to indemnify
and hold harmless each Fund from all losses, damages
and expenses suffered or incurred by each such Fund
caused by the gross negligence or willful misfeasance
of the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions,
the Custodian or any Subcustodian, Securities System,
or Securities Depository or Clearing Agency acting
either directly or indirectly under agreement with the
Custodian (each of which for purposes of this Section 9
shall be referred to as "Custodian"), makes any payment
or transfer of funds on behalf of any Fund as to which
there would be, at the close of business on the date of
such payment or transfer, insufficient funds held by
the Custodian on behalf of any such Fund, the Custodian
may, in its discretion without further Instructions,
provide an advance ("Advance") to any such Fund in an
amount sufficient to allow the completion of the
transaction by reason of which such payment or transfer
of funds is to be made. In addition, in the event the
Custodian is directed by Instructions to make any
payment or transfer of funds on behalf of any Fund as
to which it is subsequently determined that such Fund
has overdrawn its cash account with the Custodian as of
the close of business on the date of such payment or
transfer, said overdraft shall constitute an Advance.
Any Advance shall be payable by the Fund on behalf of
which the Advance was made on demand by Custodian,
unless otherwise agreed by such Fund and the Custodian,
and shall accrue interest from the date of the Advance
to the date of payment by such Fund to the Custodian at
a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any
transaction in respect of which the Custodian shall
have made an Advance, including but not limited to a
foreign exchange contract or transaction in respect of
which the Custodian is not acting as a principal, is
for the account of and at the risk of the Fund on
behalf of which the Advance was made, and not, by
reason of such Advance, deemed to be a transaction
undertaken by the Custodian for its own account and
risk. The Custodian and each of the Funds which are
parties to this Agreement acknowledge that the purpose
of Advances is to finance temporarily the purchase or
sale of Securities for prompt delivery in accordance
with the settlement terms of such transactions or to
meet emergency expenses not reasonably foreseeable by a
Fund. The Custodian shall promptly notify the
appropriate Fund of any Advance. Such notification
shall be sent by facsimile transmission or in such
other manner as such Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in
the Custody Account to secure payment of fees and
expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to
the Fund for any purpose or in the event that the Bank
or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities
in connection with the performance of its duties
hereunder, except such as may arise from its or its
nominee's negligent action, negligent failure to act or
willful misconduct, any Property at any time held for
the Custody Account shall be security therefor and the
Fund hereby grants a security interest therein to the
Bank. The Fund shall promptly reimburse the Bank for
any such advance of cash or securities or any such
taxes, charges, expenses, assessments, claims or
liabilities upon request for payment, but should the
Fund fail to so reimburse the Bank, the Bank shall be
entitled to dispose of such Property to the extent
necessary to obtain reimbursement. The Bank shall be
entitled to debit any account of the Fund with the Bank
including, without limitation, the Custody Account, in
connection with any such advance and any interest on
such advance as the Bank deems reasonable.
11. COMPENSATION.
Each Fund will pay to the Custodian such
compensation as is agreed to in writing by the
Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the
Custodian is to be reimbursed in accordance with
Section 7(e), shall be billed to each such Fund and
paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the
Custodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or
desirable in connection with the performance by the
Custodian or any Subcustodian of their respective
obligations under this Agreement or any applicable
subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this
Agreement by notice in writing, delivered or mailed,
postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to
the date upon which such termination shall take effect.
Upon termination of this Agreement, the appropriate
Fund shall pay to the Custodian such fees as may be due
the Custodian hereunder as well as its reimbursable
disbursements, costs and expenses paid or incurred.
Upon termination of this Agreement, the Custodian shall
deliver, at the terminating party's expense, all Assets
held by it hereunder to the appropriate Fund or as
otherwise designated by such Fund by Special
Instructions. Upon such delivery, the Custodian shall
have no further obligations or liabilities under this
Agreement except as to the final resolution of matters
relating to activity occurring prior to the effective
date of termination.
This Agreement may not be assigned by the
Custodian or any Fund without the respective consent of
the other, duly authorized by a resolution by its Board
of Directors or Trustees.
14. ADDITIONAL FUNDS. An additional Fund or
Funds may become a party to this Agreement after the
date hereof by an instrument in writing to such effect
signed by such Fund or Funds and the Custodian. If
this Agreement is terminated as to one or more of the
Funds (but less than all of the Funds) or if an
additional Fund or Funds shall become a party to this
Agreement, there shall be delivered to each party an
Appendix B or an amended Appendix B, signed by each of
the additional Funds (if any) and each of the remaining
Funds as well as the Custodian, deleting or adding such
Fund or Funds, as the case may be. The termination of
this Agreement as to less than all of the Funds shall
not affect the obligations of the Custodian and the
remaining Funds hereunder as set forth on the signature
page hereto and in Appendix B as revised from time to
time.
15. NOTICES.
As to each Fund, notices, requests, instructions
and other writings delivered to Frontegra Funds, Inc.,
400 North Skokie Boulevard, Suite 500, Northbrook, Il,
60602 postage prepaid, or to such other address as any
particular Fund may have designated to the Custodian in
writing, shall be deemed to have been properly
delivered or given to a Fund.
Notices, requests, instructions and other writings
delivered to the Securities Administration Department
of the Custodian at its office at 928 Grand Boulevard,
Kansas City, Missouri, or mailed postage prepaid, to
the Custodian's Securities Administration Department,
Post Office Box 419226, Kansas City, Missouri 64141, or
to such other addresses as the Custodian may have
designated to each Fund in writing, shall be deemed to
have been properly delivered or given to the Custodian
hereunder; provided, however, that procedures for the
delivery of Instructions and Special Instructions shall
be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered
in the State of Missouri and shall be governed by the
laws of such state.
(b) All of the terms and provisions of this
Agreement shall be binding upon, and inure to the
benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be
amended, modified or waived, in any manner except in
writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time
to time as Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or
terminated according to the terms of this Agreement.
(d) The captions in this Agreement are
included for convenience of reference only, and in no
way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of
the date of execution hereof.
(f) This Agreement may be executed
simultaneously in two or more counterparts, each of
which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms
within the meaning of this Agreement, and the
definitions thereof are found in the following sections
of the Agreement:
Term Section
Account
4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this
Agreement is held to be illegal, in conflict with any
law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall
be considered severable and shall not be affected, and
the rights and obligations of the parties shall be
construed and enforced as if this Agreement did not
contain the particular part, term or provision held to
be illegal or invalid.
(i) This Agreement constitutes the entire
understanding and agreement of the parties hereto with
respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement,
any custodian agreement heretofore in effect between
the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused
this Custody Agreement to be executed by their
respective duly authorized officers.
FRONTEGRA FUNDS, INC.
ATTEST:
By:_________________________
Name:
Title:
Date:
UMB BANK, N.A.
ATTEST:
By:__________________________
Name:
Title:
Date:
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
Euroclear
Frontegra Funds, Inc. UMB Bank, n.a.
By:___________________________ By:____________________________
Name: Name:
Title: Title:
Date: Date:
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment
companies ("Funds") are hereby made parties to the
Custody Agreement dated , 199 ,
with UMB Bank, n.a. ("Custodian") and Frontegra Funds,
Inc. and agree to be bound by all the terms and
conditions contained in said Agreement:
LIST THE FUNDS
Frontegra Total Return Bond Fund
ATTEST:____________________
FRONTEGRA FUNDS, INC.
By:__________________________
Name:
Title:
Date:
ATTEST:_____________________
UMB BANK, N.A.
By:____________________________
Name:
Title:
Date:
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT made as of the ___ day of October,
1996 by and between Frontegra Funds, Inc., a Maryland
corporation (the "Corporation"), and Sunstone Investor
Services, LLC, a Wisconsin limited liability company
("Sunstone"):
WHEREAS, the Corporation is registered under the
Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company and
is authorized to issue shares of common stock
("Shares") in separate series with each such series
representing the interests in a separate portfolio of
securities and other assets;
WHEREAS, the Corporation desires to retain Sunstone
to render the transfer agency and other services
contemplated hereby with respect to each of the
investment portfolios of the Corporation as are listed
on Schedule A hereto and any additional investment
portfolios the Corporation and Sunstone may agree upon
and include on Schedule A as such Schedule may be
amended from time to time (such investment portfolios
and any additional investment portfolios are
individually referred to as a "Fund" and collectively
the "Funds"), and Sunstone is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual
promises and agreements herein contained and other good
and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
ARTICLE I
APPOINTMENT OF TRANSFER AGENT
A. Appointment.
1. The Corporation hereby constitutes and
appoints Sunstone as transfer agent and dividend
disbursing agent of all the Shares of the Funds during
the period of this Agreement, and Sunstone hereby
accepts such appointment as transfer agent and dividend
disbursing agent and agrees to perform the duties
thereof as hereinafter set forth.
2. Sunstone shall perform the transfer agent
and dividend disbursing agent services described on
Schedule B hereto. To the extent that the Corporation
requests Sunstone to perform any additional services in
a manner not consistent with Sunstone's usual
processing procedures, Sunstone and the Corporation
shall mutually agree as to the services to be
accomplished, the manner of accomplishment and the
compensation to which Sunstone shall be entitled with
respect thereto.
3. Sunstone may, in its discretion, appoint in
writing other parties qualified to perform transfer
agency and shareholder services reasonably acceptable
to the Corporation (individually, a "Sub-transfer
Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a
Fund; provided, however, that unless the Corporation
shall enter into a written agreement with such Sub-
transfer Agent, the Sub-transfer Agent shall be the
agent of Sunstone and not the agent of the Corporation
or such Fund and, in such event Sunstone shall be fully
responsible for the acts or omissions of such Sub-
transfer Agent and shall not be relieved of any of its
responsibilities hereunder by the appointment of such
Sub-transfer Agent.
4. Subject to Sunstone's duty to act in good
faith with respect to the services described in this
Agreement, Sunstone shall have no duties or
responsibilities whatsoever hereunder except such
duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation
shall be implied in this Agreement against Sunstone.
B. Documents/Records.
1. In connection with such appointment, the
Corporation shall deliver or cause to be delivered the
following documents to Sunstone:
a) A copy of the Articles of Incorporation
and By-laws of the Corporation and all amendments
thereto, and a copy of the resolutions of the Board of
Directors of the Corporation appointing Sunstone and
authorizing the execution of this Transfer Agency
Agreement on behalf of the Funds, each certified by the
Secretary of the Corporation;
b) A certificate signed by a Co-President
and Secretary of the Corporation specifying: the
number of authorized Shares and the number of such
authorized Shares issued and currently outstanding, if
any; the names and specimen signatures of the officers
of the Corporation authorized to sign written stock
certificates, if any, and the individuals authorized to
provide oral instructions and to sign written
instructions and requests on behalf of the Corporation
(hereinafter referred to as "Authorized Persons").
c) In the event the Corporation issues
Share certificates, specimen Share certificates for
each Fund in the form approved by the Board of
Directors of the Corporation (and in a format
compatible with Sunstone's operating system), together
with a Certificate signed by the Secretary of the
Corporation as to such approval;
d) Copies of the Corporation's Registration
Statement, as amended to date, and the most recently
filed Post-Effective Amendment thereto, filed by the
Corporation with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "1933
Act"), and under the 1940 Act, as amended, together
with any applications filed in connection therewith;
and
e) Opinion of counsel for the Corporation
with respect to the Corporation's organization and
existence under the laws of its state of organization,
the validity of the authorized and outstanding Shares,
whether such Shares are fully paid and non-assessable
and the status of such Shares under the Securities Act
of 1933, as amended, and any other applicable federal
law or regulation (i.e., if subject to registration,
that they have been registered and that the
Registration Statement has become effective or, if
exempt, the specific grounds therefor.)
2. The Corporation agrees to deliver or to
cause to be delivered to Sunstone in Milwaukee,
Wisconsin, at the Corporation's expense, all of its
shareholder account records relating to the Funds in a
format acceptable to Sunstone and all such other
documents, records and information as Sunstone may
reasonably request in order for Sunstone to perform its
services hereunder.
ARTICLE II
COMPENSATION & EXPENSES
A. Compensation. In consideration for its services
hereunder as transfer agent and dividend disbursing
agent, each Fund will pay to Sunstone such compensation
as shall be set forth in a separate fee schedule to be
agreed to by each Fund and Sunstone from time to time.
A copy of the initial fee schedule is attached hereto
as Schedule C.
B. Expenses. The Corporation on behalf of each
Fund also agrees to promptly reimburse Sunstone for all
reasonable out-of-pocket expenses or disbursements
incurred by Sunstone in connection with the performance
of services under this Agreement including, but not
limited to, expenses for postage, express delivery
services, freight charges, envelopes, checks, drafts,
forms (continuous or otherwise), specially requested
reports and statements, bank account service fees and
charges, telephone calls, telegraphs, stationery
supplies, outside printing and mailing firms, magnetic
tapes, reels or cartridges (if sent to a Fund or to a
third party at a Fund's request) and magnetic tape
handling charges, off-site record storage, media for
storage of records (e.g., microfilm, microfiche,
optical platters, computer tapes and disks), computer
equipment installed at a Fund's request at a Fund's or
a third party's premises, telecommunications equipment,
telephone/telecommunication lines between the
Corporation and its agents, on one hand, and Sunstone
on the other, proxy soliciting, processing and/or
tabulating costs, second site back-up computer
facility, transmission of statement data for remote
printing or processing, and transaction fees to the
extent any of the foregoing are paid by Sunstone. Such
expenses shall not include personnel charges except
with the prior approval of an Authorized Person. If
requested by Sunstone, postage and other out-of-pocket
expenses are payable in advance, and in the event
requested, postage is due at least seven days prior to
the anticipated mail date. Other out-of pocket expenses
are payable in advance if so requested by Sunstone. In
the event Sunstone requests advance payment, Sunstone
shall not be obligated to incur such expenses or
perform the related service(s) until payment is
received. Sunstone may, at its option, arrange to have
various service providers submit invoices directly to
the Corporation for payment of out-of pocket expenses
reimbursable hereunder.
C. Payment Procedures.
1. Amounts due hereunder shall be due and paid
by the respective Fund on or before the thirtieth
(30th) day after the date of the statement therefor
(the "Due Date"). Service fees are billed monthly, and
out-of-pocket expenses are billed as incurred (unless
prepayment is requested by Sunstone). Sunstone may, at
its option, arrange to have various service providers
submit invoices directly to the Funds for payment of
out-of-pocket expenses reimbursable hereunder. The
Corporation is aware that its failure to pay all
amounts in a timely fashion so that they will be
received by Sunstone on or before the Due Date will
give rise to costs to Sunstone not contemplated by this
Agreement, including but not limited to carrying,
processing and accounting charges. Accordingly, in the
event that any amounts due hereunder are not received
by Sunstone by the Due Date, the Corporation shall pay
a late charge equal to one percent (1.0%) per month or
the maximum amount permitted by law, whichever is less,
until paid in full. In addition, the Corporation shall
pay reasonable attorney's fees and court costs of
Sunstone if any amounts due Sunstone are collected by
or through an attorney. The parties hereby agree that
such late charge represents a fair and reasonable
computation of the costs incurred by reason of late
payment or payment of amounts not properly due.
Acceptance of such late charge shall in no event
constitute a waiver of a Fund's default or prevent
Sunstone from exercising any other rights and remedies
available to it.
2. In the event that any charges are disputed,
the Fund shall, on or before the Due Date, pay all
undisputed amounts due hereunder and notify Sunstone in
writing of any disputed charges for out-of-pocket
expenses which it is disputing in good faith. Payment
for such disputed charges shall be due on or before the
close of the fifth (5th) business day after the day on
which Sunstone provides to the Corporation
documentation which an objective observer would agree
reasonably supports the disputed charges (the "Revised
Due Date"). Late charges shall not begin to accrue as
to charges disputed in good faith until the first day
after the Revised Due Date.
ARTICLE III
PROCESSING AND PROCEDURES
A. Issuance, Redemption and Transfer of Shares
1. Sunstone acknowledges that it has received a
copy of each Fund's Prospectus (as hereinafter
defined), which Prospectus describes how sales and
redemptions of shares of each Fund shall be made and
Sunstone agrees to accept purchase orders and
redemption requests with respect to Fund shares on each
Fund Business Day in accordance with such Prospectus.
"Fund Business Day" shall be deemed to be each day on
which the New York Stock Exchange is open for trading,
and "Prospectus" shall mean the last Fund prospectus
actually received by Sunstone from the Fund with
respect to which the Fund has indicated a registration
statement under the 1933 Act has become effective,
including the Statement of Additional Information,
incorporated by reference therein.
2. On each Fund Business Day Sunstone shall, as
of the time at which the net asset value of each Fund
is computed, issue to and redeem from the accounts
specified in a purchase order or redemption request in
proper form and accepted by the Corporation, which in
accordance with the Prospectus is effective on such
day, the appropriate number of full and fractional
Shares based on the net asset value per Share of the
respective Fund specified in an advice received on such
Fund Business Day from or on behalf of the Fund.
3. Upon the issuance of any Shares in
accordance with this Agreement, Sunstone shall not be
responsible for the payment of any original issue or
other taxes required to be paid by the Fund in
connection with such issuance of any Shares.
4. Sunstone shall not be required to issue any
Shares after it has received from an Authorized Person
or from an appropriate federal or state authority
written notification that the sale of Shares has been
suspended or discontinued, and Sunstone shall be
entitled to rely upon such written notification.
5. Upon receipt of a proper redemption request
and monies paid to it by the Custodian in connection
with a redemption of Shares, Sunstone shall cancel the
redeemed Shares and after making appropriate deduction
for any withholding of taxes required of it by
applicable law, make payment in accordance with the
Fund's redemption and payment procedures described in
the Prospectus.
6. (a) Except as otherwise provided in sub-
paragraph (b) of this paragraph, Shares will be
transferred or redeemed upon presentation to Sunstone
of Share certificates, if any, or instructions properly
endorsed for transfer or redemption, accompanied by
such documents as Sunstone deems necessary to evidence
the authority of the person making such transfer or
redemption, and bearing satisfactory evidence of the
payment of stock transfer taxes. Sunstone reserves the
right to refuse to transfer or redeem Shares until it
is satisfied that the endorsement on the stock
certificate, if any, or instructions is valid and
genuine, and for that purpose it will require, unless
otherwise instructed by an Authorized Person or except
as provided in sub-paragraph (b) of this paragraph, a
guarantee of signature by an "Eligible Guarantor
Institution" as that term is defined by SEC Rule 17Ad-
15. Sunstone also reserves the right to refuse to
transfer or redeem Shares until it is satisfied that
the requested transfer or redemption is legally
authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or
redemptions which Sunstone, in its judgment, deems
improper or unauthorized, or until it is satisfied that
there is no reasonable basis to any claims adverse to
such transfer or redemption. Sunstone may, in
effecting transfers and redemptions of Shares, rely
upon those provisions of the Uniform Act for the
Simplification of Fiduciary Security Transfers or the
Uniform Commercial Code, as the same may be amended
from time to time, applicable to the transfer of
securities, and the applicable Fund or Funds shall
indemnify Sunstone for any act done or omitted by it in
good faith in reliance upon such laws. In no event will
a Fund indemnify Sunstone for any act done by it as a
result of willful misfeasance, bad faith, negligence or
reckless disregard of its duties.
(b) Notwithstanding the foregoing or any
other provision contained in this Agreement to the
contrary, Sunstone shall be fully protected by each
Fund in not requiring any instruments, documents,
assurances, endorsements or guarantees, including,
without limitation, any signature guarantees, in
connection with a redemption, or transfer, of Shares
whenever Sunstone reasonably believes that requiring
the same would be inconsistent with the transfer and
redemption procedures as described in the Prospectus.
7. Notwithstanding any provision contained in
this Agreement to the contrary, Sunstone shall not be
required or expected to require, as a condition to any
transfer or redemption of any Shares pursuant to
paragraph 6 of this Article or any redemption of shares
pursuant to a computer tape or electronic data
transmission, any documents to evidence the authority
of the person requesting the transfer or redemption
and/or the payment of any stock transfer taxes, unless
Sunstone has some reasonable basis upon which to
question said authority, and shall be fully protected
in acting in accordance with the applicable provisions
of this Article.
8. In connection with each purchase and each
redemption of Shares, Sunstone shall send such
statements as are prescribed by the Federal securities
laws applicable to transfer agents or as described in
the Prospectus. If the Prospectus indicates that
certificates for Shares are available and if
specifically requested in writing by any shareholder,
or if otherwise required hereunder, Sunstone will
countersign, issue and mail to such shareholder at the
address set forth in the records of Sunstone a Share
certificate for any full Share requested.
9. On each Fund Business Day Sunstone shall
supply the Corporation with a statement specifying with
respect to the immediately preceding Fund Business Day:
the total number of Shares of the Funds (including
fractional Shares) issued and outstanding at the
opening of business on such day; the total number of
Shares of the Funds sold on such day; the total number
of Shares of the Funds and the dollar amount redeemed
from Shareholders by Sunstone on such day; and the
total number of Shares of the Funds issued and
outstanding.
10. Procedures for effecting purchase,
redemption or transfer transactions accepted from
investors by telephone or other methods shall be
established by mutual agreement between the Corporation
and Sunstone consistent with the terms of the
Prospectus. Sunstone upon written notice to the
Corporation may establish such additional procedures,
rules and regulations governing the transfer or
registration of Share certificates, if any, or the
purchase, redemption or transfer of Shares, as it may
deem advisable and consistent with such rules and
regulations generally adopted by mutual fund transfer
agents.
B. Dividends and Distributions.
1. The Corporation shall furnish to Sunstone a
copy of a resolution of its Board of Directors,
certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of
a dividend or distribution, the date of accrual or
payment, as the case may be, thereof, the record date
as of which shareholders entitled to payment, or
accrual, as the case may be, shall be determined, the
amount per Share of such dividend or distribution, the
payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount, if any,
payable to Sunstone on such payment date, or (ii)
authorizing the declaration of dividends and
distributions on a daily or other periodic basis and
authorizing Sunstone to rely on a certificate of an
Authorized Person setting forth the information
described in subsection (i) of this paragraph.
2. In connection with a reinvestment of a
dividend or distribution of Shares of a Fund, Sunstone
shall as of each Fund Business Day, as specified in a
certificate or resolution described in paragraph 1,
issue Shares of the Fund based on the net asset value
per Share of such Fund specified in an advice received
from or on behalf of the Fund on such Fund Business
Day.
3. Upon the mail date specified in such
certificate or resolution, as the case may be, the
Corporation shall, in the case of a cash dividend or
distribution, cause the Custodian to deposit in an
account in the name of Sunstone on behalf of a Fund, an
amount of cash, if any, sufficient for Sunstone to make
the payment, as of the mail date, specified in such
Certificate or resolution, as the case may be, to the
Shareholders who were of record on the record date.
Sunstone will, upon receipt of any such cash, make
payment of such cash dividends or distributions to the
shareholders of record as of the record date. Sunstone
shall not be liable for any improper payments made in
good faith and without negligence, in accordance with a
certificate or resolution described in the preceding
paragraph. If Sunstone shall not receive from the
Custodian sufficient cash to make payments of any cash
dividend or distribution to all shareholders of a Fund
as of the record date, Sunstone shall, upon notifying
the Fund, withhold payment to all shareholders of
record as of the record date until sufficient cash is
provided to Sunstone.
4. It is understood that Sunstone in its
capacity as transfer agent and dividend disbursing
agent shall in no way be responsible for the
determination of the rate or form of dividends or
capital gain distributions due to the shareholders
pursuant to the terms of this Agreement. It is
expressly agreed and understood that Sunstone is not
liable for any loss as a result of processing a
distribution based on information provided in the
Certificate that is incorrect. The Funds agree to pay
Sunstone for any and all costs, both direct and out-of-
pocket expenses, incurred in such corrective work as
necessary to remedy such error, provided that Sunstone
has acted in good faith and without negligence.
5. It is understood that Sunstone shall file
with the Internal Revenue Service and deliver to
shareholders such appropriate federal tax forms
concerning the payment of dividend and capital gain
distributions but shall in no way be responsible for
the collection or withholding of taxes due on such
dividends or distributions due to shareholders, except
and only to the extent, required by applicable law.
C. Authorization and Issuance of Shares;
Recapitalization or Capital Adjustment.
1. Prior to the effective date of any increase
or decrease in the total number of Shares authorized to
be issued, or the issuance of any additional Shares of
a Fund pursuant to stock dividends, stock splits,
recapitalizations, capital adjustments or similar
transactions, the Corporation agrees to deliver to
Sunstone such documents, certificates, reports and
legal opinions as Sunstone may reasonably request.
2. In the event a Fund issues Share
certificates, the Corporation at its expense shall
furnish Sunstone with a sufficient supply of blank
Share certificates in the new form and from time to
time will replenish such supply upon the request of
Sunstone. Such blank Share certificates shall be
compatible with Sunstone's system and shall be properly
signed by facsimile or otherwise by officers of the
Corporation authorized by law or by the By-Laws to sign
Share certificates and, if required, shall bear the
corporate Seal or facsimile thereof. The Corporation
agrees to indemnify and exonerate, save and hold
Sunstone harmless, from and against any and all claims
or demands that may be asserted against Sunstone with
respect to the genuineness of any Share certificate
supplied to Sunstone pursuant to this section.
3. Sunstone may issue new Share certificates in
place of certificates represented to have been lost,
stolen, or destroyed upon receiving written
instructions from the shareholder accompanied by proof
of an indemnity or surety bond issued by a recognized
insurance institution specified by the Corporation or
Sunstone. If Sunstone receives written notification
from the shareholder or broker dealer that the
certificate issued was never received, and such
notification is made within 30 days of the date of
issuance, Sunstone may reissue the certificate without
requiring a surety bond. Sunstone may also reissue
certificates which are represented as lost, stolen, or
destroyed without requiring a surety bond provided that
the notification is in writing and accompanied by an
indemnification signed on behalf of a member firm of
the New York Stock Exchange and signed by an officer of
said firm with the signature guaranteed.
Notwithstanding the foregoing, Sunstone will reissue a
certificate upon written authorization from an
Authorized Person.
D. Records.
1. Sunstone shall keep such records as are
specified in Schedule D hereto in the form and manner,
and for such period, as it may deem advisable but not
inconsistent with the rules and regulations of
appropriate government authorities, in particular Rules
31a-2 and 31a-3 under the 1940 Act. Sunstone may
deliver to the Corporation from time to time at its
discretion, for safekeeping or disposition by the
Corporation in accordance with law, such records,
papers and documents accumulated in the execution of
its duties as such transfer agent, as Sunstone may deem
expedient, other than those which Sunstone is itself
required to maintain pursuant to applicable laws and
regulations. The Corporation shall assume all
responsibility for any failure thereafter to produce
any record, paper, canceled Share certificate, or other
document so returned, if and when required. To the
extent required by Section 31 of the 1940 Act and the
rules and regulations thereunder, the records specified
in Schedule D hereto maintained by Sunstone, which have
not been previously delivered to the Corporation
pursuant to the foregoing provisions of this paragraph,
shall be considered to be the property of the
Corporation, shall be made available upon request for
inspection by the officers, employees, and auditors of
the Corporation, and shall be delivered to the
Corporation promptly upon request and in any event upon
the date of termination of this Agreement, in the form
and manner kept by Sunstone on such date of termination
or such earlier date as may be requested by the
Corporation.
2. Sunstone agrees to keep all records and
other information relative to the Corporation, the
Funds and their shareholders confidential. In case of
any requests or demands for the inspection of the
shareholder records of a Fund, Sunstone will endeavor
to notify the Fund promptly and to secure instructions
from an Authorized Person as to such inspection.
Sunstone reserves the right, however, to exhibit the
shareholder records to any person whenever it receives
advice from its counsel that there is a reasonable
likelihood that Sunstone will be held liable for the
failure to exhibit the shareholder records to such
person; provided, however, that in connection with any
such disclosure Sunstone shall promptly notify the
Corporation that such disclosure has been made or is to
be made. Notwithstanding the foregoing, Sunstone may
disclose information when requested by a shareholder
concerning an account as to which such shareholder
claims a legal or beneficial interest or when requested
by the Corporation, the shareholder or the dealer of
record as to such account.
ARTICLE IV
CONCERNING THE CORPORATION
A. Representations. The Corporation represents and
warrants to Sunstone that:
(a) It is a corporation duly organized and
existing under the laws of the State of Maryland, it is
empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform
this Agreement, and all requisite corporate proceedings
have been taken to authorize it to enter into and
perform this Agreement.
(b) It is an investment company registered under
the 1940 Act.
(c) A registration statement under the 1933 Act
with respect to the Shares is effective.
B. Covenants.
1. The Corporation will provide to Sunstone
copies of all amendments to its Articles of
Incorporation and By-laws made after the date of this
Agreement. If requested by Sunstone, each copy of the
Articles of Incorporation of the Corporation and copies
of all amendments thereto shall be certified by the
Secretary of the Corporation. Each copy of the By-Laws
and copies of all amendments thereto, and copies of
resolutions of the Board of Directors, shall be
certified by the Secretary of the Corporation, if
requested by Sunstone.
2. The Corporation shall promptly deliver to
Sunstone written notice of any change in the Authorized
Persons, together with a specimen signature of each new
Authorized Person. In the event any Officer who shall
have signed manually or whose facsimile signature shall
have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such
Share certificates, Sunstone may issue such Share
certificates of the Fund notwithstanding such death,
resignation or removal, and the Corporation shall
promptly deliver to Sunstone such approval, adoption or
ratification as may be required by law.
3. The Corporation shall deliver to Sunstone
the Fund's currently effective Prospectus and, for
purposes of this Agreement, Sunstone shall not be
deemed to have notice of any information contained in
such Prospectus until five (5) business days after it
is actually received by Sunstone.
4. All requisite steps will be taken by the
Corporation from time to time when and as necessary to
register the Corporation's shares for sale in all
states in which the Corporation's shares shall at the
time be offered for sale and require registration. If
at any time the Corporation receives notice of any stop
order or other proceeding in any such state affecting
such registration or the sale of the Corporation's
shares, or of any stop order or other proceeding under
the federal securities laws affecting the sale of the
Corporation's shares, the Corporation will give prompt
notice thereof to Sunstone.
5. The Corporation will comply with all
applicable requirements of the 1933 Act, the Securities
Exchange Act of 1934, as amended, the 1940 Act, blue
sky laws, and any other applicable laws, rules and
regulations.
6. The Corporation agrees that prior to
effecting any change in the Prospectus which would
increase or alter the duties and obligations of
Sunstone hereunder, it shall advise Sunstone of such
proposed change at least 30 days prior to the intended
date of the same, and shall proceed with such change
only if it shall have received the written consent of
Sunstone thereto, which shall not be unreasonably
withheld.
ARTICLE V
CONCERNING THE TRANSFER AGENT
A. Representations. Sunstone represents and
warrants to the Fund that:
(a) It is a corporation duly organized and
existing under the laws of the State of Wisconsin, is
empowered under applicable law and by its Articles of
Incorporation and By-Laws to enter into and perform
this Agreement, and all requisite corporate proceedings
have been taken to authorize it to enter into and
perform this Agreement.
(b) It is duly registered as a transfer agent
under Section 17A of the Securities Exchange Act of
1934, as amended, to the extent required.
B. Limitation of Liability.
1. Sunstone shall not be liable for any loss or
damage, including counsel fees, resulting from its
actions or omissions to act or otherwise, except for
any loss or damage arising out of its bad faith,
willful misfeasance, negligence or reckless disregard
of its duties under this Agreement. Sunstone shall not
be liable and shall be indemnified in acting upon any
writing or document reasonably believed by it to be
genuine and to have been signed or made by an
Authorized Person or verbal instructions which the
individual receiving the instructions on behalf of
Sunstone reasonably believes in good faith to have been
given by an Authorized Person, and Sunstone shall not
be held to have any notice of any change of authority
of any person until receipt of written notice thereof
from a Fund or such person. It shall also be protected
in processing Share certificates, if any, which bear
the proper countersignature of Sunstone and which it
reasonably believes to bear the proper manual or
facsimile signature of the officers.
2. Sunstone assumes no responsibility
hereunder, and shall not be liable, for any damage,
loss of data, errors, delay or any other loss
whatsoever caused by events beyond its reasonable
control. Sunstone will, however, take all reasonable
steps to minimize service interruptions for any period
that such interruption continues beyond Sunstone's
control.
3. In no event and under no circumstances shall
either party to this Agreement be liable to anyone,
including, without limitation to the other party, for
consequential or punitive damages for any act or
failure to act under any provision of this Agreement
even if advised of the possibility thereof.
C. Indemnification.
1. The Corporation shall indemnify and
exonerate, save and hold harmless Sunstone from and
against any and all claims (whether with or without
basis in fact or law), demands, expenses (including
reasonable attorney's fees) and liabilities of any and
every nature which the Indemnified Party (as defined
below) may sustain or incur or which may be asserted
against the Indemnified Party by any person by reason
of or as a result of any action taken or omitted to be
taken by any prior transfer agent of the Corporation or
as a result of any action taken or omitted to be taken
by the Indemnified Party in good faith and without
negligence or willful misconduct or in reliance upon
(i) any provision of this Agreement; (ii) the
Prospectus; (iii) any instrument, order or Share
certificate reasonably believed by it to be genuine and
to be signed, countersigned or executed by an
Authorized Person; (iv) any Certificate or other
instructions of an Authorized Person; or (v) any
opinion of legal counsel for the Corporation or, if
approved by the Corporation, for the Indemnified Party.
The Corporation shall indemnify and exonerate, save and
hold the Indemnified Party harmless from and against
any and all claims (whether with or without basis in
fact or law), demands, expenses (including reasonable
attorney's fees) and liabilities of any and every
nature which the Indemnified Party may sustain or incur
or which may be asserted against the Indemnified Party
by any person by reason of or as a result of any action
taken or omitted to be taken by the Indemnified Party
in good faith in connection with its appointment or in
reliance upon any law, act, regulation or any
interpretation of the same.
2. Sunstone shall indemnify and hold the
Corporation harmless from and against any and all
losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or
attributable to any action or failure or omission to
act by Sunstone as a result of Sunstone's lack of good
faith, negligence or willful misconduct.
3. The party seeking indemnification under this
Section (C) (the "Indemnified Party") shall not settle
any claim, demand, expense or liability to which it may
seek indemnity (each, an "Indemnifiable Claim") without
the express written consent of the party against which
indemnification is sought (the "Indemnifying Party").
The Indemnified Party shall notify the Indemnifying
Party promptly after receipt of notification of an
Indemnifiable Claim, provided that the failure to
furnish such notification shall not impair the
Indemnified Party's right to seek indemnification
unless the Indemnifying Party is unable to adequately
defend the Indemnifiable Claim as a result of such
failure, and further provided, that if as a result of
the failure to provide timely notice of the institution
of litigation a judgment by default is entered, prior
to seeking indemnification, the Indemnified Party, at
its own cost and expense, shall open such judgment.
The Indemnifying Party shall have the right to defend
any Indemnifiable Claim at its own expense, provided
that such defense shall be conducted by counsel
selected by the Indemnifying Party and reasonably
acceptable to the Indemnified Party. The Indemnified
Party may join in such defense at its own expense, but
to the extent that it shall so desire the Indemnifying
Party shall direct such defense. The Indemnifying
Party shall not settle any Indemnifiable Claim without
the express written consent of the Indemnified Party if
the Indemnified Party determines that such settlement
would have an adverse effect on the Indemnified Party
beyond the scope of this Agreement. In such event,
each of the Indemnifying Party and the Indemnified
Party shall be responsible for their own defense at
their own cost and expense, and such claim shall not be
deemed an Indemnifiable Claim hereunder. If the
Indemnifying Party shall fail or refuse to defend an
Indemnifiable Claim, the Indemnified Party may provide
its own defense at the cost and expense of the
Indemnifying Party. Anything in this Agreement to the
contrary notwithstanding, the Indemnifying Party shall
not indemnify the Indemnified Party against any
liability or expense arising out of the Indemnified
Party's willful misfeasance, bad faith, negligence or
reckless disregard of its duties and obligations under
this Agreement.
4. The indemnity and defense provisions
provided hereunder shall indefinitely survive the
termination of this Agreement.
D. Procedures.
1. At any time Sunstone may apply to an
Authorized Person of the Corporation for written
instructions with respect to any matter arising in
connection with Sunstone's duties and obligations under
this Agreement, and Sunstone shall not be liable for
any action taken or permitted by it in good faith in
accordance with such written instructions. Such
application by Sunstone for written instructions from
an Authorized Person of the Corporation may set forth
in writing any action proposed to be taken or omitted
by Sunstone with respect to its duties or obligations
under this Agreement and the date on and/or after which
such action shall be taken. Sunstone shall not be
liable for any action taken or omitted in accordance
with a proposal included in any such application on or
after the date specified therein unless, prior to
taking or omitting any such action, Sunstone has
received written instructions in response to such
application specifying the action to be taken or
omitted. Sunstone may consult counsel of the
Corporation, or upon notice and approval from the
Corporation, its own counsel, at the expense of the
Corporation and shall be fully protected with respect
to anything done or omitted by it in good faith in
accordance with the advice or opinion of counsel to the
Corporation or its own counsel.
2. Notwithstanding any of the foregoing
provisions of this Agreement, Sunstone shall be under
no duty or obligation under this Agreement to inquire
into, and shall not be liable for:
(a) The legality of the issue or sale of any
Shares, the sufficiency of the amount to be received
therefor, or the authority of the Corporation, as the
case may be, to request such sale or issuance;
(b) The legality of a transfer of Shares, or
of a redemption of any Shares, the propriety of the
amount to be paid therefor, or the authority of the
Corporation, as the case may be, to request such
transfer or redemption;
(c) The legality of the declaration of any
dividend by the Corporation, on behalf of a Fund or
Funds, or the legality of the issue of any Shares in
payment of any stock dividend; or
(d) The legality of any recapitalization or
readjustment of Shares.
ARTICLE V
TERM
1. This Agreement shall remain in full force
and effect for a one-year period from the date hereof
(the "Initial Term"), and thereafter shall
automatically extend for additional, successive twelve
(12) month terms unless earlier terminated as provided
below. Each party, in addition to any other rights and
remedies, shall have the right to terminate this
Agreement at any time upon the material breach of this
Agreement by the other party. In the event of a
material breach, the non-breaching party shall notify
the breaching party in writing of such breach and upon
receipt of such notice, the breaching party shall have
45 days to remedy the breach or the non-breaching party
may forthwith terminate this Agreement upon the
expiration of said period.
2. Either of the parties hereto may terminate
this Agreement only after the Initial Term, except as
noted in paragraph 1 above, by giving to the other
party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60)
days after the date of receipt of such notice. In the
event such notice is given by the Corporation, it shall
be accompanied by a copy of a resolution of the Board
of Directors of the Corporation, certified by the
Secretary or any Assistant Secretary, electing to
terminate this Agreement and designating the successor
transfer agent or transfer agents. In the event such
notice is given by Sunstone, the Corporation shall on
or before the termination date, deliver to Sunstone a
copy of a resolution of its Board of Directors
certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer
agents. In the absence of such designation by the
Corporation, the Corporation shall upon the date
specified in the notice of termination of this
Agreement and delivery of the records maintained
hereunder, be deemed to be its own transfer agent and
Sunstone shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement. Fees and
out-of-pocket expenses incurred by Sunstone, but unpaid
by the Corporation upon such termination, shall be
immediately due and payable upon and notwithstanding
such termination.
3. In the event this Agreement is terminated as
provided herein, Sunstone, upon the written request of
the Corporation, shall deliver the records of the
Corporation to the Corporation or its successor
transfer agent in the form maintained by Sunstone. The
Corporation shall be responsible to Sunstone for all
out-of-pocket expenses and for the reasonable costs and
expenses associated with the preparation and delivery
of such media, including: (a) any custom programming
requested by the Corporation in connection with the
preparation of such media; (b) transportation of forms
and other Corporation materials used in connection with
the processing of Fund transactions by Sunstone; and
(c) transportation of the Corporation's records and
files in the possession of Sunstone. Sunstone shall
not reduce the level of service provided to the
Corporation following notice of termination by the
Corporation.
ARTICLE VI
MISCELLANEOUS
A. Notices. Any notice or other instrument in
writing, authorized or required by this Agreement to be
given to the Corporation with respect to any Fund shall
be sufficiently given if addressed to the Corporation
and mailed and delivered to a Co-President at 400
Skokie Blvd, Northbrook, Illinois 60062, or at such
other place as the Corporation may from time to time
designate in writing. Any notice or other instrument
in writing, authorized or required by this Agreement to
be given to Sunstone shall be sufficiently given if
addressed to Sunstone and mailed or delivered to the
President at 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202, or at such other place as
Sunstone may from time to time designate in writing.
B. Amendments/Assignments.
1. This Agreement may not be amended or
modified in any manner except by a written agreement
executed by both parties with the formality of this
Agreement.
2. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective
successors and assigns. This Agreement shall not be
assignable by either party without the written consent
of the other party except that Sunstone may assign this
Agreement to an affiliate with advance written notice
to the Corporation; provided, however, the personnel of
the affiliate have the same or better qualifications
and experience as Sunstone.
C. Wisconsin Law. This Agreement shall be governed
by and construed in accordance with the laws of the
State of Wisconsin. If any part, term or provision of
this Agreement is determined by the courts or any
regulatory authority having jurisdiction over the issue
to be illegal, in conflict with any law or otherwise
invalid, the remaining portion or portions shall be
considered severable and shall not be affected, and the
rights and obligations of the parties shall be
construed and enforced as if the Agreement did not
contain the particular part, term or provision held to
be illegal or invalid.
D. Counterparts. This Agreement may be executed in
any number of counterparts each of which shall be
deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
E. Back-up Facility. During the terms of this
Agreement, Sunstone shall provide a facility capable of
safeguarding the transfer agency and dividend
disbursing records of the Corporation in case of damage
to the primary facility providing those services (the
"Back-Up Facility"). Transfer of the transfer agency
and dividend records of the Fund to the Back-Up
Facility shall commence as soon as practicable after
damage to the primary facility results in an inability
to provide the transfer agency and dividend disbursing
services. After the primary facility has recovered,
Sunstone shall again utilize it to provide the transfer
agency and dividend disbursing services to the Fund.
Sunstone shall use reasonable efforts to provide the
services described in this Agreement from the Back-Up
Facility.
This space intentionally left blank.
F. Non-Exclusive; Other Agreements. The services
of Sunstone hereunder are not deemed exclusive and
Sunstone shall be free to render similar services to
others. Except as specifically provided herein, this
Agreement does not in any way affect any other
agreements entered into among the parties hereto and
any actions taken or omitted by any party hereunder
shall not affect any rights or obligations of any other
party hereunder.
G. Captions. The captions in the Agreement are
included for convenience of reference only, and in no
way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective
corporate officer, thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as
the day and year first above written.
SUNSTONE INVESTOR SERVICES, LLC FRONTEGRA FUNDS,
INC.
By:______________________________ By:________________________________
(Signature) (Signature)
______________________________ ________________________________
(Name) (Name)
______________________________ ________________________________
(Title) (Title)
______________________________ ________________________________
(Date Signed) (Date Signed)
SCHEDULE A
Frontegra Total Return Bond Fund
SCHEDULE B
SERVICES
Maintenance of shareholder accounts
Maintain records for each shareholder account;
Scan account documents for electronic storage;
Issue customer statements;
Record changes to shareholder account information;
Maintain account documentation files for each
shareholder; and
Establish and maintain IRA accounts.
Shareholder servicing and shareholder transactions
Respond to written and telephone (recorded
lines) inquiries from shareholders for
information about their accounts;
Process shareholder purchase and redemption
orders;
Set up account information, including address,
dividend options, taxpayer identification
numbers and wire instructions;
Issue transaction confirmations;
Process transfers and exchanges; and
Process dividend and capital gain payments by
check, wire or ACH or purchase new shares
through dividend reinvestment.
Compliance reporting
Provide required reports to the Securities and
Exchange Commission, the National Association of
Securities Dealers and the states in which each
fund is registered;
Prepare and distribute to the Internal Revenue
Service required Internal Revenue Service forms
1099, 1042, 5498 and 945 relating to earned
income and capital gains; and
Issue tax withholding reports to the Internal
Revenue Service.
Telephone service representatives on-line access
Respond to shareholder or dealer inquiries related to:
Account registration;
Share balances;
Account options;
Dividend and capital gain distribution status;
Withholding status;
Transaction dates and types;
Shares traded;
Social security number/tax ID number;
External account number;
Address;
Customer or account type;
Dollars available/not available in the account;
Shares purchased/redeemed today;
Dividend accrual, current dividend period; and
Market value of shares.
Standard reports
Shareholder base analysis (monthly)
New account listing (weekly)
Purchases, redemptions, exchanges (monthly)
Servicing summary (monthly)
Other Service Features
In addition to the standard features listed above,
Sunstone's system offers additional features to meet
specialized needs which are available at additional
cost.
SCHEDULE C
FEE SCHEDULE
Base fees
Annual Shareholder
Account Fee Minimum Annual Fee Per
(open/closed) Fund
Year 1 $ 14.00 $ 12,000
Year 2 + 14.00 14,000
The base fee assumes a single class of shares, no
load or 12b-1 plan; availability of automatic
investment plans and systematic withdrawal plans
(using Sunstone's regular processing date);
quarterly or less frequent dividend distributions
for equity, fixed income and balanced funds; monthly
dividend distributions for money market funds;
annual capital gains distributions; and all standard
reports. The minimum annual fees per fund are
subject to an annual escalation of 6% per year.
Additional fees to be added to base fee
Type of Service or Annual Shareholder Minimum Annual
Fund Function Account Fee Fee Per Fund
Front-end load $ 1.50 $ 2,000
CDSC or back-end load 2.00 3,000
12b-1 plan 1.00 1,000
Monthly dividends on
non-daily accrual funds 2.00 2,000
Check writing privilege 2.00 2,000
One-time set-up fees
Per fund set-up (for future funds) $ 2,000
NSCC FundSERV set-up (per fund group) 2,500
NSCC networking (per fund group) 1,500
Remote access set-up (per location) 500
Voice Response Unit (VRU) 2,000
Account maintenance and processing fees
(per occurrence)
Shareholder account set-up 2.00
Check writing signature verification .50
Omnibus account transaction 2.50
Locating lost shareholders 8.00
Taxpayer ID number solicitation 1.50
Monthly remote access user charge
First user and password 250.00
Additional users and
passwords (each) 100.00
VRU transaction .25
Fund Serve/Networking transaction .20
Out-of-pocket expenses
Per check processing (dividend, capital gains,
redemption) .25
Per statement and confirm processing .25
Per tax form processing .15
Production of ad hoc reports starting at $ 100.00
Bulk mailings/insert handling charges
1 insert .25
2-3 inserts (per piece) .20
4 or more inserts (per piece) .15
Bank account service fees and any other
bank charges At cost
Check stock At cost
Statement paper At cost
Envelopes At cost
Tax forms At cost
Postage and express delivery charges At cost
Telephone and long distance charges At cost
Fax charges At cost
P.O. box rental At cost
800-phone number At cost
Inventory and records storage At cost
FundSERV charges At cost
Additional fees which may be passed on to
shareholders
Outgoing wire fee Varies by bank
Telephone exchange fee $ 5.00
Check writing transaction fees
Stop payments Varies by bank
Non-sufficient funds Varies by bank
Check copy 2.50
Account transcripts older than 2 years
(per year, per fund) 5.00
Non-sufficient funds Varies by bank
IRA/SEP processing
Annual maintenance or custodial fee
(per account) 15.00
Account termination (transfer or rollover) 15.00
Custom Programming
Additional fees may apply for special
programming to meet your servicing requirements
or to create custom reports.
SCHEDULE D
RECORDS MAINTAINED BY SUNSTONE
Account applications
Canceled certificates plus stock powers and
supporting documents
Checks including check registers, reconciliation
records, any adjustment records and tax
withholding documentation
Indemnity bonds for replacement of lost or missing
stock certificates and checks
Liquidation, redemption, withdrawal and transfer
requests including stock powers, signature
guarantees and any supporting documentation
Shareholder correspondence
Shareholder transaction records
Share transaction history of the Funds
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
THIS AGREEMENT is made as of this ___ day of
October, 1996, by and between Frontegra Funds, Inc., a
Maryland corporation (the "Corporation"), and Sunstone
Financial Group, Inc., a Wisconsin corporation (the
"Administrator").
WHEREAS, the Corporation is an open-end investment
company registered under the Investment Company Act of
1940, as amended (the "1940 Act") and is authorized to
issue shares of common stock (the "Shares") in separate
series with each such series representing interests in
a separate portfolio of securities and other assets;
and
WHEREAS, the Corporation and the Administrator
desire to enter into an agreement pursuant to which the
Administrator shall provide administration and fund
accounting services to such investment portfolios of
the Corporation as are listed on Schedule A hereto and
any additional investment portfolios the Corporation
and Administrator may agree upon and include on
Schedule A as such Schedule may be amended from time to
time (such investment portfolios and any additional
investment portfolios are individually referred to as a
"Fund" and collectively the "Funds").
NOW, THEREFORE, in consideration of the mutual
promises and agreements herein contained and other good
and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. Appointment
The Corporation hereby appoints the Administrator as
administrator and fund accountant of the Funds for the
period and on the terms set forth in this Agreement.
The Administrator accepts such appointment and agrees
to render the services herein set forth, for the
compensation herein provided.
2. Services as Administrator
(a) Subject to the direction and control of the
Corporation's Board of Directors and utilizing
information provided by the Corporation and its agents,
the Administrator will: (1) provide office space,
facilities, equipment and personnel to carry out its
services hereunder; (2) compile data for and prepare
with respect to the Funds timely Notices to the
Securities and Exchange Commission (the "Commission")
required pursuant to Rule 24f-2 under the 1940 Act and
Semi-Annual Reports on Form N-SAR; (3) assist in the
preparation of for execution by the Corporation and
file all federal income and excise tax returns and
state income tax returns (and such other required tax
filings as may be agreed to by the parties) other than
those required to be made by the Corporation's
custodian or transfer agent, subject to review and
approval of the Corporation and the Corporation's
independent accountants; (4) prepare and/or file
securities registration compliance filings with the
states identified by the Corporation to maintain the
Funds' securities registrations with the advice of the
Corporation's legal counsel; (5) prepare the financial
statements for the Annual and Semi-Annual Reports
required pursuant to Section 30(d) under the 1940 Act;
(6) assist the Corporation's legal counsel in the
preparation of the Registration Statement for the
Corporation (on Form N-1A or any replacement therefor)
and any amendments thereto; (7) determine and
periodically monitor each Fund's income and expense
accruals and cause all appropriate expenses to be paid
from Corporation assets on proper authorization from
the Corporation; (8) calculate daily net asset values
and income factors of each Fund; (9) maintain all
general ledger accounts and related subledgers; (10)
perform security valuations in accordance with the
terms of the Funds' then current Prospectus and
instructions of the Corporation's Board of Directors;
(11) assist in the acquisition of the Corporation's
fidelity bond required by the 1940 Act, monitor the
amount of the bond and make the necessary Commission
filings related thereto; (12) from time to time as the
Administrator deems appropriate, check each Fund's
compliance with the policies and limitations of each
Fund relating to the portfolio investments as set forth
in the Prospectus, Statement of Additional Information,
Articles and By-Laws and monitor each Fund's status as
a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (but
these functions shall not relieve the Corporation's
investment adviser and sub-advisers, if any, of their
primary day-to-day responsibility for assuring such
compliance); (13) maintain, and/or coordinate with the
other service providers the maintenance of, the
accounts, books and other documents required pursuant
to Rule 31a-1(a) and (b) under the 1940 Act; (14)
develop with legal counsel and secretary of the
Corporation an agenda for each board meeting and, if
requested by the Directors, attend board meetings and
prepare minutes; (15) prepare Form 1099s for directors
and other Fund vendors; (16) calculate dividend and
capital gains distributions subject to review and
approval by the Corporation and its independent
accountants; and (17) generally assist in the
Corporation's administrative operations as mutually
agreed to by the parties. The duties of the
Administrator shall be confined to those expressly set
forth herein, and no implied duties are assumed by or
may be asserted against the Administrator hereunder.
(b) The Directors of the Corporation shall cause the
officers, investment adviser, legal counsel,
independent accountants, transfer agent and custodian
for the Funds to cooperate with the Administrator and
to provide the Administrator, upon request, with such
information, documents and advice relating to the Funds
and the Corporation as is within the possession or
knowledge of such persons, in order to enable the
Administrator to perform its duties hereunder. In
connection with its duties hereunder, the Administrator
shall be entitled to rely, and shall be held harmless
by the Corporation when acting in reliance, upon the
instruction, advice, information or any documents
relating to the Funds provided to the Administrator by
an officer or representative of the Funds or by any of
the aforementioned persons. Fees charged by such
persons shall be an expense of the respective Fund.
The Administrator shall be entitled to rely on any
document which it reasonably believes to be genuine and
to have been signed or presented by the proper party.
The Administrator shall not be held to have notice of
any change of authority of any officer, agent,
representative or employee of the Corporation until
receipt of written notice thereof from the Corporation.
The Administrator shall cooperate with the Corporation
and its legal counsel, independent accountants,
custodian and transfer agent upon reasonable request in
order to enable the Corporation's service providers to
perform their duties with respect to the Funds.
(c) In compliance with the requirements of Rule 31a-
3 under the 1940 Act, the Administrator hereby agrees
that all records which it maintains for the Corporation
are the property of the Corporation and further agrees
to surrender promptly to the Corporation any of such
records upon the Corporation's request free of any
liens and charges. Subject to the terms of Section 6,
the Administrator further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the
records described in (a) above which are maintained by
the Administrator for the Corporation.
(d) It is understood that in determining security
valuations, the Administrator employs one or more
pricing services to determine valuations of portfolio
securities for purposes of calculating net asset values
of the Funds. The Administrator shall identify to the
Corporation and the Board of Directors any such pricing
service utilized on behalf of the Corporation. The
Administrator is authorized to rely on the prices
provided by such service(s) or by the Funds' investment
adviser or other authorized representative of the
Funds, and shall not be liable for losses to the
Corporation or its securityholders as a result of its
reliance on the valuations provided by the approved
pricing service(s) or the representative.
(e) The Administrator shall perform its duties
hereunder in compliance with all applicable laws.
3. Fees; Delegation; Expenses
(a) In consideration of the services rendered
pursuant to this Agreement, the Corporation will pay
the Administrator a fee, computed daily and payable
monthly, as provided in Schedule B hereto, plus out-of-
pocket expenses. The Corporation shall also pay the
Administrator for organizational start-up services
provided on behalf of the Funds as specified in
Schedule B. Out-of-pocket expenses include, but are
not limited to, travel, lodging and meals in connection
with travel on behalf of the Corporation, programming
and related expenses (previously incurred or to be
incurred by Administrator) in connection with providing
electronic transmission of data between the
Administrator and the Funds' other service providers,
brokers, dealers and depositories, and photocopying,
postage and overnight delivery expenses. Fees shall be
paid by each Fund at a rate that would aggregate at
least the applicable minimum fee for each Fund.
(b) For the purpose of determining fees payable to
the Administrator, net asset value shall be computed in
accordance with the Corporation's Prospectuses and
resolutions of the Corporation's Board of Directors.
The fee for the period from the day of the month this
Agreement is entered into until the end of that month
shall be pro-rated according to the proportion which
such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-
rated according to the proportion which such period
bears to the full monthly period and shall be payable
upon the date of termination of this Agreement. Should
the Corporation be liquidated, merged with or acquired
by another fund or investment company, any accrued fees
shall be immediately payable. Such fee as is
attributable to each Fund shall be a separate charge to
each Fund and shall be the several (and not joint or
joint and several) obligation of each such Fund.
(c) The Administrator will bear all expenses in
connection with the performance of its services under
this Agreement except as otherwise provided herein.
Other costs and expenses to be incurred in the
operation of the Funds, including, but not limited to:
taxes; interest; brokerage fees and commissions, if
any; salaries, fees and expenses of officers and
Directors; Commission fees and state Blue Sky fees;
advisory fees; charges of custodians, transfer agents,
dividend disbursing and accounting services agents;
security pricing services; insurance premiums; outside
auditing and legal expenses; costs of organization and
maintenance of corporate existence; typesetting,
printing, proofing and mailing of prospectuses,
statements of additional information, supplements,
notices and proxy materials for regulatory purposes and
for distribution to current shareholders; typesetting,
printing, proofing and mailing and other costs of
shareholder reports; expenses in connection with the
electronic transmission of documents and information
including electronic filings with the Commission and
the states: expenses incidental to holding meetings of
the Fund's shareholders and Directors; and any
extraordinary expenses; will be borne by the Funds or
their investment adviser. Expenses incurred for
distribution of shares, including the typesetting,
printing, proofing and mailing of prospectuses for
persons who are not shareholders of the Corporation,
will be borne by the investment adviser, except for
such expenses permitted to be paid by the Corporation
under a distribution plan adopted in accordance with
applicable laws.
4. Proprietary and Confidential Information
The Administrator agrees on behalf of itself and its
employees to treat confidentially and as proprietary
information of the Corporation all records and other
information relative to the Funds and prior, present or
potential shareholders of the Corporation (and clients
of said shareholders), and not to use such records and
information for any purpose other than performance of
its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the
Corporation, which approval shall not be unreasonably
withheld and may not be withheld where the
Administrator may be exposed to civil or criminal
proceedings for failure to comply, when requested to
divulge such information by duly constituted
authorities, when subject to governmental or regulatory
audit or investigation, or when so requested by the
Corporation.
5. Limitation of Liability
(a) The Administrator shall not be liable
for any error of judgment or mistake of law or for any
loss suffered by the Funds in connection with the
matters to which this Agreement relates, except for a
loss resulting from the Administrator's willful
misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement.
Furthermore, the Administrator shall not be liable for
any action taken or omitted to be taken in accordance
with instructions received by the Administrator from
an officer or representative of the Corporation.
(b) The Administrator assumes no
responsibility hereunder, and shall not be liable, for
any damage, loss of data, errors, delay or any other
loss whatsoever caused by events beyond its reasonable
control. The Administrator will, however, take all
reasonable steps to minimize service interruptions for
any period that such interruption continues beyond its
control.
6. Term
(a) This Agreement shall become effective with
respect to each Fund listed on Schedule A hereof as of
the date hereof and, with respect to each Fund not in
existence on that date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is
executed. This Agreement shall continue in effect with
respect to each Fund for a period of one-year from the
date hereof (the "Initial Term"). Thereafter, if not
terminated as provided herein, this Agreement shall
continue automatically in effect as to each Fund for
successive annual periods.
(b) This Agreement may be terminated with respect to
any one or more particular Funds without penalty after
the Initial Term (i) upon mutual consent of the
parties, or (ii) by either party upon not less than
ninety (90) days' written notice to the other party
(which notice may be waived by the party entitled to
the notice). The terms of this Agreement shall not be
waived, altered, modified, amended or supplemented in
any manner whatsoever except by a written instrument
signed by the Administrator and the Corporation.
(c) Notwithstanding anything herein to the
contrary, upon the termination of this Agreement or the
liquidation of a Fund or the Corporation, the
Administrator shall deliver the records of the Fund(s)
and/or Corporation as the case may be to the
Corporation or person(s) designated by the Corporation
and thereafter the Corporation or its designee shall be
solely responsible for preserving the records for the
periods required by all applicable laws, rules and
regulations. In addition, in the event of termination
of this Agreement, or the proposed liquidation or
merger of the Corporation or a Fund(s), and the
Corporation requests the Administrator to provide
services in connection therewith, the Administrator
shall provide such services and be entitled to such
compensation as the parties may mutually agree.
7. Non-Exclusivity
The services of the Administrator rendered to the
Corporation are not deemed to be exclusive. The
Administrator may render such services and any other
services to others, including other investment
companies. The Corporation recognizes that from time
to time directors, officers and employees of the
Administrator may serve as trustees, directors,
officers and employees of other entities (including
other investment companies), that such other entities
may include the name of the Administrator as part of
their name and that the Administrator or its affiliates
may enter into investment advisory or other agreements
with such other entities.
8. Governing Law; Invalidity
This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin. To
the extent that the applicable laws of the State of
Wisconsin, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the
latter shall control, and nothing herein shall be
construed in a manner inconsistent with the 1940 Act or
any rule or order of the Commission thereunder. Any
provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in
any other jurisdiction.
9. Notices
Any notice required or to be permitted to be given
by either party to the other shall be in writing and
shall be deemed to have been given when sent by
registered or certified mail, postage prepaid, return
receipt requested, as follows: Notice to the
Administrator shall be sent to Sunstone Financial
Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, WI, 53202, Attention Miriam M. Allison, and
notice to the Corporation shall be sent to Frontegra
Funds, Inc., 400 Skokie Blvd, Suite 500 Northbrook,
Illinois 60062, Attn: Co-Presidents.
10. Entire Agreement
This Agreement constitutes the entire Agreement of
the parties hereto.
11. Counterparts
This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an
original agreement but such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer as of the day and year first above written.
FRONTEGRA FUNDS, INC.
(the Corporation)
By:____________________________________________
Co-President
SUNSTONE FINANCIAL GROUP,INC.
("Administrator")
By:____________________________________________
President
Schedule A
to the
Administration and Fund Accounting Agreement
by and between
FRONTEGRA FUNDS, INC.
and
Sunstone Financial Group, Inc.
Frontegra Total Return Bond Fund
Schedule B
to the
Administration and Fund Accounting Agreement
by and between
FRONTEGRA FUNDS, INC.
and
Sunstone Financial Group, Inc.
Minimum
Name of Fund Annual Fees Annual Fee
Total Return Bond Up to $50 Million 20.0 basis points $65,000
Over $50 Million 7.0 basis points
The fees quoted assume a single class of shares. In
addition to the foregoing, the Corporation shall pay to
the Administrator $32,000 for organizational start-up
services provided by the Administrator on behalf of the
Funds. The Corporation shall also pay/reimburse the
Administrator's out-of-pocket expenses as described in
the Agreement. The minimum annual fee is subject to
annual escalation in the amount of 6% with the first
escalation to be effective one-year from the date
hereof. Fees for additional series shall be determined
separately and reflected in an amended Schedule B.
GODFREY & KAHN, S.C.
ATTORNEYS AT LAW
780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
PHONE (414) 273-3500 FAX: (414) 273-5198
October 9, 1996
Frontegra Funds, Inc.
400 N. Skokie Boulevard, Suite 500
Northbrook, IL 60062
Ladies and Gentlemen:
We have acted as your counsel in connection
with the preparation of a Registration Statement on
Form N-1A (Registration Nos. 333-7305 and 811-7685)
(the "Registration Statement") relating to the sale by
you of an indefinite number of shares of Frontegra
Funds, Inc. (the "Company") common stock, $0.01 par
value (the "Shares"), in the manner set forth in the
Registration Statement (and the prospectus included
therein).
We have examined: (a) the Registration
Statement (and the prospectus included therein), (b)
the Company's Articles of Incorporation, and By-Laws,
(c) certain resolutions of the Company's Board of
Directors, and (d) such other proceedings, documents
and records as we have deemed necessary to enable us to
render this opinion.
Based upon the foregoing, we are of the
opinion that the Shares, when sold as contemplated in
the Registration Statement, will be duly authorized and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an
exhibit to the Registration Statement. In giving this
consent, however, we do not admit that we are "experts"
within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the
caption "Independent Auditors" and to the use of our
report dated September 30, 1996 for the Total Return
Bond Fund in the Registration Statement (Form N-1A) and
related Prospectus of the Frontegra Funds, Inc. filed
with the Securities and Exchange Commission in this Pre-
Effective Amendment No. 1 to the Registration Statement
under the Securities Act of 1933 (Registration No. 33-
37305) and in this Amendment No. 1 to the Registration
Statement under the Investment Company Act of 1940
(Registration No. 811-7685).
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Chicago, Illinois
October 7, 1996
FRONTEGRA FUNDS, INC.
STOCK SUBSCRIPTION AGREEMENT
To the Board of Directors of Frontegra Funds, Inc.:
The undersigned purchaser (the "Purchaser") hereby
subscribes to 1,666.666 shares (the "Shares") of common
stock, $.01 par value (the "Common Stock"), of
Frontegra Funds, Inc. (the "Company") in consideration
for which the Purchaser agrees to transfer to you upon
demand Fifty Thousand Dollars ($50,000) in cash. The
Purchaser desires to invest the $50,000 in the
Frontegra Total Return Bond Fund. Accordingly, the
Purchaser will receive 1,666.666 Shares of the
Frontegra Total Return Bond Fund.
It is understood that a certificate representing
the Shares shall not be issued to the undersigned, but
such ownership shall be recorded on the books and
records of the Company's transfer agent.
Notwithstanding the fact that a certificate
representing ownership will not be issued, said Shares
shall be deemed fully paid and nonassessable.
The Purchaser agrees that the Shares are being
purchased for investment with no present intention of
reselling or redeeming said Shares.
The Purchaser acknowledges that costs incurred by
the Company in connection with its organization,
registration and initial public offering of Shares of
the Company have been deferred and are being amortized
over a period of five years from the date upon which
the Company commences its investment activities.
The Purchaser agrees that in the event any of the
Shares purchased hereunder are redeemed during such
five year period, the Company is authorized to reduce
the redemption proceeds to cover any unamortized
organizational expenses in the same proportion as the
number of Shares being redeemed bears to the number of
Shares outstanding at the time of the redemption. If,
for any reason, said reduction of redemption proceeds
is not in fact made by the Company in the event of such
a redemption, the Purchaser agrees to reimburse the
Company immediately for any unamortized organizational
expenses in the proportion stated above.
Dated and effective this 30th day of
September, 1996.
REAMS ASSET MANAGEMENT COMPANY, LLC
/s/ L. Paul Berman
____________________________________
By: L. Paul Berman
Its: Senior Vice President
ACCEPTANCE
The foregoing subscription is hereby accepted.
Dated and effective as of this 30th day of September, 1996.
FRONTEGRA FUNDS, INC.
/s/ William D. Forsyth, III
________________________________________
By: William D. Forsyth, III
Its: Co-President
/s/ Thomas J. Holmberg, Jr.
________________________________________
Attest: Thomas J.Holmberg, Jr.
Co-President
FRONTEGRA FUNDS, INC.
STOCK SUBSCRIPTION AGREEMENT
To the Board of Directors of Frontegra Funds, Inc.:
The undersigned purchaser (the "Purchaser") hereby
subscribes to 1,666.667 shares (the "Shares") of common
stock, $.01 par value (the "Common Stock"), of
Frontegra Funds, Inc. (the "Company") in consideration
for which the Purchaser agrees to transfer to you upon
demand Fifty Thousand Dollars ($50,000) in cash. The
Purchaser desires to invest the $50,000 in the
Frontegra Total Return Bond Fund. Accordingly, the
Purchaser will receive 1,666.667 Shares of the
Frontegra Total Return Bond Fund.
It is understood that a certificate representing
the Shares shall not be issued to the undersigned, but
such ownership shall be recorded on the books and
records of the Company's transfer agent.
Notwithstanding the fact that a certificate
representing ownership will not be issued, said Shares
shall be deemed fully paid and nonassessable.
The Purchaser agrees that the Shares are being
purchased for investment with no present intention of
reselling or redeeming said Shares.
The Purchaser acknowledges that costs incurred by
the Company in connection with its organization,
registration and initial public offering of Shares of
the Company have been deferred and are being amortized
over a period of five years from the date upon which
the Company commences its investment activities.
The Purchaser agrees that in the event any of the
Shares purchased hereunder are redeemed during such
five year period, the Company is authorized to reduce
the redemption proceeds to cover any unamortized
organizational expenses in the same proportion as the
number of Shares being redeemed bears to the number of
Shares outstanding at the time of the redemption. If,
for any reason, said reduction of redemption proceeds
is not in fact made by the Company in the event of such
a redemption, the Purchaser agrees to reimburse the
Company immediately for any unamortized organizational
expenses in the proportion stated above.
Dated and effective this 30th day of September, 1996.
FRONTEGRA ASSET MANAGEMENT, INC.
/s/ William D. Forsyth, III
_________________________________
By: William D. Forsyth, III
Its: Co-President
ACCEPTANCE
The foregoing subscription is hereby accepted.
Dated and effective as of this 30th day of September,
1996.
FRONTEGRA FUNDS, INC.
/s/ William D. Forsyth, III
_______________________________________
By: William D. Forsyth, III
Its: Co-President
________________________________________
Attest: Thomas J.Holmberg, Jr.
Co-President
For Fund information, prices, literature, account
balances and other information about your Frontegra
Funds account, call 1-888-825-2100.
IRA Disclosure Statement and Custodial Agreement
Frontegra Funds, Inc.
Investment Adviser
The Frontegra Funds
P.O. Box 2142
Milwaukee, WI 53201-2142
Table of Contents
Disclosure Statement 2
Power to Revoke 2
Legal Requirements with Respect to Your IRA 2
Tax Treatment of Contributions to Your IRA 3
Tax Treatment of Distributions from Your IRA 3
Tax Treatment of Your IRA 4
Limits on Contributions to Your Account 4
Spousal IRA 4
Rollover 5
Rollover Contributions and Tax-Free Transfers 5
Excess Contributions 6
Use of Your Account as Security for a Loan 6
Prohibited Transactions 7
Estate Taxation 7
Effect of Divorce 8
Withdrawals Prior to Age 59 1/2 8
Minimum Distributions Required
Starting at Age 70 1/2 9
Penalty Tax for Failure to Meet
Minimum Distribution Requirements 9
Excess Distribution Penalty 9
Designation of a Beneficiary or Beneficiaries 10
Distributions Following Death of Grantor 10
Investment of Account 11
Financial Guarantees and Projections 11
Trustee Not Liable 11
Termination of This Account 11
Duty to File Tax Returns 12
Internal Revenue Service Approval 12
Additional Information 12
Custodial Agreement 13
Article I 13
Article II 13
Article III 14
Article IV 14
Article V 16
Article VI 16
Article VII 17
Article VIII 17
Section 1 -- Investment of Account 17
Section 2 -- Beneficiary Designations 19
Section 3 -- Miscellaneous 21
Schedule of Fees 25
Disclosure Statement
Power to Revoke. For a period of seven (7) days
following the date on which you enter into an IRA or
Custodial Trust Agreement with UMB Bank, n.a. (i.e.
"UMB"), you have the right to revoke the Trust. To
effect revocation, please write or call The Frontegra
Funds, P.O. Box 2142, Milwaukee, WI 53201-2142 or 1-888-
825-2100. In the event notice is mailed, the postmark
date (or date of certification or registration, if sent
by certified or registered mail) will be deemed the
date of delivery, provided that normal mailing
procedures are followed. If you revoke your account,
you are entitled to a return of the entire amount
deposited to your account without reduction for any
fees, expenses or commissions and without any
adjustment for any investment gain or loss.
Legal Requirements with Respect to Your IRA
Current tax law requires that your trust agreement be
in writing and that it contain the following
provisions.
1.All contributions must be in the form of cash and
cannot be in excess of the lesser of your
compensation or $2,000 per year, unless the
contribution is a rollover contribution as defined
in the Internal Revenue Code. Employer contributions
to a Simplified Employee Pension plan may exceed the
limitations applicable to individuals.
2.The Trustee must be a bank such as UMB, or other
institution (or person) that has
satisfied the Secretary of the Treasury that it is
able to administer your account in accordance with
tax laws.
3.None of the funds of your account may be invested in
life insurance contracts.
4.Your interest in the balance of the account cannot
be forfeited.
5.With the exception of investments in a common trust
fund or common investment fund such as a mutual
fund, none of your account assets may be commingled.
6.Distribution of your interest in the account must
begin no later than the April 1 next following the
year in which you attain age 70 1/2. Any balance in
the account at that time must be distributed to you
in a lump sum or commence to be paid in a series of
payments which do not exceed your life expectancy or
the joint and survivor life expectancies of yourself
and your designated beneficiary. However, you may
increase withdrawals. If you should die prior to
receiving the entire account, the balance must be
distributed to your beneficiary in accordance with
Treasury Department regulations (unless the
beneficiary is your spouse and elects to treat the
account as his or her own IRA).
Tax Treatment of Contributions to Your IRA
Without regard to qualifying rollover contributions or
to contributions made by your employer to a Simplified
Employee Pension plan, under present tax law you are
permitted to make an annual contribution to your
account in any amount up to the lesser of your
compensation or $2,000. Such annual contributions may
be made anytime during the year (and up to your tax
return due date for the taxable year, not including
extensions). If you are not covered by an employer-
sponsored retirement plan (e.g., a profit-sharing plan,
ESOP, pension plan, etc.) and (if you file a joint
return) your spouse is not covered by such a plan, you
may deduct your full contribution. If you or your
spouse (if a joint return is filed) are covered by such
a plan you may still be entitled to deduct either all
or a portion of your contribution, depending upon the
amount of your Adjusted Gross Income ("AGI"). If you
are married and filing a joint return you may deduct
the full contribution if your AGI is under $40,000. If
you are single the full deduction is available if your
AGI is under $25,000. No deduction at all is available
if you are married (if a joint return is filed) and
your AGI is $50,000 or more or if you are unmarried and
your AGI is $35,000 or more. (Special rules apply if
you are married but you and your spouse are filing
separate returns.) If your AGI is above the amount
where a full deduction applies but less than the amount
where no deduction is available a partial deduction can
be taken. The amount of the partial deduction can be
approximately determined by taking 20% of the
difference between your AGI and the applicable dollar
amount ($25,000 if single; $40,000 if married) and
subtracting the result from $2,000. For example, assume
an unmarried individual has AGI of $30,000 and
contributes $2,000 to his IRA. 20% of the difference
between his AGI ($30,000) and the applicable dollar
amount ($25,000) is $1,000. $1,000 subtracted from
$2,000 is $1,000. Therefore, he is entitled to deduct
$1,000 of his $2,000 contribution. He may, of course,
limit his contribution to the amount deductible if he
wishes to do so. Even if your contribution is only
partially deductible -- or not deductible at all -- there
is still a tax advantage for making it. As long as
contributions remain in your IRA they may grow and
increase in value without the braking effect of current
taxation of earnings.
Tax Treatment of Distributions from Your IRA
Amounts distributed to you from the account (except for
refunds of certain excess contributions and non-
deductible contributions which are discussed below)
will be taxable as ordinary income in the year
received. The benefits of capital gain treatment and 5-
year and 10-year forward averaging (now being phased
out) which may apply to distributions from your
employer's qualified plan, are not available with
respect to distributions from your account.
Distributions of non-deductible contributions are not
taxable. If you have made non-deductible contributions
to an IRA, then distributions from the IRA will be
excluded from tax in the proportion that all non-
deductible contributions to your IRAs bear to the
aggregate balances of all your IRAs at the end of the
year of distribution. All distributions are subject to
federal income tax withholding requirements unless the
recipient elects not to have withholding apply by
written notice to the Trustee at the time such
distribution is requested.
Tax Treatment of Your IRA
The funds in your IRA are not subject to income tax
until distributed to you. The earnings accumulate on a
tax-deferred basis to compound the growth of your
account.
Limits on Contributions to Your Account
Except in the case of a rollover contribution, during
any year the maximum contribution you can make is
$2,000 or 100% of your compensation, whichever is less.
For purposes of determining the amount of your
contributions, "compensation" means wages, commissions,
salaries, tips, professional fees, bonuses and other
amounts you receive for providing personal services.
Alimony is also treated as compensation which you may
contribute to your IRA. No contributions can be made in
the year that you attain age 70 1/2 or subsequent years.
Spousal IRA
If your spouse is employed, he or she can establish his
or her own IRA subject to the same rules as are
applicable to your IRA. If you file a joint return with
a spouse who either has no compensation for the taxable
year or elects to be treated as having none, the
maximum contribution amount is the lesser of $2,250 or
100% of your compensation for the year. In such case
the amount contributed can be divided between your IRA
and the spousal IRA in any manner you desire, provided
that no more than $2,000 can be contributed to either
IRA. For example, the $2,250 (or such lesser amount as
you contribute) can be divided equally between the two
IRAs or $2,000 may be contributed to one and $250 to
the other. No contributions may be made to a spousal
IRA during or after the year in which he or she reaches
age 70 1/2. However, if you are ineligible to make
contributions to your own IRA because of age, you may
(if you have sufficient compensation) nevertheless make
contributions of up to $2,000 to an IRA for your non-
working spouse if he or she has not reached age 70 1/2.
Rollover
If your account represents a rollover from a pension or
profit-sharing plan qualified under Section 401(a) of
the Internal Revenue Code, you should not make non-
rollover additional contributions to the same account
if you desire to preserve its eligibility for future
rollover to another qualified plan. Similarly, if your
account represents a rollover from a Section 403(b)
annuity or custodial account, you should not make non-
rollover additional contributions to the same account
if you desire to preserve its eligibility for future
rollover to another Section 403(b) annuity or custodial
account. A rollover IRA is eligible to accept future
rollover contributions. In addition, you may establish
another IRA to which non-rollover annual cash
contributions may be made.
Rollover Contributions and Tax-Free Transfers
A rollover contribution is a contribution to your IRA
of cash and/or property other than cash which you
received as a distribution from another IRA or as a
qualified distribution from a Section 403(b) annuity,
or a qualified employer-sponsored retirement plan, such
as a profit-sharing plan, 401(k) plan, an ESOP, etc. In
the case of a tax-free transfer, the transfer is made
directly between the fiduciaries, that is the trustees,
custodian, etc. of the IRAs and/or the qualified plan,
as the case may be. If you receive a distribution from
another IRA you may make a tax-free rollover
contribution of all or part of the assets you receive
to your UMB IRA, provided that you complete the
rollover within 60 days of the date you receive the
distribution. You may make only one such rollover
during any 12-month period. A direct transfer from the
trustee or custodian of another IRA to your UMB IRA may
be made without regard to the 12-month limitation
applicable to IRA rollovers.
If you receive a distribution from your employer's
qualified retirement plan, or a Section 403(b) annuity,
you may be eligible to make a rollover contribution to
your UMB IRA of all or part of the distribution, less
the amount of any non-deductible contributions to the
plan. Most distributions, with the notable exception of
installments paid over a ten or more year period, are
eligible for rollover. The rollover contribution must
be made within 60 days of the date you receive the
distribution. If the distribution included property
other than cash, the property itself (or the proceeds
from its sale) must be included in the rollover
contribution to the extent possible, before any cash
received in the distribution may be included.
In order to avoid 20% federal income tax withholding on
the amount distributed from the qualified retirement
plan or Section 403(b) annuity, you should direct that
the distribution be transferred to your UMB IRA in a
"direct rollover." You should receive information about
the "direct rollover" option from your plan
administrator prior to distribution of your account.
You may not roll over any minimum distribution amounts
you are required to receive after age 70 1/2.
Excess Contributions
An excess contribution is any contribution amount which
exceeds your contribution limit, excluding rollover and
direct transfer amounts. In addition, any contributions
that are made to an IRA for the year in which the IRA
owner reaches age 70 1/2, or for any later year, are
considered excess contributions. If excess
contributions are made to your account in any year and
the excess (including income attributed to that excess)
is withdrawn prior to the due date for your tax return
for that year (including extensions), no penalty tax
will be imposed on the amount contributed. Income
attributed to such excess contributions refunded is
taxable, and is also subject to a 10% additional income
tax unless you are older than age 59 1/2 or are
disabled.
If the withdrawal of excess contributions occurs after
the due date for your tax return (including
extensions), a 6% cumulative penalty tax will be
imposed on the excess. A further 10% additional income
tax will be imposed upon the withdrawn excess amount if
a deduction was allowed for the excess contribution and
the total contributions for the year exceeded the
maximum deductible amount, unless you have reached age
59 1/2 or are disabled by the time of the withdrawal. If
excess contributions have been made, you can correct
the situation by reducing your contributions in
subsequent years. Excess contributions left in the
account and applied to a later tax year's contributions
are still subject to the 6% penalty tax and will
continue to remain so until the excess has been
corrected.
Use of Your Account as Security for a Loan
You may not pledge any part of your account as security
for a loan. If you use all or any part of your account
as security for a loan, the portion used for that
purpose is treated as though it were distributed to you
and you must include that amount in your gross income
for the year in which that transaction takes place. If
the pledge occurs prior to your attaining age 591U2, an
additional income tax equal to 10% of the amount
included in your taxable income is added to your tax
liability.
Prohibited Transactions
Tax laws also prohibit certain other transactions
between a "Disqualified Person" and your account. A
"Disqualified Person" includes UMB, you, a beneficiary
of your account, members of your family or of a
beneficiary's family or any business or trust in which
a controlling interest is held by any of these
individuals. The prohibited transactions are as
follows:
1.sale or exchange or leasing of property between your
account and a Disqualified Person;
2.lending of money or other extension of credit
between your account and a Disqualified Person;
3.furnishing of goods, services or facilities between
your account and a Disqualified Person;
4.transfer to or use by or for the benefit of a
Disqualified Person of the income or assets of your
account;
5.any act by a Disqualified Person who is a fiduciary
whereby he or she deals with the income or assets of
your account in his or her own interest or for his
or her own account; or
6.receipt of any consideration for his or her own
personal account by any Disqualified Person who is a
fiduciary from any party dealing with your account
in connection with a transaction involving the
income or assets of the account.
If either you or your beneficiary engages in a
prohibited transaction, your IRA will lose its tax
exemption, and its full value will be added to your
other taxable income for the year in which the
transaction takes place. If any of these transactions
occur prior to your attaining age 59 1/2, an additional
income tax equal to 10% of the amount included in your
taxable income is added to your tax liability.
Estate Taxation
If there is a balance in your account at the time of
your death, that balance will be included in your
estate for federal estate tax purposes. Your estate
will have to pay an additional 15% federal estate tax
on any excess retirement accumulation at your death. An
excess retirement accumulation exists if, at the time
of your death, the value of all your interests in
qualified plans, tax-sheltered annuities and IRAs
exceeds the present value of an annuity with annual
payments of $155,000 (adjusted periodically for
inflation) payable over your life expectancy
immediately before your death. An exception to the
excess retirement accumulations tax may apply if your
spouse is the designated beneficiary. Please consult
your tax adviser.
Effect of Divorce
The general rule is that the Grantor will be liable for
income tax and any penalties on any amount distributed
from his or her IRA to meet the obligation specified in
a divorce decree. The transfer may be structured so as
to avoid taxation to the Grantor if the requirements of
Code Section 408(d)(6) are met. Those requirements are:
1.a written court order clearly specifying the amount
to be transferred into an IRA of the spouse or
former spouse, and
2.(a) a direct transfer of the funds to the IRA of
the spouse or former spouse;
(b) changing the name on the IRA from your name to
the name of your spouse or former spouse; or
(c) moving a rollover of IRA assets from your IRA
to your spouse or former spouse.
Withdrawals Prior to Age 59 1/2
You may make withdrawals from your IRA at any time.
However, amounts withdrawn (except for the return of
non-deductible contributions) are includible in your
taxable income for the year of withdrawal. If you have
not yet reached age 59 1/2 when a withdrawal is made,
10% additional income tax must be paid on the amount
withdrawn. After age 59 1/2 you may make such
withdrawals as you wish, free of any penalty tax. Until
you reach age 70 1/2 you are not required to make a
withdrawal. A withdrawal from your IRA before you reach
age 59 1/2 will not be subject to the penalty tax if it
is made on account of your permanent and total
disability, death, a qualifying rollover, a direct
transfer, the timely withdrawal of an excess
contribution or if the distribution is a part of a
series of substantially equal periodic payments (at
least annually) made over your life expectancy or the
joint life expectancies of you and your beneficiary.
Minimum Distributions Required Starting at Age 70 1/2
You must begin withdrawals from your IRA by April 1 of
the year following the year in which you reach age
70 1/2. With respect to the year during which age 70 1/2
is reached and each subsequent year you must withdraw
at least an amount sufficient to cause the entire
balance of your IRA to be distributed over your
remaining life expectancy or the joint life
expectancies of you and your designated beneficiary,
determined by actuarial tables. If you elect to receive
your first required distribution between January 1 and
April 1 following the year in which you reach age
70 1/2, you must receive a second required distribution
prior to the end of that year.
You may choose (within the limits set forth in the IRS
distribution rules) how you want your required minimum
distributions structured. You must make your payment
election no later than April 1 following your 70 1/2
year. If you do not make an election by that date, we
will determine your required minimum distribution each
year based on your single life expectancy (if a
beneficiary is not named) or joint life expectancies
(if there is a designated beneficiary) -- and pay those
distributions to you. For this purpose, all life
expectancies, except that of a non-spouse beneficiary,
will be recalculated.
If you name someone other than your spouse as your
beneficiary, and your beneficiary is more than 10 years
younger than you, your required minimum distributions
must satisfy the Minimum Distribution Incidental
Benefit rule (which calculates your distributions as if
your beneficiary were exactly 10 years younger than
you).
Penalty Tax for Failure to Meet Minimum Distribution
Requirements
If the amount distributed to you with respect to any
year in which you are at least age 70 1/2 is less than
the minimum required distribution, a penalty tax of 50%
of the difference between the actual distribution and
the minimum required distributions will be imposed.
Excess Distribution Penalty
You will be taxed an additional 15% on any amount
received and included in your income during a calendar
year from qualified retirement plans, tax-sheltered
annuities and IRAs which exceeds $155,000 (adjusted
periodically for inflation). Certain exceptions may
apply. Consult your tax adviser if you receive an
excess distribution.
Designation of a Beneficiary or Beneficiaries
You have the right to designate one or more
beneficiaries to whom your account, or any
undistributed portion thereof, is to be paid in the
event of your death. You may also at any time revoke a
prior beneficiary designation and, if desired,
designate different individuals as beneficiaries.
You may designate your beneficiary(ies) on the IRA
Application, or in a form acceptable to the Trustee.
Write or call The Frontegra Funds, P.O. Box 2142,
Milwaukee, WI 53201-2142 (Telephone 1-888-825-2100).
In the absence of a valid beneficiary designation, the
Trustee will make distribution of any death benefit to
your surviving legal spouse; but, if none, then to your
surviving natural and adoptive children in equal
shares, but if none, then to your personal
representative. Notwithstanding the foregoing sentence,
the Trustee may, in any case where reasonable doubt
exists as to the proper course of action, request
instructions from a court of competent jurisdiction.
All costs and expenses (including time expended by the
Trustee) in such cases will be charged against your
account.
Distributions Following Death of Grantor
As a general rule, the entire balance of the IRA must
be distributed to beneficiaries by December 31 of the
year in which the 5th anniversary of the Grantor's
death falls. If this rule is violated, a penalty tax
equal to 50% of the undistributed balance will be
imposed. There are three exceptions to the general
rule: (1) If the Grantor's designated beneficiary is
the surviving spouse of the Grantor, such spouse may
elect to treat the Grantor's IRA as his or her own IRA.
In that case the 5-year limitation will not apply. (2)
Where installment payments have commenced over the life
expectancies of the Grantor and designated beneficiary
before the Grantor's death then payments will continue
to the surviving beneficiary at a rate at least as
rapidly as in effect at the time of the Grantor's
death, and the 5-year limitation does not apply. In
such case, the surviving beneficiary has the same right
to designate beneficiaries as the Grantor had while
living. (The 5-year limitation will apply to
distributions to any such second-level beneficiaries.)
(3) If the Grantor dies before his or her required
beginning date and the designated beneficiary elects
that the account balance be distributed in
substantially equal payments over his or her life
expectancy, the beneficiary must make this election and
commence distributions by December 31 of the year
following the year of the Grantor's death
(distributions need not commence for a surviving spouse
beneficiary until December 31 of the year the Grantor
would have attained age 70 1/2).
Trustee to Assume Grantor is Calendar Year Taxpayer
Unless Otherwise Informed
and until specifically notified that you make your
federal income tax returns on another basis, the
Trustee will assume for all purposes, including the
preparation and furnishing of accounting statements,
reports, etc., that such tax returns are made on the
basis of calendar years.
Trustee Not Legal Adviser or Tax Counselor -- Grantor
Should Consult Own Adviser
UMB expressly disclaims any right, duty, authority or
responsibility to furnish legal or tax advice
respecting any matter or matters concerning or relating
to your account including present or future federal
income tax consequences to you or others which may
arise or result from the establishment or maintenance
of your account, the selection of payment options,
beneficiaries, and any other matter whatsoever. You are
advised and encouraged to consult with professional
counsel of your own selection respecting all such
matters.
Investment of Account
Your account may be invested only in accordance with
your direction in The Frontegra Funds or any other
mutual fund designated by Frontegra as a permissible
investment alternative. None of the funds held in your
account may be used to purchase life insurance.
Financial Guarantees and Projections
The value of your account at any point in time will, of
course, depend upon the then current market value of
the investments, retained investment earnings, if any,
etc. No guarantees or projections of any nature
concerning earnings rates or future security values are
made.
Trustee Not Liable
The Trustee has no responsibility or liability for any
losses or expenses relating to any investment or to the
sale or exchange of any asset of your account.
Termination of This Account
The Trustee may resign at any time upon 60 days' notice
in writing to you, and may be removed by you at any
time upon 60 days' written notice. In either such event
you must appoint a qualified successor trustee or
qualified custodian to whom the Trustee, upon receipt
of written acceptance of the appointment, shall
transfer the assets (less any amounts deemed necessary
for payment of fees, costs or expenses) and records of
your account.
Duty to File Tax Returns
In any year in which you incur liability for a penalty
tax by reason of making excess contributions, by making
early withdrawals (premature distributions), or by
failure to withdraw the minimum amount from your
account, you are obligated to file Internal Revenue
Service Form 5329 "Return for Individual Retirement
Arrangement Taxes" with your Form 1040 at the time it
is filed. Deductible contributions in any year are
reported on your Form 1040. Non-deductible
contributions must be reported on Form 8606.
Internal Revenue Service Approval
The Individual Retirement Trust Agreement is comprised
of eight articles. The first seven articles constitute
Internal Revenue Service Form 5305 (REV. OCTOBER, 1992)
"Individual Retirement Trust Account." Under Treasury
Department regulations prototype trusts which use the
provisions of this Form are considered to meet the
requirements of the Internal Revenue Code. The addition
of Article VIII by UMB does not negate the approval
status of the prototype. The Individual Retirement
Trust Agreement, on IRS Form 5305, has been approved as
to form by the Internal Revenue Service. However, in
approving the form, the IRS does not consider the
investment merits of the program.
Additional Information
Additional information about individual retirement
accounts is contained in IRS Publication 590, which can
be obtained from the office of the District Director of
Internal Revenue.
Custodial Agreement
This Agreement is made between UMB Bank, n.a., as
trustee or its successor (hereinafter referred to as
"Trustee") and the individual whose name appears on the
IRA Application or other Adoption Agreement
(hereinafter referred to as "Grantor"). If the Grantor
has previously adopted this Individual Retirement Trust
Account ("IRA") in any earlier form, by signature to
the IRA Application, he or she adopts the amended IRA
in the form as hereby restated.
The Grantor is establishing (or adopting an amendment
to) an individual retirement account (under Section
408(a) of the Internal Revenue Code) to provide for his
or her retirement, and for the support of his or her
beneficiaries after death. The Trustee has given the
Grantor the disclosure statement required under the
Income Tax Regulations under Section 408(i) of the
Code. Unless this Agreement is adopted for an existing
IRA, the Grantor has made an initial cash contribution
to the IRA concurrently with the execution of the IRA
Application or other Adoption Agreement. The Grantor
and Trustee make the following agreement:
Article I
The Trustee may accept additional cash contributions on
behalf of the Grantor for a tax year of the Grantor.
The total cash contributions are limited to $2,000 for
the tax year unless the contribution is a rollover
contribution described in Section 402(c) (but only
after December 31, 1992), 403(a)(4), 403(b)(8), or
408(d)(3) of the Code or an employer contribution to a
Simplified Employee Pension plan as described in
Section 408(k). Rollover contributions before January
1, 1993 include rollovers described in Section
402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8),
or 408(d)(3) of the Code or an employer contribution to
a Simplified Employee Pension plan as described in
Section 408(k).
Article II
The Grantor's interest in the balance of the trust
account is nonforfeitable.
Article III
1.No part of the trust funds may be invested in life
insurance contracts; nor may the assets of the trust
account be commingled with other property except in
a common trust fund or a common investment fund
(within the meaning of Section 408(a)(5) of the
Code).
2.No part of the trust funds may be invested in
collectibles (within the meaning of Section 408(m)
of the Code), except as otherwise permitted by
Section 408(m)(3) which provides an exception for
certain gold and silver coins issued under the laws
of any state.
Article IV
1. Notwithstanding any provision of this agreement to
the contrary, the distribution of the Grantor's
interest in the trust account shall be made in
accordance with the following requirements and shall
otherwise comply with Section 408(a)(6) and Proposed
Regulations Section 1.408-8, including the incidental
death benefit provisions of Proposed Regulations
Section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions
are required to begin to the Grantor under paragraph 3,
or to the surviving spouse under paragraph 4, other
than in the case of a life annuity, life expectancies
shall be recalculated annually. Such election shall be
irrevocable as to the Grantor and the surviving spouse
and shall apply to all subsequent years. The life
expectancy of a non-spouse beneficiary may not be
recalculated.
3. The Grantor's entire interest in the trust account
must be, or begin to be, distributed by the Grantor's
required beginning date, the April 1 following the
calendar year in which the Grantor reaches age 70 1/2.
By that date, the Grantor may elect, in a manner
acceptable to the Trustee, to have the balance in the
trust account distributed in:
(a) a single sum payment.
(b) an annuity contract that provides equal or
substantially equal monthly, quarterly, or annual
payments over the life of the Grantor.
(c) an annuity contract that provides equal or
substantially equal monthly, quarterly, or annual
payments over the joint and last survivor lives of
the Grantor and his or her designated beneficiary.
(d) equal or substantially equal annual payments over
a specified period that may not be longer than the
Grantor's life expectancy.
(e) equal or substantially equal annual payments over
a specified period that may not be longer than the
joint life and last survivor expectancy of the
Grantor and his or her designated beneficiary.
4. If the Grantor dies before his or her entire
interest is distributed to him or her, the entire
remaining interest will be distributed as follows:
(a) If the Grantor dies on or after distribution of
his or her interest has begun, distribution must
continue to be made in accordance with paragraph 3.
(b) If the Grantor dies before distribution of his or
her interest has begun, the entire remaining interest
will, at the election of the Grantor, or if the Grantor
has not so elected, at the election of the beneficiary
or beneficiaries, either
(i) be distributed by December 31 of the year
containing the fifth anniversary of the
Grantor's death, or
(ii) be distributed in equal or substantially
equal payments over the life expectancy of the
designated beneficiary or beneficiaries
starting by December 31 of the year following
the year of the Grantor's death. If, however,
the beneficiary is the Grantor's surviving
spouse, then this distribution is not required
to begin before December 31 of the year in
which the Grantor would have turned age 70 1/2.
(c) Except where distribution in the form of an
annuity meeting the requirements of Section 408(b)(3)
and its related regulations has irrevocably commenced,
distributions are treated as having begun on the
Grantor's required beginning date, even though payments
may actually have been made before that date.
(d) If the Grantor dies before his or her entire
interest has been distributed and if the beneficiary is
other than the surviving spouse, no additional cash
contributions or rollover contributions may be accepted
in the account.
5. In the case of distribution over life expectancy
in equal or substantially equal annual payments, to
determine the minimum annual payment of each year,
divide the Grantor's entire interest in the trust as of
the close of business on December 31 of the preceding
year by the life expectancy of the Grantor (or the
joint life and last survivor expectancy of the Grantor
and the Grantor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever
applies). In the case of distributions under paragraph
3, determine the initial life expectancy (or joint life
and last survivor expectancy) using the attained ages
of the Grantor and designated beneficiary as of their
birthdays in the year the Grantor reaches age 70 1/2. In
the case of distribution in accordance with paragraph
4(b)(ii), determine life expectancy using the attained
age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are
required to commence.
6. The owner of two or more individual retirement
accounts may use the "alternate method" described in
Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum
distribution requirements described above. This method
permits an individual to satisfy these requirements by
taking from one individual retirement account the
amount required to satisfy the requirement of another.
Article V
1. The Grantor agrees to provide the Trustee with
information necessary for the Trustee to prepare any
reports required under Section 408(i) of the Code and
Regulations Sections 1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the
Internal Revenue Service and the Grantor as prescribed
by the Internal Revenue Service.
Article VI
Notwithstanding any other articles which may be added
or incorporated, the provisions of Articles I through
III and this sentence will be controlling. Any
additional articles that are not consistent with
Section 408(a) of the Code and related regulations will
be invalid.
Article VII
This agreement will be amended, from time to time, to
comply with the provisions of the Code and related
regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
Article VIII
Section 1 -- Investment of Account
1. The Grantor has the sole authority and discretion,
fully and completely, to select and to direct the
investment of all assets in the trust account, but only
in the The Frontegra Funds portfolios or any other
mutual fund designated by Frontegra as a permissible
investment alternative.
2. Subject to the right and duty of the Grantor to
direct the investments of his or her trust account, the
Trustee shall have full authority and power:
(a) to invest and reinvest the trust account in
such Mutual Funds as described in paragraph 1 of this article;
(b) to sell, assign, exchange, convey, or
otherwise transfer any part or all of the securities or
other property of the trust account, upon such terms
and conditions as the Grantor shall direct, and no
person dealing with the Trustee shall be bound to see
to the application of the purchase money or inquire
into the validity, expediency, or propriety of such
transaction;
(c) to sue or defend any suit or legal proceeding
by or against the trust account and to compromise,
settle, submit to arbitration, or adjust any suit or
legal proceeding, claim, debt, damage, or undertaking
due or owing from or to the trust account but the
Trustee shall not be obligated to take any action which
would subject it to expense or liability unless it be
first indemnified in an amount and manner satisfactory
to it or be furnished with funds sufficient, in its
sole judgment, to cover the same;
d) to acquire and hold any securities or other
property of the trust account without disclosing its
fiduciary capacity, or in the name of any other person,
with or without a power of attorney for transfer
thereto attached;
(e) to employ attorneys, accountants, and others
as it may deem advisable for the best interest of the
trust account, and to pay their reasonable expenses and
compensation out of the trust account;
(f) to make, execute and deliver, as Trustee, any
and all instruments in writing necessary or proper for
the effective exercise of any of the Trustee's powers
as stated herein or otherwise necessary to accomplish
the purpose of the trust account.
3. The following shall constitute charges upon the
trust account and shall be paid by the Trustee out of
the trust account unless, and to the extent, paid by
the Grantor:
(a) all taxes of whatever kind or character that
may be imposed, levied or assessed under existing or
future laws upon or in respect of the trust account, or
upon the Trustee in its capacity as such, or upon the
assets or income of the trust account;
(b) all expenses incurred by the Trustee in the
performance of its duties hereunder, including the fees
of attorneys, accountants and other persons engaged by
the Trustee for services in connection with the trust
account; and
(c) the fees and other compensation of the
Trustee for its services hereunder in the amounts
agreed upon from time to time by the Grantor and
Trustee.
4. The Grantor shall not borrow any money from the
trust account nor pledge any part thereof as security
for a loan. Furthermore, neither the Grantor nor the
Trustee shall engage, either directly or indirectly, in
any of the following transactions:
(a) the sale or exchange, or leasing, of any
property between the trust account and a Disqualified
Person;
(b) the lending of money or other extension of
credit between the trust account and a Disqualified
Person;
(c) the furnishings of goods, services or
facilities between the trust account and a Disqualified
Person;
(d) the transfer to, or use by or for the benefit
of, a Disqualified Person of the income or assets of
the Trust Account;
(e) an act by a Disqualified Person who is a
fiduciary whereby he or she deals with the income or
assets of the trust account in his or her own interest
or for his or her own account; or
(f) receipt of any consideration for his or her
own personal account by any Disqualified Person who is
a fiduciary from any party dealing with the trust
account in connection with a transaction involving the
income or assets of the trust account.
For purposes of this paragraph, "Disqualified Person"
shall have the meaning ascribed to that term under
Section 4975(e)(2) of the Code.
Section 2 -- Beneficiary Designations
1. At any time and from time to time the Grantor
shall have the right to designate one or more
beneficiaries to whom distribution of his or her trust
account, or the previously undistributed portion
thereof, shall be made in the event of his or her death
prior to the complete distribution of his or her trust
account. This right shall extend to the Grantor's
surviving spouse in the event he or she dies while
receiving distributions under the provisions of
Sections 3(e) or 4(b) of Article IV. Any such
beneficiary designation shall be deemed legally valid
only when submitted fully complete, duly executed, and
on a form provided by or acceptable to the Trustee.
Subject to the foregoing sentence, any such beneficiary
designation shall be effective upon receipt by the
Trustee. Any such beneficiary designation may be
revoked by the Grantor at any time, and shall be
automatically revoked upon receipt by the Trustee of a
subsequent beneficiary designation or beneficiary
designations in valid form bearing a later execution
date.
2. In the absence of a valid beneficiary designation
on file with the Trustee at the time of the Grantor's
death, the Trustee shall, upon receipt of notice of the
death of the Grantor supported by a certified copy of
the death certificate or other appropriate evidence of
the fact of death satisfactory to the Trustee, make
distribution of the Grantor's trust account to the
beneficiary or beneficiaries of the Grantor in the
following order of preference:
(a) to the Grantor's legal spouse; but if no such
legal spouse shall survive the Grantor, then to
(b) the surviving natural and adoptive children
of the Grantor in equal shares per capita and not per
stirpes; but if there shall be no such surviving child
or children then to
(c) the personal representative of the Grantor,
provided, however, that the Trustee shall have no duty,
obligation, or responsibility to make any inquiry or
conduct any investigation concerning the
identification, address, or legal status of any
individual or individuals alleging the status of
beneficiary (designated or otherwise) nor to make
inquiry or investigation concerning the possible
existence of any beneficiary not reported to the
Trustee within a reasonable period after the
notification of the Grantor's death (or that of his or
her surviving spouse) and previous to the distribution
of the trust account. The Trustee may conclusively rely
upon the veracity and accuracy of all matters reported
to it by any source ordinarily presumed to be
knowledgeable respecting the matters so reported. With
respect to any distribution made by reason of the death
of the Grantor (or his or her surviving spouse) the
Trustee shall have no higher duty than the exercise of
good faith, shall incur no liability by reason of any
action taken in reliance upon erroneous, inaccurate or
fraudulent information reported by any source assumed
to be reliable, or by reason of incomplete information
in its possession at the time of such distribution.
Upon full and complete distribution of the trust
account pursuant to the provisions of this Section, the
Trustee shall be fully and forever discharged from all
liability respecting such trust account.
3. Any distribution pursuant to the provisions of
this Section may be made in cash or in kind or partly
in both, at the sole discretion of the Trustee, and
shall be made within 30 days following receipt by the
Trustee of information deemed by it sufficient upon
which to base such distribution; provided, however,
that the Trustee shall incur no liability respecting
fluctuations in the value of the trust account in the
event of a delay occasioned by Trustee's good faith
decision to await additional evidence or information
bearing on the beneficiary or beneficiaries.
4. Whenever any distribution hereunder is payable to
a minor or to a person known by the Trustee to be under
a legal disability, the Trustee in its absolute
discretion may make all or any part of such
distribution to (a) a legal guardian or conservator for
such person, (b) a custodian under the Uniform
Transfers to Minors Act, (c) a parent of such person,
or (d) such person directly.
5. Anything to the contrary herein notwithstanding,
in the event of reasonable doubt respecting the proper
course of action to be taken, the Trustee may in its
sole and absolute discretion resolve such doubt by
judicial determination which shall be binding on all
parties claiming any interest in the trust account. In
such event all court costs, legal expenses, reasonable
compensation for the time expended by the Trustee in
the performance of its duties, and other appropriate
and pertinent expenses and costs, shall be collected by
the Trustee from the trust account.
Section 3 -- Miscellaneous
1. The Trustee may make further amendments to this
Agreement, in order to make said Agreement acceptable
in form to the Secretary of the Treasury and the
Secretary of Labor, or for any other purpose. Any such
amendments shall be effective without the signature of
the Grantor to a new Adoption Agreement or IRA
Application and shall, if for the purpose of initially
qualifying the trust account pursuant to the Code, be
retroactively effective to the date of the captioned
Agreement. The Trustee will mail a copy of any such
amendment to the Grantor.
2. The Trustee shall deliver, or cause to be executed
and delivered, to the Grantor all proxies, prospectuses
and notices pertaining to securities held in the
account. The Trustee shall not vote any such securities
except pursuant to written instructions from the
Grantor. Any notice sent from the Trustee to the
Grantor shall be effective, if sent by mail to the
Grantor's last address of record.
3. The Trustee, within 30 days after the close of
each calendar year, shall provide the Grantor a record
of activity in the trust account during such year,
including the date and the dollar amount of
contributions, any earnings on such contributions, the
date and dollar amount of any distributions, a
beginning balance and an ending balance. The Trustee
may meet its recordkeeping and reporting requirements
by adopting the records of any investment facility
permitted by this Agreement, and it may delegate
ministerial duties of keeping such records to such
facilities or their managers.
4. Confirmation of transactions and records or
statements of activity in the Grantor's account shall
be conclusive if the Grantor does not object within ten
days after mailing to the Grantor. In such case, the
Trustee and its officers and employees shall be forever
released and discharged from any liability with respect
to any claim arising out of any action or omission
reflected on such confirmation or record.
5. The Trustee does not guarantee the trust account
from loss or depreciation. The liability of the Trustee
to make any payment from the trust account at any time
is limited to the then available assets of the trust
account.
6. Subject to the limitations contained in paragraph
1 of Section 1 of this Article VIII, the Grantor shall
have the sole power, right and duty to direct the
Trustee from time to time with respect to the
investment and reinvestment of the assets of the trust
account. The Trustee shall comply promptly with all
such directions, providing such directions are clearly
stated in writing executed by the Grantor, and in form
acceptable to the Trustee. The Trustee shall not have
any duty to inquire into the propriety of any such
direction nor into its effect upon the trust account or
the beneficiary or beneficiaries thereof, nor to apply
to a court for instructions notwithstanding the fact
that the Trustee has, or with reasonable inquiry should
have, actual or constructive notice that any action
taken or omitted pursuant to, or as a result of, the
exercise of such directive power constitutes, or may
constitute, a breach of the terms of the trust account
or a violation of any law applicable to the investment
of the funds held hereunder. Any such direction so
given the Trustee shall be deemed to be continuing
until revoked or modified by a subsequent direction in
writing, notwithstanding the occurrence of any event or
other development of which the Trustee has or should
have knowledge. The Trustee shall not be liable or
responsible for any loss resulting to the trust account
or to any present or future beneficiary thereof by
reason of:
(a) any sale or investment made or other
action taken pursuant to and in accordance with the
direction of the Grantor; or
(b) the retention of any asset, including
cash, the acquisition or retention of which has been
directed by the Grantor.
7. This Agreement shall be binding upon all
persons entitled to benefits under the trust account,
their respective heirs and legal representative, and
upon the Trustee and its successors.
8. Words used in the masculine shall apply to
the feminine where applicable, and wherever the context
of the Agreement dictates, the plural shall be read as
the singular and the singular as the plural.
9. As the context requires, the term "Grantor"
shall be deemed to include any beneficiary of this
Account following the death of the Grantor.
10. All questions arising with respect to the
provisions of this Agreement shall be determined by
application of the laws of the State of Missouri except
to the extent federal statutes supersede Missouri law.
To the extent permitted by law, none of the creditors
of the Grantor or any beneficiary shall have any power
to execute any levy, lien, assignment, garnishment,
alienation, attachment, or other voluntary or
involuntary transfer on any of the assets of the IRA;
and all sums payable to the Grantor or any beneficiary
shall be free and clear of all liabilities for debts,
levies, attachments and proceedings of any kind, at law
or in equity.
11. The Trustee shall receive reasonable annual
compensation as may be agreed upon from time to time
between the Grantor and Trustee. The Trustee shall pay
all expenses reasonably incurred by it in its
administration from the trust account unless the
Grantor pays the expenses.
12. The Trustee may resign at any time for any
reason, including but not limited to, the determination
in the Trustee's sole discretion that the account
cannot be managed on a profitable basis, upon 60 days'
notice in writing to the Grantor and may be removed by
the Grantor at any time upon 60 days' notice in writing
to the Trustee. Upon such resignation or removal, the
Grantor shall appoint a successor Trustee, which
successor shall be a bank or other qualified person as
required by the Internal Revenue Code so as to permit
the trust account to continue as qualified under the
Internal Revenue Code. Upon receipt by the Trustee of
written acceptance of such appointment by the successor
Trustee, the Trustee shall transfer and pay over to
such successor Trustee the assets of the trust account
and all records pertaining thereto. The Trustee is
authorized, however, to retain from the assets of the
trust account such amounts as it may deem advisable for
payment of all its fees, compensation, costs and
expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the
trust account or on or against the Trustee, with any
balance of such reserve remaining after the payment of
all such items to be paid over to the successor
Trustee. The successor Trustee shall hold the assets
paid over to it under terms similar to those of this
Agreement that qualify under the Internal Revenue Code.
If, within 60 days after the Trustee's resignation or
removal, the Grantor has not appointed a successor
Trustee, which has accepted such appointment, the
Trustee may pay the Grantor's interest to the Grantor.
13. The Trustee shall not be responsible for
determining the permissible amount of contributions to
the account, or for the amount or timing of
distributions from the account, or for any other
actions taken at the request of the Grantor. The
Grantor shall indemnify and hold the Trustee harmless
from any and all liability, claims and expenses arising
from any actions taken at the Grantor's request or in
connection with this Agreement, except for any
liability, claims, or expenses caused by the negligence
of the Trustee.
14. The Grantor agrees to pay to the Trustee fees
for services performed under this Agreement in an
amount specified from time to time by the Trustee. The
Trustee shall have the right to change such fees at any
time without prior written notice to the Grantor. As
soon as practicable after any change in fees, the
Trustee shall make available to the Grantor a new fee
schedule. All fees may be billed to the Grantor or
deducted from the Custodial Account, at the discretion
of the Grantor. The Trustee shall also be entitled to
reimbursement for all reasonable and necessary costs,
expenses and disbursements incurred by it in the
performance of services. Such fees and reimbursement
shall be paid from the Account if not paid directly by
the Grantor and shall constitute a lien upon the
Account until paid.
Schedule of Fees
The Trustee will charge the following fees for
servicing your IRA account:
Annual maintenance fee $15 per account
Distribution (including rollover or direct
transfers) $15 each
Refund of excess contribution $15 each
Any outgoing wire transfer $10 each
The annual maintenance fee will be deducted from your
account. The charge for refund of excess contribution
will be deducted from your account at the time of the
refund. These fees are subject to change.
