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FRONTEGRA FUNDS
SEMI-ANNUAL REPORT
Frontegra Growth Fund
FRONTEGRA ASSET MANAGEMENT, INC.
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April 30, 1999
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FRONTEGRA FUNDS
TABLE OF CONTENTS
Shareholder Letter 1
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Investment Highlights 4
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Schedule of Investments 5
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Statement of Assets and Liabilities 8
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Statement of Operations 9
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Statements of Changes in Net Assets 10
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Financial Highlights 11
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Notes to Financial Statements 12
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This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
accompanied or preceded by an effective Prospectus for the Fund. The Prospectus
includes more complete information about management fees and expenses,
investment objectives, risks and operating policies of the Fund. Please read the
Prospectus carefully.
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FRONTEGRA FUNDS
DEAR FELLOW SHAREHOLDERS:
We are pleased to present our second Semi-Annual Report for the Frontegra Growth
Fund (the "Fund") as the six months since our last report proved to be a very
good period for shareholders. The Fund increased 23.88% for the six months ended
April 30, 1999, which was substantially ahead of the broad market and compared
favorably with all but the "mega" cap growth companies, which continued to
outpace the overall market.
Frontegra Growth Fund 23.88%
Russell 1000 Large-Cap Growth Index 24.93%
S&P 500 Large-Cap Index 22.28%
S&P Mid-Cap Index 18.86%
S&P Small-Cap Index 9.03%
In addition, as indicated in our prior report, we were able to take advantage of
the market correction in the fall of 1998 by purchasing various high-quality
growth companies at excellent prices. Since the market bottom on October 8,
1998, the Fund has increased 47.1% versus gains of 40.2% and 48.0% for the S&P
500 Index and the Russell 1000 Growth Index, respectively.
We are encouraged by the strong recent performance of the Fund and believe that
the stock market is returning to a more normal state where investors are
rewarded for owning the best and most attractive companies rather than just the
largest. Your portfolio is very well positioned to outperform the Russell Growth
1000 Index (the "Index") during this type of environment.
YOUR TOP PERFORMERS
Amgen (AMGN), a biotechnology company specializing in human therapeutic
products, increased by 100% during the past six months. In addition to strong
revenue and earnings growth, Amgen won their patent case with rival Johnson &
Johnson and will be the sole supplier of their second generation Epogen product.
Although we remain optimistic regarding Amgen's growth prospects, the stock was
sold during April after it exceeded our price target.
Nortel Networks (NT) was formed through the combination of Northern Telecom, a
telecommunications company servicing the local, long distance and cellular
telephony companies, and Bay Networks, a digital networking specialist. Nortel
Networks was one of the Fund's top performers over the past six months as the
stock increased over 90%. Although the stock has appreciated significantly, it
remains one of our largest holdings as the company is well positioned for
continued strong revenue and earnings growth as a supplier to the global boom in
telecommunications and Internet spending. In addition, Nortel Networks continues
to trade at a discount of up to 50% to the P/E ratios of its primary
competitors, Lucent and Cisco Systems.
First Data Corp. (FDC) was up over 82% during this period and, as one of our
largest holdings, was a significant contributor to the Fund's strong
performance. First Data Corp. provides information-processing services to the
credit card industry and remains well positioned for strong earnings growth as
traditional and Internet retail sales remain robust.
Telecommunications Inc. (TCOMA) achieved its vision of becoming a "new age"
broadband company, and increased in value over 70% in the past six months.
Although this was one of our largest and best performing companies, it was also
one of our most controversial holdings as a growth manager.
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FRONTEGRA FUNDS
The consensus on Wall Street a year ago was that TCI was a slow-growth, non-
consumer oriented company that would eventually lose share to satellite dishes
and telephone companies. However, our analysis showed cable companies had a
sustainable competitive advantage given their "broadband" access to millions of
U.S. households. Today AT&T (through their recent acquisition of TCOMA) is on
the verge of changing the way consumers access video, telephony and the Internet
by using the existing cable infrastructure to simultaneously offer customers
multiple services at low prices.
Dayton Hudson Corp. (DH), which is best known for their market leading Target
discount stores, remains our largest position in the retail area and was one of
our best performers, up over 85%, during the past six months. Target Stores
continues to be the market leader in revenue and earnings growth in the discount
store segment and remains attractively priced as its P/E multiple is at a 30%
discount to market leader Wal-Mart Stores.
Other strong performers during the period include CitiGroup (C) up 71%, Home
Depot (HD) up 57%, Gillette (G) up 56% and AIG (AIG) with gains of over 55%.
THE FUND'S TEN LARGEST HOLDINGS
NAME TICKER POSITION SIZE
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Bristol-Myers BMY 4.9%
Nortel Networks NT 4.4%
First Data Corp. FDC 3.9%
Dayton Hudson DH 3.8%
Intel INTC 3.8%
Microsoft MSFT 3.5%
Eli Lilly LLY 3.2%
CitiGroup C 3.2%
Abbott Laboratories ABT 2.8%
General Electric GE 2.8%
LARGEST SECTOR EXPOSURES
Healthcare 18.0%
Financial Services 11.8%
Consumer Staples 11.1%
Telecommunications & Networking 11.1%
Information Software & Services 10.4%
Retail 8.6%
Technology 8.4%
THE INTERNET
Although we believe that the Internet will provide significant growth
opportunities for many companies, we have not made any direct investments in
this area. To date, pure-play Internet companies have not satisfied our purchase
discipline which requires growth companies to demonstrate sustainable
competitive advantages while the stock price does not fully reflect the growth
prospects. We believe the best way to play the Internet is to invest in market
leading companies with current revenues and earnings
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FRONTEGRA FUNDS
that are providing enabling technology or content to this fast growing segment.
Our holdings in Oracle Corp., WorldCom, EMC, Intel, Nortel Networks, AT&T and
Time Warner are all benefiting from the growth in the Internet.
THE VALUE OF THE OVERALL MARKET
We've received numerous inquiries from investors asking, "When is the market
going to correct?" Unfortunately, previous market behavior is not very helpful
in answering this question, as there has been a significant change in the make-
up of the market indices over the past twenty years. Historically, the largest
companies were domestic manufacturing entities whose growth prospects were
highly correlated to the performance of the overall economy. Today, the largest
constituents of the Index are global consumer products and services companies
whose growth prospects are not necessarily correlated to the growth prospects of
other industries or even the domestic economy. This change in the composition of
the Index has resulted in a greater likelihood of "sector-specific" corrections
rather than a broad-based market correction.
For example, in the midst of a strong market, we witnessed the technology and
financial sectors decline by over 25% in the Fall of 1998, various consumer
staples industries dropped over 25% in the first quarter of 1999 and the
healthcare sector corrected significantly during the past few months. As a
fully-invested Fund we do not try to time the market. Rather, we sell individual
securities when they reach our target prices and reinvest the proceeds in high-
quality growth companies at discounted prices. This practice should help to
lessen the impact of sector-specific corrections resulting from overvaluation.
Our ability to do this in a consistent and disciplined manner should provide
significantly more value to our shareholders than any attempts at market timing.
SUMMARY
After a difficult start during an unusual market environment, the Fund's recent
performance reinforces our belief that investors should maintain a long-term
perspective, remain disciplined and look through market anomalies. During the
next ten years various styles ranging from growth to value and large-cap to
small-cap may come in and out of favor as investors chase short-term
performance. As these investment fads come and go we will work hard to uncover
and purchase quality growth companies at attractive prices. We continue to
believe this is the best formula for providing long-term performance that
exceeds the returns of the overall market.
We thank you for your continued support and we encourage you to e-mail or write
with comments or questions about your Fund. In addition, we expect to have a
Northern Capital Web site that includes Frontegra Growth Fund information and
prices within the next few months.
Sincerely,
/s/ Daniel T. Murphy /s/ Brian A. Hellmer /s/ Stephen L. Hawk
Daniel T. Murphy, CFA Brian A. Hellmer, CFA Stephen L. Hawk, Ph.D.
President and Chief Senior Vice President and Chairman and
Investment Officer Director of Research Chief Executive Officer
[email protected] [email protected] [email protected]
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FRONTEGRA FUNDS
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Frontegra S&P 500 Russell 1000
Growth Fund Stock Index Growth Fund
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3/18/98 100,000 100,000 100,000
3/31/98 101,100 101,523 101,743
4/30/98 99,200 102,544 103,151
5/31/98 98,000 100,782 100,224
6/30/98 102,000 104,875 106,362
7/31/98 97,300 103,758 105,658
8/31/98 81,100 88,757 89,801
9/30/98 85,800 94,443 96,700
10/31/98 92,900 102,125 104,471
11/30/98 99,600 108,315 112,418
12/31/98 108,939 114,556 122,555
1/31/99 116,148 119,346 129,752
2/28/99 110,841 115,637 123,825
3/31/99 113,144 120,264 130,347
4/30/99 115,046 124,922 130,513
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Portfolio Total Return
FOR THE PERIOD ENDED 4/30/99
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ONE YEAR 15.97%
AVERAGE ANNUAL
SINCE COMMENCEMENT 13.36%
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This chart assumes an initial gross investment of $100,000 made on 3/18/98
(commencement of operations). Past performance is not predictive of future
results. Investment return and principal value will fluctuate so that shares,
when redeemed, may be worth more or less than the original cost. In the absence
of existing fee waivers, total return would be reduced.
The S&P 500 Stock Index includes 500 common stocks, most of which are listed on
The New York Stock Exchange. The Index is a market capitalization-weighted index
representing approximately two-thirds of the total market value of all domestic
common stocks.
The Russell 1000 Growth Index is comprised of those securities in the Russell
1000 Index which have higher price-to-book ratios and higher forecasted growth
values. The Russell 1000 Index is comprised of the 1000 largest securities in
the Russell 3000 Index. The Russell 3000 Index is comprised of the 3000 largest
U.S. companies based on market capitalization.
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FRONTEGRA FUNDS
Frontegra Growth Fund
SCHEDULE OF INVESTMENTS
April 30, 1999 (Unaudited)
Number of Shares Value
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COMMON STOCKS 97.8%
Aerospace 1.8%
1,850 The Boeing Co. $75,156
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Consumer Staples 11.1%
750 Avery Dennison Corp. 51,188
775 The Clorox Co. 89,416
1,275 The Coca-Cola Co. 86,700
1,625 Gillette Co. 84,804
1,025 Kroger Co.<F1> 55,670
4,400 Sara Lee Corp. 97,900
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465,678
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Financial 11.8%
337 American International Group, Inc. 39,576
875 Bank America Corp.<F1> 63,000
675 The Chase Manhattan Corp. 55,856
1,785 Citigroup Inc. 134,321
730 Fannie Mae 51,784
1,375 Household International, Inc. 69,180
3,025 MBNA Corp. 85,267
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498,984
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Healthcare 17.5%
2,425 Abbott Laboratories 117,461
1,450 Baxter International Inc. 91,350
3,200 Bristol-Meyers Squibb Co. 203,400
1,825 Eli Lilly and Co. 134,366
900 Medtronic, Inc. 64,744
650 Pfizer Inc. 74,791
1,075 Schering-Plough Corp. 51,936
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738,048
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Growth Fund
SCHEDULE OF INVESTMENTS (continued)
April 30, 1999 (Unaudited)
Number of Shares Value
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Information Services & Software 13.7%
1,175 Computer Sciences Corp.<F1> $69,986
1,500 Dell Computer Corp.<F1> 61,781
725 EMC Corp.<F1> 78,980
3,825 First Data Corp. 162,323
1,825 Microsoft Corp.<F1> 148,395
2,137 Oracle Corp.<F1> 57,833
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579,298
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Leisure & Entertainment 3.5%
1,292 AT&T Corp-Liberty Media Group<F1> 82,527
900 Time Warner, Inc. 63,000
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145,527
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Multi-Sector Companies 8.2%
1,100 E. I. Du Pont de Nemours and Co. 77,688
1,100 General Electric Co. 116,050
1,375 Tyco International Ltd. 111,719
2,235 U.S. Industries, Inc. 41,487
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346,944
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Oil & Gas 1.7%
1,250 Royal Dutch Petroleum Co. 73,359
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Retailing & Restaurants 10.4%
1,700 CVS Corp. 80,963
4,330 Cendant Corp.<F1> 77,940
2,350 Dayton Hudson Corp. 158,184
1,300 The Home Depot, Inc. 77,919
950 Wal-Mart Stores, Inc. 43,700
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438,706
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Technology 6.5%
2,580 Intel Corp. 157,864
1,000 Lucent Technologies Inc. 60,125
950 Xerox Corp. 55,812
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273,801
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Growth Fund
SCHEDULE OF INVESTMENTS (continued)
April 30, 1999 (Unaudited)
Number of Shares Value
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Telecommunications 9.7%
1,450 Ameritech Corp. $99,234
1,468 AT&T Corp. 74,159
588 MCI WorldCom, Inc.<F1> 48,326
2,750 Northern Telecom Ltd. 187,516
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409,235
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Waste Services 1.9%
1,400 Waste Management, Inc. 79,100
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TOTAL COMMON STOCKS
(cost $3,653,060) 4,123,836
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Principal Amount
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SHORT-TERM INVESTMENT 1.5%
$61,253 UMB Bank Money Market Fiduciary 61,253
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TOTAL SHORT-TERM INVESTMENT
(cost $61,253) 61,253
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TOTAL INVESTMENTS 99.3%
(cost $3,714,313) 4,185,089
Other Assets less Liabilities 0.7% 30,155
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NET ASSETS 100.0% $4,215,244
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<F1> Non-income producing
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (Unaudited)
ASSETS
Investments at value (cost $3,714,313) $4,185,089
Receivable for investments sold 89,415
Interest and dividends receivable 3,664
Receivable from adviser 10,145
Other assets 3,096
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Total assets 4,291,409
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LIABILITIES:
Payable for investments purchased 61,950
Accrued investment advisory fee 2,744
Accrued expenses 11,471
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Total liabilities 76,165
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NET ASSETS $4,215,244
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NET ASSETS CONSIST OF:
Paid in capital $3,797,315
Accumulated net investment income 1,041
Accumulated net realized loss on investments (53,888)
Net unrealized appreciation on investments 470,776
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NET ASSETS $4,215,244
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CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 366,796
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $11.49
======
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Growth Fund
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1999 (Unaudited)
INVESTMENT INCOME:
Dividends (net of $48 foreign withholding taxes) $13,112
Interest 1,040
-----------
14,152
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EXPENSES:
Fund administration and accounting fees 28,146
Investment advisory fees 12,813
Shareholder servicing 6,538
Legal fees 6,233
Custody fees 5,411
Audit fees 4,496
Federal and state registration fees 2,796
Reports to shareholders 1,447
Directors' fees and related expenses 1,056
Pricing 882
Insurance 313
Other 265
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Total expenses before waiver and reimbursements 70,396
Waiver and reimbursements of expenses by adviser (57,285)
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Net expenses 13,111
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NET INVESTMENT INCOME 1,041
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REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investments 41,612
Change in unrealized appreciation/depreciation on investments 554,214
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NET GAINS (LOSSES) ON INVESTMENTS 595,826
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $596,867
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Growth Fund
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998<F1>
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OPERATIONS:
Net investment income $1,041 $2,486
Net realized gains (losses) on investments 41,612 (95,500)
Change in unrealized appreciation/depreciation
on investments 554,214 (83,438)
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Net increase (decrease) in net assets resulting
from operations 596,867 (176,452)
---------- ----------
DISTRIBUTIONS PAID FROM:
Net investment income (3,813) -
---------- ----------
Net decrease in net assets resulting from
distributions paid (3,813) -
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CAPITAL SHARE TRANSACTIONS:
Shares sold 1,315,855 2,533,745
Shares issued to holders in reinvestment
of distributions 3,813 -
Shares redeemed (40,246) (14,525)
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Net increase in net assets resulting from
capital share transactions 1,279,422 2,519,220
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TOTAL INCREASE IN NET ASSETS 1,872,476 2,342,768
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NET ASSETS:
Beginning of period 2,342,768 -
---------- ----------
End of period (includes undistributed net
investment income of $1,041 and $3,813,
respectively) $4,215,244 $2,342,768
========== ==========
<F1> Commenced operations on March 18, 1998
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Growth Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998<F1>
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NET ASSET VALUE, BEGINNING OF PERIOD $9.29 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income - 0.01
Net realized and unrealized gains
(losses) on investments 2.21 (0.72)
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TOTAL INCOME (LOSS) FROM INVESTMENT OPERATIONS 2.21 (0.71)
------ ------
LESS DISTRIBUTIONS PAID:
From net investment income (0.01) -
------ ------
TOTAL DISTRIBUTIONS PAID (0.01) -
------ ------
NET ASSET VALUE, END OF PERIOD $11.49 $9.29
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TOTAL RETURN<F2> 23.84% (7.10)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $4,215 $2,343
Ratio of expenses to average net assets<F3><F4> 0.80% 0.80%
Ratio of net investment income to
average net assets<F3><F4> 0.07% 0.28%
Portfolio turnover rate<F2> 82% 67%
<F1> Commenced operations on March 18, 1998
<F2> Not annualized for periods less than a full year
<F3> Net of waiver and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net assets
would have been 4.36% and 9.23%, and the ratio of net investment income to
average net assets would have been (3.49)% and (8.15)% for the periods
ended April 30, 1999 and October 31, 1998, respectively.
<F4> Annualized
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Growth Fund
NOTES TO FINANCIAL STATEMENTS
April 30, 1999 (Unaudited)
(1) ORGANIZATION
Frontegra Funds, Inc. ("Frontegra") was incorporated on May 24, 1996, as a
Maryland corporation and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company
issuing its shares in series, each series representing a distinct portfolio
with its own investment objectives and policies. Frontegra consists of
three series: the Frontegra Growth Fund (the "Fund"), the Frontegra Total
Return Bond Fund and the Frontegra Opportunity Fund. The Fund is sub-
advised by Northern Capital Management, Inc. The Fund commenced operations
on March 18, 1998.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
(a) Investment Valuation
Securities (other than short-term instruments) for which market
quotations are readily available are valued at the last trade price on
the national securities exchange on which such securities are
primarily traded. Securities for which there were no transactions on a
given day or securities not listed on a national securities exchange
are valued at the most recent bid prices. Securities maturing within
60 days or less when purchased are valued by the amortized cost
method. Any securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by Northern Capital Management, Inc. pursuant to guidelines
established by the Board of Directors.
(b) Federal Income Taxes
No federal income tax provision has been made since the Fund intends
to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all
investment company net taxable income and net capital gains to
shareholders in a manner which results in no tax cost to the Fund.
(c) Distributions to Shareholders
Dividends from net investment income and distributions of net realized
gains, if any, will be declared and paid at least annually.
Distributions to shareholders are recorded on the ex-dividend date.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for federal income tax purposes due to differences in
the recognition of income, expense and gain items for financial
statement and tax purposes. Where appropriate, reclassifications
between net asset accounts are made for such differences that are
permanent in nature.
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FRONTEGRA FUNDS
Frontegra Growth Fund
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1999 (Unaudited)
(d) Other
Investment transactions are accounted for on the trade date. The Fund
determines the gain or loss realized from investment transactions by
comparing the original cost of the security lot sold with the net sale
proceeds. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of
increases and decreases in net assets from operations during the
reporting period. Actual results could differ from those estimates.
(3) INVESTMENT ADVISER
The Fund has an agreement with Frontegra Asset Management, Inc. (the
"Adviser"), with whom certain officers and directors of the Fund are
affiliated, to furnish investment advisory services to the Fund. Under the
terms of this agreement, the Fund will pay the Adviser a monthly fee at the
annual rate of 0.80% of the Fund's average daily net assets. The Adviser
has agreed to voluntarily waive its management fee and/or reimburse the
Fund's operating expenses (exclusive of brokerage, interest, taxes and
extraordinary expenses) to ensure that the Fund's operating expenses do not
exceed 0.80% of the Fund's average daily net assets.
The Adviser has retained Northern Capital Management, Inc. as the Fund's
sub-adviser. Northern Capital Management has full discretion over all
investment decisions on a day-to-day basis.
(4) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 1999 OCTOBER 31, 1998<F1>
------------------ ------------------
Shares sold 117,952 253,765
Shares issued to holders in
reinvestment of distributions 351 -
Shares redeemed (3,715) (1,557)
-------- --------
114,588 252,208
======== ========
<F1> Commenced operations on March 18, 1998
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FRONTEGRA FUNDS
Frontegra Growth Fund
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1999 (Unaudited)
(5) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended April 30, 1999, are
summarized below:
Purchases $3,813,895
Sales $2,608,656
There were no purchases or sales of U.S. government securities.
At April 30, 1999, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $3,729,447,
were as follows:
Appreciation $561,730
Depreciation (106,088)
----------
Net appreciation on investments $455,642
==========
At October 31, 1998, the Fund had an accumulated net realized capital loss
carryover of $93,527 expiring in 2006. To the extent the Fund realizes
future net capital gains, taxable distributions to its shareholders will be
offset by any unused capital loss carryover.
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FRONTEGRA FUNDS, INC.
c/o Sunstone Investor Services, LLC
P.O. Box 2142, Milwaukee, Wisconsin 53201-2142
FG-410-0699
