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FRONTEGRA FUNDS
SEMI-ANNUAL REPORT
Frontegra Opportunity Fund
FRONTEGRA ASSET MANAGEMENT, INC.
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April 30, 1999
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FRONTEGRA FUNDS
TABLE OF CONTENTS
Shareholder Letter 1
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Investment Highlights 3
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Schedule of Investments 4
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Statement of Assets and Liabilities 7
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Statement of Operations 8
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Statements of Changes in Net Assets 9
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Financial Highlights 10
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Notes to Financial Statements 11
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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:
We are pleased to present the April 30, 1999, Semi-Annual Report for the
Frontegra Opportunity Fund, managed by Reams Asset Management Company. Small-cap
stocks finally began to show signs of life in the last few weeks of April,
rebounding sharply after spending the last six months mostly ignored by
investors. After a slow start to the fiscal year, the Fund outperformed its
small-cap benchmarks over the last three months, with particularly strong
results in April.
Periods ended April 30
----------------------
1 month 3 months 6 months
-------- -------- --------
Frontegra Opportunity Fund 13.58% 5.24% 6.47%
Russell 2000 Index 8.96% 1.70% 15.16%
Russell 2000 Value Index 9.13% 0.84% -
MARKET REVIEW
We began to see a reversal in the difficult environment for small-cap stocks
over the last six months. However, even as the Russell 2000 Index advanced over
15% since October 31, it trailed the 27% return of the S&P 500R Index. After
struggling for the first three months of 1999, small stocks advanced sharply in
April as the market broadened, due in part to the strengthening of foreign
economies and a rotation to economically sensitive sectors.
We are encouraged by both the turn in small-cap stocks and the recent
outperformance of the Fund. As you know, small-cap stocks suffered through a
difficult year in 1998, trailing their large-cap counterparts by nearly 30%.
This type of performance differential between small and large stocks often
occurs late in a market cycle when investors seek the greater liquidity of
large-cap stocks. Looking forward, we believe small-cap stocks offer great
opportunity. The last time valuation discrepancies approached this magnitude was
in the early 1990s. As we highlight in the table below, the ensuing returns
earned by small-cap investors were worth the wait.
Russell 2000 Russell 1000
------------ ------------
1990 (19.5)% (4.2)%
1991 46.1% 33.0%
1992 18.4% 9.0%
1993 18.9% 10.2%
PORTFOLIO REVIEW
Top Individual Stocks
A number of stocks in the portfolio produced strong results over the past six
months. A few examples are highlighted below:
Quanex Corp. is one of the industry's most profitable steel producers and has
been diversifying into the engineered aluminum business over the past several
years. The stock has performed very well, up about 50% over the past six months,
on a renewed interest in quality cyclical companies and improving prospects in
their recently-acquired aluminum business. Aggressive restructuring in aluminum
has driven a turn from losses to profits, which bodes well for the company's
performance going forward.
Belden, Inc., leads the market for highly-engineered coaxial cable and other
specialized wiring used in markets ranging from telecommunications to industrial
automation. Excess inventory and fallout from the Asian economic crisis early in
1998 hurt the company's growth and stock price. Since then, the stock generated
a 32% total return as distributors worked through the inventory overhang and
telecom spending has begun to recover to more typical levels. Belden continues
to offer excellent participation in the growth of global telecom and networking
yet trades at 12 times currently-depressed earnings.
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FRONTEGRA FUNDS
Sector Concentrations
Currently, the Fund is invested in a diversified portfolio of 48 stocks. We
continue to find a significant number of undervalued stocks in the Producer
Manufacturing, Materials & Processing and Industrial Services sectors. Below is
a brief summary of those three sectors:
- - Producer Manufacturing - This sector continues to be the source of a
significant number of investment ideas, and relatively strong performance.
Representative holdings include Holophane Corp., Juno Lighting, Inc. and
Northwest Pipe Co. This sector benefited recently from a tender offer for
Juno Lighting, Inc. Generally, the stocks in this sector have strong
competitive positions, good returns on sales and capital and significant free
cash flow.
- - Materials & Processing - The Fund's exposure to this sector includes several
cement companies, Giant Cement Holdings, Inc. and Lone Star Industries, Inc.,
which have made positive contributions to performance in the recent past.
Steel and specialty chemical companies comprise the remaining holdings in
this sector. Business continues to progress in line with expectations for the
companies in this sector. However, only recently has performance reflected
this strength with the market's rotation to cyclical stocks.
- - Industrial Services - Approximately 13% of the Fund's assets are invested in
this sector, which is made up of service-oriented companies that require
minimal capital investment. The most significant holdings include Dames &
Moore, Inc. and Jacobs Engineering Group, Inc., two engineering and
construction companies, and World Fuel Services Corp., a provider of fuel to
the rapidly growing small aviation and private jet businesses.
SUMMARY
Again, we are encouraged by recent performance and believe that the Fund
continues to be well positioned to take advantage of opportunities afforded us
in today's market environment. We expect to participate fully in an eventual
sustained rebound in small-cap stocks. As always, we appreciate your continued
confidence and investment in the Fund.
Sincerely,
/s/ David R. Milroy /s/ Thomas J. Holmberg /s/ William D. Forsyth
David R. Milroy Thomas J. Holmberg, CFA William D. Forsyth, CFA
Reams Asset Management Co.Frontegra Asset Management Frontegra Asset Management
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FRONTEGRA FUNDS
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Frontegra Lipper Small-Cap Russell
Opportunity Fund Fund Index 2000 Index
--------------- --------------- ---------------
7/31/97 100,000 100,000 100,000
10/31/97 107,400 103,470 104,952
1/31/98 104,868 100,629 104,424
4/30/98 115,038 114,075 117,415
7/31/98 100,425 101,601 102,313
10/31/98 93,185 89,353 92,523
1/31/99 94,276 102,590 104,770
4/30/99 99,217 102,533 106,549
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Portfolio Total Return
FOR THE PERIOD ENDED 4/30/99
- ----------------------------
ONE YEAR (13.75)%
AVERAGE ANNUAL
SINCE COMMENCEMENT (0.45)%
- ----------------------------
This chart assumes an initial gross investment of $100,000 made on 7/31/97
(commencement of operations). 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 Lipper Small-Cap Fund Index includes the 30 largest funds which, by
prospectus or portfolio practice, limit their investments to companies on the
basis of the size of the company.
The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index. The Russell 3000 Index is comprised of the 3000 largest U.S.
companies based on market capitalization.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
SCHEDULE OF INVESTMENTS
April 30, 1999 (Unaudited)
Number of Shares Value
- ------------------------------------------------------------------------------
COMMON STOCKS 97.4%
Commercial Services 6.3%
14,800 Banta Corp. $315,425
10,000 Lawson Products, Inc. 226,250
30,100 Stolt-Nielsen S.A. 436,450
-----------
978,125
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Consumer Durables 7.9%
22,450 CLARCOR Inc. 420,938
10,500 Department 56, Inc.<F1> 284,156
11,300 Harman International Industries, Inc. 519,094
-----------
1,224,188
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Consumer Services 3.9%
18,600 Carmike Cinemas, Inc.<F1> 401,062
11,800 Interim Services Inc.<F1> 205,025
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606,087
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Electronic Technology 8.9%
19,300 Belden Inc. 371,525
12,400 Electroglas, Inc.<F1> 169,725
15,500 Kemet Corp.<F1> 239,281
26,000 UCAR International Inc.<F1> 596,375
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1,376,906
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Energy Minerals 4.8%
15,000 Mitchell Energy & Development Corp. 230,625
56,100 Santa Fe Energy Resources, Inc.<F1> 504,900
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735,525
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Finance 7.4%
25,100 First Bell Bancorp, Inc. 483,175
33,100 Local Financial Corp.<F1> 314,450
33,900 Seacoast Financial Services Corp.<F1> 341,119
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1,138,744
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
SCHEDULE OF INVESTMENTS (continued)
April 30, 1999 (Unaudited)
Number of Shares Value
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Health Technology 2.2%
21,800 Haemonetics Corp.<F1> $341,988
-----------
Industrial Services 7.3%
38,600 Dames & Moore, Inc. 453,550
7,800 Jacobs Engineering Group, Inc.<F1> 307,612
14,100 Quanex Corp. 360,431
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1,121,593
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Non-Energy Minerals 8.5%
16,800 Giant Cement Holding, Inc.<F1> 371,700
23,300 International Specialty Products Inc.<F1> 192,225
8,000 Lone Star Industries, Inc. 285,500
14,600 Noble Affiliates, Inc. 468,112
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1,317,537
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Process Industries 4.6%
13,650 Ferro Corp. 377,934
18,300 Furon Co. 327,113
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705,047
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Producer Manufacturing 17.8%
9,500 Artesyn Technologies, Inc.<F1> 171,000
24,100 BE Aerospace, Inc.<F1> 411,206
21,800 Bush Industries, Inc. 331,088
32,600 Griffon Corp.<F1> 238,387
15,300 Holophane Corp.<F1> 394,931
20,100 Interface, Inc. 141,956
19,500 Juno Lighting, Inc. 443,625
21,100 Northwest Pipe Co.<F1> 298,038
12,800 Standex International Corp. 314,400
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2,744,631
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Retail 3.3%
25,300 Maxwell Shoe Company Inc.<F1> 199,237
24,600 World Fuel Services Corp. 309,038
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508,275
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
SCHEDULE OF INVESTMENTS (continued)
April 30, 1999 (Unaudited)
Number of Shares Value
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Real Estate Investment Trust 7.8%
6,500 Amli Residential Properties Trust $141,781
17,700 Asset Investors Corp. 255,544
7,000 First Industrial Realty Trust, Inc. 188,125
16,000 Great Lakes REIT, Inc. 247,000
10,500 Prentiss Properties Trust 227,063
14,600 Winston Hotels, Inc. 142,350
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1,201,863
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Technology Services 3.9%
16,300 Condor Technology Solutions, Inc.<F1> 165,037
31,500 Pioneer-Standard Electronics, Inc. 263,813
5,000 Zebra Technologies Corp.<F1> 166,250
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595,100
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Transportation 2.8%
27,600 Arnold Industries, Inc. 438,150
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TOTAL COMMON STOCKS
(cost $14,745,137) 15,033,759
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Principal Amount
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SHORT-TERM INVESTMENT 2.2%
$337,824 UMB Bank Money Market Fiduciary 337,824
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TOTAL SHORT-TERM INVESTMENT
(cost $337,824) 337,824
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TOTAL INVESTMENTS 99.6%
(cost $15,082,961) 15,371,583
Other Assets less Liabilities 0.4% 66,211
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NET ASSETS 100.0% $15,437,794
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<F1> Non-income producing
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (Unaudited)
ASSETS:
Investments at value (cost $15,082,961) $15,371,583
Receivable for investments sold 36,799
Interest and dividends receivable 10,881
Receivable from adviser 7,308
Deferred organizational costs, net 26,260
Other assets 2,136
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Total assets 15,454,967
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LIABILITIES:
Accrued investment advisory fee 7,565
Accrued expenses 9,608
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Total liabilities 17,173
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NET ASSETS $15,437,794
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NET ASSETS CONSIST OF:
Paid in capital $15,424,687
Accumulated net investment income 39,538
Accumulated net realized loss on investments (315,053)
Net unrealized appreciation on investments 288,622
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NET ASSETS $15,437,794
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CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 522,993
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $29.52
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1999 (Unaudited)
INVESTMENT INCOME:
Dividends $94,568
Interest 11,146
-----------
105,714
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EXPENSES:
Investment advisory fees 36,161
Fund administration and accounting fees 28,146
Legal fees 6,890
Shareholder servicing 6,675
Audit fees 4,815
Amortization of organizational costs 4,006
Custody fees 2,596
Federal and state registration fees 1,926
Directors' fees and related expenses 1,039
Pricing 974
Insurance 734
Other 1,563
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Total expenses before waiver and reimbursements 95,525
Waiver and reimbursements of expenses by adviser (45,157)
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Net expenses 50,368
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NET INVESTMENT INCOME 55,346
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REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investments (164,185)
Change in unrealized appreciation/depreciation on investments 1,088,273
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NET GAINS (LOSSES) ON INVESTMENTS 924,088
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $979,434
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998
------------ ------------
OPERATIONS:
Net investment income $55,346 $66,764
Net realized gains (losses) on investments (164,185) (158,568)
Change in unrealized appreciation/depreciation
on investments 1,088,273 (905,970)
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Net increase (decrease) in net assets resulting
from operations 979,434 (997,774)
--------- ---------
DISTRIBUTIONS PAID FROM:
Net investment income (80,263) (7,018)
--------- ---------
Net decrease in net assets
resulting from distributions paid (80,263) (7,018)
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CAPITAL SHARE TRANSACTIONS:
Shares sold 7,631,317 1,925,149
Shares issued to holders in
reinvestment of distributions 80,263 7,018
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Net increase in net assets resulting from
capital share transactions 7,711,580 1,932,167
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TOTAL INCREASE IN NET ASSETS 8,610,751 927,375
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NET ASSETS:
Beginning of period 6,827,043 5,899,668
--------- ---------
End of period (includes undistributed net
investment income of $39,538 and
$64,806, respectively) $15,437,794 $6,827,043
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED PERIOD
ENDED OCTOBER ENDED
APRIL 30, 1999 31, OCTOBER 31,
(UNAUDITED) 1998 1997<F1>
---------- --------- ---------
NET ASSET VALUE,
BEGINNING OF PERIOD $27.93 $32.22 $30.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.02 0.26 0.04
Net realized and unrealized gains
(losses) on investments 1.78 (4.52) 2.18
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TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 1.80 (4.26) 2.22
------ ------ ------
LESS DISTRIBUTIONS PAID:
From net investment income (0.21) (0.03) -
------ ------ ------
TOTAL DISTRIBUTIONS PAID (0.21) (0.03) -
------ ------ ------
NET ASSET VALUE, END OF PERIOD $29.52 $27.93 $32.22
====== ====== ======
TOTAL RETURN<F2> 6.47% (13.24)% 7.40%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of period (in thousands) $15,438 $6,827 $5,900
Ratio of expenses to average
net assets<F3><F4> 0.90% 0.90% 0.90%
Ratio of net investment income
to average net assets<F3><F4> 1.01% 0.92% 2.61%
Portfolio turnover rate<F2> 24% 54% 9%
<F1> Commenced operations on July 31, 1997
<F2> Not annualized for periods less than a full year
<F3> Net of waiver and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net assets
would have been 1.70%, 2.53% and 12.02%, and the ratio of net investment
income to average net assets would have been 0.21%, (0.71)% and (8.51)% for
the periods ended April 30, 1999, October 31, 1998 and October 31, 1997,
respectively.
<F4> Annualized
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
NOTES TO FINANCIAL STATEMENTS
April 30, 1999 (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 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 Opportunity Fund (the "Fund"), the Frontegra
Total Return Bond Fund and the Frontegra Growth Fund. The Fund commenced
operations on July 31, 1997. 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.
(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
Securities (other than short-term instruments) for which market
quotations are readily available are valued at the last trade price on
the national securities exchange on which such securities are
primarily traded. Securities for which there were no transactions on a
given day or securities not listed on a national securities exchange
are valued at the most recent bid prices. 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 Reams Asset Management Co., LLC (the "Sub-Adviser") pursuant to
guidelines established by the Board of Directors.
(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 and 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
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1999 (Unaudited)
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,
1999, reclassifications were recorded to decrease accumulated net
investment income by $351, decrease accumulated net realized losses on
investments by $1,979 and decrease paid in capital by $1,628.
(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 0.65% 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 0.90% of the Fund's average daily
net assets.
(4) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
--------------- --------------
Shares sold 275,703 61,127
Shares issued to holders in
reinvestment of distributions 2,845 216
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278,548 61,343
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FRONTEGRA FUNDS
Frontegra Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1999 (Unaudited)
(5) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended April 30, 1999, are
summarized below:
Purchases $10,157,790
Sales $2,592,200
There were no purchases or sales of U.S. government securities.
At October 31, 1998, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $15,107,804
were as follows:
Appreciation $1,496,695
Depreciation (1,232,916)
-----------
Net appreciation on investments $263,779
===========
At October 31, 1998, the Fund had an accumulated net realized capital loss
carryover of $1,102 and $141,178 expiring in 2005 and 2006, respectively.
To the extent the Fund realizes future net capital gains, taxable
distributions to its shareholders will be offset by any unused capital loss
carryover.
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FRONTEGRA FUNDS, INC.
c/o Sunstone Investor Services, LLC
P.O. Box 2142, Milwaukee, Wisconsin 53201-2142
FO-410-0699
