(LOGO)
FRONTEGRA FUNDS
ANNUAL REPORT
Frontegra Total Return Bond Fund
FRONTEGRA ASSET MANAGEMENT, INC.
-------------
June 30, 1999
(LOGO)
FRONTEGRA FUNDS
TABLE OF CONTENTS
Shareholder Letter 1
- --------------------------------------------------
Investment Highlights 3
- --------------------------------------------------
Schedule of Investments 4
- --------------------------------------------------
Statement of Assets and Liabilities 9
- --------------------------------------------------
Statements of Operations 10
- --------------------------------------------------
Statements of Changes in Net Assets 11
- --------------------------------------------------
Financial Highlights 12
- --------------------------------------------------
Notes to Financial Statements 13
- --------------------------------------------------
Report of Independent Auditors 16
- --------------------------------------------------
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.
(LOGO)
FRONTEGRA FUNDS
DEAR FELLOW SHAREHOLDERS:
We are pleased to present the June 30, 1999, Annual Report for the Frontegra
Total Return Bond Fund, managed by Reams Asset Management Company. This report
reflects a shortened year (November 1, 1998 through June 30, 1999), which
resulted from the alignment of our fiscal quarters with the calendar quarters
upon which most funds report. The bond market over the last eight months was
characterized by several months of strong results as the market rallied from the
lows of last fall. This was followed by a period of poor performance early this
year as bond yields reversed course and began to climb. The Fund took advantage
of the volatile markets over this period and posted strong results,
outperforming the benchmark Lehman Brothers Aggregate Bond Index.
Periods Ended June 30
----------------------
3 months 8 months
Frontegra Total Return Bond Fund (0.57)% 0.32%
Lehman Aggregate Bond Index (0.88)% (0.51)%
MARKET REVIEW
Volatility in both interest rates and credit spreads returned to the bond market
over the last eight months. The yield on the 10-year Treasury bond has increased
nearly 2% since its lows last fall and stood at 5.8% as of June 30, 1999. Credit
spreads, the spread between the yield on non-Treasury and Treasury bonds,
decreased significantly during the period from the wide levels seen during
September and October 1998. However, over the last few months, spreads began to
widen once again. The portfolio typically reacts well to volatility in the
markets and this period was no exception.
In recent months, the overall bond market posted disappointing results in recent
months as consistently strong economic growth has led to inflation worries,
which has negatively affected bond returns. Domestic growth continues to be very
strong, with real growth running at about a 4% rate. While actual inflation
remains very low, several inflation indicators have recently risen. Further,
domestic money growth has been very rapid in the last year as the Federal
Reserve reduced rates twice in 1998. The combination of these factors has
increased caution at the Fed, leading to a one-quarter point rise in the Federal
Funds rate on June 30. The market has retreated in anticipation of a series of
rate increases.
Future Fed activity depends on how domestic growth and inflation respond over
the next quarter, as well as on the performance of the U.S. Dollar and economic
growth overseas. The recovery in Asia has given the Fed some room to raise
rates, but the onset of further foreign weakness or a rapidly appreciating
Dollar would limit the Fed's ability to continue to raise short-term rates.
PORTFOLIO OUTLOOK AND STRATEGY
While we do not spend our time predicting the direction of interest rates, we do
attempt to add value from our duration decision. The recent rise in rates has
given us the opportunity to take advantage of attractive real rates (inflation
adjusted rates) available in the market. Our inflation estimate remains at 2.5%
while nominal rates have increased in recent months. This has resulted in our
estimate of real rates crossing over from neutral to attractive value. We have,
therefore, lengthened the duration of the portfolio to 5.3 years, above the
benchmark duration of 4.9 years. Further increases in bond yields will result in
further duration extension.
(LOGO)
FRONTEGRA FUNDS
Even though the yield curve has recently flattened, the portfolio's yield curve
configuration remains neutral. We have reduced some exposure to the short end of
the curve in order to have more buying power for longer and cheaper spread
holdings.
Corporate and mortgage spreads have bounced up from levels reached during April,
increasing their attractiveness. The market has suffered an extreme bout of
illiquidity in recent months, leading to higher spreads and potentially higher
future returns on less liquid issues. Traditional mortgage securities have also
suffered recently because of the rise in rates.
Treasury positions continue to run relatively low at 24% of the portfolio, given
the attractiveness of corporates, mortgages and other non-Treasury securities.
However, as we extend duration, the Treasury position will tend to increase,
since we prefer to keep a high degree of liquidity in our long-end exposure.
Within the corporate sector, we continue to focus on the BBB-rated bonds, where
spreads are most attractive and we can pick up the best liquidity premiums.
Corporates are 49% of the portfolio. Mortgage and asset-backed holdings total
26% of the portfolio. The mortgage exposure is concentrated in pass-throughs,
which have relatively attractive option-adjusted spreads of about 100 basis
points over Treasuries, and commercial mortgage-backed securities, which are
attractive given their lack of callabilty.
SUMMARY
Even though the absolute return available in the market has been nominal
recently, we believe that half the battle is not giving back returns in
difficult environments. While we always strive to add significant value to the
portfolio, we stop short of reaching for return when it is simply not available.
We continue to feel the portfolio is well positioned given the current market
environment. We also hope that the change in reporting periods is advantageous
to shareholders. As always, we appreciate your continued confidence and
investment in the Fund.
Regards,
/s/ Mark M. Egan /s/ Robert A. Crider,
Mark M. Egan, CFA, CPA Robert A. Crider, CFA
Reams Asset Management Co. Reams Asset Management Co.
/s/ Thomas J. Holmberg /s/ William D. Forsyth
Thomas J. Holmberg, CFA William D. Forsyth, CFA
Frontegra Asset Management Frontegra Asset Management
(LOGO)
FRONTEGRA FUNDS
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Frontegra Total Lehman Brothers
Return Bond Fund Aggregate Bond Index
11/25/96 100,000 100,000
12/31/96 99,239 99,546
3/31/97 98,362 98,989
6/30/97 102,032 102,625
9/30/97 105,600 106,035
12/31/97 107,761 109,156
3/31/98 109,814 110,855
6/30/98 112,097 113,445
9/30/98 116,435 118,242
12/31/98 116,850 118,641
3/31/99 116,509 118,052
6/30/99 115,847 117,015
- ----------------------------
Portfolio Total Return
FOR THE PERIOD ENDED 6/30/99
- ----------------------------
ONE YEAR 3.35%
AVERAGE ANNUAL
SINCE COMMENCEMENT 5.83%
- ----------------------------
This chart assumes an initial gross investment of $100,000 made on 11/25/96
(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 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.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 1999
Principal Amount Value
- ----------------------------------------------------------------------------
ASSET-BACKED SECURITIES 10.9%
$379,671 Capco America Securitization
Corp., 5.86%, 10/15/30 $370,676
854,612 Chase CMBS, 97-2 A1, 6.45%, 12/19/04 853,578
493,811 Commercial Mortgage Asset Trust
1999-C1 A1, 6.25%, 8/17/06 485,707
600,000 Fingerhut Master Trust 1998-2A,
6.23%, 2/15/07 589,212
250,000 Green Tree, 95-7-A5, 6.95%, 11/25/26 251,888
11,914 Green Tree, 95-9-A3, 6.20%, 1/15/27 11,883
200,000 Green Tree, 96-7-M1, 7.70%, 10/15/27 193,304
41,193 Green Tree Recreational, 96-A-A1, 5.55%,
2/15/18 40,594
423,192 J.P. Morgan 1996-C2, 6.47%, 11/25/27 417,771
158,051 Lehman Trust 96-2-A3, 7.11%, 10/25/09 159,519
67,438 Mego 1996-2-A2, 7.275%, 8/25/17 67,311
29,746 Pru. Mtg. 1993-5-A4, 7.00%, 2/25/00 29,850
139,451 RTC 1991-6-A1, 6.92%, 5/25/19 140,105
98,956 RTC 1991-6-C1, 9.00%, 9/25/28 99,681
53,832 Sec. Pac. 1992-3-A3, 7.45%, 9/15/12 53,995
1,500,000 World Financial 1996-B, 6.95%, 4/15/06 1,532,955
----------
TOTAL ASSET-BACKED SECURITIES
(cost $5,358,254) 5,298,029
----------
CORPORATE BONDS 48.4%
Airlines 5.3%
619,767 America West Airlines, Inc., 7.33%, 7/2/08 613,321
400,000 Delta Air Lines, Inc. 89-B, 9.75%, 6/1/03 435,108
488,202 Delta Air Lines, Inc., 9.375%, 9/11/07 519,320
400,000 Northwest Airlines, 8.304%, 9/1/10 399,600
600,000 US Airways Inc., 6.85%, 7/30/19 586,836
----------
2,554,185
----------
Diversified 2.6%
800,000 FMC Corp., 7.125%, 11/25/02 796,008
500,000 Union Carbide Corp., 6.79%, 6/1/25 491,095
----------
1,287,103
----------
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
June 30, 1999
Principal Amount Value
- ----------------------------------------------------------------------------
Energy 3.1%
$1,000,000 CMS Energy Corp., 7.375%, 11/15/00 $1,001,960
490,498 Salton Sea Funding, 7.37%, 5/30/05 489,448
----------
1,491,408
----------
Engines - Internal Combustion 1.0%
500,000 Cummins Engine, 6.25%, 3/1/03 483,985
----------
Financial 2.9%
300,000 Associates Corp. NA, 5.80%, 4/20/04 289,734
1,049,141 Midland Funding Corp., 10.33%, 7/23/02 1,108,156
----------
1,397,890
----------
Food Products 1.3%
400,000 ConAgra Inc., 5.50%, 10/15/02 386,500
250,000 Dole Foods, 6.375%, 10/1/05 232,822
----------
619,322
----------
Forest Products & Paper 1.6%
800,000 Boise Cascade Corp., 7.48%, 6/15/05 793,792
----------
Medical/Hospitals 0.5%
300,000 Columbia/HCA Healthcare, 7.69%, 6/15/25 244,776
----------
Oil & Gas 3.4%
500,000 PDV America, Inc., 7.75%, 8/1/00 487,915
850,000 PDV America, Inc., 7.875%, 8/1/03 761,447
500,000 R&B Falcon Corp., 6.50%, 4/15/03 416,250
----------
1,665,612
----------
Real Estate Investment Trusts 2.5%
500,000 HRPT Properties Trust, 6.75%, 12/18/02 478,270
750,000 United Dominion Realty Trust, 7.60%, 1/25/02 730,253
----------
1,208,523
----------
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
June 30, 1999
Principal Amount Value
- ----------------------------------------------------------------------------
Services 2.8%
$ 223,689 Federal Express Corp., 8.04%, 11/22/07 $229,814
334,050 Federal Express Corp., 7.85%, 1/30/15 336,285
150,000 Federal Express Corp., 7.84%, 1/30/18 150,303
150,000 Service Corporation International, 7.00%,
6/1/15 149,056
500,000 Service Corporation International, 6.30%,
3/15/20 482,285
----------
1,347,743
----------
Transportation 1.0%
500,000 JB Hunt Transport Services, 7.00%, 9/15/04 500,000
----------
Utilities 11.1%
400,000 Cleveland Electric Illuminating Co.,
7.85%, 7/30/02 409,980
250,000 Cogentrix Energy, 8.10%, 3/15/04 247,500
585,000 LS Power Funding, 7.19%, 6/30/10 564,186
500,000 Niagara Mohawk Power Corp., 7.25%, 10/1/02 501,200
668,000 North Atlantic Energy Corp., 9.05%, 6/1/02 670,111
250,000 Sithe/Independence Funding, 8.50%, 6/30/07 257,978
200,000 Sithe/Independence Funding, 9.00%, 12/30/13 215,264
500,000 Texas Utilities, 6.75%, 3/1/03 500,895
1,000,000 Utilicorp United Inc., 6.70%, 10/15/06 1,007,380
1,000,000 Utilicorp United Inc. (AMBAC Insured),
6.875%, 10/1/04 997,570
----------
5,372,064
----------
Waste Management 1.9%
500,000 WMX Technologies, Inc., 6.65%, 5/15/05 502,090
400,000 WMX Technologies, Inc., 7.10%, 8/1/26 406,292
----------
908,382
----------
Yankee Bonds 7.4%
400,000 Imperial Tobacco O/S BV, 7.125%, 4/1/09 388,428
1,000,000 PDVSA Finance Ltd., 1998-1, 6.45%, 2/15/04 924,120
200,000 PDVSA Finance Ltd., 1998-1, 7.40%, 8/15/16 151,184
700,000 Petroleos Mexicanos, 8.85%, 9/15/07 623,000
1,250,000 Republic of Argentina, Floating Rate,
11.447%, 4/10/05 1,112,500
400,000 Rothmans Nedrlnd Holdings, 6.875%, 5/6/08 378,296
----------
3,577,528
----------
TOTAL CORPORATE BONDS
(cost $24,051,599) 23,452,313
----------
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
June 30, 1999
Principal Amount Value
- ----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 14.3%
$515,000 FHLMC - GNMA, Series 20H, 5.50%, 10/25/23 $445,784
350,000 FHLMC - GNMA, Series 20L, 5.50%, 10/25/23 289,782
240,966 FNMA, Pool 073339, 6.18%, 1/1/03 238,329
285,524 FNMA, Pool 160098, 7.91%, 3/1/04 298,015
473,105 FNMA, Pool 411429, 6.50%, 2/1/28 456,693
475,757 FNMA, Pool 423088, 6.50%, 4/1/28 459,253
996,422 FNMA, Pool 433043, 6.50%, 6/1/28 961,856
424,301 FNMA, Pool 252093, 6.50%, 11/1/28 409,582
505,198 FNMA, Pool 447704, 6.50%, 11/1/28 487,673
494,689 FNMA, Pool 448235, 6.50%, 11/1/28 477,529
1,026,667 FNMA, Pool 448635, 6.50%, 11/1/28 991,052
463,952 FNMA, Pool 449012, 6.50%, 11/1/28 447,858
492,822 FNMA, Pool 487778, 6.50%, 3/1/29 475,726
109,514 FNMA, Series 91-26G, 8.00%, 4/25/06 112,148
85,000 FNMA, Series 94-3PL, 5.50%, 1/25/24 73,788
78,172 GNMA, Pool 36629, 9.50%, 10/15/09 84,206
194,288 GNMHB, Pool 331001, 8.25%, 7/15/07 203,941
----------
TOTAL U.S. GOVERNMENT AGENCIES
(cost $7,110,537) 6,913,215
----------
U.S. TREASURY OBLIGATIONS 23.3%
U.S. Treasury Bonds 19.0%
1,000,000 7.50%, 11/15/16 1,126,030
8,030,000 6.25%, 8/15/23 8,064,047
----------
9,190,077
----------
U.S. Treasury Notes 4.3%
570,000 5.75%, 8/15/03 568,564
350,000 6.50%, 10/15/06 361,196
1,140,000 6.125%, 8/15/07 1,151,890
----------
2,081,650
----------
TOTAL U.S. TREASURY OBLIGATIONS
(cost $11,485,347) 11,271,727
----------
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
June 30, 1999
Principal Amount Value
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENT 1.5%
$713,956 UMB Bank Money Market Fiduciary $713,956
----------
TOTAL SHORT-TERM INVESTMENT
(cost $713,956) 713,956
----------
TOTAL INVESTMENTS 98.4%
(cost $48,719,693) 47,649,240
Other Assets less Liabilities 1.6% 763,292
----------
NET ASSETS 100.0% $48,412,532
===========
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
ASSETS:
Investments at value (cost $48,719,693) $47,649,240
Interest receivable 773,285
Receivable from adviser 25,043
Deferred organizational costs, net 20,614
-----------
Total assets 48,468,182
-----------
LIABILITIES:
Dividends payable 9,073
Accrued investment advisory fee 15,838
Accrued expenses 30,739
-----------
Total liabilities 55,650
-----------
NET ASSETS $48,412,532
===========
NET ASSETS CONSIST OF:
Paid in capital $49,872,731
Accumulated net investment income 2,993
Accumulated net realized loss on investments (392,739)
Net unrealized depreciation on investments (1,070,453)
-----------
NET ASSETS $48,412,532
===========
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 1,650,159
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $29.34
======
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENTS OF OPERATIONS
EIGHT MONTHS ENDED YEAR ENDED
JUNE 30, 1999 OCTOBER 31, 1998
------------- ----------------
INVESTMENT INCOME:
Interest $2,204,664 $2,928,651
---------- ----------
EXPENSES:
Investment advisory fees 128,483 186,149
Fund administration and accounting fees 56,211 81,440
Shareholder servicing 13,436 20,108
Audit fees 12,862 10,634
Legal fees 11,113 14,689
Pricing 10,208 11,786
Insurance 7,524 6,500
Custody fees 6,120 7,532
Amortization of organizational costs 5,845 8,818
Federal and state registration fees 5,584 7,875
Reports to shareholders 2,964 6,340
Directors' fees and related expenses 1,988 840
Other 564 680
---------- ----------
Total expenses before waiver 262,902 363,391
Waiver of expenses by adviser (102,299) (130,881)
---------- ----------
Net expenses 160,603 232,510
---------- ----------
NET INVESTMENT INCOME 2,044,061 2,696,141
---------- ----------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investments (391,769) 1,082,198
Change in net unrealized appreciation/
depreciation on investments (1,503,727) (226,487)
---------- ----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS (1,895,496) 855,711
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $148,565 $3,551,852
========== ==========
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENTS OF CHANGES IN NET ASSETS
EIGHT MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, OCTOBER 31, OCTOBER 31,
1999 1998 1997<F1>
----------------- ---------- ------------
OPERATIONS:
Net investment income $2,044,061 $2,696,141 $1,106,085
Net realized gains (losses)
on investments (391,769) 1,082,198 60,778
Change in net unrealized appreciation/
depreciation on investments (1,503,727) (226,487) 659,761
----------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations 148,565 3,551,852 1,826,624
----------- ---------- ----------
DISTRIBUTIONS PAID FROM:
Net investment income (2,276,914) (2,634,499) (917,864)
Net realized gains on investments (1,084,178) (83,976) -
----------- ---------- ----------
Net decrease in net assets resulting
from distributions paid (3,361,092) (2,718,475) (917,864)
----------- ---------- ----------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 1,481,740 11,881,429 37,210,071
Shares issued to holders in
reinvestment of distributions 3,326,082 2,687,931 904,999
Shares redeemed (1,639,512) (6,041,766) (28,052)
----------- ---------- ----------
Net increase in net assets resulting
from capital share transactions 3,168,310 8,527,594 38,087,018
----------- ---------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (44,217) 9,360,971 38,995,778
----------- ---------- ----------
NET ASSETS:
Beginning of period 48,456,749 39,095,778 100,000
----------- ---------- ----------
End of period
(includes undistributed
net investment income of
$2,993, $241,806 and
$183,488, respectively) $48,412,532 $48,456,749 $39,095,778
=========== =========== ===========
<F1> Commenced operations on November 25, 1996
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
FINANCIAL HIGHLIGHTS
EIGHT MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, OCTOBER 31, OCTOBER 31,
1999 1998 1997<F1>
----------------- --------- -----------
NET ASSET VALUE,
BEGINNING OF PERIOD $31.38 $30.85 $30.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income (loss) 1.29 1.75 1.37
Net realized and unrealized gains
(losses) on investments (1.18) 0.59 0.70
------- ------- -------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 0.11 2.34 2.07
------- ------- -------
LESS DISTRIBUTIONS PAID:
From net investment income (1.44) (1.75) (1.22)
From net realized gains on investments (0.71) (0.06) _
------- ------- -------
TOTAL DISTRIBUTIONS PAID (2.15) (1.81) (1.22)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $29.34 $31.38 $30.85
======= ======= =======
TOTAL RETURN<F2> 0.32% 7.79% 7.13%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of period
(in thousands) $48,413 $48,457 $39,096
Ratio of expenses to average
net assets<F3><F4> 0.50% 0.50% 0.50%
Ratio of net investment income
to average net assets<F3><F4> 6.37% 5.79% 6.02%
Portfolio turnover rate<F2> 83% 131% 202%
<F1>Commenced operations on November 25, 1996
<F2>Not annualized for periods less than a full year
<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 0.82%, 0.78% and 1.27%, and the ratio of net investment
income to average net assets would have been 6.05%, 5.51% and 5.25% for
the periods ended June 30, 1999, October 31, 1998 and October 31, 1997,
respectively.
<F4>Annualized
See notes to financial statements.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(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 Total Return Bond Fund (the "Fund"), the Frontegra Opportunity Fund
and the Frontegra Growth Fund. 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.
(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 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.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1999
(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
period 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 June 30, 1999, reclassifications were recorded to
decrease accumulated net investment income by $5,960, decrease
accumulated net realized losses on investments by $8,577 and decrease
paid in capital by $2,617.
(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. Pursuant to an expense cap agreement dated February 26, 1999, the
Adviser agreed to 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. The term of this expense cap agreement
is twelve months.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1999
(4) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
EIGHT MONTHS ENDED YEAR ENDED
JUNE 30, 1999 OCTOBER 31, 1998
------------------ ----------------
Shares sold 47,995 385,190
Shares issued to holders in
reinvestment of distributions 110,347 86,889
Shares redeemed (52,435) (195,049)
-------- ---------
Net increase in shares outstanding 105,907 277,030
======== =========
(5) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government securities, for the Fund for the eight months
ended June 30, 1999, are summarized below:
Purchases $14,109,710
Sales $17,385,484
Purchases and sales of U.S. government securities were $27,176,705 and
$21,224,024, respectively.
At June 30, 1999, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $48,762,928 were
as follows:
Appreciation $158,048
Depreciation (1,271,736)
------------
Net depreciation on investments $(1,113,688)
============
At June 30, 1999, the Fund had an accumulated net realized capital loss
carryover of $349,504 expiring in 2007. To the extent the Fund realizes future
net capital gains, taxable distributions to its shareholders will be offset by
any unused capital loss carryover.
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
REPORT OF INDEPENDENT AUDITORS
June 30, 1999
To the Board of Directors and Shareholders of the Frontegra Funds,
Inc./Frontegra Total Return Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Frontegra Total Return Bond Fund (the
"Fund") as of June 30, 1999, and the related statements of operations for the
eight months then ended and year ended October 31, 1998, the statements of
changes in net assets and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
June 30, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Frontegra Total Return Bond Fund at June 30, 1999, the results of its operations
for the eight months then ended and year ended October 31, 1998, the statements
of changes in net assets and the financial highlights for the periods indicated
therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
July 21, 1999
FRONTEGRA FUNDS, INC.
c/o Sunstone Financial Group, Inc.
P.O. Box 2142, Milwaukee, Wisconsin 53201-2142
FB-408-0899
