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FRONTEGRA FUNDS
SEMI-ANNUAL REPORT
Frontegra Total Return Bond Fund
FRONTEGRA ASSET MANAGEMENT, INC.
April 30, 1998
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FRONTEGRA FUNDS
TABLE OF CONTENTS
Shareholder Letter 1
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Investment Highlights 2
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Schedule of Investments 3
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Statement of Assets and Liabilities 6
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Statement of Operations 7
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Statements of Changes in Net Assets 8
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Financial Highlights 9
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Notes to Financial Statements 10
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This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
accompanied or preceded by an effective prospectus for the Fund. The Prospectus
includes more complete information about management fees and expenses,
investment objectives, risks and operating policies of the Fund. Please read the
Prospectus carefully.
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FRONTEGRA FUNDS
DEAR FELLOW SHAREHOLDERS:
April 30 marked the halfway point in the Total Return Bond Fund's fiscal year.
Performance over the last six months was mixed, with relatively weak results in
the last few months of 1997 followed by a strong rebound in the first four
months of 1998. For the six month period, the Fund returned 3.07%, compared to
3.59% for the benchmark Lehman Brothers Aggregate Bond Index. At April 30, the
NAV stood at $30.89 per share.
The bond market over the last six months has been characterized by tight yield
spreads, a relatively flat yield curve, and turmoil in the Asian markets. Bond
yields dropped late in 1997 to below 6% and have fluctuated in a narrow range
since that time. Over this time period, the Federal Reserve has elected to leave
short-term interest rates unchanged. The threat of inflation due to the strong
economy and wage pressures seems to be offset by low reported inflation and the
effects of Asian contraction.
Value added from our duration decision was modest due to the stability of
interest rates. We reduced the Fund's duration late in 1997, reflecting the
declining attractiveness of the market as interest rates fell. Since then we
have maintained a near-benchmark duration, reflecting our view that currently
there is average value in the market. Going forward, we expect steady to
declining inflation as a result of continued restrictive monetary policy. We
also expect to see some steepening of the yield curve, which is relatively flat
by historical standards.
Bond selection had the most significant impact on the Fund's performance during
the first six months of the fiscal year. The disarray in the Asian markets
created some interesting opportunities in the dollar-denominated Yankee markets
for several Asian issuers. Although we were early in several positions, which
negatively impacted performance late in 1997, the positions snapped back in the
early part of 1998.
As a result of the tight spreads in most sectors, the Fund has a higher than
normal allocation to U.S. Treasury securities (34% of the portfolio). Mortgage
exposure remains low (9%) due to unfavorable prepayment risk, while corporate
bonds now make up 45% of the Fund.
Although there has not been a great amount of opportunity in the bond market
recently given the relatively stable interest rate environment and tight
spreads, we continue to actively seek specific opportunities to add value in the
Fund.
In closing, we appreciate your support as shareholders in the Fund. We will
continue to strive to produce strong results for our shareholders.
Sincerely,
/s/Thomas J. Holmberg, Jr. /s/William D. Forsyth, III
Thomas J. Holmberg, Jr. William D. Forsyth, III
Co-President Co-President
May 15, 1998
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FRONTEGRA FUNDS
INVESTMENT HIGHLIGHTS
GROWTH OF A $100,000 INVESTMENT
FRONTEGRA TOTAL RETURN LEHMAN BROTHERS
BOND FUND AGGREGATE BOND INDEX
----------------------- ---------------------
11/25/96 100,000.00 100,000.00
1/31/97 99,239.11 99,849.95
4/30/97 98,362.46 100,471.36
7/31/97 102,032.18 105,392.47
10/31/97 105,599.73 107,573.31
1/31/98 107,761.11 110,557.97
4/30/98 109,814.02 111,433.74
Portfolio Total Return
FOR THE PERIOD ENDED 4/30/98
- ------------------------------------
ONE YEAR 10.50%
AVERAGE ANNUAL
SINCE COMMENCEMENT 7.19%
- ------------------------------------
This chart assumes an initial gross investment of $100,000 made on 11/25/96.
Returns shown include the reinvestment of all distributions. Past performance is
not predictive of future results. Investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less than the
original cost. In the absence of existing fee waivers, total return would be
reduced.
The Lehman Brothers Aggregate Bond Index includes fixed rate debt issues rated
investment grade or higher by Moody's Investors Service, Standard & Poor's
Corporation, or Fitch IBCA, Inc., in that order. All issues have at least one
year to maturity and an outstanding par value of at least $100 million. Price,
coupon, paydown, and total return are reported for all sectors on a month-end to
month-end basis. All returns are market value-weighted inclusive of accrued
interest.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS
April 30, 1998 (Unaudited)
Principal Amount Value
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ASSET-BACKED SECURITIES 13.72%
$ 900,000 Capita Equipment Receivables Trust
SRS97-1, 6.19%, 2/15/02 $ 905,355
984,999 Chase Commercial Mortgage Securities Corp.
97-2-A1, 6.45%, 12/19/29 989,923
84,170 Green Tree Recreational 96-A-A1, 5.55%, 2/15/18 83,937
250,000 Green Tree 95-7-A5, 6.95%, 11/25/26 255,710
200,000 Green Tree 95-9-193, 6.20%, 1/15/27 201,046
200,000 Green Tree 96-7-MI, 7.70%, 10/15/27 213,730
619,175 J.P. Morgan 1996-C2, 6.47%, 3/25/05 627,762
350,000 Lehman Trust 96-2-A3, 7.11%, 10/25/09 357,686
101,109 Mego 1996-2-A2, 7.275%, 2/25/18 104,211
350,000 Pru. Mtg. 1993-5-A4, 7.00%, 2/25/00 351,435
208,200 RTC 1991-6-A1, 6.92%, 5/25/19 209,941
139,561 RTC 1991-6-C1, 9.00%, 9/25/28 146,387
250,000 Sec. Pac. 1992-3-A3, 7.45%, 9/15/12 255,642
131,166 SASCO 1996-CFL-A-1C, 5.94%, 2/25/28 130,653
1,500,000 World Financial 1996-B, 6.95%, 4/15/06 1,558,095
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TOTAL ASSET-BACKED SECURITIES
(cost $6,331,212) 6,391,513
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CORPORATE BONDS 44.94%
Airlines 2.40%
634,882 America West Airlines, Inc., 7.33%, 7/2/08 668,303
400,000 Delta Air Lines, Inc., 9.75%, 6/1/03 447,964
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1,116,267
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Financial 1.49%
646,690 Midland Funding Corp., 10.33%, 7/23/02 695,192
----------
Forest Products & Paper 1.77%
800,000 Boise Cascade Corp., 7.48%, 6/15/05 823,640
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Lodging 1.62%
750,000 Hilton Hotels Corp., 7.00%, 7/15/04 752,865
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Oil & Gas 6.25%
500,000 PDV America, Inc., 7.75%, 8/1/00 510,605
850,000 PDV America, Inc., 7.875%, 8/1/03 877,481
500,000 TE Products Pipeline Co., 7.51%, 1/15/28 493,390
1,000,000 Transcontinental Gas Pipe Line Corp.,
7.08%, 7/15/26 1,029,390
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2,910,866
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998 (Unaudited)
Principal Amount Value
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Publishing 1.24%
$ 500,000 News America Holdings, Inc., 8.50%, 2/23/25 $ 576,705
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Services 5.83%
247,522 Federal Express Corp., 8.04%, 11/22/07 269,823
342,013 Federal Express Corp., 7.85%, 1/30/15 367,380
150,000 Federal Express Corp., 7.84%, 1/30/18 159,441
1,250,000 Loewen Group International, Inc., 7.50%, 4/15/01 1,267,338
500,000 Service Corporation International, 6.30%, 3/15/03 496,430
150,000 Service Corporation International, 7.00%, 6/1/15 154,310
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2,714,722
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Utilities 18.79%
1,000,000 Atlantic City Electric, 6.46%, 4/1/02 1,006,750
400,000 Cleveland Electric Illuminating Co. (The),
7.85%, 7/30/02 414,332
500,000 Cleveland Electric Illuminating Co. (The),
7.67%, 7/1/04 520,010
150,000 Commonwealth Edison Co., MBIA, 8.25%, 10/1/06 166,713
700,000 Commonwealth Edison Co., MBIA, 8.00%, 5/15/08 773,619
650,000 Endesa, 7.325%, 2/1/37 655,239
400,000 Hydro-Quebec, 8.05%, 7/7/24 463,516
500,000 Korea Electric Power Corp., 6.75%, 8/1/27 444,080
400,000 Niagara Mohawk Power Corp., 7.375%, 8/1/03 410,704
600,000 Niagara Mohawk Power Corp., 8.00%, 6/1/04 639,150
687,000 North Atlantic Energy Corp., 9.05%, 6/1/02 693,829
250,000 Sithe/Independence Funding, 8.50%, 6/30/07 273,305
200,000 Sithe/Independence Funding, 9.00%, 12/30/13 233,350
1,000,000 Utilicorp United Inc., 6.70%, 10/15/06 1,014,930
1,000,000 Utilicorp United Inc. (AMBAC Insured),
6.875%, 10/1/04 1,042,850
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8,752,377
----------
Waste Management 0.87%
400,000 WMX Technologies, Inc., 7.10%, 8/1/26 406,264
----------
Yankee Bonds 4.68%
700,000 Province of Quebec, 7.22%, 7/22/36 784,091
500,000 Republic of Argentina, Floating Rate, 8.726%, 4/10/05 502,500
910,000 Republic of Korea, 8.875%, 4/15/08 893,028
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2,179,619
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TOTAL CORPORATE BONDS
(cost $20,734,798) 20,928,517
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See notes to financial statements.
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FRONTEGRA FUNDS
Principal Amount Value
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U.S. GOVERNMENT AGENCIES 4.07%
$ 515,000 Freddie Mac - GNMA, Series 20H, 5.50%, 10/25/23 $ 469,139
350,000 Freddie Mac - GNMA, Series 20L, 5.50%, 10/25/23 297,735
244,304 Fannie Mae, Pool 73339, 6.18%, 1/1/03 243,680
289,318 Fannie Mae, Pool 160098, 7.91%, 3/1/04 311,417
177,678 Fannie Mae, Series 91-26G, 8.00%, 4/25/06 182,236
85,000 Fannie Mae, Series 94-3PL, 5.50%, 1/25/24 77,586
83,050 GNMA, Pool 36629, 9.50%, 10/15/09 89,954
210,626 GNMHB, Pool 331001, 8.25%, 7/15/07 221,290
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TOTAL U.S. GOVERNMENT AGENCIES
(cost $1,820,236) 1,893,037
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U.S. TREASURY OBLIGATIONS 33.62%
U.S. Treasury Bonds 4.60%
1,000,000 7.50%, 11/15/16 1,163,930
950,000 6.25%, 8/15/23 976,828
----------
2,140,758
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U.S. Treasury Notes 29.02%
450,000 6.375%, 1/15/99 452,889
2,300,000 6.25%, 5/31/00 2,329,762
3,610,000 5.75%, 10/31/00 3,622,455
400,000 6.625%, 7/31/01 411,504
250,000 6.375%, 9/30/01 255,540
5,050,000 5.75%, 8/15/03 5,069,998
250,000 6.50%, 8/15/05 261,007
1,149,604 Inflationary Indexed, 3.375%, 1/15/07 1,113,311
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13,516,466
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TOTAL U.S. TREASURY OBLIGATIONS
(cost $15,534,124) 15,657,224
----------
SHORT-TERM INVESTMENT 2.19%
1,022,189 UMB Bank Money Market Fiduciary 1,022,189
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TOTAL SHORT-TERM INVESTMENT
(cost $1,022,189) 1,022,189
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TOTAL INVESTMENTS 98.54%
(cost $45,442,559) 45,892,480
Cash and Other Assets, less Liabilities 1.46% 681,436
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NET ASSETS 100.00% $46,573,916
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
ASSETS:
Investments at value (cost $45,442,559) $45,892,480
Receivable for investments sold 181,825
Interest receivable 706,101
Receivable from adviser 22,243
Deferred organizational costs, net 30,904
Other assets 6,345
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Total assets 46,839,898
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LIABILITIES:
Payable for investments purchased 206,344
Accrued investment advisory fee 32,648
Accrued expenses 26,990
-----------
Total liabilities 265,982
-----------
NET ASSETS $46,573,916
===========
NET ASSETS CONSIST OF:
Paid in capital $45,570,319
Undistributed net investment income 239,837
Accumulated net realized gains on investments 313,839
Net unrealized appreciation on investments 449,921
-----------
NET ASSETS $46,573,916
===========
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 1,507,963
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $30.89
======
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1998 (Unaudited)
INVESTMENT INCOME:
Interest $1,423,300
Earnings Credit 3,597
-----------
1,426,897
EXPENSES:
Investment advisory fees 90,448
Fund administration and accounting fees 39,571
Shareholder servicing 9,238
Legal fees 5,580
Pricing 5,541
Federal and state registration fees 5,347
Reports to shareholders 4,959
Amortization of organizational costs 4,373
Custody fees 3,727
Insurance 3,282
Audit fees 3,214
Director's fees and expenses 496
Other 235
-----------
Total expenses before waiver 176,011
Waiver of expenses by adviser (62,952)
-----------
NET EXPENSES 113,059
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NET INVESTMENT INCOME 1,313,838
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REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments 325,355
Change in net unrealized appreciation on investments (209,840)
-----------
NET GAINS ON INVESTMENTS 115,515
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,429,353
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 1998 OCTOBER 31, 1997<F1>
--------------- --------------------
OPERATIONS:
Net investment income $1,313,838 $ 1,106,085
Net realized gains on investments 325,355 60,778
Change in net unrealized appreciation
on investments (209,840) 659,761
------------ ------------
Net increase in net assets resulting
from operations 1,429,353 1,826,624
------------ ------------
DISTRIBUTIONS PAID FROM:
Net investment income (1,256,124) (917,864)
Net realized gains on investments (83,976) _
------------ ------------
Net decrease in net assets resulting
from distributions paid (1,340,100) (917,864)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 9,731,428 37,210,071
Shares issued to holders in
reinvestment of distributions 1,326,738 904,999
Shares redeemed (3,669,281) (28,052)
------------ ------------
Net increase 7,388,885 38,087,018
------------ ------------
TOTAL INCREASE IN NET ASSETS 7,478,138 38,995,778
NET ASSETS:
Beginning of period 39,095,778 100,000
------------ ------------
End of period (includes undistributed net
investment income of $239,837 and
$183,488, respectively) $ 46,573,916 $ 39,095,778
============ ============
<F1> Commenced operations on November 25, 1996
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
FINANCIAL HIGHLIGHTS
(Unaudited)
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 1998 OCTOBER 31, 1997<F1>
---------------- --------------------
NET ASSET VALUE, BEGINNING OF PERIOD $30.85 $30.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.85 1.37
Net realized and unrealized gains
on investments 0.08 0.70
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TOTAL INCOME FROM INVESTMENT OPERATIONS 0.93 2.07
------- -------
LESS DISTRIBUTIONS:
From net investment income (0.83) (1.22)
From net realized gains on investments (0.06) -
------- -------
TOTAL DISTRIBUTIONS (0.89) (1.22)
------- -------
NET ASSET VALUE, END OF PERIOD $30.89 $30.85
======= =======
TOTAL RETURN<F2> 3.07% 7.13%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $46,574 $39,096
Ratio of expenses to average
net assets<F3><F4> 0.50% 0.50%
Ratio of net investment income to
average net assets<F3><F4> 5.84% 6.02%
Portfolio turnover rate<F2> 57% 202%
<F1> Commenced operations on November 25, 1996
<F2> Not annualized
<F3> Net of waivers and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net assets
would have been 0.78% and 1.27%, and the ratio of net investment income to
average net assets would have been 5.56% and 5.25% for the six months ended
April 30, 1998 and the period November 25, 1996 to October 31, 1997,
respectively.
<F4> Annualized
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS
April 30, 1998 (Unaudited)
(1)ORGANIZATION
Frontegra Funds, Inc. ("Frontegra") was incorporated on May 24, 1996, as a
Maryland corporation and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end diversified management
investment company issuing its shares in series, each series representing a
distinct portfolio with its own investment objectives and policies.
Frontegra consists of three series: the Frontegra Total Return Bond Fund
(the "Fund"), the Frontegra Opportunity Fund and the Frontegra Growth Fund.
The Fund issued and sold 3,333 shares of common stock ("initial shares") of
which 1,667 shares were sold to Frontegra Asset Management, Inc. (the
"Adviser") and 1,666 shares were sold to Reams Asset Management Company, LLC
(the "Sub-Adviser") at $30 per share on September 30, 1996. The Fund
commenced operations on November 25, 1996. Costs incurred by the Fund in
connection with its 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.
(2)SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
(a) Investment Valuation
Debt securities (other than short-term instruments) are valued at bid
prices furnished by a pricing service, unless actual sale prices are
available. Securities maturing within 60 days or less when purchased are
valued by the amortized cost method. Any securities for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Sub-Adviser pursuant to guidelines
established by the Board of Directors.
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FRONTEGRA FUNDS
(b) Federal Income Taxes
No federal income tax provision has been made since the Fund intends to
meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all
investment company net taxable income and net capital gains to
shareholders in a manner which results in no tax cost to the Fund.
(c) Distributions to Shareholders
Dividends from net investment income are usually declared and paid
quarterly. Distributions of net realized gains, if any, will be declared
and paid at least annually. Distributions to shareholders are recorded
on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from
the characterization for federal income tax purposes due to differences
in the recognition of income, expense and gain items for financial
statement and tax purposes. Where appropriate, reclassifications between
net asset accounts are made for such differences that are permanent in
nature. Accordingly, at April 30, 1998, reclassifications were recorded
to decrease undistributed net investment income by $1,365, increase
accumulated net realized gains on investments by $3,297 and decrease
paid in capital by $1,932.
(d) Other
Investment transactions are accounted for on the trade date. The Fund
determines the gain or loss realized from investment transactions by
comparing the original cost of the security lot sold with the net sale
proceeds. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
(3)INVESTMENT ADVISER
The Fund has an agreement with the Adviser, with whom certain officers and
directors of the Fund are affiliated, to furnish investment advisory
services to the Fund. Under the terms of this agreement, the Fund will pay
the Adviser a monthly fee at the annual rate of 0.40% of the Fund's average
daily net assets. The Adviser has agreed to voluntarily waive its management
fee and/or reimburse the Fund's operating expenses (exclusive of brokerage,
interest, taxes and extraordinary expenses) to ensure that the Fund's
operating expenses do not exceed 0.50% of the Fund's average daily net
assets.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
(4)CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
SIX MONTHS PERIOD ENDED
ENDED APRIL 30, 1998 OCTOBER 31, 1997<F1>
-------------------- --------------------
Shares sold 316,211 1,234,460
Shares issued to holders in
reinvestment of distributions 43,354 30,340
Shares redeemed (118,824) (911)
--------- ---------
240,741 1,263,889
========= =========
<F1> Commenced operations on November 25, 1996
(5)INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government securities, for the Fund for the six months
ended April 30, 1998, are summarized below:
Purchases $11,292,863
Sales $5,270,985
Purchases and sales of U.S. government securities were $21,049,476 and
$19,212,398, respectively.
At April 30, 1998, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $45,447,900
were as follows:
Appreciation $561,013
Depreciation (116,433)
---------
Net appreciation on investments $ 444,580
=========
FRONTEGRA FUNDS, INC.
c/o Sunstone Investor Services, LLC
P.O. Box 2142, Milwaukee, Wisconsin 53201-2142
FR-410-698B
