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FRONTEGRA FUNDS
SEMI-ANNUAL REPORT
Frontegra Total Return Bond Fund
FRONTEGRA ASSET MANAGEMENT, INC.
-----------------
December 31, 1999
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FRONTEGRA FUNDS
TABLE OF CONTENTS
Shareholder Letter 1
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Investment Highlights 3
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Schedule of Investments 4
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Statement of Assets and Liabilities 9
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Statement of Operations 10
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Statements of Changes in Net Assets 11
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Financial Highlights 12
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Notes to Financial Statements 13
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This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
accompanied or preceded by an effective Prospectus for the Fund. The Prospectus
includes more complete information about management fees and expenses,
investment objectives, risks and operating policies of the Fund. Please read the
Prospectus carefully.
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FRONTEGRA FUNDS
DEAR FELLOW SHAREHOLDERS:
We are pleased to present the December 31, 1999 semi-annual report for the
Frontegra Total Return Bond Fund, managed by Reams Asset Management Company.
Since we last reported to shareholders on June 30, 1999, we have lowered the
expense ratio of the Fund from 0.50% of net assets to 0.425%, effective August
2, 1999, directly benefiting all shareholders. As the Fund grows, we will
continue to provide shareholders with the most competitive fees and best
investment management we can provide.
Unfortunately for bond investors, the fixed income markets continued to offer
little in the way of absolute return in the first half of the Fund's fiscal
year. For the six months ended December 31, the bond market as measured by the
Lehman Brothers Aggregate Bond Index returned a modest 0.56%. The Fund
continued to outperform its benchmark over this period returning 0.73%, net of
fees.
Periods Ended 12/31/99
----------------------
3 months 6 months
Frontegra Total Return Bond Fund (0.21)% 0.73%
Lehman Brothers Aggregate Bond Index (0.12)% 0.56%
MARKET REVIEW
The bond market produced lackluster performance over the first six months of the
Fund's fiscal year as bond prices continued to decline. Yields on 10-year
Treasury bonds climbed consistently throughout the period, ending the calendar
year at 6.45%, up from 4.65% just a year ago. The adverse move in yields was a
result of fears of higher inflation. With labor markets tight and domestic
growth strong, the fear is that inflation is soon to follow. Given this
economic backdrop, the Federal Reserve continued to raise the Federal Funds rate
in an attempt to head off inflationary pressures. The Fed raised rates 25 basis
points on two separate occasions in the last six months. It is likely the Fed
would have increased rates once more in December but it reportedly held off due
to Y2K liquidity concerns.
The poor price performance in the bond market was offset somewhat by
appreciation in specific credits, particularly in the corporate and mortgage
sectors. Early in the period, mortgage and corporate spreads reached their
highs for the year, creating opportunity for bond investors. We were able to
add value in both sectors, as yield spreads in corporates and mortgages declined
late in the year. However, there were numerous credit problems in the high
yield sector as many companies struggled with weak pricing, tight margins and
earnings disappointments, even in the midst of the strong overall economy.
PORTFOLIO OUTLOOK AND STRATEGY
The continued rise in rates has provided us with opportunity to add value from
our top-down decision on the bond market. As you know, we focus our efforts on
determining the attractiveness of real interest rates available in the market
(the nominal interest rate less our best estimate of future inflation). Our
inflation estimate has been at 2.5% for some time, even as the pundits
forecasted deflation in late 1998 and reversed course to predict increased
inflation much of 1999. However, we recently increased our inflation estimate
to a range of 2.5% to 3.0% given the easy monetary policy that was employed up
until June of 1999. Even with our increased inflation estimate, we think the
bond market offers attractive real yields and there-
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FRONTEGRA FUNDS
fore we positioned the portfolio with an above market duration. At December 31,
the portfolio duration was 5.3 years, compared to the benchmark duration of 4.9
years.
In the near-term, it is likely that the Fed will continue its tightening bias.
We expect the Fed to be vigilant about raising rates until the economy shows
signs of slowing. Consistent with our disciplined process, further increases in
bond yields will likely result in further duration extension.
With corporate and mortgage spreads narrowing near year-end, our Treasury
holdings currently represent 30% of the portfolio. At this percentage, we still
have significant exposure to the areas of the market that we think are
attractive, but we possess good buying power for the opportunities that arise in
a volatile market.
Corporates are 40% of the portfolio. We have concentrations in utilities, power
projects and equipment trust certificates. With credit disappointments abundant
in corporates, we are trying to keep a moderate risk profile. Mortgage and
asset-backed holdings are 26% of the portfolio. High yield holdings are a
relatively modest 7% of the portfolio. The high yield market has been
performing poorly due to increasing defaults and default risk, despite the
strong economy. We think this raises a serious red flag, since credit problems
can only intensify if the Fed tightens until the economy slows. We have found
better value recently in BBB corporates.
SUMMARY
The sharp increase in interest rates during 1999 has set the stage for excellent
fixed income returns going forward. The volatility in the markets also favors
our style of fixed income portfolio management, as we are able to take advantage
of the changing environment for all fixed income instruments. We continue to
feel the portfolio is well positioned given the current market environment. As
always, we appreciate your continued confidence and investment in the Fund.
Regards,
/s/ Mark M. Egan /s/ Robert A. Crider
Mark M. Egan, CFA, CPA Robert A. Crider, CFA
Reams Asset Management Co. Reams Asset Management Co.
/s/ Thomas J. Holmberg /s/ William D. Forsyth
Thomas J. Holmberg, CFA William D. Forsyth, CFA
Frontegra Asset Management Frontegra Asset Management
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FRONTEGRA FUNDS
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Frontegra Total Lehman Brothers
Return Bond Fund Aggregate Bond Index
11/25/96 100,000 100,000
12/31/96 99,239 99,546
3/31/97 98,362 98,989
6/30/97 102,032 102,625
9/30/97 105,600 106,035
12/31/97 107,761 109,156
3/31/98 109,814 110,855
6/30/98 112,097 113,445
9/30/98 116,435 118,242
12/31/98 116,850 118,641
3/31/99 116,509 118,052
6/30/99 115,847 117,015
9/30/99 116,931 117,809
12/31/99 116,688 117,665
- -----------------------------
Portfolio Total Return
FOR THE PERIOD ENDED 12/31/99
- -----------------------------
ONE YEAR (0.14)%
AVERAGE ANNUAL
SINCE COMMENCEMENT 5.11%
- -----------------------------
This chart assumes an initial gross investment of $100,000 made on 11/25/96
(commencement of operations). Returns shown include the reinvestment of all
distributions. Past performance is not predictive of future results. Investment
return and principal value will fluctuate so that shares, when redeemed, may be
worth more or less than the original cost. In the absence of existing fee
waivers, total return would be reduced.
The Lehman Brothers Aggregate Bond Index includes fixed rate debt issues rated
investment grade or higher by Moody's Investors Service, Standard & Poor's
Corporation, or Fitch IBCA, Inc., in that order. All issues have at least one
year to maturity and an outstanding par value of at least $100 million. Price,
coupon, paydown and total return are reported for all sectors on a month-end to
month-end basis. All returns are market value-weighted inclusive of accrued
interest.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS
December 31, 1999 (Unaudited)
Principal Amount Value
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ASSET-BACKED SECURITIES 13.6%
$365,836 Capco America Securitization Corp., 1998-D7 A1A,
5.86%, 12/15/07 $343,304
829,877 Chase CMBS, 1997-2 A1, 6.45%, 12/19/04 809,653
350,000 Chase CMBS, 1997-2 A2, 6.60%, 11/19/07 332,573
500,000 Comed Transitional Funding Trust,
1998-1 A7, 5.74%, 12/25/10 450,830
480,493 Commercial Mortgage Asset Trust,
1999-C1 A1, 6.25%, 8/17/06 462,234
600,000 Fingerhut Master Trust, 1998-2 A, 6.23%, 2/15/07 588,702
250,000 Green Tree Financial Corp.,
1995-7 A5, 6.95%, 10/15/26 247,607
200,000 Green Tree Financial Corp.,
1996-7 M1, 7.70%, 10/15/27 194,524
31,175 Green Tree Recreational,
1996-A A1, 5.55%, 2/15/18 30,315
500,000 GMAC CMBS, 1999-C1 A2, 6.175%, 5/15/33 454,880
416,269 J.P. Morgan, 1996-C2 A, 6.47%, 11/25/27 404,401
36,685 Lehman FHA Title I Loan Trust,
1996-2 A3, 7.11%, 10/25/09 36,549
57,814 Mego Mortgage Home Loan Trust,
1996-2 A, 7.275%, 8/25/17 57,603
500,000 Merrill Lynch Mortgage Investors, Inc.,
1998-C1 A3, 6.72%, 11/15/26 424,110
500,000 Nationslink Funding Corp.,
1999-1 A2, 6.316%, 11/20/08 464,309
124,240 Resolution Trust Corp., 1991-6 A1, 6.7938%, 5/25/19 120,836
84,280 Resolution Trust Corp., 1991-6 C1, 9.00%, 9/25/28 83,932
1,500,000 World Financial Network Credit Card Master Trust,
1996-B A, 6.95%, 4/15/06 1,503,270
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TOTAL ASSET-BACKED SECURITIES
(cost $7,163,830) 7,009,632
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CORPORATE BONDS 40.3%
Airlines 6.0%
619,767 America West Airlines, Inc., 7.33%, 7/2/08 595,900
500,000 Continental Airlines, 7.056%, 3/15/11 475,880
400,000 Delta Air Lines, Inc., 89-B, 9.75%, 6/1/03 421,115
488,202 Delta Air Lines, Inc., 9.375%, 9/11/07 506,417
400,000 Northwest Airlines, 8.304%, 9/1/10 388,104
593,166 US Airways, Inc., 6.85%, 1/30/18 532,159
200,000 US Airways, Inc., 8.36%, 7/20/20 193,758
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3,113,333
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Diversified 1.5%
800,000 FMC Corp., 7.125%, 11/25/02 784,965
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999 (Unaudited)
Principal Amount Value
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Energy 1.8%
$500,000 Consumers Energy Co., 6.20%, 5/1/03 $476,210
478,271 Salton Sea Funding, 7.37%, 5/30/05 470,087
----------
946,297
----------
Engines - Internal Combustion 0.9%
500,000 Cummins Engine, 6.25%, 3/1/03 480,144
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Financial 2.3%
300,000 Associates Corp. N.A., 5.80%, 4/20/04 284,168
412,648 Midland Funding Corp., 10.33%, 7/23/02 431,799
475,548 Selkirk Cogen Funding Corp., 8.65%, 12/26/07 478,601
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1,194,568
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Food Products 0.4%
250,000 Dole Foods, 6.375%, 10/1/05 220,966
----------
Medical/Hospitals 0.5%
300,000 Columbia/HCA Healthcare, 7.69%, 6/15/25 242,494
----------
Multimedia 0.8%
400,000 News America Holdings, 7.43%, 10/1/26 391,021
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Oil & Gas 3.4%
500,000 PDV America, Inc., 7.75%, 8/1/00 495,548
850,000 PDV America, Inc., 7.875%, 8/1/03 800,211
500,000 R&B Falcon Corp., 6.50%, 4/15/03 457,500
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1,753,259
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Real Estate Investment Trusts 1.6%
500,000 HRPT Properties Trust, 6.75%, 12/18/02 478,721
350,000 United Dominion Realty Trust, 7.60%, 1/25/02 344,095
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822,816
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Services 3.5%
223,689 Federal Express Corp., 8.04%, 11/22/07 223,438
655,383 Federal Express Corp., 7.85%, 1/30/15 633,913
150,000 Federal Express Corp., 7.84%, 1/30/18 142,341
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999 (Unaudited)
Principal Amount Value
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Services 3.5% (continued)
$250,000 International Game Technology, 8.375%, 5/15/09 $239,375
500,000 Service Corporation International, 6.30%, 3/15/03 424,825
150,000 Service Corporation International, 7.00%, 6/1/15 133,020
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1,796,912
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Transportation 0.9%
500,000 JB Hunt Transport Services, 7.00%, 9/15/04 486,575
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Utilities 9.3%
400,000 Cleveland Electric Illuminating Co., 7.85%, 7/30/02 401,030
600,000 Cogentrix Energy, 8.10%, 3/15/04 595,752
350,000 El Paso Electric Co., 8.25%, 2/1/03 354,883
585,000 LS Power Funding, 7.19%, 6/30/10 549,561
250,000 Sithe/Independence Funding, 8.50%, 6/30/07 250,535
200,000 Sithe/Independence Funding, 9.00%, 12/30/13 204,444
500,000 Texas Utilities, 6.75%, 3/1/03 493,105
1,000,000 Utilicorp United Inc., 6.70%, 10/15/06 989,119
1,000,000 Utilicorp United Inc. (AMBAC Insured),
6.875%, 10/1/04 963,801
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4,802,230
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Waste Management 1.8%
500,000 WMX Technologies, Inc., 6.65%, 5/15/05 495,628
400,000 WMX Technologies, Inc., 7.10%, 8/1/26 368,550
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864,178
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Yankee Bonds 5.6%
500,000 Imperial Tobacco O/S BV, 7.125%, 4/1/09 451,717
500,000 Norsk Hydro A/S, 9.00%, 4/15/12 544,269
1,000,000 PDVSA Finance Ltd., 1998-1, 6.45%, 2/15/04 899,681
200,000 PDVSA Finance Ltd., 1998-1, 7.40%, 8/15/16 146,408
500,000 Republic of Argentina, Floating Rate,
11.595%, 4/10/05 458,750
400,000 Rothmans Nedrlnd Holdings, 6.875%, 5/6/08 358,039
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2,858,864
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TOTAL CORPORATE BONDS
(cost $21,637,052) 20,758,622
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999 (Unaudited)
Principal Amount Value
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U.S. GOVERNMENT AGENCIES 12.5%
Fannie Mae 10.6%
$239,446 Pool 073339, 6.18%, 1/1/03 $233,474
283,779 Pool 160098, 7.91%, 3/1/04 288,929
450,707 Pool 411429, 6.50%, 2/1/28 426,483
448,010 Pool 423088, 6.50%, 4/1/28 423,930
908,374 Pool 433043, 6.50%, 6/1/28 857,902
408,456 Pool 252093, 6.50%, 11/1/28 385,761
476,815 Pool 447704, 6.50%, 11/1/28 450,322
470,393 Pool 448235, 6.50%, 11/1/28 444,257
993,295 Pool 448635, 6.50%, 11/1/28 938,105
439,829 Pool 449012, 6.50%, 11/1/28 415,391
478,017 Pool 487778, 6.50%, 3/1/29 450,680
93,636 Series 1991-26 G, 8.00%, 4/25/06 94,859
85,000 Series 1994-3 PL, 5.50%, 1/25/24 71,675
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5,481,768
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Freddie Mac 1.4%
515,000 Series 20 H, 5.50%, 10/25/23 426,204
350,000 Series 20 L, 5.50%, 10/25/23 274,449
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700,653
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Ginnie Mae 0.5%
186,142 Pool 331001, 8.25%, 7/15/07 192,323
75,914 Pool 36629, 9.50%, 10/15/09 80,645
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272,968
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TOTAL U.S. GOVERNMENT AGENCIES
(cost $6,804,760) 6,455,389
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U.S. TREASURIES 30.0%
U.S. Treasury Bonds 12.7%
1,000,000 7.50%, 11/15/16 1,069,688
5,790,000 6.25%, 8/15/23 5,460,694
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6,530,382
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See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999 (Unaudited)
Principal Amount Value
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U.S. Treasury Inflation Index 1.4%
$763,856 3.5875%, 4/15/29 $713,490
----------
U.S. Treasury Notes 13.5%
3,250,000 5.75%, 8/15/03 3,181,955
350,000 6.50%, 10/15/06 349,016
3,550,000 6.125%, 8/15/07 3,460,142
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6,991,113
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U.S. Treasury Strip, Principal Only 2.4%
3,500,000 0.00%, 2/15/15 1,247,886
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TOTAL U.S. TREASURIES
(cost $15,978,237) 15,482,871
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SHORT-TERM INVESTMENTS 2.1%
Variable Rate Demand Notes 2.1%
729,736 General Mills, Inc. 729,736
337,053 Pitney Bowes Credit Corp. 337,053
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1,066,789
TOTAL SHORT-TERM INVESTMENTS
(cost $1,066,789) 1,066,789
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TOTAL INVESTMENTS 98.5%
(cost $52,650,668) 50,773,303
Other Assets, less Liabilities 1.5% 790,175
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NET ASSETS 100.0% $51,563,478
===========
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 (Unaudited)
ASSETS:
Investments at value (cost $52,650,668) $50,773,303
Interest receivable 803,232
Receivable from adviser 14,133
Deferred organizational costs, net 16,169
Other assets 765
------------
Total assets 51,607,602
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LIABILITIES:
Accrued investment advisory fee 16,920
Accrued expenses 27,204
------------
Total liabilities 44,124
------------
NET ASSETS $51,563,478
============
NET ASSETS CONSIST OF:
Paid in capital $54,273,254
Accumulated undistributed net investment income 9,847
Accumulated undistributed net realized loss (842,258)
Net unrealized depreciation on investments (1,877,365)
------------
NET ASSETS $51,563,478
============
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 1,802,182
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $28.61
======
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
DECEMBER 31, 1999
(UNAUDITED)
INVESTMENT INCOME:
Interest $1,718,419
-----------
EXPENSES:
Investment advisory fees 97,855
Fund administration and accounting fees 47,644
Shareholder servicing fees 7,184
Legal fees 6,871
Custody fees 5,586
Federal and state registration fees 5,559
Audit fees 4,596
Amortization of organizational costs 4,445
Reports to shareholders 3,697
Directors' fees and related expenses 895
Other 1,697
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Total expenses before waiver 186,029
Waiver of expenses by adviser (78,863)
-----------
Net expenses 107,166
-----------
NET INVESTMENT INCOME 1,611,253
-----------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on investments (449,519)
Change in net unrealized
depreciation on investments (806,912)
-----------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (1,256,431)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $354,822
===========
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS EIGHT
ENDED MONTHS YEAR
DECEMBER 31, ENDED ENDED
1999 JUNE 30, OCTOBER 31,
(UNAUDITED) 1999 1998
---------- ---------- ----------
OPERATIONS:
Net investment income $1,611,253 $2,044,061 $2,696,141
Net realized gain (loss)
on investments (449,519) (391,769) 1,082,198
Change in net unrealized
appreciation (depreciation)
on investments (806,912) (1,503,727) (226,487)
---------- ---------- ----------
Net increase in net assets
resulting from operations 354,822 148,565 3,551,852
---------- ---------- ----------
DISTRIBUTIONS
PAID FROM:
Net investment income (1,606,389) (2,276,914) (2,634,499)
Net realized gain on investments _ (1,084,178) (83,976)
---------- ---------- ----------
Net decrease in net assets resulting
from distributions paid (1,606,389) (3,361,092) (2,718,475)
---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 14,313,043 1,481,740 11,881,429
Shares issued to holders in
reinvestment of distributions 1,593,045 3,326,082 2,687,931
Shares redeemed (11,503,575) (1,639,512) (6,041,766)
---------- ---------- ----------
Net increase in net assets resulting
from capital share transactions 4,402,513 3,168,310 8,527,594
---------- ---------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 3,150,946 (44,217) 9,360,971
---------- ---------- ----------
NET ASSETS:
Beginning of period 48,412,532 48,456,749 39,095,778
---------- ---------- ----------
End of period
(includes accumulated undistributed
net investment income of
$9,847, $2,993 and
$241,806, respectively) $51,563,478 $48,412,532 $48,456,749
=========== =========== ===========
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
FINANCIAL HIGHLIGHTS
SIX MONTHS EIGHT YEAR PERIOD
ENDED MONTHS ENDED ENDED
DECEMBER 31, ENDED OCTOBER OCTOBER
1999 JUNE 30, 31, 31,
(UNAUDITED) 1999 1998 1997<F1>
-------- -------- -------- --------
NET ASSET VALUE,
BEGINNING OF PERIOD $29.34 $31.38 $30.85 $30.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.94 1.29 1.75 1.37
Net realized and unrealized gain
(loss) on investments (0.73) (1.18) 0.59 0.70
-------- -------- -------- --------
TOTAL INCOME FROM
INVESTMENT OPERATIONS 0.21 0.11 2.34 2.07
-------- -------- -------- --------
LESS DISTRIBUTIONS PAID:
From net investment income (0.94) (1.44) (1.75) (1.22)
From net realized gain on investments _ (0.71) (0.06) _
-------- -------- -------- --------
TOTAL DISTRIBUTIONS PAID (0.94) (2.15) (1.81) (1.22)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $28.61 $29.34 $31.38 $30.85
======== ======== ======== ========
TOTAL RETURN<F2> 0.73% 0.32% 7.79% 7.13%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period
(in thousands) $51,563 $48,413 $48,457 $39,096
Ratio of expenses to
average net assets<F3><F4> 0.44% 0.50% 0.50% 0.50%
Ratio of net investment income
to average net assets<F3><F4> 6.55% 6.37% 5.79% 6.02%
Portfolio turnover rate<F2> 32% 83% 131% 202%
<F1> Commenced operations on November 25, 1996.
<F2> Not annualized for periods less than a full year.
<F3> Net of waivers and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net assets
would have been 0.76%, 0.82%, 0.78% and 1.27%, and the ratio of net
investment income to average net assets would have been 6.23%, 6.05%, 5.51%
and 5.25% for the periods ended December 31, 1999, June 30, 1999, October
31, 1998 and October 31, 1997, respectively.
<F4> Annualized.
See notes to financial statements.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 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 Total Return Bond Fund (the "Fund"), the Frontegra Opportunity
Fund and the Frontegra Growth Fund. The Fund, sub-advised by Reams Asset
Management Co., LLC, commenced operations on November 25, 1996. Costs
incurred by the Fund in connection with its organization, registration and
the initial public offering of shares have been deferred and will be
amortized over the period of benefit, but not to exceed five years from the
date upon which the Fund commenced its investment activities.
(2)SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
(a) Investment Valuation
Debt securities (other than short-term instruments) are valued at bid
prices furnished by a pricing service, unless actual sale prices are
available. Securities maturing within 60 days or less when purchased are
valued by the amortized cost method. Any securities for which market
quotations are not readily available are valued at their fair value as
determined in good faith by Reams Asset Management Co., LLC 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.
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FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 (Unaudited)
(c) Distributions to Shareholders
Dividends from net investment income are usually declared and paid
quarterly. Distributions of net realized gains, if any, will be declared
and paid at least annually. Distributions to shareholders are recorded
on the ex-dividend date. The character of distributions made during the
period from net investment income or net realized gains may differ from
the characterization for federal income tax purposes due to differences
in the recognition of income, expense and gain items for financial
statement and tax purposes. Where appropriate, reclassifications between
net asset accounts are made for such differences that are permanent in
nature. Accordingly, at December 31, 1999, reclassifications were
recorded to increase accumulated undistributed net investment income by
$1,990 and decrease paid in capital by $1,990.
(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 0.40% of the Fund's average daily net assets. Pursuant to an
expense cap agreement dated February 26, 1999, as amended August 2 and
December 31, 1999, the Adviser agreed to waive its management fee and/or
reimburse the Fund's operating expenses (exclusive of brokerage, interest,
taxes and extraordinary expenses) to ensure that the Fund's operating
expenses do not exceed 0.425% of the Fund's average daily net assets. The
term of this expense cap agreement is twelve months.
<PAGE>
(LOGO)
FRONTEGRA FUNDS
Frontegra Total Return Bond Fund
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999 (Unaudited)
(4)CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
SIX MONTHS ENDED EIGHT MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 1999
----------------- -----------------
Shares sold 487,458 47,995
Shares issued to holders in
reinvestment of distributions 55,142 110,347
Shares redeemed (390,577) (52,435)
---------- ----------
Net increase in shares outstanding 152,023 105,907
========== ==========
(5)INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government securities, for the Fund for the six months
ended December 31, 1999, are summarized below:
Purchases $8,239,474
Sales $8,754,100
Purchases and sales of U.S. government securities were $10,589,253 and
$6,058,657, respectively.
At December 31, 1999, gross unrealized appreciation and depreciation of
investments, based on cost for federal income tax purposes of $52,764,046
were as follows:
Appreciation $24,852
Depreciation (2,015,595)
------------
Net depreciation on investments $(1,990,743)
============
At June 30, 1999, the Fund had an accumulated net realized capital loss
carryover of $349,504 expiring in 2007. To the extent the Fund realizes
future net capital gains, taxable distributions to its shareholders will be
offset by any unused capital loss carryover.
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FRONTEGRA FUNDS, INC.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701, Milwaukee, Wisconsin 53201-0701
FB-408-0100
