As filed with the Securities and Exchange Commission on October 14, 1999
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. ___ [ ]
Post-Effective Amendment No. 7 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 8
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: (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
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] on (date) pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[X] on December 31, 1999 pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
PROSPECTUS
February 26, 1999
FRONTEGRA FUNDS, INC.
FRONTEGRA TOTAL RETURN BOND FUND
c/o Sunstone Financial Group, Inc.
P. O. Box 2142
Milwaukee, Wisconsin 53201-2142
1-888-825-2100
The FRONTEGRA TOTAL RETURN BOND FUND (the "Fund")
is a series of FRONTEGRA FUNDS, INC., (the "Company").
The investment objective of the Fund is a high
level of total return, consistent with the preservation
of capital. The Fund invests primarily in a
diversified portfolio of fixed income securities of
varying maturities.
This Prospectus contains information you should
consider before investing in the Fund. Please read it
carefully and keep it for future reference.
Neither the Securities and Exchange Commission nor
any state securities commission has approved or
disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
The Frontegra Total Return Bond Fund at a Glance 1
Fees and Expenses of the Fund 2
Investment Objective 3
Investment Strategy 3
Implementation of Investment Objective 4
Prior Performance of Reams 5
Financial Highlights 7
Fund Management 7
Your Account 8
Exchange Privilege 10
Valuation of Fund Shares 10
Tax-Sheltered Retirement Plans 11
Dividends, Capital Gain Distributions and Tax Treatment 11
Year 2000 Issue 12
You should rely only on the information contained in
this Prospectus and in the Statement of Additional
Information ("SAI"), which is available upon request.
The Company has not authorized others to provide
additional information. The Company does not authorize
use of this Prospectus in any state or jurisdiction
where the offering cannot legally be made.
<PAGE>
The Frontegra Total Return Bond Fund at a Glance
* Investment Objective
The Fund's goal, also referred to as its
investment objective, is a high level of total return,
consistent with the preservation of capital.
* Principal Investment Strategy
The Fund seeks to achieve its goal through
investment in a diversified portfolio of fixed income
securities of varying maturities. When making purchase
decisions, the Fund's subadviser, Reams Asset
Management Company, LLC ("Reams"), looks for securities
that it believes are undervalued in the fixed income
market.
Reams uses a two-step process in managing the
Fund. First, Reams evaluates market attractiveness to
establish a measure of the portfolio's average life,
which is referred to as duration. Next, Reams
assembles the Fund's portfolio from the best available
values based on analysis by the portfolio management
team.
Although the Fund will invest primarily in
investment grade fixed income securities, the Fund may
invest up to 25% of its assets in non-investment grade
fixed income securities (junk bonds).
* Risk Factors
The main risks of investing in the Fund are:
- Market Risks: The Fund's investments are subject
to market risk, so that the value of the Fund's
investments may go up or down. If the value of the
Fund's investments goes down, you may lose money. The
share price of the Fund is expected to fluctuate. Your
shares at redemption may be worth more or less than
your initial investment. Market risks associated with
fixed income investments include the possibility that
bond prices in general will decline over short or even
extended periods as interest rates rise.
- Individual Bond Risks: The Fund's investments are
also subject to the risks inherent in individual bond
selections. 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.
- Credit Risk: Individual issues of fixed income
securities may also be subject to the credit risk of
the issuer.
* Who Should Invest
The Fund is suitable for long-term investors only
and is not designed as a short-term investment vehicle.
The Fund may be an appropriate investment for you if
you:
- Seek long-term preservation of capital; and
- Want to include a bond fund in your portfolio.
* Performance Bar Chart and Tables
The return information provided in the bar chart
and tables below illustrates how the Fund's
performance can vary, which is one indication of
the risks of investing in the Fund. The
information also provides some indication of the
risks of investing in the Fund by showing how the
Fund's average annual returns compare
<PAGE>
with a broad
measure of market performance over the past two
calendar years. Please keep in mind that the
Fund's past performance does not necessarily
represent how it will perform in the future.
Calendar Year Total Returns
1997 1998
8.59% 8.43%
[bar chart]
Best and Worst Quarterly Performance
Best Quarter Return Worst Quarter Return
3.87% (0.88)%
(3rd quarter, 1998) (1st quarter, 1997)
Average Annual Total Returns
(For the calendar year ended December 31, 1998)
Fund/Index One Year Since Inception (11/25/96)
Total Return 8.43% 7.70%
Bond Fund
Lehman Brothers 8.69% 8.49%
Aggregate Bond
Index(1)
____________
(1) 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 Investors Service, in that
order. All issues have at least one year to
maturity and an outstanding par value of at least $100
million. The index does not reflect investment
management fees, brokerage commissions and other
expenses associated with investing in fixed income
securities.
Fees and expenses of the Fund
This table describes the fees and expenses that
you may pay if you buy and hold shares of the Fund.
Fee Tables
Shareholder Fees (fees paid directly from your investment) NONE*
____________
*The Fund will charge a service fee of $10 for
redemptions effected via wire transfer, and $20 for
checks that do not clear.
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)(1)
Management Fees 0.40%
Distribution (12b-1) Fees NONE
Other Expenses 0.38%
Total Annual Fund Operating Expenses 0.78%
Fee Waiver/Expense Reimbursement(2) 0.28%
<PAGE>
Net Expenses 0.50%
____________
(1) Stated as a percentage of the Fund's average
net assets.
(2) Pursuant to an expense cap agreement dated
February 26, 1999 between the Fund's adviser, Frontegra
Asset Management, Inc. ("Frontegra") and the Fund,
Frontegra agreed to waive its management fee and/or
reimburse the Fund's operating expenses to the extent
necessary to ensure that the Fund's total operating
expenses do not exceed 0.50% of the Fund's average
daily net assets. The term of this expense cap
agreement is 12 months.
Example
The following Example is intended to help you
compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your
shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower,
based on these assumptions, your costs would be as
follows:
1 Year $51
3 Years $160
5 Years $280
10 Years $628
Investment Objective
The Fund's investment objective is a high level of
total return, consistent with the preservation of
capital. This investment objective may not be changed
without shareholder approval.
Investment Strategy
The 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
portfolio duration of the Fund will normally fall
between three and 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.
The longer the duration, the more susceptible the
portfolio will be to changes in interest rates.
As the Fund's subadviser, 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 Fund. The first step is to establish
the portfolio's duration on the basis of whether the
bond market is under- or over-priced. To formulate its
strategies, Reams emphasizes inflation and monetary
policy. Reams determines market attractiveness by
comparing current real interest rates to historical
real 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 team constructs these scenarios by
considering the outlook for interest rates, fundamental
credit analysis and option-adjusted spread analysis.
The team compares these investment opportunities and
assembles the Fund's portfolio from the best available
values. Reams constantly monitors the expected returns of
<PAGE>
the securities in the Fund versus those available in
the market and of other securities the firm is
considering for purchase. Reams' strategy is to
replace securities that it feels are approaching fair
market value with those that, according to its
analysis, are significantly undervalued.
Implementation of Investment Objective
In implementing its investment objective, the Fund
may invest in the following securities and use the
following investment techniques. Some of these
securities and investment techniques involve special
risks, which are described below and elsewhere in this
Prospectus.
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.
Commercial paper generally is considered the
shortest form of fixed income security. Notes whose
original maturities are two years 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 ten years are considered
intermediate-term, and bonds with maturities greater
than ten years are considered long-term.
Principal Risks. 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 credit 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.
Non-Investment Grade Debt Securities (Junk Bonds)
The Fund may invest up to 25% of its net assets in
junk bonds. Junk bonds, while generally offering
higher yields than investment grade securities with
similar maturities, 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.
Principal Risks. Junk bond securities tend to be
more sensitive to economic conditions than are higher-
rated securities. As a result, they generally involve
more credit risk 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. The Fund may have difficulty disposing of
certain junk bond securities because there may be a
thin trading market for such 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. Periods of economic
uncertainty generally result in increased volatility in
the market prices of these securities and thus in the
Fund's net asset value.
<PAGE>
Mortgage- and Other Asset-Backed Securities
The Fund may invest in mortgage- and other asset-
backed securities. Mortgage-backed securities
represent direct or indirect participation in mortgage
loans secured by real property, and include single- and
multi-class pass-through securities and collateralized
mortgage obligations.
Asset-backed securities have structural
characteristics similar to mortgage-backed securities.
However, the underlying assets are not mortgage loans.
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.
Principal Risks. The yield characteristics of
mortgage- and asset-backed securities differ from those
of traditional debt obligations. For example, interest
and principal payments are made more frequently on
mortgage- and asset-backed securities, usually monthly,
and principal 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 increase yield to
maturity. 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 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.
Portfolio Turnover
A change in the investments held by the Fund is
known as "portfolio turnover." Under normal market
conditions, the Fund anticipates that its annual
portfolio turnover rate will generally not exceed 225%
and is expected to be between 150% and 225%. 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, which would reduce the Fund's returns.
High portfolio turnover could also result in the
payment by shareholders of increased taxes on realized
investment gains. The Fund's portfolio turnover rate
is included under "Financial Highlights."
Prior Performance of Reams
As noted above, Reams is the Fund's subadviser.
The following table shows the historical composite
performance data for all of Reams' advisory accounts
which have investment objectives, policies, strategies
and risks substantially similar to the Fund, known as
the Reams Fixed Income Composite (the "Composite"), for
the periods indicated. Since its inception, the
Composite has shown an annual return of approximately
14%. The Composite has not been subject to the same
types of expenses to which the Fund is subject nor to
the diversification requirements, specific tax
restrictions and investment limitations imposed on the
Fund by the Internal Revenue Code of 1986, as amended
(the "Code") and the Investment Company Act of 1940, as
amended (the "1940 Act"), respectively. Consequently,
the performance results for the Composite could have
been adversely affected if the accounts included in the
Composite had been regulated under the federal security
and tax laws. The Composite's expenses are lower than
the Fund's expenses. If the Fund's expenses had been
deducted from the Composite's returns, the returns
would be lower than those shown. The data is provided
to illustrate the past performance of Reams in managing
a substantially similar portfolio as measured against
the Lehman Brothers Aggregate Bond Index and does not
represent the performance of the Fund. You should not
consider this performance data as an indication of the
future performance of the Fund or Reams.
Reams' performance information has been calculated
in accordance with recommended standards of the
Association for Investment Management and Research
("AIMR"), retroactively applied to all time periods.
All returns presented were calculated on a total return
basis and include all dividends and interest, accrued
income, if any, and realized and unrealized gains and
losses. All returns reflect the deduction of
investment advisory fees, brokerage commissions and
execution costs paid by the accounts included in the
Composite, without provision for federal or state
<PAGE>
income taxes. Cash and cash equivalents are included
in the performance returns. Total return is calculated
monthly in accordance with the time weighted rate of
return method provided for by AIMR standards accounted
for on a trade-date and accrual basis. AIMR standards
for calculation of total return differ from the
standards required by the SEC for calculation of
average annual total return. No leveraged positions
were used. The monthly returns are geometrically
linked to derive an annual total return.
The investment results of the Composite presented
below are Level 1 AIMR compliant, but are not intended
to predict or suggest the future returns of the Fund.
You should be aware that the use of a methodology
different than that used below to calculate performance
could result in different performance data.
Reams Asset Management Company, LLC
Reams Fixed Income Composite Performance History: 6/1/81-12/31/98(1)
Reams Fixed
Income Lehman
Composite Brothers
Total Aggregate
Year Return Bond Index(2)
1 9.16% 8.69%
3 7.86% 7.29%
5 7.87% 7.27%
From Inception (3) 14.33% 11.35%
(1) For the Fund's performance, see the return
information under "The Frontegra Total Return Bond
Fund at a Glance."
(2) 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 Investors
Service, in that order. All issues have at least one
year to maturity and an outstanding par value
of at least $100 million. The index does not reflect
investment management fees, brokerage commissions and
other expenses associated with investing in fixed
income securities.
(3) The Composite commenced operations on June 1, 1981.
Average Annualized Return in Percent: 6/1/81-12/31/98
Reams Fixed Income Composite Performance 14.33%
Lehman Brothers Aggregate Bond Index 11.35%
<PAGE>
Financial Highlights
The financial highlights table is intended to help
you understand the Fund's financial performance for the
period from November 25, 1996 (commencement of
operations) to October 31, 1998. The total returns in
the table represent the rate that an investor would
have earned on an investment in the Fund for the stated
periods (assuming reinvestment of all dividends and
distributions). The financial information included in
this table has been derived from the Fund's audited
financial statements. The table should be read in
conjunction with the financial statements and related
notes included in the Fund's Annual Report to
Shareholders, which is available without charge by
writing to the Company, c/o Sunstone Financial Group,
Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-2142,
or by calling, toll-free, 1-888-825-2100.
Fiscal Year November 25, 1996(1)
Ended to
October 31, 1998 October 31, 1997
Net asset value, beginning of period $30.85 $30.00
Income (loss) from investment operations:
Net investment income 1.75 1.37
Net realized and unrealized gains
(losses) on investments 0.59 0.70
Total income (loss) from investment
operations 2.34 2.07
Less distributions paid:
From net investment income (1.75) (1.22)
From net realized gains on investments (0.06) -
Total distributions paid (1.81) (1.22)
Net asset value, end of period $31.38 $30.85
Total return(2) 7.79% 7.13%
Supplemental data and ratios:
Net assets, end of period (in thousands) $48,457 $39,096
Ratio of expenses to average net
assets(3)(4) 0.50% 0.50%
Ratio of net investment income to
average net assets(3)(4) 5.79% 6.02%
Portfolio turnover rate(2) 131% 202%
____________
(1) Commencement of operations.
(2) Not annualized for periods less than a full year.
(3) Net of waivers and reimbursements by Frontegra.
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 5.51% and 5.25% for the fiscal year ended
October 31, 1998 and for the period November 25,
1996 to October 31, 1997, respectively.
(4) Annualized.
Fund 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 dated October 30, 1996, as
amended as of February 1, 1998 (the "Investment
Advisory Agreement"), pursuant to which Frontegra
supervises the management of the Fund's investments and
business affairs, subject to the supervision of the
<PAGE>
Company's Board of Directors. Frontegra has entered
into a subadvisory agreement with Reams under which
Reams serves as the Fund's portfolio manager and,
subject to Frontegra's supervision, manages the Fund's
portfolio assets. Frontegra provides office facilities
for the Fund and pays the salaries, fees, and expenses
of all officers and directors of the Fund who are
interested persons of Frontegra.
Adviser. The Fund is managed by Frontegra, which
supervises the management of the Fund's portfolio by
the subadviser and administers the Company's business
affairs. Frontegra was organized in 1996 and is
located at 400 Skokie Boulevard, 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 Fund
compensates Frontegra 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 between
Frontegra and the Fund, Frontegra agreed to waive its
management fee and/or reimburse the Fund's operating
expenses to the extent necessary to ensure that the
Fund's total operating expenses do not exceed 0.50% of
the Fund's average daily net assets. The term of this
expense cap agreement is 12 months. The expense cap
agreement has the effect of lowering the overall
expense ratio for the Fund and increasing the Fund's
overall return to investors for the time any such
amounts are waived and/or reimbursed.
Subadviser. 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 0.20% of the Fund's
average daily net assets. In recognition of the
economies of scale that will be gained by the Fund and
Frontegra, and with the exception of defined
contribution or 401(k) investments in the Fund, for
initial investments of over $15 million Frontegra will
compensate Reams an extra 0.10% of the average daily
net assets of such investments. For the fiscal year
ended October 31, 1998, Reams received $55,267.51 for
its investment advisory services to the Fund. Reams
provides continuous advice and recommendations
concerning the 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 Fund. In addition to providing
investment advisory services to the Fund, Reams serves
as investment adviser to pension and profit-sharing
plans, and other institutional investors. As of
January 31, 1999, Reams had approximately $5.3 billion
under management, which includes fixed income
portfolios totaling approximately $5 billion. Mr. Fred
W. Reams owns units representing a majority of the
voting rights of Reams.
Portfolio Managers. The day-to-day management
responsibilities for the Fund's portfolio are primarily
handled by Reams' portfolio management team. The
portfolio management team has been managed primarily by
Mr. Robert A. Crider and Mr. Mark M. Egan since the
Fund's inception. Mr. Crider has been Senior Vice
President, Fixed Income Management, of Reams since
April, 1994 and was Senior Vice President, Fixed Income
Management, of Reams Asset Management, Inc. from 1981
until March, 1994. 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 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.
Your Account
How to Purchase Shares
Shares of the Fund are sold on a continuous basis
at net asset value. The Fund's net asset value is
determined as of the close of trading on the New York
Stock Exchange (the "NYSE") (generally 4:00 p.m.,
Eastern Time) on each day the NYSE is open. Your
purchase price will be 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.
<PAGE>
The Fund's minimum initial investment is $100,000.
Subsequent investments may be made by mail or wire with
a minimum subsequent investment of $1,000. The Fund
reserves the right to change or waive these minimums at
any time. You will be given at least 30 days' notice
of any increase in the minimum dollar amount of
purchases.
If you purchase shares of the Fund by check and
request the redemption of such shares within 15 days of
the initial purchase, payment of the redemption
proceeds may be delayed for up to seven business days
in order to ensure that the check has cleared. This is
a security precaution only and does not affect your
investment.
Initial Investment - Minimum $100,000
You may purchase shares of the Fund by completing
an application and mailing it along with a check or
money order payable to "Frontegra Funds, Inc." to:
Frontegra Funds, Inc., c/o Sunstone Financial Group,
Inc. (the "Transfer Agent"), P.O. Box 2142, Milwaukee,
Wisconsin 53201-2142. For overnight deliveries, please
use 207 E. Buffalo Street, Suite 315, Milwaukee,
Wisconsin 53202-5712. 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 the Fund as a result. All
applications to purchase shares of the Fund are subject
to acceptance by the Company and are not binding until
so accepted. The Company reserves the right to reject
an application in whole or in part.
Alternatively, you may place an order to purchase
shares of the Fund through a broker-dealer. Broker-
dealers may charge a transaction fee for placing orders
to purchase Fund shares. It is the responsibility of
the broker-dealer to place the order with the Fund on a
timely basis. Once you have purchased shares through a
broker-dealer, all future transactions must be placed
through that broker-dealer.
In addition, you may purchase shares of the Fund
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 then be wired through the
Federal Reserve System as follows:
UMB Bank, n.a.
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 Taxpayer Identification Number)
(identify Frontegra Total Return Bond Fund)
The Fund is not responsible for the consequences
of delays resulting from the banking or Federal Reserve
wire system.
Subsequent Investments - Minimum $1,000
You may make additions to your account in amounts
of $1,000 or more by mail or by wire. When making an
additional purchase by mail, enclose a check payable to
"Frontegra Funds, Inc." 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 business 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. In addition to the
<PAGE>
redemption procedures described below, redemptions may also be
made through broker/dealers who may charge a commission
or other transaction fee.
Written Redemption
To redeem your Fund shares please 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 53202-5712. Your 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. The
Transfer Agent may request additional documentation
from corporations, executors, administrators, trustees,
guardians, 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 $10 service fee for wire redemptions. If the
dollar amount requested to be redeemed is greater than
the current value of your account, your entire account
balance will be redeemed.
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests mailed or wired to a person other
than the registered owner(s) of the shares, (ii)
redemption requests mailed or wired to other than the
address of record and (iii) redemption requests
submitted within 30 days of an address change. A
signature guarantee may be obtained from any bank,
savings and loan association, credit union, brokerage
firm or other eligible guarantor institution. A notary
public is not an acceptable guarantor.
Account Termination
Your account may be terminated by the Fund on not
less than 30 days' notice if the value of the shares in
the account falls below $10,000. Upon any such
termination, a check for the redemption proceeds will
be sent to the address of record within seven business
days of the redemption.
Exchange Privilege
You may exchange your shares in the 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 in proper form.
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
53202-5712. 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 Fund or its
shareholders. 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.
Valuation of Fund Shares
The price of Fund shares is the Fund's net asset
value, which is calculated using the market price
method of valuation and is determined as of the close
of trading (generally 4:00 p.m. Eastern Time) on each
day the New York Stock Exchange ("NYSE") is open for
business. The Fund does not determine net asset value
on days the NYSE is closed. The NYSE is closed on New
Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. In addition,
if any of these holidays falls on a Saturday, the NYSE
will not be open for trading on the preceding Friday,
and when such holiday falls on a Sunday, the NYSE will
not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the
ending of a monthly or yearly period.
<PAGE>
Tax-Sheltered Retirement Plans
The Company offers through its Custodian, UMB
Bank, n.a., various qualified retirement plans for
adoption by individuals and employers. Participants in
these plans can accumulate shares of the Fund on a tax-
deferred basis. Please call 1-888-825-2100 for a
current list of the plans offered.
Dividends, Capital Gain Distributions And Tax Treatment
For federal income tax purposes, all dividends and
distributions of 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 the
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.
Shareholders 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.
The Fund will usually distribute dividends
quarterly. The Fund will usually distribute capital
gains annually in December. When a dividend or capital
gain is distributed, the 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. The
Fund expects that, because of its investment
objectives, its distributions will consist primarily of
income.
All dividends or capital gain distributions will
automatically be reinvested in shares of the Fund 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 overnight deliveries, please use 207
E. Buffalo Street, Suite 315, Milwaukee, Wisconsin
53202-5712. Such notice must be received at least five
business days prior to the record date of any dividend
or capital gain distribution.
If you do not furnish the Fund with your correct
Social Security Number or Taxpayer Identification
Number and/or the Fund receives notification from the
Internal Revenue Service requiring back-up withholding,
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
adviser.
<PAGE>
Year 2000 Issue
The Fund's operations depend on the seamless
functioning of computer systems in the financial
service industry, including those of the Adviser, the
Subadviser, the Transfer Agent and the Custodian. Many
computer software systems in use today cannot properly
process date-related information after December 31,
1999 because of the method by which dates are encoded
and calculated. This failure, commonly referred to as
the "Year 2000 Issue," could adversely affect the
handling of security trades, pricing and account
servicing for the Fund.
The Adviser has made compliance with the Year 2000
Issue a high priority and is taking steps that it
believes are reasonably designed to address the Year
2000 Issue with respect to its computer systems. The
Adviser has also been informed that comparable steps
are being taken by the Subadviser, the Transfer Agent,
the Custodian and other major service providers.
However, there can be no assurance that the steps taken
by the Adviser will be sufficient to avoid any adverse
impact.
With respect to the companies in which the Fund
invests, the Fund cannot make any assurances as to
their Year 2000 compliance efforts. In the event that
one or more of these companies is not Year 2000
compliant, the Fund's investment in such companies may
be adversely affected.
<PAGE>
DIRECTORS TRANSFER AGENT
William D. Forsyth III Sunstone Financial Group, Inc.
Thomas J. Holmberg, Jr.
David L. Heald For overnight deliveries, use:
Frontegra Funds, Inc.
OFFICERS c/o Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 315
William D. Forsyth III Milwaukee, Wisconsin 53202-5715
Thomas J. Holmberg, Jr.
For regular mail deliveries, use:
INVESTMENT ADVISER Frontegra Funds, Inc.
c/o Sunstone Financial Group, Inc.
Frontegra Asset Management, Inc. P.O. Box 2142
400 Skokie Blvd. Milwaukee, Wisconsin 53201-2142
Suite 500
Northbrook, Illinois 60062 AUDITORS
SUB-ADVISER Ernst & Young LLP
Sears Tower
Reams Asset Management Company, LLC 233 S. Wacker Drive
227 Washington Street Chicago, Illinois 60606-6301
Columbus, Indiana 47201
LEGAL COUNSEL
CUSTODIAN
Godfrey & Kahn, S.C.
UMB Bank, n.a. 780 N. Water Street
928 Grand Boulevard Milwaukee, Wisconsin 53202
Kansas City, Missouri 64141
ADMINISTRATOR AND FUND ACCOUNTANT
Sunstone Financial Group, Inc.
207 East Buffalo
Street, Suite 400
Milwaukee, Wisconsin 53202-5712
Additional information regarding the Company and the
Fund is included in the Statement of Additional
Information ("SAI") which has been filed with the
Securities and Exchange Commission ("SEC") and is
incorporated in this Prospectus by reference. Further
information about the Fund's investments is also
available in the Fund's annual and semi-annual reports
to shareholders. The Fund's annual report provides a
discussion of the market conditions and investment
strategies that significantly affected the Fund's
performance during its last fiscal year. You may
receive the Fund's SAI, annual reports and semi-annual
reports free of charge, request other information about
the Fund and make shareholder inquiries by contacting
the Company at the address listed on the cover page of
this Prospectus or by calling, toll-free, 1-888-825-
2100.
Information about the Fund (including the SAI) can be
reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Please call the SEC at 1-800-SEC-
0330 for information relating to the operation of the
Public Reference Room. Reports and other information
about the Fund are also available on the SEC's Internet
Web site located at http://www.sec.gov. Alternatively,
copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-
6009.
The Company's 1940 Act File Number is 811-7685.
<PAGE>
PROSPECTUS
February 26, 1999
FRONTEGRA FUNDS, INC.
FRONTEGRA OPPORTUNITY FUND
c/o Sunstone Financial Group, Inc.
P. O. Box 2142
Milwaukee, Wisconsin 53201-2142
1-888-825-2100
The FRONTEGRA OPPORTUNITY FUND (the "Fund") is a
series of FRONTEGRA FUNDS, INC., (the "Company").
The investment objective of the Fund is capital
appreciation. The Fund invests primarily in a
diversified portfolio of equity securities of companies
with small market capitalizations.
This Prospectus contains information you should
consider before investing in the Fund. Please read it
carefully and keep it for future reference.
Neither the Securities and Exchange Commission nor
any state securities commission has approved or
disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
The Frontegra Opportunity Fund at a Glance 1
Fees and Expenses of the Fund 2
Investment Objective 3
Investment Strategy 3
Implementation of Investment Objective 4
Prior Performance of Reams 4
Financial Highlights 6
Fund Management 6
Your Account 7
Exchange Privilege 9
Valuation of Fund Shares 9
Tax-Sheltered Retirement Plans 10
Dividends, Capital Gain Distributions and Tax Treatment 10
Year 2000 Issue 11
You should rely only on the information contained in
this Prospectus and in the Statement of Additional
Information ("SAI"), which is available upon request.
The Company has not authorized others to provide any
additional information. The Company does not authorize
use of this Prospectus in any state or jurisdiction
where the offering cannot legally be made.
<PAGE>
The Frontegra Opportunity Fund at a Glance
* Investment Objective
The Fund's goal, also referred to as its
investment objective, is capital appreciation.
* Principal Investment Strategy
The Fund seeks to achieve its goal primarily
through investment in a diversified portfolio of equity
securities of companies with small market
capitalizations. For this purpose, a small
capitalization company would typically have a market
capitalization of $1 billion or less. In constructing
a portfolio for the Fund, the Fund's subadviser, Reams
Asset Management Company LLC ("Reams"), selects
securities with the highest expected rates of return
based on the analysis of its portfolio management team.
Equity securities in which the Fund may invest include
common stocks, preferred stocks, depositary receipts,
warrants to purchase common and preferred stocks and
securities convertible or exchangeable into common or
preferred stocks. Under normal market conditions, the
Fund will invest at least 80% of its assets in these
securities. Under unusual circumstances, as a
temporary defensive technique, the Fund may invest up
to 100% of its total assets in cash and short-term
fixed income securities.
* Risk Factors
The main risks of investing in the Fund are:
- Small Cap Risks: Because the Fund will invest
primarily in small capitalization stocks, which are
more volatile than investments in large companies, you
should expect that the value of the Fund's shares will
be more volatile than the shares of a fund that invests
in medium or large capitalization companies.
- Market Risks: The Fund's investments are subject
to market risk, so that the value of the Fund's
investments may go up or down. If the value of the
Fund's investments goes down, you may lose money. The
share price of the Fund is expected to fluctuate. Your
shares at redemption may be worth more or less than
your initial investment. Market risks associated with
equity investments include the possibility that stock
prices in general will decline over short or even
extended periods.
- Stock Selection Risks: The stocks selected for
inclusion in the Fund's portfolio may decline in value
or not increase in value when the stock market in
general is rising.
* Who Should Invest
The Fund is suitable for long-term investors only
and is not designed as a short-term investment vehicle.
The Fund may be an appropriate investment for you if
you:
- Seek long-term capital appreciation;
- Want to include a small-cap fund in your
portfolio; and
- Are willing to accept the risk that your
investment may fluctuate.
* Performance Bar Chart and Tables
The return information provided in the bar chart
and tables below illustrates how the Fund's
performance can vary, which is one indication of
the risks of investing in the Fund. The
information also provides some indication of the
risks of investing in the Fund by comparing the
Fund's performance with a broad measure of market
performance over the past calendar year. Please
keep in mind that the Fund's past performance does
not necessarily represent how it will perform in
the future.
<PAGE>
Calendar Year Total Returns
1998
(10.13)%
[bar chart]
Best and Worst Quarterly Performance
Best quarter return Worst quarter return
9.02% (17.39)%
(4th quarter, 1998) (3rd quarter, 1998)
Average Annual Total Returns
(For the calendar year ended December 31, 1998)
Fund/Index One Year Since
Inception
(7/31/97)
Opportunity Fund (10.13)% (1.91)%
Russell 2000 (2.55)% 2.38%
Index(1)
_________________
(1)The Russell 2000 Index is an unmanaged index
generally representative of the U.S. market for small
domestic stocks. The index does not reflect investment
management fees, brokerage commissions and other
expenses associated with investing in equity
securities.
Fees and Expenses of the Fund
This table describes the fees and expenses that
you may pay if you buy and hold shares of the Fund.
Fee Tables
Shareholder Fees (fees paid directly from your investment) NONE*
_______________
*The Fund will charge a service fee of $10 for
redemptions effected via wire transfer, and $20 for
checks that do not clear.
<PAGE>
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)(1)
Management Fees 0.65%
Distribution (12b-1) Fees NONE
Other Expenses 1.88%
Total Annual Fund Operating Expenses 2.53%
Fee Waiver/Expense Reimbursement(2) 1.63%
Net Expenses 0.90%
_______________
(1) Stated as a percentage of the Fund's average net assets.
(2) Pursuant to an expense cap agreement dated
February 26, 1999 between the Fund's adviser, Frontegra
Asset Management, Inc. ("Frontegra") and the Fund,
Frontegra agreed to waive its management fee and/or
reimburse the Fund's operating expenses to the extent
necessary to ensure that the Fund's total operating
expenses do not exceed 0.90% of the Fund's average
daily net assets. The term of this expense cap
agreement is 12 months.
Example
The following Example is intended to help you
compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your
shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower,
based on these assumptions, your costs would be as
follows:
1 Year $92
3 Years $287
5 Years $498
10 Years $1,108
Investment Objective
The Fund's investment objective is capital
appreciation. This investment objective may not be
changed without shareholder approval.
Investment Strategy
Under normal conditions, the Fund will seek to
achieve its investment objective by investing its
assets primarily in equity securities with small 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 ("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
Fund's total assets will normally be invested in equity
securities of those companies with a market
capitalization of $1 billion or less at the time of the
Fund's investment. In general, investments in small
capitalization companies often involve greater risks
than investments in larger capitalized companies.
In seeking to achieve the Fund's investment
objective, Reams uses a value-oriented discipline.
Reams evaluates the small-cap market 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 50 securities with the highest expected
rates of return would be among those securities
selected for
<PAGE>
the Fund's portfolio. Reams constructs a
portfolio using a bottom-up analysis. 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.
Implementation of Investment Objective
In implementing its investment objective, the Fund
may invest in the following securities and use the
following investment techniques. Some of these
securities and investment techniques involve special
risks, which are described below and elsewhere in this
Prospectus.
Common Stocks and Other Equity Securities
The Fund will invest at least 80% of its net
assets in common stocks and other equity securities.
Other equity securities may include depositary
receipts, preferred stocks, warrants to purchase common
and preferred stocks and securities convertible or
exchangeable into common or preferred stock.
Principal Risks. Common stocks and other equity
securities generally increase or decrease in value
based on the earnings of a company and on general
industry and market conditions. A fund that invests a
significant amount of its assets in common stocks and
other equity securities is likely to have greater
fluctuations in share price than a fund that invests a
significant portion of its assets in fixed income
securities.
Small Companies
The Fund will normally invest at least 65% of its
total assets in small companies. Small companies have
a market capitalization of $1 billion or less at
purchase.
Principal Risks. While smaller companies may 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 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 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 Fund may be subject to greater price
fluctuations than an investment in a fund that invests
primarily in larger companies.
Temporary Strategies
The Fund may invest up to 100% of its total assets
in cash and short-term fixed income securities for
temporary defensive purposes in response to adverse
market or economic conditions. To the extent the Fund
engages in any of these temporary strategies, the Fund
may not achieve its investment objective.
Prior Performance of Reams
As noted above, Reams is the Fund's subadviser.
The following table shows the historical composite
performance data for all of Reams' advisory accounts
which have investment objectives, policies, strategies
and risks substantially similar to the Fund, known as
the Reams' Small Capitalization Value Equity Composite
(the "Composite"), for the periods indicated. Since
its inception, the Composite has shown an annual return
of approximately 17.65%. The Composite has not been
subject to the same types of expenses to which the Fund
is subject nor to the diversification requirements,
specific tax restrictions and investment limitations
imposed on the Fund by the Internal Revenue Code of
1986, as amended (the "Code"), and the Investment
Company Act of 1940, as amended (the "1940 Act"),
respectively. Consequently, the performance results
for the Composite could have been adversely affected if
the Composite had been regulated under the federal
security and tax laws. The Composite's expenses are
lower than the Fund's expenses. If the Fund's expenses
had been deducted from the Composite's returns, the
returns would be lower than those shown. The data is
provided to illustrate the past performance of Reams in
managing a
<PAGE>
substantially similar portfolio as measured
against the Russell 2000 Index and does not represent
the performance of the Fund. You should not consider
this performance data as an indication of the future
performance of the Fund or Reams.
Reams' performance information has been calculated
in accordance with recommended standards of the
Association for Investment Management and Research
("AIMR"), retroactively applied to all time periods.
All returns presented were calculated on a total return
basis and include all dividends and interest, if any,
accrued income, if any, and realized and unrealized
gains and losses. All returns reflect the deduction of
investment advisory fees, brokerage commissions and
execution costs paid by the Composite, without
provision for federal or state income taxes. Cash and
cash equivalents are included in the performance
returns. Total return is calculated monthly in
accordance with the time weighted rate of return method
provided for by AIMR standards accounted for on a trade-
date and accrual basis. AIMR standards for calculation
of total return differ from the standards required by
the SEC for calculation of average annual total return.
No leveraged positions were used. The monthly returns
are geometrically linked to derive an annual total
return.
The investment results of the Composite presented
below are unaudited and are not intended to predict or
suggest the future returns of the Fund. You should be
aware that the use of a methodology different than that
used below to calculate performance could result in
different performance data.
Reams Asset Management Company, LLC
Reams Small Capitalization Value Equity Composite
Performance History: 1/1/95-12/31/98(1)
Reams Small Russell 2000
Year Capitalization Index(2)
Composite
Total Return
1 (10.83)% (2.55)%
3 13.56% 11.58%
From Inception(3) 17.65% 15.57%
__________
(1) For the Fund's performance, see the return
information under "The Frontegra Opportunity Fund at a Glance."
(2) The Russell 2000 Index is an unmanaged index
generally representative of the U.S. market for small
domestic stocks. The index does not reflect
investment management fees, brokerage commissions and
other expenses associated with investing in equity securities.
(3) The Composite commenced operations on January 1, 1995.
Average Annualized Return in Percent: 1/1/95-12/31/98
Reams Composite Performance 17.65%
Russell 2000 Index 15.57%
<PAGE>
Financial Highlights
The financial highlights table is intended to help
you understand the Fund's financial performance for the
period from July 31, 1997 (commencement of operations)
to October 31, 1998. The total returns in the table
represent the rate that an investor would have earned
or lost on an investment in the Fund for the stated
periods (assuming reinvestment of all dividends and
distributions). The financial information included in
this table has been derived from the Fund's audited
financial statements. The table should be read in
conjunction with the financial statements and related
notes included in the Fund's Annual Report to
Shareholders, which is available without charge by
writing to the Company, c/o Sunstone Financial Group,
Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-2142,
or by calling, toll-free, 1-888-825-2100.
Fiscal Year July 31, 1997(1)
Ended to
October 31, 1998 October 31,1997
Net asset value, beginning of period $32.22 $30.00
Income (loss) from investment operations:
Net investment income 0.26 0.04
Net realized and unrealized gains
(losses) on investments (4.52) 2.18
Total income (loss) from investment
operations (4.26) 2.22
Less distributions paid:
From net investment income (0.03) -
From capital gains - -
Total distributions paid (0.03) -
Net asset value, end of period $27.93 $32.22
Total return(2) (13.24)% 7.40%
Supplemental data and ratios:
Net assets, end of period (in thousands) $6,827 $5,900
Ratio of expenses to average net
assets(3)(4) 0.90% 0.90%
Ratio of net investment income to
average net assets(3)(4) 0.92% 2.61%
Portfolio turnover rate(2) 54% 9%
____________
(1) Commencement of operations.
(2) Not annualized for periods less than a full year.
(3) Net of waivers and reimbursements by Frontegra.
Without waivers and reimbursements of expenses, the
ratio of expenses to average net assets would have
been 2.53% and 12.02% and the ratio of net
investment income to average net assets would have
been (0.71)% and (8.51)% for the fiscal year ended
October 31, 1998 and for the period July 31, 1997
through October 31, 1997, respectively.
(4) Annualized.
Fund 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 dated October 30, 1996, as
amended as of February 1, 1998 (the "Investment
Advisory Agreement"), pursuant to which Frontegra
supervises the management of the Fund's investments and
business affairs, subject to the supervision of the
Company's Board of Directors. Frontegra has entered
into a subadvisory agreement with Reams under which
Reams serves as the Fund's portfolio manager and,
subject to Frontegra's supervision, manages the Fund's
portfolio assets.
<PAGE>
Frontegra provides office facilities
for the Fund and pays the salaries, fees and expenses
of all officers and directors of the Fund who are
interested persons of Frontegra.
Adviser. The Fund is managed by Frontegra, which
supervises the management of the Fund's portfolio by
the subadviser and administers the Company's business
affairs. Frontegra was organized in 1996 and is
located at 400 Skokie Boulevard, 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 Fund
compensates Frontegra for its management services at
the annual rate of 0.65% of the Fund's average daily
net assets. Pursuant to an expense cap agreement dated
February 26, 1999 between Frontegra and the Fund,
Frontegra agreed to waive its management fee and/or
reimburse the Fund's operating expenses to the extent
necessary to ensure that the Fund's total operating
expenses do not exceed 0.90% of the Fund's average
daily net assets. The term of this expense cap
agreement is 12 months. The expense cap agreement has
the effect of lowering the overall expense ratio for
the Fund and increasing the Fund's overall return to
investors for the time any such amounts are waived
and/or reimbursed.
Subadviser. 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 Fund's
average daily net assets. In recognition of the
economies of scale that will be gained by the Fund and
Frontegra, and with the exception of defined
contribution or 401(k) investments in the Fund, for
initial investments of over $15 million Frontegra will
compensate Reams an extra 0.10% of the average daily
net assets of such investments. For the fiscal year
ended October 31, 1998, Reams did not receive any
compensation for its investment advisory services to
the Fund. Reams provides continuous advice and
recommendations concerning the 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 Fund. In addition to providing
investment advisory services to the Fund, Reams serves
as investment adviser to pension and profit-sharing
plans, and other institutional investors. As of
January 31, 1999, Reams had approximately $5.3 billion
under management, which includes equity portfolios
totaling approximately $300 million. Mr. Fred W. Reams
owns units representing a majority of the voting rights
of Reams.
Portfolio Managers. The day-to-day management
responsibilities for the Fund's portfolio are primarily
handled by Reams' portfolio management team. The
portfolio management team has been managed primarily by
Mr. Reams and Mr. David R. Milroy. Mr. Reams has been
President of Reams since April, 1994 and was President
of Reams Asset Management Company, Inc. from its
founding in 1981 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 June, 1990 until March, 1994, and
was Portfolio Manager of Loomis, Sayles & Co. from May,
1985 until May, 1990. The portfolio management team
approves scenarios established for individual
securities submitted by each analyst, and makes the
final buy and sell decisions.
Your Account
How to Purchase Shares
Shares of the Fund are sold on a continuous basis
at net asset value. The Fund's net asset value is
determined as of the close of trading on the New York
Stock Exchange (the "NYSE") (generally 4:00 p.m.,
Eastern Time) on each day the NYSE is open. Your
purchase price will be 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 Fund's minimum initial investment required is
$100,000. Subsequent investments may be made by mail
or wire with a minimum subsequent investment of $1,000.
The Fund reserves the right to change or waive these
minimums at any time. You will be given at least 30
days' notice of any increase in the minimum dollar
amount of purchases.
<PAGE>
If you purchase shares of the Fund by check and
request the redemption of such shares within 15 days of
the initial purchase, payment of the redemption
proceeds may be delayed for up to seven business days
in order to ensure that the check has cleared. This is
a security precaution only and does not affect your
investment.
Initial Investment - Minimum $100,000
You may purchase shares of the Fund by completing
an application and mailing it along with a check or
money order payable to "Frontegra Funds, Inc." to:
Frontegra Funds, Inc., c/o Sunstone Financial Group,
Inc. (the "Transfer Agent"), P.O. Box 2142, Milwaukee,
Wisconsin 53201-2142. For overnight deliveries, please
use 207 E. Buffalo Street, Suite 315, Milwaukee,
Wisconsin 53202-5712. 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 the Fund as a result. All
applications to purchase shares of the Fund are subject
to acceptance by the Company and are not binding until
so accepted. The Company reserves the right to decline
an application in whole or in part.
Alternatively, you may place an order to purchase
shares of the Fund through a broker/dealer.
Broker/dealers may charge a transaction fee for placing
orders to purchase Fund shares. It is the
responsibility of the broker/dealer to place the order
with the Fund on a timely basis.
In addition, you may purchase shares of the Fund
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 then be wired through the
Federal Reserve System as follows:
UMB Bank, n.a.
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 Taxpayer Identification Number)
(identify Frontegra Opportunity Fund)
The Fund is not responsible for the consequences of
delays resulting from the banking or Federal Reserve
wire system.
Subsequent Investments - Minimum $1,000
You may make additions to your account in amounts
of $1,000 or more by mail or by wire. When making an
additional purchase by mail, enclose a check payable to
"Frontegra Funds, Inc." 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 business 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. In addition to the redemption
procedures described below, redemptions may also be
made through broker/dealers who may charge a commission
or other transaction fee.
<PAGE>
Written Redemption
To redeem your Fund shares please 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 53202-5712. 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. The
Transfer Agent may request additional documentation
from corporations, executors, administrators, trustees,
guardians, 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 $10 service fee for wire redemptions. If the
dollar amount requested to be redeemed is greater than
the current value of your account, your entire account
balance will be redeemed.
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests mailed or wired to a person other
than the registered owner(s) of the shares, (ii)
redemption requests mailed or wired to other than the
address of record and (iii) redemption requests
submitted within 30 days of an address change. A
signature guarantee may be obtained from any bank,
savings and loan association, credit union, brokerage
firm or other eligible guarantor institution. A notary
public is not an acceptable guarantor.
Account Termination
Your account may be terminated by the Fund on not
less than 30 days' notice if the value of the shares in
the account falls below $10,000. Upon any such
termination, a check for the redemption proceeds will
be sent to the address of record within seven business
days of the redemption.
Exchange Privilege
You may exchange your shares in the 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 in proper form.
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
53202-5712. 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 Fund or its
shareholders. 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.
Valuation of Fund Shares
The price of Fund shares is the Fund's net asset
value, which is calculated using the market price
method of valuation and is determined as of the close
of trading (generally 4:00 p.m. Eastern Time) on each
day the New York Stock Exchange ("NYSE") is open for
business. The Fund does not determine net asset value
on days the NYSE is closed. The NYSE is closed on New
Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. In addition,
if any of these holidays falls on a Saturday, the NYSE
will not be open for trading on the preceding Friday,
and when such holiday falls on a Sunday, the NYSE will
not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the
ending of a monthly or yearly period.
<PAGE>
Tax-Sheltered Retirement Plans
The Company offers through its Custodian, UMB
Bank, n.a., various qualified retirement plans for
adoption by individuals and employers. Participants in
these plans can accumulate shares of the Fund on a tax-
deferred basis. Please call 1-888-825-2100 for a
current list of the plans offered.
Dividends, Capital Gain Distributions And Tax Treatment
For federal income tax purposes, all dividends and
distributions of 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 the
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.
Shareholders 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.
The Fund will distribute dividends and capital
gains at least annually. When a dividend or capital
gain is distributed, the 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. The
Fund expects that, because of its investment objective,
its distributions will consist primarily of capital
gains. All dividends or capital gain distributions
will automatically be reinvested in shares of the Fund
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 overnight deliveries, please
use 207 E. Buffalo Street, Suite 315, Milwaukee,
Wisconsin 53202-5712. Such notice must be received at
least five business days prior to the record date of
any dividend or capital gain distribution.
If you do not furnish the Fund with your correct
Social Security Number or Taxpayer Identification
Number and/or the Fund receives notification from the
Internal Revenue Service requiring back-up withholding,
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
adviser.
<PAGE>
Year 2000 Issue
The Fund's operations depend on the seamless
functioning of computer systems in the financial
service industry, including those of the Adviser, the
Subadviser, the Transfer Agent and the Custodian. Many
computer software systems in use today cannot properly
process date-related information after December 31,
1999 because of the method by which dates are encoded
and calculated. This failure, commonly referred to as
the "Year 2000 Issue," could adversely affect the
handling of security trades, pricing and account
servicing for the Fund.
The Adviser has made compliance with the Year 2000
Issue a high priority and is taking steps that it
believes are reasonably designed to address the Year
2000 Issue with respect to its computer systems. The
Adviser has also been informed that comparable steps
are being taken by the Subadviser, the Transfer Agent,
the Custodian and other major service providers.
However, there can be no assurance that the steps taken
by the Adviser will be sufficient to avoid any adverse
impact.
With respect to the companies in which the Fund
invests, the Fund cannot make any assurances as to
their Year 2000 compliance efforts. In the event that
one or more of these companies is not Year 2000
compliant, the Fund's investment in such companies may
be adversely affected.
<PAGE>
DIRECTORS TRANSFER AGENT
William D. Forsyth III Sunstone Financial Group, Inc.
Thomas J. Holmberg, Jr.
David L. Heald For overnight deliveries, use:
Frontegra Funds, Inc.
OFFICERS c/o Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 315
William D. Forsyth III Milwaukee, Wisconsin 53202-5715
Thomas J. Holmberg, Jr.
For regular mail deliveries, use:
INVESTMENT ADVISER Frontegra Funds, Inc.
c/o Sunstone Financial Group, Inc.
Frontegra Asset Management, Inc. P.O. Box 2142
400 Skokie Blvd. Milwaukee, Wisconsin 53202-2142
Suite 500
Northbrook, Illinois 60062 AUDITORS
SUB-ADVISER Ernst & Young LLP
Sears Tower
Reams Asset Management Company, LLC 233 S. Wacker Drive
227 Washington Street Chicago, Illinois 60606-6301
Columbus, Indiana 47201
LEGAL COUNSEL
CUSTODIAN
UMB Bank, n.a. Godfrey & Kahn, S.C.
928 Grand Boulevard 780 N. Water Street
Kansas City, Missouri 64141 Milwaukee, Wisconsin 53202
ADMINISTRATOR AND FUND ACCOUNTANT
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202-5712
Additional information regarding the Company and the
Fund is included in the Statement of Additional
Information ("SAI") which has been filed with the
Securities and Exchange Commission ("SEC") and is
incorporated in this Prospectus by reference. Further
information about the Fund's investments is also
available in the Fund's annual and semi-annual reports
to shareholders. The Fund's annual report provides a
discussion of the market conditions and investment
strategies that significantly affected the Fund's
performance during its last fiscal year. You may
receive the Fund's SAI, annual reports and semi-annual
reports free of charge, request other information about
the Fund and make shareholder inquiries by contacting
the Company at the address listed on the cover page of
this Prospectus or by calling, toll-free, 1-888-825-2100.
Information about the Fund (including the SAI) can be
reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Please call the SEC at 1-800-SEC-
0330 for information relating to the operation of the
Public Reference Room. Reports and other information
about the Fund are also available on the SEC's Internet
Web site located at http://www.sec.gov. Alternatively,
copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-
6009.
The Company's 1940 Act File Number is 811-7685.
<PAGE>
PROSPECTUS
February 26, 1999
FRONTEGRA FUNDS, INC.
FRONTEGRA GROWTH FUND
c/o Sunstone Financial Group, Inc.
P. O. Box 2142
Milwaukee, Wisconsin 53201-2142
1-888-825-2100
The FRONTEGRA GROWTH FUND (the "Fund") is a series
of FRONTEGRA FUNDS, INC., (the "Company").
The investment objective of the Fund is long-term
capital appreciation. The Fund invests primarily in a
diversified portfolio of equity securities of companies
with mid- to large-sized market capitalizations.
This Prospectus contains information you should
consider before investing in the Fund. Please read it
carefully and keep it for future reference.
Neither the Securities and Exchange Commission nor
any state securities commission has approved or
disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
The Frontegra Growth Fund at a Glance 1
Fees and Expenses of the Fund 1
Investment Objective 2
Investment Strategy 2
Implementation of Investment Objective 3
Prior Performance of Northern 3
Financial Highlights 4
Fund Management 5
Your Account 6
Exchange Privilege 8
Valuation of Fund Shares 8
Tax-Sheltered Retirement Plans 8
Dividends, Capital Gain Distributions and Tax Treatment 8
Year 2000 Issue 9
You should rely only on the information contained in
this Prospectus and in the Statement of Additional
Information ("SAI"), which is available upon request.
The Company has not authorized others to provide
additional information. The Company does not authorize
use of this Prospectus in any state or jurisdiction
where the offering cannot legally be made.
<PAGE>
The Frontegra Growth Fund at a Glance
* Investment Objective
The Fund's goal, also referred to as its
investment objective, is long-term capital
appreciation.
* Principal Investment Strategy
The Fund seeks to achieve its goal primarily
through investment in a diversified portfolio of equity
securities of companies with mid- to large-sized market
capitalizations. For this purpose, a mid- to large-
sized market capitalization company would typically
have a market capitalization of $1 billion or more. In
constructing a portfolio for the Fund, the Fund's
subadviser, Northern Capital Management Incorporated
("Northern"), selects securities with the highest
expected rates of return based on Northern's analysis
of each company's competitive position. Equity
securities in which the Fund may invest include common
stocks, preferred stocks, warrants to purchase common
stocks or preferred stocks, depositary receipts and
securities convertible or exchangeable into common or
preferred stocks. Under normal market conditions, the
Fund will invest at least 65% of its assets in these
securities. Under unusual circumstances, as a
temporary defensive technique, the Fund may invest up
to 20% of its total assets in cash and short-term fixed
income securities.
* Risk Factors
The main risks of investing in the Fund are:
- Market Risks: The Fund's investments are subject
to market risk, so that the value of the Fund's
investments may go up or down. If the value of the
Fund's investments goes down, you may lose money. The
share price of the Fund is expected to fluctuate with
changing market valuations of its portfolio holdings.
Your shares at redemption may be worth more or less
than your initial investment. Market risks associated
with equity investments include the possibility that
stock prices in general will decline over short or even
extended periods.
- Stock Selection Risks: The stocks selected for
inclusion in the Fund's portfolio may decline in value
or not increase in value when the stock market in
general is rising.
* Who Should Invest
The Fund is suitable for long-term investors only
and is not designed as a short-term investment vehicle.
The Fund may be an appropriate investment for you if
you:
- Seek long-term capital appreciation;
- Want to include a mid- to large-cap fund in your
portfolio; and
- Are willing to accept the risk that your investment may fluctuate.
* Performance Tables
Because the Fund has been in operation for less
than a full calendar year, it has no annual
returns history.
Fees and Expenses of the Fund
This table describes the fees and expenses that
you may pay if you buy and hold shares of the Fund.
<PAGE>
Fee Tables
Shareholder Fees (fees paid directly from your investment) NONE*
__________
*The Fund will charge a service fee of $10 for
redemptions effected via wire transfer, and $20 for
checks that do not clear.
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)(1)
Management Fees 0.80%
Distribution (12b-1) Fees NONE
Other Expenses 8.43%
Total Annual Fund Operating Expenses 9.23%
Fee Waiver/Reimbursement(2) 8.43%
Net Expenses 0.80%
________________
(1) Stated as a percentage of the Fund's average net assets.
(2) Pursuant to an expense cap agreement dated
February 26, 1999 between the Fund's adviser, Frontegra
Asset Management, Inc. ("Frontegra") and the Fund,
Frontegra agreed to waive its management fee and/or
reimburse the Fund's operating expenses to the extent
necessary to ensure that the Fund's total operating
expenses do not exceed 0.80% of the Fund's average
daily net assets. The term of this expense cap
agreement is 12 months.
Example
The following Example is intended to help you
compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your
shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower,
based on these assumptions, your costs would be as
follows:
1 Year $82
3 Years $255
5 Years $444
10 Years $990
Investment Objective
The Fund's investment objective is long-term
capital appreciation. This investment objective may
not be changed without shareholder approval.
Investment Strategy
The Fund will seek, under normal market
conditions, to achieve its investment objective by
investing its assets primarily in the equity securities
of companies with mid- to large-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 ("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
Fund's total assets will normally be invested in equity
securities of those companies with a market
capitalization of $1 billion or more at the time of the
Fund's investment.
<PAGE>
In seeking to achieve the Fund's investment
objective, Northern identifies companies with market
capitalizations greater than $1 billion and historical
earnings growth greater than the Standard & Poor's 500r
Stock Index (the "S&P 500"). Northern then assesses
the competitive position of each such company through
fundamental research, including an evaluation of its
products or services, its management, and the industry
competition, and through Northern's proprietary
price/growth analysis. A target price is then
established for each security based on projected
earnings growth relative to market expectations. The
45-55 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. Securities
are generally sold as a result of price appreciation,
when they become less attractive on a risk/return basis
relative to their growth prospects and other identified
securities, or when the assumptions used in Northern's
proprietary price/growth analysis change with respect
to the security.
Implementation of Investment Objective
In implementing its investment objective, the Fund
may invest in the following securities and use the
following investment techniques. Some of these
securities and investment techniques involve special
risks, which are described below and elsewhere in this
Prospectus.
Common Stocks and Other Equity Securities
The Fund will invest at least 65% of its net
assets in common stocks and other equity securities.
Other equity securities may include depositary
receipts, preferred stocks, warrants to purchase common
and preferred stocks and securities convertible or
exchangeable into common or preferred stock.
Principal Risks. Common stocks and other equity
securities generally increase or decrease in value
based on the earnings of a company and on general
industry and market conditions. A fund that invests a
significant amount of its assets in common stocks and
other equity securities is likely to have greater
fluctuations in share price than a fund that invests a
significant portion of its assets in fixed income
securities.
Temporary Strategies
The Fund may invest up to 20% of its total assets
in cash and short-term fixed income securities to meet
anticipated redemption requests, pending investment and
to pay expenses. The Fund may temporarily exceed this
20% limitation, but only in circumstances pending
investment and only for short periods of time.
Prior Performance of Northern
The following table shows the historical composite
performance data for all of Northern's advisory
accounts which have investment objectives, policies,
strategies and risks substantially similar to the Fund,
known as the NCM Equity Portfolio (the "Composite"),
for the periods indicated. Since its inception, the
Composite has shown an annual return of approximately
23%. The Composite has not been subject to the same
types of expenses to which the Fund is subject nor to
the diversification requirements, specific tax
restrictions and investment limitations imposed on the
Fund by the Internal Revenue Code of 1986, as amended
(the "Code"), and the Investment Company Act of 1940,
as amended (the "1940 Act"), respectively.
Consequently, the performance results for the Composite
could have been adversely affected if the Composite had
been regulated under the federal security and tax laws.
The Composite's expenses are lower than the Fund's
expenses. If the Fund's expenses had been deducted
from the Composite's returns, the returns would be
lower than those shown. The data is provided to
illustrate the past performance of Northern in managing
a substantially similar portfolio as measured against
the Russell 1000 Growth Index and the S&P 500 and does
not represent the performance of the Fund. You should
not consider this performance data as an indication of
the future performance of the Fund or Northern.
Northern's performance information has been
calculated in accordance with recommended standards of
the Association for Investment Management and Research
("AIMR"), retroactively applied to all time periods.
All returns presented were calculated on a total return
basis and include all dividends and interest, if any,
accrued income, if any, and realized and unrealized
gains and losses. All returns reflect the deduction of
investment advisory fees, brokerage
<PAGE>
commissions and
execution costs paid by the Composite, without
provision for federal or state income taxes. Cash and
cash equivalents are included in the performance
returns. Total return is calculated monthly in
accordance with the time weighted rate of return method
provided for by AIMR standards accounted for on a trade-
date and accrual basis. AIMR standards for calculation
of total return differ from the standards required by
the SEC for calculation of average annual total return.
No leveraged positions were used. The monthly returns
are geometrically linked to derive an annual total
return.
The investment results of the Composite presented
below are unaudited and are not intended to predict or
suggest the future returns of the Fund. You should be
aware that the use of a methodology different than that
used below to calculate performance could result in
different performance data.
Northern Capital Management
NCM Equity Composite Performance History: 1/1/91-12/31/98
NCM Equity Russell 1000
Year Composite Growth S&P
Rate of Index(1) 500(2)
Return
1 23.74% 38.69% 28.57%
3 25.39% 30.66% 28.23%
5 22.29% 25.69% 24.04%
From
Inception(3) 23.34% 21.62% 20.81%
____________
(1) The Russell 1000 Growth Index is an unmanaged
index that contains securities typically selected by
growth managers as being representative of the U.S.
stock market. The index does not reflect investment
management fees, brokerage commissions and other
expenses associated with investing in equity
securities.
(2) The S&P 500 is an unmanaged index generally
representative of the U.S. stock market. The index
does not reflect investment management fees,
brokerage commissions and other expenses associated
with investing in equity securities.
(3) The Composite commenced operations on January 1, 1991.
Average Annualized Return in Percent: 1/1/91-12/31/98
NCM Equity Composite Performance 23.34%
Russell 1000 Growth Index 21.62%
S&P 500 20.81%
Financial Highlights
The financial highlights table is intended to help
you understand the Fund's financial performance for the
period from March 18, 1998 (commencement of operations)
to October 31, 1998. The total return in the table
represents the rate that an investor would have lost on
an investment in the Fund for the stated period
(assuming reinvestment of all dividends and
distributions). The financial information included in
this table has been derived from the Fund's audited
financial statements. The table should be read in
conjunction with the financial statements and related
notes included in the Fund's Annual Report to
Shareholders, which is available without charge by
writing to the Company, c/o Sunstone Financial Group,
Inc., P.O. Box 2142, Milwaukee, Wisconsin 53201-2142,
or by calling, toll-free, 1-888-825-2100.
<PAGE>
March 18, 1998(1)
to
October 31, 1998
Net asset value, beginning of period $10.00
Income (loss) from investment operations:
Net investment income 0.01
Net realized and unrealized gains (losses) on investments (0.72)
Total income (loss) from investment operations (0.71)
Less distributions paid:
From net investment income -
____
Total distributions paid -
Net asset value, end of period $9.29
Total return(2) (7.10)%
Supplemental data and ratios:
Net assets, end of period (in thousands) $2,343
Ratio of expenses to average net assets(3)(4) 0.80%
Ratio of net investment income to average net assets(3)(4) 0.28%
Portfolio turnover rate(2) 67%
____________
(1) Commencement of operations.
(2) Not annualized.
(3) Net of waivers and reimbursements by Frontegra.
Without waivers and reimbursements of expenses, the
ratio of expenses to average net assets would have
been 9.23% and the ratio of net investment income to
average net assets would have been (8.15)%.
(4) Annualized.
Fund 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 dated October 30, 1996, as
amended as of February 1, 1998 (the "Investment
Advisory Agreement"), pursuant to which Frontegra
supervises the management of the Fund's investments and
business affairs, subject to the supervision of the
Company's Board of Directors. Frontegra has entered
into a subadvisory agreement with Northern under which
Northern serves as the Fund's portfolio manager and,
subject to Frontegra's supervision, manages the Fund's
portfolio assets. Frontegra provides office facilities
for the Fund and pays the salaries, fees, and expenses
of all officers and directors of the Fund who are
interested persons of Frontegra.
Adviser. The Fund is managed by Frontegra, which
supervises the management of the Fund's portfolio by
the subadviser and administers the Company's business
affairs. Frontegra was organized in 1996 and is
located at 400 Skokie Boulevard, 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 Fund
compensates Frontegra for its management services at
the annual rate of 0.80% of the Fund's average daily
net assets. Pursuant to an expense cap agreement dated
February 26, 1999 between Frontegra and the Fund,
Frontegra agreed to waive its management fee
<PAGE>
and/or reimburse the Fund's operating expenses to the extent
necessary to ensure that the Fund's total operating
expenses do not exceed 0.80% of the Fund's average
daily net assets. The term of this expense cap
agreement is 12 months. The expense cap agreement has
the effect of lowering the overall expense ratio for
the Fund and increasing the Fund's overall return to
investors at the time any such amounts are waived
and/or reimbursed.
Subadviser. Northern is located at 8018 Excelsior
Drive, Suite 300, Madison, Wisconsin 53717. Under the
subadvisory agreement, Northern is compensated by
Frontegra for its investment advisory services at the
annual rate of (i) 0.25% of the Fund's average daily
net assets prior to the first date when the Fund's
average daily net assets exceed $200 million and (ii)
0.30% of the Fund's average daily net assets on and
after the first date when the Fund's average daily net
assets exceed $200 million. For the fiscal year ended
October 31, 1998, Northern received $2,131.54 from
Frontegra for its services to the Fund. Northern
provides continuous advice and recommendations
concerning the Fund's investments and is responsible
for selecting the broker/dealers who execute the
portfolio transactions. In executing such
transactions, Northern seeks to obtain the best net
results for the Fund. While Northern has not
previously provided investment advice to a mutual fund,
Northern serves as investment adviser to pension and
profit-sharing plans, institutional investors and
private accounts. As of January 31, 1999, Northern had
approximately $1.3 billion under management. United
Asset Management Corporation, an investment adviser
holding company, owns 100% of the voting stock of
Northern.
Portfolio Managers. The day-to-day management
responsibilities for the Fund's portfolio are primarily
handled by Northern's portfolio management team. The
portfolio management team is managed primarily by
Daniel T. Murphy and Brian A. Hellmer. The Fund's
overall investment strategy, and portfolio allocation
and risk parameters are determined by Northern's
Investment Committee, which consists of Stephen L.
Hawk, Mr. Murphy and Mr. Hellmer. Mr. Hawk, Chairman
of Northern, has been with the firm since March 1983;
Mr. Murphy, the President, Chief Investment Officer,
Portfolio Manager and a Director of Northern, joined
the firm in March 1995 and was a Senior Investment
Analyst at Brinson Partners, Inc. from December 1989 to
March 1995; and Mr. Hellmer, Senior Vice President and
Director of Research of Northern, joined the firm in
April 1996 and was an Investment Officer of Fleet
Investment Advisors from July 1989 to April 1996. The
portfolio management team reviews and approves the
analyst's recommendations and makes the final buy and
sell decisions. The Fund's portfolio is reviewed on a
weekly basis by the Investment Committee.
Your Account
How to Purchase Shares
Shares of the Fund are sold on a continuous basis
at net asset value. The Fund's net asset value is
determined as of the close of trading on the New York
Stock Exchange (the "NYSE") (generally 4:00 p.m.,
Eastern Time) on each day the NYSE is open. Your
purchase price will be 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 Fund's minimum initial investment is $100,000.
Subsequent investments may be made by mail or wire with
a minimum subsequent investment of $1,000. The Fund
reserves the right to change or waive these minimums at
any time. You will be given at least 30 days' notice
of any increase in the minimum dollar amount of
purchases.
If you purchase shares of the Fund by check and
request the redemption of such shares within 15 days of
the initial purchase, payment of the redemption
proceeds may be delayed for up to seven business days
in order to ensure that the check has cleared. This is
a security precaution only and does not affect your
investment.
Initial Investment - Minimum $100,000
You may purchase shares of the Fund by completing
an application and mailing it along with a check or
money order payable to "Frontegra Funds, Inc." to:
Frontegra Funds, Inc., c/o Sunstone Financial Group,
Inc. (the "Transfer Agent"), P.O. Box 2142, Milwaukee,
Wisconsin 53201-2142. For overnight deliveries, please
use 207 E. Buffalo Street, Suite 315, Milwaukee,
Wisconsin 53202-5712. 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
<PAGE>
also be responsible for any
losses suffered by the Fund as a result. All
applications to purchase shares of the Fund are subject
to acceptance by the Company and are not binding until
so accepted. The Company reserves the right to decline
an application in whole or in part.
Alternatively, you may place an order to purchase
shares of the Fund through a broker/dealer.
Broker/dealers may charge a transaction fee for placing
orders to purchase Fund shares. It is the
responsibility of the broker/dealer to place the order
with the Fund on a timely basis.
In addition, you may purchase shares of the Fund
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 then be wired through the
Federal Reserve System as follows:
UMB Bank, n.a.
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 Taxpayer Identification Number)
(identify Frontegra Growth Fund)
The Fund is not responsible for the consequences of
delays resulting from the banking or Federal Reserve
wire system.
Subsequent Investments - Minimum $1,000
You may make additions to your account in amounts
of $1,000 or more by mail or by wire. When making an
additional purchase by mail, enclose a check payable to
"Frontegra Funds, Inc." 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 business 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. In addition to the redemption
procedures described below, redemptions may also be
made through broker/dealers who may charge a commission
or other transaction fee.
Written Redemption
To redeem your Fund shares please 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 53202-5712. Your 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. The
Transfer Agent may request additional documentation
from corporations, executors, administrators, trustees,
guardians, 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 $10 service fee for wire redemptions. If the
dollar amount requested to be redeemed is greater than
the current value of your account, your entire account
balance will be redeemed.
<PAGE>
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests mailed or wired to a person other
than the registered owner(s) of the shares, (ii)
redemption requests mailed or wired to other than the
address of record and (iii) redemption requests
submitted within 30 days of an address change. A
signature guarantee may be obtained from any bank,
savings and loan association, credit union, brokerage
firm or other eligible guarantor institution. A notary
public is not an acceptable guarantor.
Account Termination
Your account may be terminated by the Fund on not
less than 30 days' notice if the value of the shares in
the account falls below $10,000. Upon any such
termination, a check for the redemption proceeds will
be sent to the address of record within seven business
days of the redemption.
Exchange Privilege
You may exchange your shares in the 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 in proper form.
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
53202-5712. 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 Fund or its
shareholders. 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.
Valuation of Fund Shares
The price of Fund shares is the Fund's net asset
value, which is calculated using the market price
method of valuation and is determined as of the close
of trading (generally 4:00 p.m. Eastern Time) on each
day the New York Stock Exchange ("NYSE") is open for
business. The Fund does not determine net asset value
on days the NYSE is closed. The NYSE is closed on New
Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. In addition,
if any of these holidays falls on a Saturday, the NYSE
will not be open for trading on the preceding Friday,
and when such holiday falls on a Sunday, the NYSE will
not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the
ending of a monthly or yearly period.
Tax-Sheltered Retirement Plans
The Company offers through its Custodian, UMB
Bank, n.a., various qualified retirement plans for
adoption by individuals and employers. Participants in
these plans can accumulate shares of the Fund on a tax-
deferred basis. Please call 1-888-825-2100 for a
current list of the plans offered.
Dividends, Capital Gain Distributions And Tax Treatment
For federal income tax purposes, all dividends and
distributions of 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 the
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.
Shareholders 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
<PAGE>
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.
The Fund will usually distribute dividends and
capital gains at least annually. When a dividend or
capital gain is distributed, the 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. The
Fund expects that, because of its investment objective,
its distributions will consist primarily of capital
gains. All dividends or capital gain distributions
will automatically be reinvested in shares of the Fund
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 overnight deliveries, please
use 207 E. Buffalo Street, Suite 315, Milwaukee,
Wisconsin 53202-5712. Such notice must be received at
least five business days prior to the record date of
any dividend or capital gain distribution.
If you do not furnish the Fund with your correct
Social Security Number or Taxpayer Identification
Number and/or the Fund receives notification from the
Internal Revenue Service requiring back-up withholding,
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
adviser.
Year 2000 Issue
The Fund's operations depend on the seamless
functioning of computer systems in the financial
service industry, including those of the Adviser, the
Subadviser, the Transfer Agent and the Custodian. Many
computer software systems in use today cannot properly
process date-related information after December 31,
1999 because of the method by which dates are encoded
and calculated. This failure, commonly referred to as
the "Year 2000 Issue," could adversely affect the
handling of security trades, pricing and account
servicing for the Fund.
The Adviser has made compliance with the Year 2000
Issue a high priority and is taking steps that it
believes are reasonably designed to address the Year
2000 Issue with respect to its computer systems. The
Adviser has also been informed that comparable steps
are being taken by the Subadviser, the Transfer Agent,
the Custodian and the Fund's other major service
providers. However, there can be no assurance that the
steps taken by the Adviser will be sufficient to avoid
any adverse impact.
With respect to the companies in which the Fund
invests, the Fund cannot make any assurances as to
their Year 2000 compliance efforts. In the event that
one or more of these companies is not Year 2000
compliant, the Fund's investment in such companies may
be adversely affected.
<PAGE>
DIRECTORS TRANSFER AGENT
William D. Forsyth III Sunstone Financial Group, Inc.
Thomas J. Holmberg, Jr.
David L. Heald For overnight deliveries, use:
David L. Heald Frontegra Funds, Inc.
c/o Sunstone Financial Group, Inc.
OFFICERS 207 East Buffalo Street, Suite 315
Milwaukee, Wisconsin 53202-5712
William D. Forsyth III
Thomas J. Holmberg, Jr. For regular mail deliveries, use:
Frontegra Funds, Inc.
INVESTMENT ADVISER c/o Sunstone Financial Group, Inc.
P.O. Box 2142
Frontegra Asset Management, Inc. Milwaukee, Wisconsin 53202-2142
400 Skokie Blvd.
Suite 500 AUDITORS
Northbrook, Illinois 60062
Ernst & Young LLP
SUB-ADVISER Sears Tower
233 S. Wacker Drive
Northern Capital Management, Inc. Chicago, Illinois 60606-6301
8018 Excelsior Drive
Suite 300 LEGAL COUNSEL
Madison, Wisconsin 53717
Godfrey & Kahn, S.C.
CUSTODIAN 780 N. Water Street
UMB Bank, n.a. Milwaukee, Wisconsin 53202
928 Grand Boulevard
Kansas City, Missouri 64141
ADMINISTRATOR AND FUND ACCOUNTANT
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202-5712
Additional information regarding the Company and the
Fund is included in the Statement of Additional
Information ("SAI") which has been filed with the
Securities and Exchange Commission ("SEC") and is
incorporated in this Prospectus by reference. Further
information about the Fund's investments is also
available in the Fund's annual and semi-annual reports
to shareholders. The Fund's annual report provides a
discussion of the market conditions and investment
strategies that significantly affected the Fund's
performance during its last fiscal year. You may
receive the Fund's SAI, annual reports and semi-annual
reports free of charge, request other information about
the Fund and make shareholder inquiries by contacting
the Company at the address listed on the cover page of
this Prospectus or by calling, toll-free, 1-888-825-
2100.
Information about the Fund (including the SAI) can be
reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Please call the SEC at 1-800-SEC-
0330 for information relating to the operation of the
Public Reference Room. Reports and other information
about the Fund are also available on the SEC's Internet
Web site located at http://www.sec.gov. Alternatively,
copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-
6009.
The Company's 1940 Act File Number is 811-7685.
<PAGE>
PROSPECTUS
December 31, 1999
FRONTEGRA FUNDS, INC.
FRONTEGRA EMERGING GROWTH FUND
c/o Firstar Mutual Fund Services, LLC
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
1-888-825-2100
The FRONTEGRA EMERGING GROWTH FUND (the "Fund") is
a series of FRONTEGRA FUNDS, INC., (the "Company").
The investment objective of the Fund is long-term
capital appreciation. The Fund invests primarily in a
diversified portfolio of equity securities of companies
with small-to-medium market capitalizations.
This Prospectus contains information you should
consider before investing in the Fund. Please read it
carefully and keep it for future reference.
Neither the Securities and Exchange Commission nor
any state securities commission has approved or
disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
The Frontegra Emerging Growth Fund at a Glance 1
Fees and Expenses of the Fund 2
Investment Objective 2
Investment Strategy 2
Implementation of Investment Objective 3
Prior Performance of B&H 4
Fund Management 5
Your Account 6
Exchange Privilege 7
Valuation of Fund Shares 8
Tax-Sheltered Retirement Plans 8
Dividends, Capital Gain Distributions and Tax Treatment 8
Year 2000 Issue 9
You should rely only on the information contained in
this Prospectus and in the Statement of Additional
Information ("SAI"), which is available upon request.
The Company has not authorized others to provide
additional information. The Company does not authorize
use of this Prospectus in any state or jurisdiction
where the offering cannot legally be made.
<PAGE>
The Frontegra Emerging Growth Fund at a Glance
* Investment Objective
The Fund's goal, also referred to as its
investment objective, is long-term capital
appreciation.
* Principal Investment Strategy
The Fund seeks to achieve its goal primarily
through investment in a diversified portfolio of equity
securities of companies with small-to-medium market
capitalizations. For this purpose, a small-to-medium
capitalization company would typically have a market
capitalization of $2 billion or less and annual
revenues of less than $500 million at purchase. In
constructing a portfolio for the Fund, the Fund's
subadviser, Berents & Hess Capital Management
Incorporated ("B&H" or the "Subadviser") identifies
companies B&H believes will have a growing stream of
earnings. Equity securities in which the Fund may
invest include common stocks, preferred stocks,
warrants to purchase common stocks or preferred stocks,
depositary receipts and securities convertible or
exchangeable into common or preferred stocks. Under
normal market conditions, the Fund will invest at least
85% of its assets in these securities. Under unusual
circumstances, as a temporary defensive technique, the
Fund may invest up to 15% of its total assets in cash
and short-term fixed income securities.
* Risk Factors
The main risks of investing in the Fund are:
- Small Cap Risks: Because the Fund will invest
primarily in small-to-medium capitalization stocks
which are more volatile than investments in large
companies, you should expect that the value of the
Fund's shares will be more volatile than the shares of
a fund that invests in large capitalization companies.
- Market Risks: The Fund's investments are subject
to market risk, so that the value of the Fund's
investments may go up or down. If the value of the
Fund's investments goes down, you may lose money. The
share price of the Fund is expected to fluctuate with
changing market valuations of its portfolio holdings.
Your shares at redemption may be worth more or less
than your initial investment. Market risks associated
with equity investments include the possibility that
stock prices in general will decline over short or even
extended periods.
- Stock Selection Risks: The stocks selected for
inclusion in the Fund's portfolio may decline in value
or not increase in value when the stock market in
general is rising.
* Who Should Invest
The Fund is suitable for long-term investors only
and is not designed as a short-term investment vehicle.
The Fund may be an appropriate investment for you if
you:
- Seek long-term capital appreciation;
- Want to include a small- to mid-cap fund in your
portfolio; and
- Are willing to accept the risk that your
investment may fluctuate.
* Performance Tables
Because the Fund did not commence operations until
the date of this Prospectus, it has no annual
returns history.
<PAGE>
Fees and Expenses of the Fund
The following table describes the fees and
expenses that you may pay if you buy and hold shares of
the Fund.
Shareholder Fees (fees paid directly from your investment) NONE(1)
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)(2)
Management Fees 0.90%
Distribution (12b-1) Fees NONE
Other Expenses(3) 0.90%
Total Annual Fund Operating Expenses(3) 1.80%
Fee Waiver/Reimbursement(4) 0.90%
Net Expenses 0.90%
_________________________
(1) The Fund will charge a service fee of $12 for
redemptions effected via wire transfer and $25
for checks that do not clear.
(2) Stated as a percentage of the Fund's average net assets.
(3) "Other Expenses" and "Total Annual Operating
Expenses" are estimates for the calendar year 2000.
(4) Pursuant to an expense cap agreement effective
December 31, 1999 between the Fund's adviser,
Frontegra Asset Management, Inc. ("Frontegra" or
the "Adviser") and the Fund, Frontegra agreed to
waive its management fee and/or reimburse the
Fund's operating expenses to the extent
necessary to ensure that the Fund's total
operating expenses do not exceed 0.90% of the
Fund's average daily net assets. The term of
this expense cap agreement is 12 months.
Example
The following Example is intended to help you
compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your
shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower,
based on these assumptions, your costs would be as
follows:
1 Year $ 92
3 Years $287
Investment Objective
The Fund's investment objective is long-term
capital appreciation. This investment objective may
not be changed without shareholder approval.
Investment Strategy
The Fund will seek, under normal market
conditions, to achieve its investment objective by
investing its assets primarily in the equity securities
of companies with small-to-medium market
capitalizations. The Fund will invest at least 85% 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 ("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
Fund's total assets will normally be invested in equity
securities of those companies with market
capitalizations of $2 billion or less and annual
revenues of $500 million or less at the time of the
Fund's investment. In general, investments in small-to-
medium capitalization companies often involve greater
risks than investments in larger capitalized companies.
<PAGE>
In seeking to achieve the Fund's investment
objective, B&H starts by establishing a universe of
common stocks of companies with annual revenues of $500
million or less and expected earnings growth of 15% or
more. The universe is composed of stocks which are
selected from 1) a database screening technique
incorporating earnings growth and return on equity
filters and/or 2) companies that meet specific
investment themes. B&H then uses technical and
quantitative analysis to determine valuation levels of
the stock market and specific securities, considering
factors such as market breadth, momentum, equity risk
premia, price earnings ratio to growth rate and
relative performance. B&H also performs fundamental
security analysis on individual securities, emphasizing
quality of management, corporate financial strength,
product leadership, industry sector dynamics and
forecast earnings growth rate. Finally, B&H selects
individual securities for the Fund's portfolio by
combining fundamental, technical and quantitative
research to identify companies it believes will have a
growing stream of earnings.
B&H will generally sell a security as a result of
deteriorating business fundamentals, overvaluation
based on a security's p/e ratio relative to its growth
rate or a significant price spike. In addition,
positions will be cut back when they become greater
than 5% of the Fund's portfolio. B&H will generally
hold a security for 12 to 24 months.
Implementation of Investment Objective
In implementing its investment objective, the Fund
may invest in the following securities and use the
following investment techniques. Some of these
securities and investment techniques involve special
risks, which are described below and elsewhere in this
Prospectus.
Common Stocks and Other Equity Securities
The Fund will invest at least 85% of its net
assets in common stocks and other equity securities.
Other equity securities may include depositary
receipts, preferred stocks, warrants to purchase common
and preferred stocks and securities convertible or
exchangeable into common or preferred stock.
Principal Risks. Common stocks and other equity
securities generally increase or decrease in value
based on the earnings of a company and on general
industry and market conditions. A fund that invests a
significant amount of its assets in common stocks and
other equity securities is likely to have greater
fluctuations in share price than a fund that invests a
significant portion of its assets in fixed income
securities.
Small Companies
The Fund will invest a substantial portion of its
assets in small-to-medium capitalization companies
which have a market capitalization of $2 billion or
less at purchase.
Principal Risks. While smaller companies may 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 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 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 Fund may be subject to greater price
fluctuations than an investment in a fund that invests
primarily in larger companies.
Temporary Strategies
The Fund may invest up to 15% of its total assets
in cash and short-term fixed income securities to meet
anticipated redemption requests, pending investment and
to pay expenses. The Fund may temporarily exceed this
15% limitation, but only in circumstances pending
investment and only for short periods of time.
<PAGE>
Prior Performance of B&H
The following table shows the historical composite
performance data for all of the B&H advisory accounts
which have investment objectives, policies, strategies
and risks substantially similar to the Fund, known as
the B&H Emerging Growth Portfolio (the "Composite"),
for the periods indicated. Since its inception, the
Composite has shown an annual return of approximately 22.89%.
The Composite includes all discretionary "Emerging
Growth" accounts managed by B&H that have assets
greater than $100,000. The Composite has not been
subject to the same types of expenses to which the Fund
is subject nor to the diversification requirements,
specific tax restrictions and investment limitations
imposed on the Fund by the Internal Revenue Code of
1986, as amended (the "Code"), and the Investment
Company Act of 1940, as amended (the "1940 Act"),
respectively. Consequently, the performance results
for the Composite could have been adversely affected if
the Composite had been regulated under the federal
security and tax laws. The Composite's expenses are
higher than the Fund's expenses after waivers and
reimbursements. If the Fund's expenses had been
deducted from the Composite's returns, the returns
would be higher than those shown. The data is provided
to illustrate the past performance of B&H in managing a
substantially similar portfolio as measured against the
Russell 2000 Growth Index and does not represent the
performance of the Fund. You should not consider this
performance data as an indication of the future
performance of the Fund or B&H.
B&H's performance information has been calculated
in accordance with recommended standards of the
Association for Investment Management and Research
("AIMR"), retroactively applied to all time periods.
All returns presented were calculated on a total return
basis and include all dividends and interest, if any,
accrued income, if any, and realized and unrealized
gains and losses. All returns reflect the deduction of
investment advisory fees, brokerage commissions and
execution costs paid by the Composite, without
provision for federal or state income taxes. Cash and
cash equivalents are included in the performance
returns. Total return is calculated monthly in
accordance with the time weighted rate of return method
provided for by AIMR standards accounted for on a trade-
date and accrual basis. AIMR standards for calculation
of total return differ from the standards required by
the SEC for calculation of average annual total return.
The monthly returns are geometrically linked to derive
an annual total return.
The investment results of the Composite presented
below are unaudited and are not intended to predict or
suggest the future returns of the Fund. You should be
aware that the use of a methodology different than that
used below to calculate performance could result in
different performance data.
Berents & Hess Capital Management
B&H Emerging Growth Composite Performance History:
12/31/95 - 9/30/99
B&H Emerging Growth Russell 2000
Year Composite Growth
Rate of Return Index(1)
1 75.62% 32.63%
3 25.33% 7.14%
From Inception(2) 22.89% 8.65%
____________
(1) The Russell 2000 Growth Index is an unmanaged
index generally representative of the U.S. market for
small domestic stocks. The index does not reflect
investment management fees, brokerage commissions and
other expenses associated with investing in equity
securities.
(2) The Composite commenced operations on December 31, 1995.
Average Annualized Return in Percent: 12/31/95 - 9/30/99
B&H Emerging Growth Composite Performance %
Russell 2000 Growth Index 8.65%
<PAGE>
Fund 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 dated October 30, 1996, as
amended as of December 31, 1999 (the "Investment
Advisory Agreement"), pursuant to which Frontegra
supervises the management of the Fund's investments and
business affairs, subject to the supervision of the
Company's Board of Directors. Frontegra has entered
into a subadvisory agreement with B&H under which B&H
serves as the Fund's portfolio manager and, subject to
Frontegra's supervision, manages the Fund's portfolio
assets. Frontegra provides office facilities for the
Fund and pays the salaries, fees and expenses of all
officers and directors of the Fund who are interested
persons of Frontegra.
Adviser. The Fund is managed by Frontegra, which
supervises the management of the Fund's portfolio by
the subadviser and administers the Company's business
affairs. Frontegra was organized in 1996 and is
located at 400 Skokie Boulevard, 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 Fund
compensates Frontegra for its management services at
the annual rate of 0.90% of the Fund's average daily
net assets. Pursuant to an expense cap agreement dated
December 31, 1999 between Frontegra and the Fund,
Frontegra agreed to waive its management fee and/or
reimburse the Fund's operating expenses to the extent
necessary to ensure that the Fund's total operating
expenses do not exceed 0.90% of the Fund's average
daily net assets. The term of this expense cap
agreement is 12 months. The expense cap agreement has
the effect of lowering the overall expense ratio for
the Fund and increasing the Fund's overall return to
investors at the time any such amounts are waived
and/or reimbursed.
Subadviser. B&H is located at 99 Summer Street,
Suite 1720, Boston, Massachusetts 02119. Under the
subadvisory agreement, B&H is compensated by Frontegra
for its investment advisory services at the annual rate
of 0.45% of the Fund's average daily net assets. B&H
provides continuous advice and recommendations
concerning the Fund's investments and is responsible
for selecting the broker/dealers who execute the
portfolio transactions. In executing such
transactions, B&H seeks to obtain the best net results
for the Fund. While B&H has not previously provided
investment advice to a mutual fund, B&H serves as
investment adviser to pension and profit-sharing plans,
institutional investors and private accounts. As of
December 1, 1999, B&H had approximately $[____________]
million under management. Charles N. Berents, Jr. owns
46% of B&H and Herbert P. Hess owns 54% of B&H.
Portfolio Managers. The day-to-day management
responsibilities for the Fund's portfolio are primarily
handled by B&H's portfolio managers, Mr. Berents and
Mr. Hess. Mr. Berents, Managing Director of B&H, has
been with the firm since 1984. Mr. Hess, Managing
Director of B&H, has been with the firm since 1991.
The Fund's portfolio is reviewed whenever a securities
transaction opportunity arises based on the Fund's
investment strategy. The portfolio managers make the
final buy and sell decisions for the Fund.
Custodian, Transfer Agent and Administrator.
Firstar Bank Milwaukee, N.A. acts as custodian of the
Fund's assets. Firstar Mutual Fund Services, LLC
serves as Transfer Agent for the Fund (the "Transfer
Agent") and as the Fund's administrator. Firstar Bank
Milwaukee, N.A. and Firstar Mutual Fund Services, LLC
are affiliated entities and are collectively referred
to in this Prospectus as "Firstar."
<PAGE>
Your Account
How to Purchase Shares
Shares of the Fund are sold on a continuous basis
at net asset value. The Fund's net asset value is
determined as of the close of trading on the New York
Stock Exchange (the "NYSE") (generally 4:00 p.m.,
Eastern Time) on each day the NYSE is open. Your
purchase price will be 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 Fund's minimum initial investment is $100,000.
Subsequent investments may be made by mail or wire with
a minimum subsequent investment of $1,000. The Fund
reserves the right to change or waive these minimums at
any time. You will be given at least 30 days' notice
of any increase in the minimum dollar amount of
purchases.
If you purchase shares of the Fund by check and
request the redemption of such shares within 15 days of
the initial purchase, payment of the redemption
proceeds may be delayed for up to seven business days
in order to ensure that the check has cleared. This is
a security precaution only and does not affect your
investment.
Initial Investment - Minimum $100,000
You may purchase shares of the Fund by completing
an application and mailing it along with a check or
money order payable to "Frontegra Funds, Inc." to:
Frontegra Funds, Inc., c/o Firstar Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-
0701. For overnight deliveries, please use 615
E. Michigan Street, Third Floor, 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 $25 service fee.
You will also be responsible for any losses suffered by
the Fund as a result. All applications to purchase
shares of the Fund are subject to acceptance by the
Company and are not binding until so accepted. The
Company reserves the right to decline an application in
whole or in part.
Alternatively, you may place an order to purchase
shares of the Fund through a broker/dealer.
Broker/dealers may charge a transaction fee for placing
orders to purchase Fund shares. It is the
responsibility of the broker/dealer to place the order
with the Fund on a timely basis.
In addition, you may purchase shares of the Fund
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 then be wired through the
Federal Reserve System as follows:
Firstar Bank Milwaukee, N.A.
ABA Number 07500022
For credit to Firstar Mutual Fund
Services, LLC
Account Number 112-952-137
For further credit to Frontegra Funds, Inc.
(investor account number)
(name or account registration)
(Social Security or Taxpayer Identification Number)
(identify Frontegra Emerging Growth Fund)
The Fund is not responsible for the consequences of
delays resulting from the banking or Federal Reserve
wire system.
Subsequent Investments - Minimum $1,000
You may make additions to your account in amounts
of $1,000 or more by mail or by wire. When making an
additional purchase by mail, enclose a check payable to
"Frontegra Funds, Inc." 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.
<PAGE>
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 business 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. In addition to the redemption
procedures described below, redemptions may also be
made through broker/dealers who may charge a commission
or other transaction fee.
Written Redemption
To redeem your Fund shares please furnish a
written, unconditional request to: Frontegra Funds,
Inc., c/o Firstar Mutual Fund Services, LLC, P.O. Box
701, Milwaukee, Wisconsin 53201-0701. For written
redemption requests sent via overnight delivery, please
use 615 E. Michigan Street, Third Floor, Milwaukee,
Wisconsin 53202. Your 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. The
Transfer Agent may request additional documentation
from corporations, executors, administrators, trustees,
guardians, 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 $12 service fee for wire redemptions. If the
dollar amount requested to be redeemed is greater than
the current value of your account, your entire account
balance will be redeemed.
Signature Guarantees
Signature guarantees are required for: (i)
redemption requests mailed or wired to a person other
than the registered owner(s) of the shares, (ii)
redemption requests mailed or wired to other than the
address of record and (iii) redemption requests
submitted within 30 days of an address change. A
signature guarantee may be obtained from any bank,
savings and loan association, credit union, brokerage
firm or other eligible guarantor institution. A notary
public is not an acceptable guarantor.
Account Termination
Your account may be terminated by the Fund on not
less than 30 days' notice if the value of the shares in
the account falls below $10,000. Upon any such
termination, a check for the redemption proceeds will
be sent to the address of record within seven business
days of the redemption.
Exchange Privilege
You may exchange your shares in the 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 in proper form.
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 Firstar Mutual Fund Services, LLC, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701. For written exchange
requests sent via overnight delivery, please use 615
E. Michigan Street, Third Floor, 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 Fund or its
shareholders. 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>
Valuation of Fund Shares
The price of Fund shares is the Fund's net asset
value, which is calculated using the market price
method of valuation and is determined as of the close
of trading (generally 4:00 p.m. Eastern Time) on each
day the New York Stock Exchange ("NYSE") is open for
business. The Fund does not determine net asset value
on days the NYSE is closed. The NYSE is closed on New
Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. In addition,
if any of these holidays falls on a Saturday, the NYSE
will not be open for trading on the preceding Friday,
and when such holiday falls on a Sunday, the NYSE will
not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the
ending of a monthly or yearly period.
Tax-Sheltered Retirement Plans
The Company offers through its Custodian, Firstar
Bank Milwaukee, N.A., various qualified retirement
plans for adoption by individuals and employers.
Participants in these plans can accumulate shares of
the Fund on a tax-deferred basis. Please call 1-888-
825-2100 for a current list of the plans offered.
Dividends, Capital Gain Distributions And Tax Treatment
For federal income tax purposes, all dividends and
distributions of 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 the
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.
Shareholders 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.
The Fund will usually distribute dividends and
capital gains at least annually. When a dividend or
capital gain is distributed, the 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. The
Fund expects that, because of its investment objective,
its distributions will consist primarily of capital
gains. All dividends or capital gain distributions
will automatically be reinvested in shares of the Fund
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 Firstar Mutual
Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin
53201-0701. For overnight deliveries, please use 615
E. Michigan Street, Third Floor, Milwaukee, Wisconsin
53202. Such notice must be received at least five
business days prior to the record date of any dividend
or capital gain distribution.
If you do not furnish the Fund with your correct
Social Security Number or Taxpayer Identification
Number and/or the Fund receives notification from the
Internal Revenue Service requiring back-up withholding,
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
adviser.
<PAGE>
Year 2000 Issue
The Fund's operations depend on the seamless
functioning of computer systems in the financial
service industry, including those of the Adviser, the
Subadviser and Firstar. Many computer software systems
in use today cannot properly process date-related
information after December 31, 1999 because of the
method by which dates are encoded and calculated. This
failure, commonly referred to as the "Year 2000 Issue,"
could adversely affect the handling of security trades,
pricing and account servicing for the Fund.
The Adviser has made compliance with the Year 2000
Issue a high priority and is taking steps that it
believes are reasonably designed to address the Year
2000 Issue with respect to its computer systems. The
Adviser has also been informed that comparable steps
are being taken by the Subadviser. In addition,
Firstar has represented to the Adviser that it does not
currently anticipate that the Year 2000 Issue will have
a material impact on its ability to continue to fulfill
its duties as a service provider to the Fund. However,
there can be no assurance that the steps taken by the
Adviser, Subadviser or Firstar will be sufficient to
avoid any adverse impact.
With respect to the companies in which the Fund
invests, the Fund cannot make any assurances as to
their Year 2000 compliance efforts. In the event that
one or more of these companies is not Year 2000
compliant, the Fund's investment in such companies may
be adversely affected.
<PAGE>
DIRECTORS TRANSFER AGENT AND ADMINISTRATOR
William D. ForsythIII Firstar Mutual Fund Services, LLC
Thomas J. Holmberg, Jr. For overnight deliveries, use:
David L. Heald Frontegra Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
OFFICERS 615 East Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53202
William D. Forsyth III
Thomas J. Holmberg, Jr. For regular mail deliveries, use:
Frontegra Funds, Inc.
INVESTMENT ADVISER c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Frontegra Asset Management, Inc. Milwaukee, Wisconsin 53201-0701
400 Skokie Boulevard
Suite 500 AUDUTORS
Northbrook, Illinois 60062
Ernst & Young LLP
SUB-ADVISER Sears Tower
233 S. Wacker Drive
Berents & Hess Capital Management Chicago, Illinois 60606-6301
Incorporated
99 Summer Street LEGAL COUNSEL
Suite 1720
Boston, Massachusetts 02119 Godfrey & Kahn, S.C.
780 N. Water Street
CUSTODIAN Milwaukee, Wisconsin 53202
Firstar Bank Milwaukee, N.A.
For overnight deliveries, use:
Frontegra Funds, Inc.
c/o Firstar Bank Milwaukee, N.A.
615 E. Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53202
For regular mail deliveries, use:
Frontegra Funds, Inc.
c/o Firstar Bank Milwaukee, N.A.
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Additional information regarding the Company and the
Fund is included in the Statement of Additional
Information ("SAI") which has been filed with the
Securities and Exchange Commission ("SEC") and is
incorporated in this Prospectus by reference. You may
receive the Fund's SAI free of charge, request other
information about the Fund and make shareholder
inquiries by contacting the Company at the address
listed on the cover page of this Prospectus or by
calling, toll-free, 1-888-825-2100.
Information about the Fund (including the SAI) can be
reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Please call the SEC at 1-800-SEC-
0330 for information relating to the operation of the
Public Reference Room. Reports and other information
about the Fund are also available on the SEC's Internet
Web site located at http://www.sec.gov. Alternatively,
copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-
6009.
The Company's 1940 Act File Number is 811-7685.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FRONTEGRA FUNDS, INC.
Frontegra Total Return Bond Fund
Frontegra Opportunity Fund
Frontegra Growth Fund
Frontegra Emerging Growth Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-888-825-2100
This Statement of Additional Information ("SAI")
is not a prospectus and should be read in conjunction
with the Prospectuses of the Frontegra Total Return
Bond Fund (the "Total Return Bond Fund"), the Frontegra
Opportunity Fund (the "Opportunity Fund"), the
Frontegra Growth Fund (the "Growth Fund") and the
Frontegra Emerging Growth Fund (the "Emerging Growth
Fund") dated December 31, 1999, each of which is a
series of Frontegra Funds, Inc. (the "Company")
(individually, a "Fund," and collectively, the
"Funds"). The audited financial statements for the
Total Return Bond, Opportunity and Growth Funds for the
fiscal period ended June 30, 1999 are incorporated
herein by reference to those Funds' 1999 Annual
Reports. A copy of a Prospectus and/or each of the
above-noted Fund's 1999 Annual Report is available
without charge upon request to the above address or
toll-free telephone number.
This Statement of Additional Information is dated December 31, 1999.
<PAGE>
Table of Contents
Fund Organization 1
Fund Policies: Fundamental and Non-Fundamental 1
Implementation of Investment Objective 3
Directors and Officers 17
Principal Shareholders 18
Investment Adviser 20
Fund Transactions and Brokerage 21
Custodian 23
Transfer Agent and Dividend Disbursing Agent 23
Administrator and Fund Accountant 23
Shareholder Meetings 23
Purchase and Pricing of Shares 23
Taxation of the Fund 24
Performance Information 24
Independent Auditors 26
Financial Statements 26
You should rely only on the information contained in
this SAI and the Prospectuses dated December 31, 1999.
The Company has not authorized others to provide
additional information. This SAI is not an offer to
sell securities in any state or jurisdiction where the
offering cannot legally be made.
<PAGE>
Fund Organization
The Company is an open-end management investment
company, commonly referred to as a mutual fund. The
Company was organized as a Maryland corporation on May
24, 1996.
The Company is authorized to issue 150,000,000,
$.01 par value shares of common stock, in addition to
the 100,000,000, $.01 par value shares of the Total
Return Bond Fund, the 100,000,000, $.01 par value
shares of the Frontegra Opportunity Fund, the
100,000,000, $.01 par value shares of the Frontegra
Growth Fund and the 50,000,000 $.01 par value shares of
the Frontegra Emerging Growth Fund. The assets
belonging to each Fund will be held separately by the
custodian, Firstar Bank Milwaukee, N.A., 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 of common stock, 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.
Each share of common stock is entitled to participate
in dividends and capital gains distributions as
determined by the Board of Directors. Each share is
entitled to the residual assets of the respective
series in the event of liquidation.
Fund Policies: Fundamental and Non-Fundamental
The investment objective of the Total Return Bond
Fund is a high level of total return, consistent with
the preservation of capital. The investment objective
of the Opportunity Fund is capital appreciation. The
investment objective of the Growth Fund is long-term
capital appreciation. The investment objective of the
Emerging Growth Fund is long-term capital appreciation.
These investment objectives may not be changed without
shareholder approval. Each Fund is diversified.
The following is a complete list of each Fund's
fundamental investment limitations which cannot be
changed without shareholder approval, which requires
the approval of a majority of each Fund's outstanding
voting securities. As used herein, a "majority of each
Fund's outstanding voting securities" means the lesser
of (i) 67% of the shares of common stock of each Fund
represented at a meeting at which more than 50% of the
outstanding shares are present, or (ii) more than 50%
of the outstanding shares of common stock of the Fund.
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).
<PAGE>
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).
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.
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. 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.
7. 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.
8. 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.
<PAGE>
Implementation Of Investment Objective
The following information supplements the
discussion of the Funds' investment objectives,
policies, and techniques that are described in each
Prospectus under the captions "Investment Objective"
and "Implementation of Investment Objective."
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, none of the Funds 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 Growth 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 each Fund's respective
subadviser 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
each subadviser 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.
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 a security 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 Growth
Fund should be in a position where more than 5% of the
value of its net assets are invested in illiquid
securities and the Total Return Bond Fund, the
Opportunity Fund and the Emerging Growth Fund should be
in a position where more than 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. The Growth Fund and the
Emerging Growth Fund intend to be fully invested at all
times and accordingly will only hold cash or short-term
fixed income securities to meet anticipated redemption
requests, pending investment and to pay expenses which,
in any case, generally will not exceed 20% of total
assets with respect to the Growth Fund and 15% of total
assets with respect to the Emerging Growth Fund. The
Growth Fund and the Emerging Growth Fund may, however,
temporarily exceed this 20% or 15% limitation, as the
case may be, but only in circumstances pending
investment and only for short periods of time. 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
<PAGE>
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
Federal Deposit Insurance Corporation
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.
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. Each Fund's subadviser 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.
The subadviser 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. Each Fund's subadviser
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 Asset Management,
Inc. (the "Adviser") or a subadviser, of
comparable quality.
<PAGE>
Short-term fixed income securities must be rated
at least A or higher by S&P, Moody's Investors Service
("Moody's") or Fitch Investors Service, Inc. ("Fitch")
or A- or higher by Duff & Phelps, Inc. ("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 Funds may also invest in the short-term investment
funds of their custodial bank.
Short Sales Against the Box
When the Adviser or a subadviser believes that the
price of a particular security held by the Total Return
Bond Fund, the Growth Fund or the Emerging Growth 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, the Growth Fund
and the Emerging Growth Fund will limit their
transactions in short sales against the box to 5% of
their respective net assets.
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 15% 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
<PAGE>
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 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. When-issued securities 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).
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 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., BBB or higher by S&P);
and (v) unrated securities determined by a subadviser
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 because 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 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.
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 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.
Debt Obligations-General
The debt obligations that the Total Return Bond
Fund may invest in 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
<PAGE>
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.
Corporate Debt Securities
The Total Return Bond Fund may invest in 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" above.
Mortgage- and Other Asset-Backed Securities
The Total Return Bond Fund may invest in 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.
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 Total Return Bond 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
<PAGE>
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 Total Return Bond 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 excise tax, the Fund
may be required to distribute a portion of such
discount 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 and therefore, subject to the
Fund's fundamental investment restrictions. 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 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 reverse repurchase agreements and mortgage
dollar rolls 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.
Foreign Securities and Currencies
The Funds may invest directly 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
uniform accounting, auditing and financial reporting
standards as are 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.
<PAGE>
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.
In addition, the Funds 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.
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, less the
amount by which any such option positions are in the
money (within the meaning of the CEA), do not exceed 5%
of the net asset value of the respective Funds. In
addition, none of the Funds 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 and/or other permissible liquid assets 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.
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
<PAGE>
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 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 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.
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. In the case of transactions
involving "nonequity options," the Funds will treat any
gain or loss arising from the lapse, closing out or
exercise of such positions as 60% long-term and
<PAGE>
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.
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 or bond 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.
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.
<PAGE>
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 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 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.
Foreign Currency - Related Derivative Strategies -
Special Considerations. The Funds may purchase and
sell foreign currency on a spot basis, and may use
currency-related derivative 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
<PAGE>
currency-related derivative
instruments when the Adviser or a subadviser 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.
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
<PAGE>
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-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.
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.
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 derivative 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 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 derivative
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
derivative 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
The Opportunity Fund, the Growth Fund and the
Emerging Growth 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.
<PAGE>
EDRs are European receipts evidencing a
similar arrangement. For purposes of each 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 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
its total assets 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.
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 Adviser or a
subadviser 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.
<PAGE>
Directors and Officers
Under the laws of the State of Maryland, the Board
of Directors of the Company 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 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
1940 Act, is indicated by an asterisk.
*William D. Forsyth III, Co-President, Treasurer,
Assistant Secretary and a Director of the Company.
Mr. Forsyth, age 35, 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 and a Director of the Adviser
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, age 40, 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 and a Director of
the Adviser 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 &
Co., 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.
David L. Heald, a Director of the Company.
Mr. Heald, age 55, 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 400 Skokie Blvd., Suite 260, Northbrook,
Illinois 60062.
As of December 1, 1999, officers and directors of
the Company owned [ ] shares of common stock of
the Total Return Bond Fund ([ ]%), [ ]
shares of common stock of the Opportunity Fund
([ ]%), [ ] shares of common stock of the
Growth Fund ([ ]%) and no shares of common stock
of the Emerging Growth Fund. Directors and officers of
the Company who are also officers, directors,
employees, or shareholders of the Adviser do not
receive any remuneration from the Funds for serving as
directors or officers.
<PAGE>
The following table provides information relating
to compensation paid to directors of the Company for
their services as such for the eight month fiscal
period ended June 30, 1999(1):
Name Cash Compensation(2) Other Compensation Total
David L. Heald $ [ ] $ [ ] $ [ ]
All directors as
a group (3 persons) $ [ ] $ [ ] $ [ ]
______________
(1) Effective June 30, 1999, the fiscal year end of
the Company was changed from October 31 to June 30 by
unanimous consent of the directors of the Company.
(2) At such time as the Company's assets equal or
exceed $50,000,000, the disinterested director will
receive $5,000 for that fiscal year. When the
Company's assets equal or exceed $100,000,000, the
disinterested director will receive $10,000 for that
fiscal year. When the Company's assets exceed
$500,000,000, the disinterested director will receive
$20,000 for that fiscal year. The Board intends to
hold four meetings during fiscal 2000. The Funds may
have assets exceeding $100,000,000 during such time.
The disinterested director may invest his
compensation in shares of the Funds.
Principal Shareholders
As of December 1, 1999, 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:
[need to update]
Name and Address Fund No. Shares Percentage
Bankers Trust Company, Trustee Total Return Bond Fund %
F/B/O Culver Educational
Foundation
Mike Bloebaum
MS 7200
648 Grassmere Park Road
Nashville, Tennessee 37211
Walt Loukota and John Negro, Total Return Bond Fund %
Trustees
IBEW Local 405 Retirement Savings Fund
150 1st Avenue, N.E., Suite 375
Cedar Rapids, Iowa 52404
Jerry Branson and Paul Hopkins, Total Return Bond Fund %
Trustees
IBEW Local 461 Pension Fund
1661 Landmark Road
Aurora, Illinois 60506
Bankers Trust Company, Trustee Total Return Bond Fund %
F/B/O Southern Illinois Hospital
Post Office Box 9014
Church Street Station
New York, New York 10008
Jerry Branson and Paul Hopkins, Total Return Bond Fund %
Trustees
IBEW Local 461 Health and Welfare Fund
1661 Landmark Road
Aurora, Illinois 60506
<PAGE>
Culver Educational Foundation Opportunity Fund %
1300 Academy Road
Post Office Box 156
Culver, Indiana 46511-1291
G. Segal, H. Silverstone and Opportunity Fund %
B. Schneidewind, Trustees
Euromarkets Designs Inc.
Profit Sharing Trust
725 Landwehr Road
Northbrook, Illinois 60062
Reams Foundation Inc. Opportunity Fund %
P.O. Box 1377
Columbus, Indiana 47202-1377
IBEW Local 117 Pension Fund Opportunity Fund %
c/o Ed Otstott OBA Midwest Ltd.
8205 S. Cass Avenue, Suite 101
Darien, Illinois 60561
Board of Trustees Opportunity Fund %
UA Local 125 Retirement Savings Fund
Eastern Iowa Fringe Benefit Funds
c/o Jennifer Sager
205 50th Avenue SW
Cedar Rapids, Iowa 52404
Mitra & Co. Growth Fund %
1000 North Water Street
Milwaukee, Wisconsin 53202-6648
UMB, Trustee Growth Fund %
Joseph Edelman IRA
P.O. Box 433
Antigo, Wisconsin 54409-0433
William H. Park and Growth Fund %
Joseph R. Ramrath, Trustees
United Asset Management PSP and 401K
8018 Excelsior Drive, Suite 300
Madison, Wisconsin 53717-1951
UMB, Trustee Growth Fund %
Robert E. Linden IRA
5621 Comanche Way
Madison, Wisconsin 53704
UMB, Trustee Growth Fund %
Chester Gibbons IRA
345 Ridgeview Terrace
Green Bay, Wisconsin 54301-1512
As of December 1, 1999, [no person] owned a
controlling interest in the Company.
<PAGE>
Investment Adviser
Frontegra Asset Management, Inc. (the "Adviser")
is the investment adviser to the Funds. Mr. William D.
Forsyth III and Mr. Thomas J. Holmberg, Jr., each own
50% of the Adviser. Mr. Forsyth and Mr. Holmberg are
co-presidents of the Company. A brief description of
the Funds' investment advisory agreements is set forth
in each Prospectus under "Fund Management."
The advisory agreement between the Adviser and the
Funds is dated October 30, 1996, while the amendment to
add the Growth Fund is dated as of February 1, 1998 and
the amendment to add the Emerging Growth Fund is dated
as of December 31, 1999 (the "Advisory Agreement").
The Advisory Agreement has an initial term of two years
(with an October 30, 1996, February 1, 1998 or December
31, 1999 starting point, as the case may be) and 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 1940 Act). Each annual renewal must
also be approved by the separate vote of the Company's
disinterested director, cast in person at a meeting
called for the purpose of voting on such approval. The
Advisory Agreement as it relates to the Total Return
Bond, Opportunity and Growth Funds was most recently
approved by the vote of the Company's disinterested
director on August 30, 1999. The Advisory Agreement as
it relates to the Total Return Bond and Opportunity
Funds was most recently approved by the initial
shareholders of the Total Return Bond and the
Opportunity Funds on October 9, 1996. The amendment to
the Advisory Agreement to add the Growth Fund was
approved by the disinterested director on December 15,
1997. The amendment to the Advisory Agreement to add
the Emerging Growth Fund was approved by the
disinterested director on November [16], 1999. 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 the Adviser, and
will terminate automatically in the event of its
assignment.
Pursuant to an expense cap agreement dated
February 26, 1999, as amended August 2, 1999, between
the Adviser and the Total Return Bond, Opportunity and
Growth Funds, the Adviser 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 total operating expenses do
not exceed 0.425% of that Fund's average daily net
assets, the Opportunity Fund's total operating expenses
do not exceed 0.90% of that Fund's average daily net
assets and the Growth Fund's total operating expenses
do not exceed 0.80% of that Fund's average daily net
assets. The term of the expense cap agreement is 12
months. Pursuant to an expense cap agreement dated
December 31, 1999 between the Adviser and the Emerging
Growth Fund, the Advisor has agreed to waive its
management fee and/or reimburse the Emerging Growth
Fund's operating expenses to the extent necessary to
ensure that the Emerging Growth Fund's total operating
expenses do not exceed 0.90% of that Fund's average
daily net assets. The term of the expense cap
agreement is 12 months.
Under the terms of the Advisory Agreement, the
Adviser supervises the management of the Funds'
investments and business affairs, subject to the
supervision of the Company's Board of Directors. At
its expense, the Adviser 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 the Adviser a monthly advisory fee at the
annual rate of 0.65% of the average daily net asset
value of the Fund, the Total Return Bond Fund pays to
the Adviser a monthly advisory fee at the annual rate
of 0.40% of the average daily net asset value of the
Fund, the Growth Fund pays to the Adviser a monthly
advisory fee at the annual rate of 0.80% of the average
daily net asset value of the Fund and the Emerging
Growth Fund pays to the Adviser a monthly advisory fee
at the annual rate of 0.90% of the average daily net
asset value of the Fund. For the fiscal period ended
October 31, 1997, the fiscal year ended October 31,
1998 and the fiscal period ended June 30, 1999, the
Adviser agreed to waive its management fee and/or
reimburse the operating expenses of the Total Return
Bond Fund and the Opportunity Fund to the extent
necessary to ensure that the total operating expenses
of the Total Return Bond Fund and the Opportunity Fund
did not exceed 0.50% and 0.90%, respectively, of the
Fund's average daily net assets. For the fiscal
periods ended October 31, 1998 and June 30, 1999, the
Adviser agreed to waive its management fee and/or
reimburse the operating expenses of the Growth Fund to
the extent necessary to ensure that the total operating
expenses of the Growth Fund did not exceed 0.80% of the
Fund's average daily net assets. The expense cap
agreement provides that the Adviser will continue this
waiver/ reimbursement policy with respect to the Total
Return Bond, Opportunity and Growth Funds until
February 29, 2000. For the fiscal period from November
25, 1996 to October 31, 1997, the fiscal year ended
October 31, 1998 and the eight month fiscal period
ended June 30, 1999, the Adviser received $0, $55,268
and $26,184 from the Total Return Bond Fund,
respectively, for its services under the Advisory
Agreement. For the fiscal period from July 31, 1997 to
October 31, 1997, the fiscal year ended October 31,
1998 and the eight month fiscal period ended June 30,
1999, the Adviser received $0 from the Opportunity Fund
for its services under the Advisory Agreement for each
period. The
<PAGE>
amounts received by the Adviser for such
services would have been $73,665, $186,149 and $128,483
for the Total Return Bond Fund, respectively, and
$1,796, $47,155 and $54,105 for the Opportunity Fund,
respectively, had the Adviser not waived a portion of
its fees for the fiscal period ended October 31, 1997,
the fiscal year ended October 31, 1998 and the fiscal
period ended June 30, 1999. For the fiscal period from
March 18, 1998 to October 31, 1998 and the eight month
fiscal period ended June 30, 1999, the Adviser received
$0 from the Growth Fund for its services under the
Advisory Agreement for each period. The amounts
received by the Advisor for such services for the
Growth Fund would have been $7,231 and $18,609,
respectively, had the Adviser not waived a portion of
its fees during the fiscal periods ended October 31,
1998 and June 30, 1999. The organizational expenses of
the Total Return Bond Fund and the Opportunity Fund
were advanced by the Adviser and will be reimbursed by
the Funds over a period of not more than 60 months.
The organizational expenses were approximately $38,000
for the Total Return Bond Fund and $40,000 for the
Opportunity Fund.
The Advisory Agreement requires the Adviser 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, if any, 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. 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 the Adviser's fee, subject to later
adjustment, month by month, for the remainder of the
Funds' fiscal year.
The Adviser has entered into an agreement with
Reams Asset Management Company, LLC ("Reams") under
which Reams serves as the subadviser of the Total
Return Bond Fund and the Opportunity Fund and, subject
to the Adviser's supervision, manages the portfolio
assets of the Total Return Bond Fund and the
Opportunity Fund. (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 the Adviser for its
investment advisory services at the annual rate of
0.45% of the Opportunity Fund's average daily net
assets and 0.15% of the Total Return Bond Fund's
average daily net assets. In recognition of the
economies of scale that will be gained by such Funds
and the Adviser, and with the exception of defined
contribution or 401(k) investments in such Funds, for
initial investments of over $15 million the Adviser
will compensate Reams an extra 0.10% of the average
daily net assets of such investments. Frontier
Partners, Inc., an affiliate of the Adviser, acts as a
third party solicitor on behalf of Reams and has a 2.2%
nonvoting ownership interest in Reams. Mr. Fred W.
Reams owns units representing a majority of the voting
rights of Reams.
The Adviser has also entered into an agreement
with Northern Capital Management Incorporated
("Northern") under which Northern serves as the
subadviser of the Growth Fund and, subject to the
Adviser's supervision, manages the Growth Fund's
portfolio assets. Under this agreement, Northern is
compensated for its investment advisory services at the
annual rate of (i) 0.25% of the Growth Fund's average
daily net assets prior to the first date when the
Growth Fund's average daily net assets exceed $200
million and (ii) 0.30% of the Growth Fund's average
daily net assets on and after the first date when the
Fund's average daily net assets exceed $200 million.
Frontier Partners, Inc., an affiliate of the Adviser,
acts as a third party solicitor on behalf of Northern.
United Asset Management, an investment adviser holding
company, owns 100% of the voting stock of Northern.
The Adviser has also entered into an agreement
with Berents & Hess Capital Management, Inc. ("B&H")
under which B&H acts as the subadviser of the Emerging
Growth Fund and, subject to the Adviser's supervision,
manages the Emerging Growth Fund's portfolio assets.
Under this agreement, B&H is compensated by the Adviser
for its investment advisory services at the annual rate
of 0.45% of the Emerging Growth Fund's average daily
net assets. Mr. Charles N. Berents, Jr. owns 46% of
the voting stock of B&H and Mr. Herbert P. Hess owns
54% of the voting stock of B&H.
Fund Transactions and Brokerage
Reams, Northern and B&H (the "Subadvisers") are
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. The
Subadvisers seek the best execution at the best
security price available with respect to each
transaction, in light of the overall quality of
brokerage and
<PAGE>
research services provided to the
Subadvisers 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, the Subadvisers
consider 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.
The Total Return Bond Fund [did not pay any]
brokerage commissions for the fiscal period ended
October 31, 1997, the fiscal year ended October 31,
1998 and the fiscal period ended June 30, 1999. The
Opportunity Fund paid $2,996, $27,546 and $[ ]
in brokerage commissions for the fiscal period ended
October 31, 1997, the fiscal year ended October 31,
1998 and the fiscal period ended June 30, 1999,
respectively. The Growth Fund [did not pay any]
brokerage commissions for the fiscal period ended
October 31, 1998 and paid $[ ] in brokerage
commissions for the fiscal period ended June 30, 1999.
The Emerging Growth Fund did not commence operations
until the date of this SAI.
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).
In selecting brokers, the Subadvisers consider
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 the Subadvisers
determine 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. The Subadvisers
believe that the research information received in this
manner provides the Funds with benefits by
supplementing the research otherwise available to the
Funds. The Subadvisory Agreements provide that such
higher commissions will not be paid by the Funds unless
(a) the Subadvisers determine in good faith that the
amount is reasonable in relation to the services in
terms of the particular transaction or in terms of the
Subadvisers' overall responsibilities with respect to
the accounts as to which they exercise 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 Agreements; and
(c) in the opinion of the Subadvisers, 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 the Subadvisers' receipt of research
services.
The Subadvisers place portfolio transactions for
other advisory accounts managed by the Subadvisers.
Research services furnished by firms through which the
Funds effect their securities transactions may be used
by the Subadvisers in servicing all of its accounts;
not all of such services may be used by the Subadvisers
in connection with the Funds. The Subadvisers believe
it is not possible to measure separately the benefits
from research services to each of the accounts
(including the Funds) managed by them. 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, the Subadvisers believe such costs to the
Funds will not be disproportionate to the benefits
received by the Funds on a continuing basis. The
Subadvisers seek 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 the
Subadvisers 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.
<PAGE>
Custodian
As custodian of the Funds' assets, Firstar Bank
Milwaukee, N.A., 615 E. Michigan Street, Milwaukee,
Wisconsin 53202, 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.
Transfer Agent and Dividend Disbursing Agent
Firstar Mutual Fund Services, LLC, 615 E. Michigan
Street, Third Floor, Milwaukee, Wisconsin 53202, an
affiliate of Firstar Bank Milwaukee, N.A., acts as
transfer agent and dividend-disbursing agent for the
Funds (the "Transfer Agent"). The Transfer Agent is
compensated based on an annual fee per open account of
$14.00, subject to minimum annual fees of $8,000 per
Fund until the fund exceeds 150 accounts, at which time
the minimum annual fee will increase to $12,000 per
Fund. There is a fee of $10,000 per year for each
additional fund or class.
Administrator and Fund Accountant
The Transfer Agent also provides administrative
and fund accounting services to the Funds pursuant to
separate Administration and Fund Accounting Agreements.
Under these Agreements, the Transfer Agent calculates
the daily net asset value of each Fund and provides
administrative services (which include clerical,
compliance and regulatory services such as filing all
required federal income and excise tax returns and
state property tax returns, assisting with regulatory
filings, preparing financial statements and monitoring
expense accruals). For the foregoing services, the
Transfer Agent receives from the Fund, effective
September 1, 1999, a fee, computed daily and payable
monthly based on each Fund's average net assets at the
annual rate of 0.14 of 1% on the first $50 million,
0.01 of 1% on the next $450 million and 0.03 of 1% on
the average net assets in excess of $500 million,
subject to an annual minimum of $48,000, plus out-of-
pocket expenses. For the fiscal period ended October
31, 1997, the fiscal year ended October 31, 1998 and
the fiscal period ended June 30, 1999, Sunstone
Financial Group, Inc. ("Sunstone"), the Fund's prior
administrator, received $74,588, $174,170 and $132,415,
respectively, under an Administration and Fund
Accounting Agreement between the Fund and Sunstone.
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 1940 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 1940 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.
Purchase and Pricing of Shares
Purchase of Shares
Shares of each Fund are sold on a continuous basis
at each Fund's net asset value. The net asset value of
each Fund and is determined as of the close of trading
on the New York Stock Exchange ("NYSE") (generally 4:00
p.m., Eastern Time) on each day the NYSE is open. The
price at which your purchase will be effected is based
on the Fund's net asset value next determined after
each 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.
<PAGE>
Offering Price
As set forth in each Prospectus under "Valuation
of Fund Shares," each Fund's net asset value per share
is determined as of the close of trading on the NYSE
(generally 4:00 p.m., Eastern Time) on each day the
NYSE is open for business. Each Fund is not required
to calculate its net asset value on days during which
that Fund receives no orders to purchase shares and no
shares are tendered for redemption. Net asset value is
calculated by taking the market 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. 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. 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. Other exchange-
traded securities (generally foreign securities) will
be valued based on market quotations.
Taxation of the Fund
Each Fund intends to qualify annually as a
"regulated investment company" under Subchapter M of
the Code, and if so qualified will not be liable for
federal income taxes to the extent earnings are
distributed to shareholders on a timely basis. 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. In the event
a Fund fails to qualify as a "regulated investment
company," it will be treated as a regular corporation
for federal income tax purposes. Accordingly, the
disqualifying Fund would be subject to federal income
taxes and any distributions that it makes would be
taxable and non-deductible by the Fund. This would
increase the cost of investing in such Fund for
shareholders and would make it more economical for
shareholders to invest directly in securities held by
the Fund instead of investing indirectly in such
securities through the Fund.
The Funds will distribute to shareholders at least
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).
Such distributions will be combined with distributions
of capital gains and shareholders will be advised of
the nature of the payments.
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.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on an investor. There may be other federal,
state or local tax considerations applicable to a
particular investor. Investors are urged to consult
their own tax advisors.
Performance Information
The Funds' historical performance or return may be
shown in the form of various performance figures,
including average annual total return, total return and
cumulative total return. 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
Average annual total return and total return
figures measure both 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, assuming the reinvestment of all
dividends and distributions. Average annual total
return figures are annualized and therefore represent
the average annual percentage change over the specified
period. Total return figures are not annualized and
therefore represent the aggregate percentage or dollar
value change over the period.
<PAGE>
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:
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.
The total return for the Total Return Bond Fund,
the Opportunity Fund and the Growth Fund for the eight
month fiscal period ended June 30, 1999 was 0.32%,
15.49% and 28.58%, respectively. The Emerging Growth
Fund was not available for investment until the date of
this SAI.
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/cd +1)(6)-1]
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.
The 30-day yield for the Total Return Bond Fund
for the period ended June 30, 1999 was [ ]%. The
30-day yield for the Total Return Bond Fund after
waivers and reimbursements for the period ended June
30, 1999 was [ ]%.
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 S&P 500. 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 S&P 500, the NASDAQ Over-the-Counter Composite
Index, the Russell 2500 Index, the Russell 1000 Growth
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.
Financial Statements
The following audited financial statements of the
Total Return Bond Fund, the Opportunity Fund and the
Growth Fund are incorporated herein by reference to
each Fund's Annual Report to Shareholders as filed with
the SEC on August 27, 1999:
Total Return Bond Fund
(a) Schedule of Investments as of June 30, 1999.
(b) Statement of Assets and Liabilities as of June 30, 1999.
(c) Statement of Operations for the period from November 1, 1998 to
June 30, 1999.
(d) Statement of Changes in Net Assets for the
period from November 1, 1998 to June 30, 1999
and the year ended October 31, 1998.
<PAGE>
(e) Financial Highlights for the period from
November 1, 1998 to June 30, 1999 and the year
ended October 31, 1998.
(f) Notes to Financial Statements.
(g) Report of Independent Auditors dated July 21, 1999.
Opportunity Fund
(a) Schedule of Investments as of June 30, 1999.
(b) Statement of Assets and Liabilities as of June 30, 1999.
(c) Statement of Operations for the period from
November 1, 1998 to June 30, 1999.
(d) Statement of Changes in Net Assets for the
period from November 1, 1998 to June 30, 1999
and the year ended October 31, 1998.
(e) Financial Highlights for the period from
November 1, 1998 to June 30, 1999 and the year
ended October 31, 1998.
(f) Notes to Financial Statements.
(g) Report of Independent Auditors dated July 21, 1999.
Growth Fund
(a) Schedule of Investments as of June 30, 1999.
(b) Statement of Assets and Liabilities as of June 30, 1999.
(c) Statement of Operations for the period
from November 1, 1998 to June 30, 1999.
(d) Statement of Changes in Net Assets for the
period from November 1, 1998 to June 30, 1999
and the period from March 18, 1998
(commencement of operations) to October 31, 1998.
(e) Financial Highlights for the period from
November 1, 1998 to June 30, 1999 and the
period from March 18, 1998 (commencement of
operations) to October 31, 1998.
(f) Notes to Financial Statements.
(g) Report of Independent Auditors dated July 21, 1999.
<PAGE>
APPENDIX
SHORT-TERM RATINGS
Standard & Poor's Short-Term Debt Credit Ratings
A Standard & Poor's credit rating is a current
opinion of the creditworthiness of an obligor with
respect to a specific financial obligation, a specific
class of financial obligations or a specific financial
program. It takes into consideration the
creditworthiness of guarantors, insurers or other forms
of credit enhancement on the obligation and takes into
account the currency in which the obligation is
denominated. The credit rating is not a recommendation
to purchase, sell or hold a financial obligation,
inasmuch as it does not comment as to market price or
suitability for a particular investor.
Credit ratings are based on current information
furnished by the obligors or obtained by Standard &
Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in
connection with any credit rating and may, on occasion,
rely on unaudited financial information. Credit
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
Short-term ratings are generally assigned to those
obligations considered short-term in the relevant
market. In the U.S., for example, that means
obligations with an original maturity of no more than
365 days-including commercial paper. Short-term
ratings are also used to indicate the creditworthiness
of an obligor with respect to put features on long-term
obligations. The result is a dual rating, in which the
short-term rating addresses the put feature, in
addition to the usual long-term rating.
Ratings are 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 A short-term obligation rated `A-1' is rated
in the highest category by Standard & Poor's.
The obligor's capacity to meet its financial
commitment on the obligation is strong.
Within this category, certain obligations are
designated with a plus sign (+). This
indicates that the obligor's capacity to meet
its financial commitment on these obligations
is extremely strong.
A-2 A short-term obligation rated `A-2' is
somewhat more susceptible to the adverse
effects of changes in circumstances and
economic conditions than obligations in
higher rating categories. However, the
obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3 A short-term obligation rated `A-3' exhibits
adequate protection parameters. However,
adverse economic conditions or changing
circumstances are more likely to lead to a
weakened capacity of the obligor to meet its
financial commitment on the obligation.
B A short-term obligation rated `B' is regarded
as having significant speculative
characteristics. The obligor currently has
the capacity to meet its financial commitment
on the obligation; however, it faces major
ongoing uncertainties which could lead to the
obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated `C' is
currently vulnerable to nonpayment and is
dependent upon favorable business, financial
and economic conditions for the obligor to
meet its financial commitment on the
obligation.
D A short-term obligation rated `D' is in
payment default. The `D' rating category is
used when payments on an obligation are not
made on the date due even if the applicable
grace period has not expired, unless Standard
& Poor's 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 or the taking of a
similar action if payments on an obligation
are jeopardized.
<PAGE>
Moody's Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of
the ability of issuers to repay punctually senior debt
obligations. These obligations have an original
maturity not exceeding one year, unless explicitly
noted. Moody's ratings are opinions, not
recommendations to buy or sell, and their accuracy is
not guaranteed.
Moody's employs the following three designations,
all judged to be investment grade, to indicate the
relative repayment ability of rated issuers:
PRIME-1 Issuers rated `Prime-1' (or supporting
institutions) have a superior ability for
repayment of senior short-term debt
obligations. Prime-1 repaying ability will
often be evidenced by many of the following
characteristics:
* Leading market positions in well-established
industries.
* High rates of return on funds employed.
* Conservative capitalization structure with
moderate reliance on debt and ample asset protection.
* Broad margins in earnings coverage of fixed
financial charges and high internal cash generation.
* Well-established access to a range of financial
markets and assured sources of alternate liquidity.
PRIME-2 Issuers rated `Prime-2' (or supporting
institutions) have a strong ability for
repayment of senior short-term debt
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, may be more
subject to variation. Capitalization
characteristics, while still appropriate, may
be more affected by external conditions.
Ample alternate liquidity is maintained.
PRIME-3 Issuers rated `Prime-3' (or supporting
institutions) have an acceptable ability for
repayment of senior short-term obligations.
The effect of industry characteristics and
market compositions may be more pronounced.
Variability in earnings and profitability may
result in changes in the level of debt
protection measurements and may require
relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME Issuers rated `Not Prime' do not fall within
any of the Prime rating categories.
Fitch IBCA International Short-Term Debt Credit Ratings
Fitch IBCA's international debt credit ratings are
applied to the spectrum of corporate, structured and
public finance. They cover sovereign (including
supranational and subnational), financial, bank,
insurance and other corporate entities and the
securities they issue, as well as municipal and other
public finance entities, securities backed by
receivables or other financial assets and
counterparties. When applied to an entity, these short-
term ratings assess its general creditworthiness on a
senior basis. When applied to specific issues and
programs, these ratings take into account the relative
preferential position of the holder of the security and
reflect the terms, conditions and covenants attaching
to that security.
International credit ratings assess the capacity
to meet foreign currency or local currency commitments.
Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local
currency rating measures the probability of payment
within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency
rating, does not take account of the possibility of
foreign exchange controls limiting transfer into
foreign currency.
A short-term rating has a time horizon of less
than 12 months for most obligations, or up to three
years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to
meet financial commitments in a timely manner.
<PAGE>
F-1 Highest credit quality. Indicates the
strongest capacity for timely payment of
financial commitments; may have an added "+"
to denote any exceptionally strong credit
feature.
F-2 Good credit quality. A satisfactory capacity
for timely payment of financial commitments,
but the margin of safety is not as great as
in the case of the higher ratings.
F-3 Fair credit quality. The capacity for timely
payment of financial commitments is adequate;
however, near term adverse changes could
result in a reduction to non-investment
grade.
B Speculative. Minimal capacity for timely
payment of financial commitments, plus
vulnerability to near term adverse changes in
financial and economic conditions.
C High default risk. Default is a real
possibility. Capacity for meeting financial
commitments is solely reliant upon a
sustained, favorable business and economic
environment.
D Default. Denotes actual or imminent payment
default.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps Credit Ratings' short-term debt
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 debt 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.
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.
<PAGE>
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.
LONG-TERM RATINGS
Standard & Poor's Long-Term Debt Credit Ratings
A Standard & Poor's credit rating is a current
opinion of the creditworthiness of an obligor with
respect to a specific financial obligation, a specific
class of financial obligations or a specific financial
program. It takes into consideration the
creditworthiness of guarantors, insurers or other forms
of credit enhancement on the obligation and takes into
account the currency in which the obligation is
denominated. The credit rating is not a recommendation
to purchase, sell or hold a financial obligation,
inasmuch as it does not comment as to market price or
suitability for a particular investor.
Credit ratings are based on current information
furnished by the obligors or obtained by Standard &
Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in
connection with any credit rating and may, on occasion,
rely on unaudited financial information. Credit
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
Credit ratings are based, in varying degrees, on
the following considerations: (1) likelihood of
payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation 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.
The rating definitions are expressed in terms of
default risk. As such, they pertain to senior
obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy. (Such
differentiation applies when an entity has both senior
and subordinated obligations, secured and unsecured
obligations, or operating company and holding company
obligations.) Accordingly, in the case of junior debt,
the rating may not conform exactly with the category
definition.
AAA An obligation rated `AAA' has the highest
rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial
commitment on the obligation is EXTREMELY
STRONG.
AA An obligation rated `AA' differs from the
highest rated obligations only in small
degree. The obligor's capacity to meet its
financial commitment on the obligation is
VERY STRONG.
A An obligation rated `A' is somewhat more
susceptible to the adverse effects of changes
in circumstances and economic conditions than
obligations in higher rated categories.
However, the obligor's capacity to meet its
financial commitment on the obligation is
still STRONG.
BBB An obligation rated `BBB' exhibits ADEQUATE
protection parameters. However, adverse
economic conditions or changing circumstances
are more likely to lead to a weakened
capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated `BB', `B', `CCC, `CC', and `C'
are regarded as having significant speculative
characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such
obligations will likely have some quality and
protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse
conditions.
BB An obligation rated `BB' is LESS VULNERABLE
to nonpayment than other speculative issues.
However, it faces major ongoing uncertainties
or exposure to adverse business, financial or
economic conditions which could lead to the
obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated `B' is MORE VULNERABLE to
nonpayment than obligations rated `BB', but
the obligor currently has the capacity to
meet its financial commitment on the
obligation. Adverse business, financial or
economic conditions will likely impair the
obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated `CCC' is CURRENTLY
VULNERABLE to nonpayment, and is dependent
upon favorable business, financial and
economic conditions for the obligor to meet
its financial commitment on the obligation.
In the event of adverse business, financial
or economic conditions, the obligor is not
likely to have the capacity to meet its
financial commitment on the obligation.
CC An obligation rated `CC' is CURRENTLY HIGHLY
VULNERABLE to nonpayment.
C The `C' rating may be used to cover a
situation where a bankruptcy petition has
been filed or similar action has been taken,
but payments on this obligation are being
continued.
D An obligation rated `D' is in payment
default. The `D' rating category is used
when payments on an obligation are not made
on the date due even if the applicable grace
period has not expired, unless Standard &
Poor's 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 or the taking of a
similar action if payments on an obligation
are jeopardized.
Plus (+) or minus (-): The ratings from `AA' to
`CCC' may be modified by the addition of a plus or
minus sign to show relative standing within the major
rating categories.
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 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.
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.
<PAGE>
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.
Moody's applies numerical modifiers 1, 2 and 3 in
each generic rating classification from `Aa' through
`B.' The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that
generic rating category.
Fitch IBCA International Long-Term Debt Credit Ratings
Fitch IBCA's international debt credit ratings are
applied to the spectrum of corporate, structured and
public finance. They cover sovereign (including
supranational and subnational), financial, bank,
insurance and other corporate entities and the
securities they issue, as well as municipal and other
public finance entities, securities backed by
receivables or other financial assets and
counterparties. When applied to an entity, these long-
term ratings assess its general creditworthiness on a
senior basis. When applied to specific issues and
programs, these ratings take into account the relative
preferential position of the holder of the security and
reflect the terms, conditions and covenants attaching
to that security.
International credit ratings assess the capacity
to meet foreign currency or local currency commitments.
Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local
currency rating measures the probability of payment
within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency
rating, does not take account of the possibility of
foreign exchange controls limiting transfer into
foreign currency.
Investment Grade
AAA Highest credit quality. `AAA' ratings
denote the lowest expectation of credit
risk. They are assigned only in case of
exceptionally strong capacity for timely
payment of financial commitments. This
capacity is highly unlikely to be
adversely affected by foreseeable
events.
AA Very high credit quality. `AA' ratings
denote a very low expectation of credit
risk. They indicate very strong
capacity for timely payment of financial
commitments. This capacity is not
significantly vulnerable to foreseeable
events.
A High credit quality. `A' ratings denote
a low expectation of credit risk. The
capacity for timely payment of financial
commitments is considered strong. This
capacity may, nevertheless, be more
vulnerable to changes in circumstances
or in economic conditions than is the
case for higher ratings.
BBB Good credit quality. `BBB' ratings
indicate that there is currently a low
expectation of credit risk. The
capacity for timely payment of financial
commitments is considered adequate, but
adverse changes in circumstances and in
economic conditions are more likely to
impair this capacity. This is the
lowest investment grade category.
<PAGE>
Speculative Grade
BB Speculative. `BB' ratings indicate that
there is a possibility of credit risk
developing, particularly as the result
of adverse economic change over time;
however, business or financial
alternatives may be available to allow
financial commitments to be met.
B Highly speculative. `B' ratings
indicate that significant credit risk is
present, but a limited margin of safety
remains. Financial commitments are
currently being met; however, capacity
for continued payment is contingent upon
a sustained, favorable business and
economic environment.
CCC, CC, C High default risk. Default is a
real possibility. Capacity for meeting
financial commitments is solely reliant
upon sustained, favorable business or
economic developments. A `CC' rating
indicates that default of some kind
appears probable. `C' ratings signal
imminent default.
DDD, DD and D Default. Securities are not
meeting current obligations and are
extremely speculative. `DDD' designates
the highest potential for recovery of
amounts outstanding on any securities
involved. For U.S. corporates, for
example, `DD' indicates expected
recovery of 50% - 90% of such
outstandings, and `D' the lowest
recovery potential, i.e. below 50%.
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
AA strong. Risk is modest but may
AA- vary slightly from time to time because of
economic conditions.
<PAGE>
A+ Protection factors are average but adequate.
A However, risk factors are more
A- variable and greater in periods of economic stress.
BBB+ Below-average protection factors but still
BBB considered sufficient for prudent
BBB- investment. Considerable variability in risk
during economic cycles.
BB+ Below investment grade but deemed likely to
BB meet obligations when due.
BB- Present or prospective financial protection
factors fluctuate according to
industry conditions or company fortunes.
Overall quality may move up or
down frequently within this category.
B+ Below investment grade and possessing risk
B that obligations will not be met
B- when due. Financial protection factors will
fluctuate widely according to
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.
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
See "Exhibit Index."
Item 24. Persons Controlled by or under Common Control
with Registrant
Registrant neither controls any person nor is
under common control with any other person.
Item 25. 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 26. Business and Other Connections of Investment Adviser
None.
Item 27. Principal Underwriters
(a) None
(b) None
(c) None
Item 28. Location of Accounts and Records
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 records held and maintained by
Firstar Bank Milwaukee, N.A. and Firstar Mutual
Fund Services LLC, 615 E. Michigan Street,
Milwaukee, Wisconsin 53202, relating to the
former's function as custodian and the latter's
function as transfer agent, administrator and fund
accountant.
Item 29. Management Services
All management-related service contracts
entered into by Registrant are discussed in Parts
A and B of this Registration Statement.
Item 30. Undertakings.
Registrant undertakes to furnish each person
to whom a prospectus or statement of additional
information is delivered with a copy of the
Registrant's latest semi-annual or annual report
to shareholders, without charge.
<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 Post-Effective
Amendment No. 7 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 7th day of October, 1999.
FRONTEGRA FUNDS, INC. (Registrant)
By: /s/ William D. Forsyth III
--------------------------------
William D. Forsyth III
Co-President
Pursuant to the requirements of the Securities Act
of 1933, this Post-Effective Amendment No. 7 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 7, 1999
- ---------------------------
William D. Forsyth III
/s/ Thomas J. Holmberg, Jr. Co-President and a Director October 7, 1999
- ----------------------------
Thomas J. Holmberg, Jr.
/s/ David L. Heald Director October 7, 1999
- ---------------------------
David L. Heald
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(a.1) Registrant's Articles of Incorporation(1)
(a.2) Articles Supplementary to the Registrant's
Articles of Incorporation dated January 14, 1998(3)
(a.3) Articles Supplementary to the Registrant's
Articles of Incorporation dated [ ], 1999
(b) Registrant's By-Laws(1)
(c) None
(d.1) Investment Advisory Agreement dated October 30, 1996(2)
(d.2) Exhibit C dated as of February 1, 1998 to
the Investment Advisory Agreement(3)
(d.3) Exhibit D dated as of December 31, 1999 to
the Investment Advisory Agreement
(d.4) Subadvisory Agreement between Frontegra and
Reams dated October 30, 1996(2)
(d.5) Subadvisory Agreement between Frontegra and
Northern dated as of January 30, 1998(3)
(d.6) Subadvisory Agreement between Frontegra and
B&H dated as of December 31, 1999
(d.7) Expense Cap/Reimbursement Agreement between
Frontegra and Frontegra Funds, Inc. dated as of
February 26, 1999, as amended August 2, 1999
(d.8) Expense Cap/Reimbursement Agreement between
Frontegra and the Frontegra Emerging Growth Fund
dated as of December 31, 1999
(e) None
(f) None
(g.1) Custodian Servicing Agreement
(h.1) Transfer Agent Servicing Agreement
(h.2) Fund Administration Servicing Agreement
(h.3) Fund Accounting Servicing Agreement
(i.1) Opinion and Consent of Godfrey & Kahn, S.C.
dated October 10, 1996(2)
(i.2) Opinion and Consent of Godfrey & Kahn, S.C.
dated January 27, 1998(3)
(i.3) Opinion and Consent of Godfrey & Kahn, S.C.
dated December [ ], 1999
(j) Consent of Ernst & Young LLP
(k) None
(l) Initial Subscription Agreements(2)
(m) None
(n) None
_____________________
(1) Incorporated by reference to Registrant's
Form N-1A as filed with the Commission on July 2, 1996.
(2) Incorporated by reference to Registrant's Form
N-1A as filed with the Commission on October 11, 1996.
(3) Incorporated by reference to Registrant's Form
N-1A as filed with the Commission on January 28, 1998.
