UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07685
FRONTEGRA FUNDS, INC.
(Exact name of registrant as specified in charter)
400 Skokie Blvd.
Suite 500
Northbrook, Illinois 60062
(Address of principal executive offices) (Zip code)
William D. Forsyth III
400 Skokie Blvd., Suite 500
Northbrook, Illinois 60062
(Name and address of agent for service)
(847) 509-9860
Registrant's telephone number, including area code
Date of fiscal year end: June 30, 2003
Date of reporting period: June 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
- -------------------------------
(FRONTEGRA FUNDS LOGO)
ANNUAL REPORT
Frontegra Total Return Bond Fund
Frontegra Investment Grade Bond Fund
Frontegra Opportunity Fund
Frontegra Growth Fund
Frontegra Horizon Fund
FRONTEGRA ASSET MANAGEMENT, INC.
June 30, 2003
TABLE OF CONTENTS
SHAREHOLDER LETTER 1
FRONTEGRA TOTAL RETURN BOND FUND
FRONTEGRA INVESTMENT GRADE BOND FUND
Report from Reams Asset Management Company, LLC 4
Investment Highlights 6
Schedule of Investments 7
Statement of Assets and Liabilities 16
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Investment Highlights 20
Schedule of Investments 21
Statement of Assets and Liabilities 28
Statement of Operations 29
Statements of Changes in Net Assets 30
Financial Highlights 31
FRONTEGRA OPPORTUNITY FUND
Report from Reams Asset Management Company, LLC 34
Investment Highlights 36
Schedule of Investments 37
Statement of Assets and Liabilities 41
Statement of Operations 42
Statements of Changes in Net Assets 43
Financial Highlights 44
FRONTEGRA GROWTH FUND
Report from Northern Capital Management, LLC 46
Investment Highlights 49
Schedule of Investments 50
Statement of Assets and Liabilities 53
Statement of Operations 54
Statements of Changes in Net Assets 55
Financial Highlights 56
FRONTEGRA HORIZON FUND
Report from IronBridge Capital Management, LLC 58
Investment Highlights 62
Schedule of Investments 63
Statement of Assets and Liabilities 68
Statement of Operations 69
Statement of Changes in Net Assets 70
Financial Highlights 71
NOTES TO FINANCIAL STATEMENTS 72
REPORT OF INDEPENDENT AUDITORS 80
ADDITIONAL INFORMATION 81
This report is submitted for the general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors unless
accompanied or preceded by an effective Prospectus for the applicable Fund. Each
Prospectus includes more complete information about management fees and
expenses, investment objectives, risks and operating policies of the applicable
Fund. Please read the Prospectus carefully.
DEAR FELLOW SHAREHOLDERS:
We are pleased to report on the progress of the Frontegra Funds over the past
twelve months. During the period, the capital markets continued their volatile
course, with equities net unchanged to marginally lower and bonds considerably
higher. The picture looked much worse for equities, especially at the October
lows, before a dramatic rebound in stock prices during the last quarter of the
Funds' fiscal year. For the twelve month period, the equity market as measured
by the S&P 500 Index was up only 0.25%. Despite outperforming larger
capitalized issues in the past six months, small cap stocks marginally trailed
the performance of large cap issues over the twelve month period. In terms of
style, growth stocks marginally outperformed value stocks.
Bond prices surged higher as Treasury rates hit levels not seen in over four
decades. The Federal Reserve spent the past twelve months guiding interest
rates lower with the hopes of stimulating a sluggish economy. The accommodative
Fed policy combined with geopolitical and economic uncertainty allowed the bond
market to continue to serve as a safe haven for investors. Over the past twelve
months, the broad bond market, as measured by the Lehman Aggregate Bond Index,
returned 10.40%.
FUND RESULTS
The Total Return Bond Fund and the Investment Grade Bond Fund, both managed by
Reams Asset Management, posted mixed results. For the twelve month period, the
Total Return Bond Fund outperformed the index with a return of 13.29%, while the
Investment Grade Bond Fund lagged the index, with a return of 7.93%. The Total
Return Bond Fund benefited from its below investment grade exposure.
The Frontegra Horizon Fund, managed by IronBridge Capital Management, is off to
a strong start, returning 30.40% since its August 30, 2002, inception, compared
to 16.15% for the Russell 2000, a proxy for small stocks. Even in this short
period, the Fund exhibited its "all-weather" nature by protecting returns while
the market was under pressure and outperforming while the market was
improving.
The Frontegra Growth Fund, managed by Northern Capital Management, was up 4.89%
for the twelve month period, beating its benchmark by several percentage points.
Most of the outperformance resulted from holding on to companies that rose
significantly in the last six months following a prolonged period of weakness.
Due to a relative lack of investor interest, Frontegra Asset Management, Inc.,
the investment adviser to Frontegra Funds, Inc., has determined to close the
Frontegra Growth Fund effective September 30, 2003.
The Opportunity Fund, managed by Reams Asset Management, underperformed its
benchmark over the past twelve months. During the period, the Fund declined
12.67% while the Fund's benchmark, the Russell 2000 Value Index, declined 3.80%.
SUMMARY
While uncertainty continues to be the main impediment to a strong and sustained
recovery in the equity markets, there is greater clarity on the geopolitical
front and hopes that recent indications of greater economic strength will
ultimately be realized in terms of accelerating growth and tempered inflation.
In the bond market, fixed income returns may be challenged as Treasury rates
have moved significantly higher from the lows established in early June. We
hope to report strong absolute and relative results at the calendar year end.
As always, we appreciate your investment and continued confidence in the
Frontegra Funds.
Sincerely,
/s/ Thomas J. Holmberg /s/ William D. Forsyth
Thomas J. Holmberg, CFA William D. Forsyth, CFA
Frontegra Asset Management, Inc. Frontegra Asset Management, Inc.
FRONTEGRA
TOTAL RETURN BOND FUND
FRONTEGRA
INVESTMENT GRADE
BOND FUND
REPORT FROM REAMS ASSET
MANAGEMENT COMPANY, LLC:
The bond market continued to provide outstanding returns over the past twelve
month period. Absolute returns in the bond market were very strong as Treasury
yields continued to fall, establishing the lowest level in over forty years in
early June. Investor demand for additional yield fueled a recovery in many
corporate bonds that had performed poorly in the previous year. For the year,
the Total Return Bond Fund returned 13.29% compared to 10.40% for the benchmark,
the Lehman Aggregate Bond Index.
The Investment Grade Bond Fund's relative performance trailed that of the index
over the past twelve months. The Investment Grade Bond Fund returned 7.93%
during the period, compared to the 10.40% return of the benchmark. Because the
telecom and energy bonds had less of a negative impact on the Investment Grade
Bond Fund in late 2002 than the Total Return Bond Fund, the Investment Grade
Bond Fund did not participate as much in the performance rebound over the past
six months.
PORTFOLIO REVIEW
During the past twelve months, interest rates fell to new lows, the yield curve
remained very steep, and credit spreads tightened significantly. We do not
expect forward-looking returns to be as favorable, since we expect higher
interest rates, a flattening curve, and mixed credit conditions. Ten-year
Treasury yields fell to new 45-year lows, bottoming at 3.11% during June and
closing the period at 3.50%. We think that current "real" interest rates are
unsustainably low and will ultimately trend much higher, resulting in poor
returns across the market. The yield curve difference between 2-year and 30-
year Treasury issues remains at an extremely high 325 basis points. We expect
this part of the curve to flatten significantly over time as the economy
recovers.
Early in the period, corporate bonds continued to deteriorate as weak economic
and industry fundamentals, ratings downgrades and accounting irregularities
battered the telecommunications, power and energy, technology, transportation
and basic industry sectors. However, we did see a rebound in some of the lower
quality credits late in 2002, particularly in the telecommunications area. We
took advantage of the rebound and trimmed or eliminated several positions in the
telecom area. In the past six months, the energy related issues have
experienced a strong improvement in valuations. Here too, we have taken
advantage of the opportunity to pare back on some of the overall credit exposure
in both Funds. The scramble for vanishing yield in the bond market has sent
torrents of money flooding into the high yield market, sending many issues to
very overvalued levels. At the present time, we think that current spreads are
inadequate to compensate investors for credit risks, resulting in unappealing
yields in the credit market. Corporate fraud and event risk remain present in
the credit market, with HealthSouth and Tenet currently under investigation.
While we did see marked improvement in the fixed income market in recent months,
our strategies we have employed in the portfolio are still far from working out.
Our approach is to be opportunistic and usually involves taking counter trend
positions in the expectation that real interest rates, the yield curve and
credit conditions will eventually revert to historical norms. As of the end of
the fiscal year (June 30, 2003), conditions in the market were far from
"normal," with a very steep yield curve and historically low real interest
rates. The Funds are positioned to take advantage each of these opportunities.
PORTFOLIO OUTLOOK AND STRATEGY
The Funds are positioned to benefit from rising interest rates, a flattening
yield curve, and continuing improvement in selective areas of the credit market
versus the benchmark.
With Treasury rates approximately 200 basis points below what we consider to be
"fair value" on a real-rate basis, we think that it is appropriate to run a
significantly defensive portfolio position. We believe that a "bond bubble" has
developed with yields and spreads pushed down to unrealistic levels by temporary
deflation fears and the subsequent panic for yield.
Since we expect the shape of the yield curve to eventually flatten, we are
"barbelling" the Funds by emphasizing cash flows at the ends of the curve,
insofar as is possible within the constraints of our overall duration and credit
strategies.
The Total Return Bond Fund has significant holdings in the energy, power and
aircraft ETC sectors of the credit market. We continue to expect that
significant performance will be regained from these holdings.
In general, exposure to "generic" high-grade credit is light. Most credit
spreads have tightened so significantly that non-stressed credits are no longer
attractive relative to their risk. Overall, exposure to corporate credit is
comparable to that of the index.
Mortgage exposure is considerable, but is concentrated in AAA, non-prepayable
CMBS and in above-market coupons that should initially perform well if interest
rates begin to move higher. We are paying close attention to the risks of
negative convexity in the mortgage market.
The Total Return Bond Fund has significant below investment-grade holdings.
Most of these are "fallen angels" that have lost their investment-grade ratings.
These holdings are being eased out of the portfolio as they improve in valuation
this year.
SUMMARY
We think that both Funds are well positioned to take advantage of the
opportunities currently afforded investors in the fixed income markets,
particularly from a duration and yield curve standpoint. We continue to see
many of the bonds that caused the most pain in 2002 return to more rational
price levels. In late 2002, many of the telecommunications bonds that had been
decimated returned to near par. This was followed in the last two quarters by a
rally in many of the energy and power names, which was particularly beneficial
to the Total Return Bond Fund. We appreciate your patience and your continued
support as fellow shareholders in the Funds.
Regards,
/s/ Mark M. Egan /s/ Robert A. Crider
Mark M. Egan, CFA, CPA Robert A. Crider, CFA
Reams Asset Management Company, LLC Reams Asset Management Company, LLC
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Frontegra Total Lehman Brothers
Date Return Bond Fund Aggregate Bond Index
---- ---------------- --------------------
11/25/96*<F1> $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 $117,808
12/31/99 $116,688 $117,664
3/31/00 $120,434 $120,260
6/30/00 $123,697 $122,356
9/30/00 $127,807 $126,045
12/31/00 $132,423 $131,346
3/31/01 $137,575 $135,332
6/30/01 $138,374 $136,096
9/30/01 $143,478 $142,373
12/31/01 $142,220 $142,436
3/31/02 $142,420 $142,571
6/30/02 $143,131 $147,838
9/30/02 $144,301 $154,611
12/31/02 $150,349 $157,044
3/31/03 $154,795 $159,231
6/30/03 $162,151 $163,214
*<F1> 11/25/96 commencement of operations.
Portfolio Total Return**<F2>
FOR THE YEAR ENDED 6/30/03
- ----------------------------
ONE YEAR 13.29%
FIVE YEAR
AVERAGE ANNUAL 7.66%
SINCE COMMENCEMENT
AVERAGE ANNUAL 7.60%
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 is an unmanaged market value-weighted
performance benchmark for investment-grade fixed-rate debt issues, including
government, corporate, asset-backed and mortgage-backed securities, with
maturities of at least one year. The Index does not reflect investment
management fees, brokerage commissions and other expenses associated with
investing in fixed income securities.
**<F2> The returns shown do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
Frontegra Total Return Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 2003
Principal Amount Value
- ---------------- -----
ASSET-BACKED SECURITIES 8.6%
$ 2,885,000 Chase Credit Card Master Trust,
2003-2 A, 1.29%, 7/15/10 $ 2,887,751
1,755,000 Chase Manhattan Auto Owner Trust,
2002-B A3, 3.58%, 5/15/06 1,792,074
1,429,629 CIT Group Home Equity Loan Trust,
2003-1 A1, 1.19375%, 8/20/18 1,428,902
3,440,000 Conseco Finance Securitizations Corp.,
2000-4 A4, 7.73%, 4/01/31 3,598,009
1,820,000 Conseco Finance Securitizations Corp.,
2001-4 A2, 5.15%, 9/01/33 1,854,334
141,488 Fingerhut Master Trust, 1998-2 A, 6.23%, 2/15/07 142,822
3,765,000 Ford Credit Auto Owner Trust,
2003-B A2A, 1.40%, 6/15/05 3,767,088
41,313 Green Tree Financial Corp.,
1995-7 A5, 6.95%, 10/15/26 41,552
200,000 Green Tree Financial Corp.,
1996-7 M1, 7.70%, 10/15/27 163,360
2,185,000 GS Auto Loan Trust, 2003-1 A2, 1.538%, 1/17/06 2,190,010
1,225,000 Lehman ABS Manufactured Housing Contract,
2001-B A3, 4.35%, 5/15/14 1,246,428
32,429 Mego Mortgage Home Loan Trust,
1996-2 A, 7.275%, 8/25/17 32,408
1,340,000 Mid-State Trust, 11 A1, 4.864%, 7/15/38 1,336,650
1,150,000 Nissan Auto Receivables Owner Trust,
2003-A A2, 1.45%, 5/16/05 1,151,094
1,670,000 Regions Auto Receivables Trust,
2002-1 A3, 2.63%, 1/16/07 1,700,325
1,950,000 Salomon Smith Barney RV Trust,
2001-1 A3, 4.74%, 2/15/13 2,005,211
1,555,000 Toyota Auto Receivables Owner Trust,
2003-A A2, 1.28%, 8/15/05 1,555,157
2,340,000 WFS Financial Owner Trust,
2003-1 A2, 1.50%, 3/20/06 2,343,249
1,560,000 World Omni Auto Receivables Trust,
2003-A A2, 1.46%, 8/15/05 1,562,882
------------
TOTAL ASSET-BACKED SECURITIES
(cost $30,713,618) 30,799,306
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES 9.4%
2,174,817 Capco America Securitization Corp.,
1998-D7 A1A, 5.86%, 10/15/30 2,349,022
136,475 Chase Commercial Mortgage Securities Corp.,
1997-2 A1, 6.45%, 12/19/29 141,565
350,000 Chase Commercial Mortgage Securities Corp.,
1997-2 A2, 6.60%, 12/19/29 395,704
780,117 Commercial Mortgage Asset Trust,
1999-C1 A1, 6.25%, 1/17/32 840,601
961,606 Commercial Mortgage Pass-Through Certificate,
1999-1 A1, 6.145%, 5/15/32 1,036,706
997,037 Credit Suisse First Boston Mortgage Securities Corp.,
1998-C2 A1, 5.96%, 11/11/30 1,078,965
2,661,688 Credit Suisse First Boston Mortgage Securities Corp.,
2003-1 1A1, 7.00%, 2/25/33 2,776,327
2,450,000 General Growth Properties, 1 A1,
6.537%, 11/15/04 r<F3> 2,594,712
740,958 GMAC Commercial Mortgage Securities Inc.,
1997-C1 A2, 6.853%, 7/15/29 761,180
1,252,400 GMAC Commercial Mortgage Securities Inc.,
1999-C1 A1, 5.83%, 5/15/33 1,345,846
1,257,535 GMAC Commercial Mortgage Securities Inc.,
2000-C2 A1, 7.273%, 8/16/33 1,400,891
997,282 GMAC Commercial Mortgage Securities Inc.,
1998-C2 A1, 6.15%, 5/15/35 1,064,301
164,621 J.P. Morgan Commercial Mortgage Finance Corp.,
1996-C2 A, 6.47%, 11/25/27 172,372
2,023,535 Lehman Brothers Commercial Conduit Mortgage Trust,
1998-C4 A1A, 5.87%, 10/15/35 2,137,048
1,674,361 Lehman Brothers Floating Rate
Commercial Mortgage Trust,
2003-LLFA A1, 1.48%, 12/16/14 r<F3> 1,674,361
150,000 Merrill Lynch Mortgage Investors, Inc.,
1998-C1 A3, 6.72%, 11/15/26 168,085
2,363,104 Morgan Stanley Capital I, 1999-WF1 A1,
5.91%, 11/15/31 2,536,722
2,104,949 Mortgage Capital Funding, Inc.,
1998-MC3 A1, 6.001%, 11/18/31 2,269,325
1,241,740 Nationslink Funding Corp.,
1998-2 A1, 6.001%, 11/20/30 1,332,072
1,777,997 Nomura Asset Securities Corp.,
1998-D6 A1A, 6.28%, 3/15/30 1,929,450
675,000 NYC Mortgage Loan Trust,
1996 A3, 6.75%, 9/25/19 r<F3> 793,591
1,580,000 Principal Residential Mortgage Capital Resources,
2001-3A A1, 4.55%, 12/20/04 r<F3> 1,662,903
1,448,207 Salomon Brothers Mortgage Securities VII,
2002-CDCA A1, 1.46%, 11/15/13 r<F3> 1,448,207
622,343 Salomon Brothers Mortgage Securities VII,
2000-C2 A1, 7.298%, 7/18/33 644,805
848,645 Salomon Brothers Mortgage Securities VII,
2001-MMA A1, 5.3228%, 2/18/34 r<F3> 896,090
295,751 TIAA Commercial Real Estate Securitization,
2001-C1A A1, 5.77%, 6/19/16 r<F3> 316,626
------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(cost $32,318,410) 33,767,477
------------
CORPORATE BONDS 31.4%
Airlines 7.2%
2,827,901 Air 2 Us, 8.027%, 10/01/19 r<F3> 1,896,532
810,634 America West Airlines, 7.33%, 7/02/08 717,723
665,518 American Airlines, 9.71%, 1/02/07 366,880
1,242,363 American Airlines, 1.6475%, 9/23/07 1,245,028
1,225,000 American Airlines, 6.817%, 5/23/11 1,044,066
850,914 American Airlines, 7.379%, 5/23/16 400,173
341,519 American Airlines, 6.977%, 5/23/21 292,589
839,595 Continental Airlines Inc., 7.033%, 6/15/11 665,228
564,091 Delta Air Lines, 9.375%, 9/11/07 443,748
619,229 Jet Equipment Trust, 7.63%, 8/15/12 r<F3> 238,137
658,282 Jet Equipment Trust, 8.235%, 5/01/15 r<F3> 230,399
1,351,807 Northwest Airlines Inc., 7.626%, 4/01/10 1,055,966
335,877 Northwest Airlines Inc., 8.304%, 9/01/10 261,271
3,413,483 United Airlines, 1.50%, 3/02/04 2,503,449
1,539,348 United Airlines, 7.762%, 10/01/05 d<F6> 262,628
1,805,000 United Airlines, 6.831%, 9/01/08 271,390
16,063,504 United Airlines, 7.186%, 4/01/11 d<F6> 13,725,943
------------
25,621,150
------------
Automobiles / Auto Parts 0.7%
1,830,000 Daimlerchrysler NA Hldg., 4.05%, 6/04/08 1,812,275
815,000 Ford Motor Co., 6.375%, 2/01/29 658,965
------------
2,471,240
------------
Banks 3.9%
2,620,000 Bank One N.A. Illinois, 1.175%, 9/19/05 2,622,395
945,000 Credit Suisse First Boston London,
7.90%, 5/01/49 r<F3> 1,073,629
5,925,000 Federal Home Loan Bank, 2.20%, 9/12/05 5,938,539
2,910,000 National City Bank of Indiana, 1.1987%, 9/16/05 2,910,157
1,310,000 Wells Fargo & Co., 1.08%, 10/01/04 1,310,917
------------
13,855,637
------------
Cable Television 1.0%
2,260,000 Charter Communication Holdings LLC, 8.625%, 4/01/09 1,627,200
175,000 Charter Communication Holdings LLC, 10.00%, 5/15/11 126,000
1,880,000 Comcast Corp., 5.30%, 1/15/14 1,933,471
------------
3,686,671
------------
Chemicals 0.3%
875,000 Equistar Chemicals LP, 8.75%, 2/15/09 848,750
195,000 Lyondell Chemical Co., 11.125%, 7/15/12 199,875
------------
1,048,625
------------
Energy 6.9%
1,838,692 AES Ironwood LLC, 8.857%, 11/30/25 1,914,538
1,445,000 American Ref-Fuel Co. LLC, 6.26%, 12/31/15 r<F3> 1,480,402
651,004 East Coast Power LLC, 6.737%, 3/31/08 672,162
4,000,000 Edison Mission Energy Funding, 7.33%, 9/15/08 r<F3> 4,170,000
1,700,000 Entergy Gulf States Utilities, 2.58%, 9/01/04 r<F3> 1,698,545
1,255,000 FirstEnergy Corp., 7.375%, 11/15/31 1,405,643
1,298,957 LS Power Funding, 7.19%, 6/30/10 1,363,645
1,860,000 Mirant Americas Generation LLC, 8.50%, 10/01/21 1,069,500
890,000 Petrozuata Finance Inc., 7.63%, 4/01/09 r<F3> 854,400
220,000 PSEG Power LLC, 8.625%, 4/15/31 283,612
1,323,480 Selkirk Cogen Funding Corp., 8.65%, 12/26/07 1,397,237
1,780,000 Sithe/Independence Funding, 8.50%, 6/30/07 1,873,450
635,000 Sithe/Independence Funding, 9.00%, 12/30/13 681,037
3,500,000 Southern Energy Inc., 7.40%, 7/15/04 r<F3> 2,607,500
2,735,000 Southern Energy Inc., 7.90%, 7/15/09 r<F3> 1,449,550
1,005,768 Sutton Bridge, 7.97%, 6/30/22 r<F3> 937,889
800,000 Utilicorp-AMBAC, 6.875%, 10/01/04 838,137
------------
24,697,247
------------
Financial 1.5%
680,000 CIT Group Inc., 4.125%, 2/21/06 703,813
1,075,000 CIT Group Inc., 4.00%, 5/08/08 1,094,752
3,720,000 Finova Group Inc., 7.50%, 11/15/09 1,618,200
700,000 Ford Motor Credit Co., 7.375%, 2/01/11 723,710
420,000 Ford Motor Credit Co., 7.25%, 10/25/11 431,791
680,000 General Motors Acceptance Corp., 8.00%, 11/01/31 667,192
------------
5,239,458
------------
Food 0.4%
970,000 Tyson Foods Inc., 8.25%, 10/01/11 1,148,500
320,000 Tyson Foods Inc., 7.00%, 5/01/18 340,544
------------
1,489,044
------------
Metals 0.6%
550,000 United States Steel Corp., 9.75%, 5/15/10 558,250
1,805,000 USEC Inc., 6.625%, 1/20/06 1,705,725
------------
2,263,975
------------
Minerals 0.3%
1,500,000 Phosphate Resources Partners Limited Partnership,
7.00%, 2/15/08 1,110,000
------------
Multimedia 0.2%
640,000 Liberty Media Corp., 5.70%, 5/15/13 650,573
------------
Networking Products 0.1%
505,000 Lucent Technologies, 5.50%, 11/15/08 425,462
------------
Oil & Gas 0.9%
865,000 Amerada Hess Corp., 5.90%, 8/15/06 951,499
1,310,000 Amerada Hess Corp., 7.30%, 8/15/31 1,514,118
780,000 Motiva Enterprises LLC, 5.20%, 9/15/12 r<F3> 825,144
------------
3,290,761
------------
Pipelines 2.5%
3,140,000 El Paso Corp., 7.875%, 6/15/12 r<F3> 2,908,425
820,000 El Paso Corp., 7.75%, 1/15/32 690,850
2,000,000 El Paso Natural Gas, 6.75%, 11/15/03 2,002,500
3,075,000 El Paso Natural Gas, 8.375%, 6/15/32 r<F3> 3,259,500
------------
8,861,275
------------
Retailing 0.2%
845,000 Wal-Mart Stores, 4.55%, 5/01/13 879,026
------------
Special Purpose Entity 3.2%
8,900,000 PDVSA Finance Ltd., 1998-1, 6.65%, 2/15/06 8,410,500
3,160,000 PDVSA Finance Ltd., 1999-H, 9.375%, 11/15/07 3,096,800
------------
11,507,300
------------
Telecommunications 1.5%
1,725,000 AT&T Corp., 8.00%, 11/15/31 1,955,959
840,000 Deutsche Telekom International Finance BV,
8.75%, 6/15/30 1,070,236
2,790,000 Worldcom Inc., 7.50%, 5/15/11 d<F6> 823,050
4,760,000 Worldcom Inc., 8.25%, 5/15/31 d<F6> 1,404,200
------------
5,253,445
------------
TOTAL CORPORATE BONDS
(cost $113,474,993) 112,350,889
------------
Shares
- ------
PREFERRED STOCK 0.3%
Automobile 0.3%
45,485 General Motors Series C, 6.25%, 7/15/33 1,132,576
------------
TOTAL PREFERRED STOCK
(cost $1,137,125) 1,132,576
------------
Principal Amount
- ----------------
U.S. GOVERNMENT AGENCIES 42.4%
Fannie Mae 38.0%
$ 4,475,000 2.75%, 11/14/05 4,499,832
2,965,000 2.75%, 12/16/05 2,988,121
23,350,000 6.00%, 7/01/33 w<F4> 24,262,098
7,470,571 Pool 254378, 6.50%, 7/01/32 7,790,553
1,384,060 Pool 323030, 6.50%, 3/01/28 1,446,194
1,092,960 Pool 323862, 6.50%, 8/01/29 1,140,971
313,950 Pool 433043, 6.50%, 6/01/28 327,839
170,364 Pool 447704, 6.50%, 11/01/28 177,900
142,984 Pool 448235, 6.50%, 11/01/28 149,310
302,765 Pool 448635, 6.50%, 11/01/28 316,159
91,816 Pool 449012, 6.50%, 11/01/28 95,878
163,651 Pool 487778, 6.50%, 3/01/29 170,840
1,239,725 Pool 535863, 6.00%, 3/01/16 1,296,239
19,157,119 Pool 545759, 6.50%, 7/01/32 19,977,663
5,847,210 Pool 545762, 6.50%, 7/01/32 6,097,660
6,710,711 Pool 545766, 6.00%, 7/01/17 7,002,627
7,176,906 Pool 545819, 6.50%, 8/01/32 7,484,272
2,715,949 Pool 545856, 6.50%, 8/01/17 2,865,161
3,474,345 Pool 545903, 5.50%, 9/01/17 3,609,172
1,768,294 Pool 545938, 5.111%, 11/01/12 1,916,830
3,673,770 Pool 555028, 6.00%, 10/01/17 3,834,505
2,743,115 Pool 555182, 6.00%, 1/01/18 2,863,132
1,115,476 Pool 555203, 7.00%, 9/01/32 1,176,130
1,627,767 Pool 555412, 6.00%, 4/01/18 1,699,368
8,138,715 Pool 555419, 6.50%, 11/01/17 8,585,848
9,441,935 Pool 555439, 6.00%, 3/01/18 9,855,042
3,168,021 Pool 555514, 6.00%, 11/01/17 3,305,830
5,965,000 Pool 555569, 6.00%, 5/01/16 6,224,477
16,407 Series 1991-26 G, 8.00%, 4/25/06 17,169
85,000 Series 1994-3 PL, 5.50%, 1/25/24 90,431
1,261,565 Series 2001-T10 A1, 7.00%, 12/25/41 1,375,500
1,534,127 Series 2003-W2 1A3, 7.50%, 7/25/42 1,711,991
1,720,000 Series 2003-W10 3A1, 1.623%, 3/25/32 1,717,850
------------
136,072,592
------------
Freddie Mac 0.6%
1,175,000 Pool 780653, 3.142%, 7/01/33 1,198,500
277,357 Series 2443 TM, 5.50%, 7/15/22 277,512
739,347 Series 2453 BA, 5.00%, 7/15/11 743,096
------------
2,219,108
------------
Freddie Mac Giants 3.6%
9,027,245 Pool G01444, 6.50%, 8/01/32 9,393,890
3,344,845 Pool G01507, 7.00%, 12/01/32 3,506,751
------------
12,900,641
------------
Ginnie Mae 0.2%
47,237 Pool 036629, 9.50%, 10/15/09 52,401
65,348 Pool 331001, 8.25%, 7/15/07 71,098
425,000 Series 20 H, 5.50%, 10/25/23 440,360
------------
563,859
------------
TOTAL U.S. GOVERNMENT AGENCIES
(cost $151,552,637) 151,756,200
------------
U.S. TREASURIES 4.9%
U.S. Treasury Notes 2.8%
2,280,000 3.625%, 3/31/04 2,324,978
6,700,000 2.875%, 6/30/04 6,821,960
770,000 3.875%, 2/15/13 792,348
------------
9,939,286
------------
U.S. Treasury Strips 2.1%
3,245,000 0.00%, 8/15/26 1,021,922
16,305,000 0.00%, 11/15/26 5,071,067
4,855,000 0.00%, 11/15/27 1,439,784
------------
7,532,773
------------
TOTAL U.S. TREASURIES
(cost $18,007,497) 17,472,059
------------
SHORT-TERM INVESTMENTS 13.1%
U.S. Government Agency 12.4%
34,777,000 Federal Home Loan Bank Discount Note, 0.35% c<F5> 34,777,000
9,725,000 Freddie Mac Discount Note, 0.00% 9,715,599
------------
44,492,599
------------
Variable Rate Demand Notes 0.7%
1,819,165 American Family Financial Services Inc., 0.8510% 1,819,165
527,862 Wisconsin Corporate Central Credit Union, 0.6975% 527,862
------------
2,347,027
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $46,839,626) 46,839,626
------------
TOTAL INVESTMENTS 110.1%
(cost $394,043,906) 394,118,133
Liabilities, less Other Assets (10.1)% (36,065,718)
------------
NET ASSETS 100.0% $358,052,415
------------
------------
r<F3> Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. The total value
of these securities amounted to $33,016,542 (9.2% of net assets) at
June 30, 2003.
w<F4> When-issued security.
c<F5> Security marked as segregated to cover when-issued security.
d<F6> Security is in default at June 30, 2003.
See notes to financial statements.
Frontegra Total Return Bond Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
ASSETS:
Investments at value (cost $394,043,906) $394,118,133
Cash 283,575
Interest receivable 2,603,600
Receivable for investments sold 818,765
Receivable for Fund shares sold 19,448
Other assets 12,558
------------
Total assets 397,856,079
------------
LIABILITIES:
Payable for investments purchased 35,397,450
Payable for Fund shares purchased 4,238,458
Accrued investment advisory fee 104,562
Accrued expenses 63,194
------------
Total liabilities 39,803,664
------------
NET ASSETS $358,052,415
------------
------------
NET ASSETS CONSIST OF:
Paid in capital $348,916,808
Undistributed net investment income 275,261
Undistributed net realized gain 8,786,119
Net unrealized appreciation on investments 74,227
------------
NET ASSETS $358,052,415
------------
------------
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 11,218,154
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $31.92
------
------
See notes to financial statements.
Frontegra Total Return Bond Fund
STATEMENT OF OPERATIONS
YEAR ENDED
JUNE 30, 2003
-------------
INVESTMENT INCOME:
Interest $21,646,558
Dividend 135,406
-----------
21,781,964
-----------
EXPENSES:
Investment advisory fees 1,403,981
Fund administration and accounting fees 210,691
Custody fees 45,797
Federal and state registration fees 38,425
Audit fees 17,315
Shareholder servicing fees 14,142
Legal fees 12,502
Reports to shareholders 5,547
Directors' fees and related expenses 5,000
Other 9,385
-----------
Total expenses before waiver 1,762,785
Waiver of expenses by Adviser (271,055)
-----------
Net expenses 1,491,730
-----------
NET INVESTMENT INCOME 20,290,234
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 13,982,416
Change in net unrealized
appreciation/depreciation on investments 9,250,988
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 23,233,404
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $43,523,638
-----------
-----------
See notes to financial statements.
Frontegra Total Return Bond Fund
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
OPERATIONS:
Net investment income $ 20,290,234 $ 14,068,553
Net realized gain on:
Investments 13,982,416 1,957,980
Foreign currency translation -- 19,773
Change in net unrealized
appreciation/depreciation on:
Investments 9,250,988 (9,588,805)
Foreign currency translation -- 4,614
------------ ------------
Net increase in net assets
resulting from operations 43,523,638 6,462,115
------------ ------------
DISTRIBUTIONS
PAID FROM:
Net investment income (21,105,270) (13,928,783)
Net realized gain on investments (3,205,518) (4,459,807)
------------ ------------
Net decrease in net assets resulting
from distributions paid (24,310,788) (18,388,590)
------------ ------------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 48,896,678 214,273,358
Shares issued to holders in
reinvestment of distributions 23,686,272 18,222,001
Shares redeemed (83,475,172) (38,028,513)
------------ ------------
Net increase (decrease) in net assets resulting
from capital share transactions (10,892,222) 194,466,846
------------ ------------
TOTAL INCREASE IN NET ASSETS 8,320,628 182,540,371
------------ ------------
NET ASSETS:
Beginning of period 349,731,787 167,191,416
------------ ------------
End of period
(includes undistributed
net investment income of
$275,261 and $1,026,475, respectively)
$358,052,415 $349,731,787
------------ ------------
------------ ------------
See notes to financial statements.
Frontegra Total Return Bond Fund
FINANCIAL HIGHLIGHTS
EIGHT
YEAR YEAR YEAR YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, OCTOBER 31,
2003 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- -----------
NET ASSET VALUE,
BEGINNING OF PERIOD $30.21 $31.01 $29.36 $29.34 $31.38 $30.85
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS:
Net investment income 1.80 1.45 1.74 1.90 1.29 1.75
Net realized and unrealized
gain (loss) on investments 2.06 (0.40) 1.68 0.02 (1.18) 0.59
------ ------ ------ ------ ------ ------
TOTAL INCOME FROM
INVESTMENT OPERATIONS 3.86 1.05 3.42 1.92 0.11 2.34
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
PAID:
From net investment income (1.87) (1.38) (1.74) (1.90) (1.44) (1.75)
From net realized gain
on investments (0.28) (0.47) (0.03) -- (0.71) (0.06)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS PAID (2.15) (1.85) (1.77) (1.90) (2.15) (1.81)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $31.92 $30.21 $31.01 $29.36 $29.34 $31.38
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN(1)<F7> 13.29% 3.44% 11.87% 6.78% 0.32% 7.79%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of period
(in thousands) $358,052 $349,732 $167,191 $70,435 $48,413 $48,457
Ratio of expenses to
average net assets(2)<F8>(3)<F9> 0.425% 0.425% 0.425% 0.43% 0.50% 0.50%
Ratio of net investment
income to average
net assets(2)<F8>(3)<F9> 5.78% 4.84% 6.47% 6.82% 6.37% 5.79%
Portfolio turnover rate(1)<F7> 489% 885% 635% 438% 83% 131%
(1)<F7> Not annualized for periods less than a full year.
(2)<F8> Net of waivers and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net
assets would have been 0.502%, 0.535%, 0.605%, 0.71%, 0.82% and
0.78%, and the ratio of net investment income to average net assets
would have been 5.70%, 4.73%, 6.29%, 6.54%, 6.05% and 5.51% for the
periods ended June 30, 2003, June 30, 2002, June 30, 2001, June 30,
2000, June 30, 1999 and October 31, 1998, respectively.
(3)<F9> Annualized.
See notes to financial statements.
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Frontegra Investment Lehman Brothers
Date Grade Bond Fund Aggregate Bond Index
---- --------------- --------------------
2/23/2001*<F10> $100,000 $100,000
3/31/2001 $101,242 $101,377
6/30/2001 $101,975 $101,949
9/30/2001 $106,197 $106,652
12/31/2001 $106,384 $106,699
3/31/2002 $106,324 $106,800
6/30/2002 $109,262 $110,746
9/30/2002 $111,830 $115,820
12/31/2002 $113,632 $117,642
3/31/2003 $115,161 $119,281
6/30/2003 $117,928 $122,264
*<F10> 2/23/01 commencement of operations.
Portfolio Total Return**<F11>
FOR THE YEAR ENDED 6/30/03
- -----------------------------
ONE YEAR 7.93%
SINCE COMMENCEMENT
AVERAGE ANNUAL 7.28%
This chart assumes an initial gross investment of $100,000 made on 2/23/01
(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 Lehman Brothers Aggregate Bond Index is an unmanaged market value-weighted
performance benchmark for investment-grade fixed-rate debt issues, including
government, corporate, asset-backed and mortgage-backed securities, with
maturities of at least one year. The Index does not reflect investment
management fees, brokerage commissions and other expenses associated with
investing in fixed income securities.
**<F11> The returns shown do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
Frontegra Investment Grade Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 2003
Principal Amount Value
- ---------------- -----
ASSET-BACKED SECURITIES 10.8%
$ 1,195,000 California Infrastructure PG&E-1,
1997-1 A7, 6.42%, 9/25/08 $ 1,294,726
1,000,000 Chase Credit Card Master Trust,
2003-2 A, 1.29%, 7/15/10 1,000,953
620,000 Chase Manhattan Auto Owner Trust,
2002-B A3, 3.58%, 5/15/06 633,097
820,000 CIT Equipment Collateral,
2002-VT1 A3, 4.03%, 1/20/06 839,956
507,147 CIT Group Home Equity Loan Trust,
2003-1 A1, 1.19%, 8/20/18 506,889
290,000 Conseco Finance Securitizations Corp.,
2000-4 A4, 7.73%, 4/01/31 303,321
130,000 Conseco Finance Securitizations Corp.,
2001-3 A2, 5.16%, 5/01/33 132,235
225,000 Conseco Finance Securitizations Corp.,
2001-4 A2, 5.15%, 9/01/33 229,245
1,125,000 First North American National Bank,
2003-A A, 1.80%, 5/16/11 1,125,000
1,345,000 Ford Credit Auto Owner Trust,
2003-B A2A, 1.40%, 6/15/05 1,345,746
755,000 GS Auto Loan Trust, 2003-1 A2, 1.538%, 1/17/06 756,731
422,989 Keystone Owner Trust,
1998-P1 M1, 7.53%, 5/25/25 r<F12> 442,299
285,000 Lehman ABS Manufactured Housing Contract,
2001-B A3, 4.35%, 5/15/14 289,985
490,000 Mid-State Trust, 11 A1, 4.864%, 7/15/38 488,775
466,584 MMCA Automobile Trust, 2002-1 A3, 4.15%, 5/15/06 469,045
405,000 Nissan Auto Receivables Owner Trust,
2003-A A2, 1.45%, 5/16/05 405,385
1,125,000 Oakwood Mortgage Investors Inc.,
1995-A A4, 7.70%, 9/15/20 1,171,481
115,494 Oakwood Mortgage Investors Inc.,
1996-A A3, 6.60%, 5/15/21 117,963
575,000 Regions Auto Receivables Trust,
2002-1 A3, 2.63%, 1/16/07 585,441
535,000 Salomon Smith Barney RV Trust,
2001-1 A3, 4.74%, 2/15/13 550,148
555,000 Toyota Auto Receivables Owner Trust,
2003-A A2, 1.28%, 8/15/05 555,056
825,000 WFS Financial Owner Trust,
2003-1 A2, 1.50%, 3/20/06 826,146
550,000 World Omni Auto Receivables Trust,
2003-A A2, 1.46%, 8/15/05 551,016
------------
TOTAL ASSET-BACKED SECURITIES
(cost $14,597,045) 14,620,639
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES 6.7%
334,643 Capco America Securitization Corp.,
1998-D7 A1A, 5.86%, 10/15/30 361,449
654,632 Commercial Mortgage Asset Trust,
1999-C1 A1, 6.25%, 1/17/32 705,388
607,718 Credit Suisse First Boston Mortgage Securities Corp.,
1998-C2 A1, 5.96%, 11/11/30 657,655
959,050 Credit Suisse First Boston Mortgage Securities Corp.,
2003-1 1A1, 7.00%, 2/25/33 1,000,356
102,301 Credit Suisse First Boston Mortgage Securities Corp.,
1998-C1 A1A, 6.26%, 5/17/40 109,420
290,005 First Union Commercial Mortgage Trust, 1999-C1 A1,
5.73%, 10/15/35 310,095
940,000 General Growth Properties, 1 A1,
6.537%, 11/15/04 r<F12> 995,522
156,513 GMAC Commercial Mortgage Securities Inc.,
1997-C1 A2, 6.853%, 7/15/29 160,784
242,222 GMAC Commercial Mortgage Securities Inc.,
1999-C1 A1, 5.83%, 5/15/33 260,296
158,466 GMAC Commercial Mortgage Securities Inc.,
1998-C2 A1, 6.15%, 5/15/35 169,115
157,676 Lehman Brothers Commercial Conduit Mortgage Trust,
1998-C4 A1A, 5.87%, 10/15/35 166,522
584,777 Lehman Brothers Floating Rate Commercial,
2003-LLFA A1, 1.48%, 12/16/14 r<F12> 584,777
652,123 Morgan Stanley Capital I,
1999-WF1 A1, 5.91%, 11/15/31 700,034
418,202 Mortgage Capital Funding, Inc.,
1998-MC3 A1, 6.001%, 11/18/31 450,859
757,813 Nationslink Funding Corp.,
1998-2 A1, 6.001%, 8/20/30 812,940
285,325 Nomura Asset Securities Corp.,
1998-D6 A1A, 6.28%, 3/15/30 309,629
200,000 Principal Residential Mortgage Capital Resources,
2001-3A A1, 4.55%, 12/20/04 r<F12> 210,494
511,665 Salomon Brothers Mortgage Securities VII,
2002-CDCA A1, 1.46%, 11/15/13 r<F12> 511,665
233,572 Salomon Brothers Mortgage Securities VII,
2001-MMA A1, 5.3228%, 2/18/34 r<F12> 246,630
36,067 TIAA Commercial Real Estate Securitization,
2001-C1A A1, 5.77%, 6/19/16 r<F12> 38,613
293,212 Wachovia Bank Commercial Mortgage Trust,
2002-C1 A1, 4.539%, 4/15/34 308,543
------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(cost $8,909,203) 9,070,786
------------
CORPORATE BONDS 20.0%
Airlines 3.5%
998,790 Air 2 Us, 8.027%, 10/01/19 r<F12> 669,839
478,926 American Airlines, 1.6475%, 9/23/07 479,953
130,102 American Airlines, 6.977%, 5/23/21 111,462
484,282 Continental Airlines Inc., 8.312%, 4/02/11 374,929
80,562 Jet Equipment Trust, 7.63%, 8/15/12 r<F12> 30,982
90,120 Northwest Airlines Inc., 7.626%, 4/01/10 70,398
98,110 United Airlines, 7.762%, 10/01/05 d<F15> 16,739
385,000 United Airlines, 6.201%, 9/01/08 322,722
75,000 United Airlines, 6.831%, 9/01/08 11,277
687,104 United Airlines, 7.186%, 4/01/11 d<F15> 587,116
2,399,528 United Airlines, 6.071%, 3/01/13 2,011,768
------------
4,687,185
------------
Automobiles / Auto Parts 0.5%
670,000 Daimlerchrysler NA Hldg., 4.05%, 6/04/08 663,510
------------
Banks 3.5%
890,000 Bank One N.A. Illinois, 1.175%, 9/19/05 890,813
270,000 Credit Suisse First Boston London, 7.90%, 5/01/07 306,751
2,090,000 Federal Home Loan Bank, 2.20%, 9/12/05 2,094,776
980,000 National City Bank of Indiana, 1.1987%, 9/16/05 980,053
445,000 Wells Fargo & Co., 1.08%, 10/01/04 445,312
------------
4,717,705
------------
Broadcast Services 0.2%
225,000 Liberty Media Corp., 5.70%, 5/15/13 228,717
------------
Cable Television 0.5%
690,000 Comcast Corp., 5.30%, 1/15/14 709,625
------------
Diversified Manufacturing 0.5%
660,000 General Electric Co., 5.00%, 2/01/13 697,130
------------
Energy 2.5%
510,000 American Ref-Fuel Co. LLC, 6.26%, 12/31/15 r<F12> 522,495
1,000,000 Consumers Energy Co., 5.375%, 4/15/13 r<F12> 1,049,866
295,000 Duke Energy Corp., 4.50%, 4/01/10 308,439
615,000 Entergy Arkansas, 5.00%, 7/01/18 r<F12> 605,329
180,000 PSEG Power, LLC, 8.625%, 4/15/31 232,046
235,000 Sithe/Independence Funding, 9.00%, 12/30/13 252,038
50,000 Southern Energy Inc., 7.40%, 7/15/04 r<F12> 37,250
310,000 Wisconsin Electric Power, 5.625%, 5/15/33 320,431
------------
3,327,894
------------
Financial 0.8%
240,000 CIT Group Inc., 4.125%, 2/21/06 248,405
380,000 CIT Group Inc., 4.00%, 5/08/08 386,982
230,000 Ford Motor Credit Co., 7.375%, 2/01/11 237,791
140,000 Ford Motor Credit Co., 7.25%, 10/25/11 143,930
------------
1,017,108
------------
Food 0.1%
120,000 Tyson Foods Inc., 7.00%, 5/01/18 127,704
------------
Insurance 0.5%
645,000 Protective Life U.S. Funding,
5.875%, 8/15/06 r<F12> 714,723
------------
Oil & Gas 0.5%
390,000 Conocophillips, 5.90%, 10/15/32 418,488
290,000 Motiva Enterprises LLC, 5.20%, 9/15/12 r<F12> 306,784
------------
725,272
------------
Pipelines 2.1%
695,000 El Paso Corp., 7.875%, 6/15/12 r<F12> 643,744
2,150,000 El Paso Natural Gas, 6.75%, 11/15/03 2,152,687
------------
2,796,431
------------
Real Estate 0.5%
585,000 Liberty Property LP, 7.75%, 4/15/09 706,156
------------
Retailing 0.7%
935,000 Wal-Mart Stores, 4.55%, 5/01/13 972,650
------------
Special Purpose Entity 2.4%
1,090,000 PDVSA Finance Ltd., 1998-1, 6.65%, 2/15/06 1,030,050
275,000 PDVSA Finance Ltd., 1999-H, 9.375%, 11/15/07 269,500
685,000 PF Export Rec Master Trust, 3.748%, 6/01/13 r<F12> 688,082
1,250,000 Principal Life Global, 2.80%, 6/26/08 r<F12> 1,235,696
------------
3,223,328
------------
Telecommunications 1.2%
635,000 AT&T Corp., 8.00%, 11/15/31 720,020
310,000 Deutsche Telekom International Finance BV,
8.75%, 6/15/30 394,968
535,000 Verizon North Inc., 5.634%, 1/01/21 r<F12> 560,145
------------
1,675,133
------------
TOTAL CORPORATE BONDS
(cost $26,638,907) 26,990,271
------------
Shares
- ------
PREFERRED STOCK 0.3%
Automobiles 0.3%
16,870 General Motors Series C, 6.25%, 7/15/33 420,063
------------
TOTAL PREFERRED STOCK
(cost $421,750) 420,063
------------
Principal Amount
- ----------------
U.S. GOVERNMENT AGENCIES 47.1%
Fannie Mae 45.5%
$ 1,585,000 2.75%, 11/14/05 1,593,795
1,045,000 2.75%, 12/16/05 1,053,149
3,350,000 5.50%, 7/01/18 w<F13> 3,478,767
7,415,000 6.00%, 7/01/33 w<F13> 7,704,645
2,639,286 Pool 254378, 6.50%, 7/01/32 2,752,332
532,642 Pool 323030, 6.50%, 3/01/28 556,553
1,760,000 Pool 385537, 4.745%, 11/01/12 1,843,435
7,214,664 Pool 545759, 6.50%, 7/01/32 7,523,685
6,416,529 Pool 545762, 6.50%, 7/01/32 6,691,364
1,181,590 Pool 545766, 6.00%, 7/01/17 1,232,989
2,260,835 Pool 545774, 6.50%, 7/01/17 2,385,044
2,566,112 Pool 545819, 6.50%, 8/01/32 2,676,011
969,007 Pool 545856, 6.50%, 8/01/17 1,022,243
259,699 Pool 545903, 5.50%, 9/01/17 269,776
614,197 Pool 545938, 5.111%, 11/01/12 665,790
1,308,466 Pool 555028, 6.00%, 10/01/17 1,365,714
2,203,306 Pool 555180, 6.00%, 11/01/17 2,299,666
973,977 Pool 555182, 6.00%, 1/01/18 1,016,591
3,620,264 Pool 555203, 7.00%, 9/01/32 3,817,115
526,750 Pool 555419, 6.50%, 11/01/17 555,689
5,561,326 Pool 555439, 6.00%, 3/01/18 5,804,647
1,156,653 Pool 555514, 6.00%, 11/01/17 1,206,967
2,175,000 Pool 555569, 6.00%, 5/01/16 2,269,613
445,841 Series 2001-T10 A1, 7.00%, 12/25/41 486,106
542,503 Series 2003-W2 1A3, 7.50%, 7/25/42 605,400
635,000 Series 2003-W10 3A1, 1.623%, 3/25/32 634,206
------------
61,511,292
------------
Freddie Mac 0.6%
435,000 Pool 780653, 3.142%, 7/01/33 443,700
39,249 Series 2443 TM, 5.50%, 7/15/22 39,271
106,153 Series 2453 BA, 5.00%, 7/15/11 106,691
155,786 Series 2455 DM, 5.25%, 10/15/22 155,789
------------
745,451
------------
Freddie Mac Giant 0.9%
1,219,971 Pool G01507, 7.00%, 12/01/32 1,279,023
------------
Ginnie Mae 0.1%
189,717 Series 25 B, 6.50%, 12/25/08 200,890
------------
TOTAL U.S. GOVERNMENT AGENCIES
(cost $63,583,021) 63,736,656
------------
U.S. TREASURIES 4.3%
U.S. Treasury Notes 2.3%
1,075,000 2.875%, 6/30/04 1,094,568
150,000 3.00%, 2/15/08 154,353
1,765,000 3.875%, 2/15/13 1,816,226
------------
3,065,147
------------
U.S. Treasury Strips 2.0%
1,190,000 0.00%, 8/15/26 374,757
5,970,000 0.00%, 11/15/26 1,856,748
1,785,000 0.00%, 11/15/27 529,354
------------
2,760,859
------------
TOTAL U.S. TREASURIES
(cost $6,045,356) 5,826,006
------------
SHORT-TERM INVESTMENTS 19.5%
U.S. Government Agencies 16.7%
17,806,000 Federal Home Loan Bank Discount Note, 0.35% c<F14> 17,806,000
4,805,000 Freddie Mac Discount Note, 0.00% 4,800,355
------------
22,606,355
------------
U.S. Treasury 2.0%
2,665,000 U.S. Treasury Bill, 1.02% 2,660,923
------------
Variable Rate Demand Notes 0.8%
779,478 American Family Financial Services Inc., 0.8510% 779,478
250,577 Wisconsin Corporate Central Credit Union, 0.6975% 250,577
------------
1,030,055
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $26,297,333) 26,297,333
------------
TOTAL INVESTMENTS 108.7%
(cost $146,492,615) 146,961,754
Liabilities, less Other Assets (8.7)% (11,750,507)
------------
NET ASSETS 100.0% $135,211,247
------------
------------
r<F12> Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. The total
value of these securities amounted to $10,094,935 (7.5% of net assets)
at June 30, 2003.
w<F13> When-issued security.
c<F14> Security marked as segregated to cover when-issued security.
d<F15> Security is in default at June 30, 2003.
See notes to financial statements.
Frontegra Investment Grade Bond Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
ASSETS:
Investments at value (cost $146,492,615) $146,961,754
Interest receivable 642,540
Receivable for investments sold 352,200
Receivable for Fund shares sold 282,378
Other assets 11,429
------------
Total assets 148,250,301
------------
LIABILITIES:
Payable to custodian 87
Payable for investments purchased 12,979,062
Accrued investment advisory fee 11,505
Accrued expenses 48,400
------------
Total liabilities 13,039,054
------------
NET ASSETS $135,211,247
------------
------------
NET ASSETS CONSIST OF:
Paid in capital $131,946,673
Undistributed net investment income 59,234
Undistributed net realized gain 2,736,201
Net unrealized appreciation on investments 469,139
------------
NET ASSETS $135,211,247
------------
------------
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 50,000,000
Issued and outstanding 12,730,153
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $10.62
------
------
See notes to financial statements.
Frontegra Investment Grade Bond Fund
STATEMENT OF OPERATIONS
YEAR ENDED
JUNE 30, 2003
-------------
INVESTMENT INCOME:
Interest $4,591,570
----------
EXPENSES:
Investment advisory fees 459,434
Fund administration and accounting fees 108,791
Custody fees 26,034
Federal and state registration fees 25,857
Audit fees 17,302
Shareholder servicing fees 14,531
Legal fees 12,502
Directors' fees and related expenses 4,998
Reports to shareholders 3,458
Other 2,530
----------
Total expenses before waiver 675,437
Waiver of expenses by Adviser (216,003)
----------
Net expenses 459,434
----------
NET INVESTMENT INCOME 4,132,136
----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 4,022,023
Change in net unrealized
appreciation/depreciation on investments 371,112
----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 4,393,135
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $8,525,271
----------
----------
See notes to financial statements.
Frontegra Investment Grade Bond Fund
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
OPERATIONS:
Net investment income $ 4,132,136 $ 772,369
Net realized gain on investments 4,022,023 61,928
Change in net unrealized
appreciation/depreciation on investments 371,112 136,317
------------ -----------
Net increase in net assets
resulting from operations 8,525,271 970,614
------------ -----------
DISTRIBUTIONS
PAID FROM:
Net investment income (4,087,825) (759,526)
Net realized gain on investments (1,203,767) (190,597)
------------ -----------
Net decrease in net assets resulting
from distributions paid (5,291,592) (950,123)
------------ -----------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 105,680,111 28,995,217
Shares issued to holders in
reinvestment of distributions 4,596,057 826,265
Shares redeemed (13,733,982) (1,648,260)
------------ -----------
Net increase in net assets resulting
from capital share transactions 96,542,186 28,173,222
------------ -----------
TOTAL INCREASE IN NET ASSETS 99,775,865 28,193,713
------------ -----------
NET ASSETS:
Beginning of period 35,435,382 7,241,669
------------ -----------
End of period
(includes undistributed
net investment income of
$59,234 and $14,923, respectively) $135,211,247 $35,435,382
------------ -----------
------------ -----------
See notes to financial statements.
Frontegra Investment Grade Bond Fund
FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2001(1)<F16>
------------- ------------- ---------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $10.28 $10.02 $10.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.35 0.35 0.18
Net realized and unrealized gain
on investments 0.45 0.35 0.02
------ ------ ------
TOTAL INCOME FROM
INVESTMENT OPERATIONS 0.80 0.70 0.20
------ ------ ------
LESS DISTRIBUTIONS PAID:
From net investment income (0.35) (0.35) (0.18)
From net realized gain
on investments (0.11) (0.09) --
------ ------ ------
TOTAL DISTRIBUTIONS PAID (0.46) (0.44) (0.18)
------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.62 $10.28 $10.02
------ ------ ------
------ ------ ------
TOTAL RETURN(2)<F17> 7.93% 7.15% 1.98%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of period
(in thousands) $135,211 $35,435 $7,242
Ratio of expenses to
average net assets(3)<F18>(4)<F19> 0.42% 0.37% 0.30%
Ratio of net investment
income to average
net assets(3)<F18>(4)<F19> 3.78% 3.79% 5.21%
Portfolio turnover rate(2)<F17> 625% 1,624% 212%
(1)<F16> Commenced operations on February 23, 2001.
(2)<F17> Not annualized for periods less than a full year.
(3)<F18> Net of waivers and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net
assets would have been 0.62%, 1.02% and 2.64% and the ratio of net
investment income to average net assets would have been 3.58%, 3.14%
and 2.87% for the periods ended June 30, 2003, June 30, 2002 and June
30, 2001, respectively.
(4)<F19> Annualized.
See notes to financial statements.
FRONTEGRA
OPPORTUNITY FUND
REPORT FROM REAMS ASSET
MANAGEMENT COMPANY, LLC:
Equity markets rallied dramatically in the last quarter of the Fund's fiscal
year (March 31 to June 30) with small cap stocks leading the way. The Russell
2000 gained 23.42% and the Russell 2000 Value was up 22.72%, both well ahead of
the 15.40% advance of the S&P 500 Index. During the period, the Opportunity
Fund produced a return of 23.09%, marginally exceeding the Russell 2000 Value
Index. However, for the past twelve month period, the Opportunity Fund trailed
the small cap benchmarks with a decline of 12.67% versus a loss of 3.80% for the
index.
PORTFOLIO REVIEW
Late in the twelve month period, market participants began to discount a
rebounding economy and bid up the prices of more economically sensitive stocks.
Our late period performance attribution analysis shows that the Fund benefited
from both its sector exposures relative to the benchmark and to a lesser extent
the individual security selection. Our greater than market exposure to Consumer
Durables and our less than market exposure to REITs had the greatest positive
impact on late period returns.
In the final quarter of the Fund's fiscal year, we were disappointed to give up
relative performance due to our significant underweight in the Health Care
sector. The Health Care sector accounted for an average weight of 6.6% of the
Russell 2000 Value Index during the second quarter of the calendar year and the
sector advanced over 40% during the period. Within Health Care, those stocks
that have had a negative return on equity led the rally. Since a starting point
in all of our screens is to look for companies that are capable of generating
returns on capital in excess of those for the broader market, we will miss an
industry move such as that experienced by biotech in the past quarter. However,
we expect that such pricing bubbles will usually correct over time.
The Fund's valuations moved higher, as could be expected with the market's
recent +23% move. Despite this move up, valuations remain attractive on both a
relative and an absolute basis.
Recently, we reduced our exposure to both Utilities and Financials. In
Utilities, we sold Vectren Corp. which reached its target price. We trimmed two
Finance positions, ProAssurance and FirstFed Financial, both of which were
approaching their respective target prices.
In addition, Consumer Durables exposure was recently increased modestly as we
added two names, Cooper Tire and Apogee. The Technology weight grew 3% through
the addition of Esterline Technologies and price appreciation of existing
holdings.
Along with the aforementioned sale of Vectren, we recently reduced Clayton Homes
and Hon Industries, dropping them out of the top ten positions. USFreightways
Corp. fell out due to a price decline. The four companies that moved in,
Champion Enterprises, Joy Global, Precision Castparts, and Texas Industries, all
did so through price appreciation.
The top 10 Fund holdings are listed below:
Furniture Brands 4.0%
Maximus Inc 3.8%
Casey's General Store 3.1%
Champion Enterprises 3.0%
MPS Group 2.9%
Texas Industries 2.8%
Joy Global 2.6%
Spartech Corp 2.6%
Snap On Tools 2.5%
Precision Castparts 2.5%
SUMMARY
Despite a disappointing twelve month performance profile, we are very pleased
with how well the Fund recently performed amidst the market's rally in the last
quarter. While we were surprised by the speed of the turn in equity prices, we
were not surprised by the magnitude of the advance.
As always, we appreciate your confidence and investment in the Opportunity Fund.
Regards,
/s/ David R. Milroy
David R. Milroy
Reams Asset Management Company, LLC
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Frontegra Russell 2000 Russell 2000
Date Opportunity Fund Index Value Index
---- ---------------- ------------ -----------
7/31/97*<F20> $100,000 $100,000 $100,000
9/30/97 $109,900 $109,774 $108,344
12/31/97 $108,269 $106,098 $110,165
3/31/98 $116,471 $116,770 $119,364
6/30/98 $108,032 $111,325 $115,053
9/30/98 $89,248 $88,898 $94,485
12/31/98 $97,301 $103,396 $103,057
3/31/99 $87,352 $97,787 $93,067
6/30/99 $107,619 $112,994 $108,476
9/30/99 $100,023 $105,851 $99,992
12/31/99 $100,439 $125,375 $101,524
3/31/00 $97,911 $134,257 $105,404
6/30/00 $100,439 $129,182 $107,461
9/30/00 $109,447 $130,610 $115,349
12/31/00 $121,261 $121,587 $124,698
3/31/01 $118,446 $113,677 $125,910
6/30/01 $133,604 $129,920 $140,562
9/30/01 $117,147 $102,910 $121,819
12/31/01 $141,054 $124,610 $142,187
3/31/02 $154,357 $129,573 $155,807
6/30/02 $147,949 $118,751 $152,504
9/30/02 $113,698 $93,339 $120,035
12/31/02 $119,334 $99,085 $125,941
3/31/03 $104,957 $94,634 $119,543
6/30/03 $129,197 $116,802 $146,709
*<F20> 7/31/97 commencement of operations.
Portfolio Total Return**<F21>
FOR THE YEAR ENDED 6/30/03
ONE YEAR (12.67)%
FIVE YEAR
AVERAGE ANNUAL 3.64%
SINCE COMMENCEMENT
AVERAGE ANNUAL 4.42%
This chart assumes an initial gross investment of $100,000 made on 7/31/97
(commencement of operations). Returns shown include the reinvestment of all
distributions. Past performance is not predictive of future results. Investment
return and principal value will fluctuate so that shares, when redeemed, may be
worth more or less than the original cost. In the absence of existing fee
waivers, total return would be reduced.
The Russell 2000 Index measures the performance of the 2,000 smallest companies
in the Russell 3000 Index. The Russell 3000 Index measures the performance of
the 3,000 largest U.S. companies based on total market capitalization. The
Index does not reflect investment management fees, brokerage commissions and
other expenses associated with investing in equity securities.
The Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
The Index does not reflect investment management fees, brokerage commissions and
other expenses associated with investing in equity securities.
**<F21> The returns shown do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
Frontegra Opportunity Fund
SCHEDULE OF INVESTMENTS
June 30, 2003
Number of Shares Value
- ---------------- -----
COMMON STOCKS 99.8%
Aerospace 2.6%
38,100 BE Aerospace, Inc.*<F22> $ 126,111
14,600 Esterline Technologies Corp.*<F22> 254,186
-----------
380,297
-----------
Apparel Manufacturer 1.9%
29,300 Tommy Hilfiger Corp.*<F22> 270,732
-----------
Banks and Savings & Loans 11.1%
17,000 Brookline Bancorp, Inc. 238,000
22,100 The Colonial BancGroup, Inc. 306,527
9,300 Commercial Federal Corp. 197,160
17,000 First Niagara Financial Group, Inc. 237,320
4,300 FirstFed Financial Corp.*<F22> 151,747
16,600 Local Financial Corp.*<F22> 239,704
16,500 Sovereign Bancorp, Inc. 258,225
-----------
1,628,683
-----------
Building Products 7.0%
7,400 Apogee Enterprises, Inc. 66,748
14,800 Insituform Technologies, Inc.- Class A*<F22> 261,664
17,200 NCI Building Systems, Inc.*<F22> 287,240
17,000 Texas Industries, Inc. 404,600
-----------
1,020,252
-----------
Chemicals 6.4%
11,300 Albemarle Corp. 316,061
11,050 Ferro Corp. 248,956
17,700 Spartech Corp. 375,417
-----------
940,434
-----------
Coal 2.0%
21,600 Massey Energy Co. 284,040
-----------
Computers & Software 1.2%
26,800 MSC.Software Corp.*<F22> 180,632
-----------
Consulting Services 3.8%
20,100 MAXIMUS, Inc.*<F22> 555,363
-----------
Consumer Durables 2.5%
12,700 Snap-on Inc. 368,681
-----------
Diversified Manufacturing 2.0%
12,900 Sensient Technologies Corp. 296,571
-----------
Electronic Technology 5.3%
12,500 Belden Inc. 198,625
27,400 CTS Corp. 286,330
28,800 KEMET Corp.*<F22> 290,880
-----------
775,835
-----------
Home Furnishings 6.1%
8,600 Ethan Allen Interiors Inc. 302,376
22,600 Furniture Brands International, Inc.*<F22> 589,860
-----------
892,236
-----------
Housing 4.8%
85,700 Champion Enterprises, Inc.*<F22> 443,926
21,100 Clayton Homes, Inc. 264,805
-----------
708,731
-----------
Human Resources 3.9%
5,700 CDI Corp.*<F22> 147,972
61,200 MPS Group, Inc.*<F22> 421,056
-----------
569,028
-----------
Industrial Services 1.9%
17,400 Dycom Industries, Inc.*<F22> 283,620
-----------
Insurance 0.9%
5,000 ProAssurance Corp.*<F22> 134,950
-----------
Machinery 4.5%
41,300 JLG Industries, Inc. 280,840
25,600 Joy Global Inc.*<F22> 378,112
-----------
658,952
-----------
Metal Products 6.5%
10,800 Mueller Industries, Inc.*<F22> 292,788
11,700 Precision Castparts Corp. 363,870
10,000 Quanex Corp. 297,200
-----------
953,858
-----------
Networking Products 1.9%
7,700 Black Box Corp. 278,740
-----------
Oil & Gas 2.0%
7,700 Noble Energy, Inc. 291,060
-----------
Printing & Publishing 2.4%
10,800 Banta Corp. 349,596
-----------
Producer Manufacturing 3.8%
39,200 Buckeye Technologies Inc.*<F22> 266,560
9,700 HON INDUSTRIES Inc. 295,850
-----------
562,410
-----------
Retailing & Restaurants 5.2%
32,400 Casey's General Stores, Inc. 458,136
9,400 IHOP Corp. 296,758
-----------
754,894
-----------
Rubber 2.4%
19,800 Cooper Tire & Rubber Co. 348,282
-----------
Semiconductor Equipment 1.2%
21,300 Credence Systems Corp.*<F22> 180,411
-----------
Telecommunications Equipment 2.3%
36,500 Andrew Corp.*<F22> 335,800
-----------
Transportation 4.2%
11,200 Arkansas Best Corp. 266,448
13,000 USF Corp. 350,610
-----------
617,058
-----------
TOTAL COMMON STOCKS
(cost $14,039,536) 14,621,146
-----------
Principal Amount
- ----------------
SHORT-TERM INVESTMENTS 0.7%
Variable Rate Demand Notes 0.7%
$40,210 American Family Financial Services Inc., 0.8510% 40,210
60,015 Wisconsin Corporate Central Credit Union, 0.6975% 60,015
-----------
100,225
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $100,225) 100,225
-----------
TOTAL INVESTMENTS 100.5%
(cost $14,139,761) 14,721,371
Liabilities, less Other Assets (0.5)% (66,210)
-----------
NET ASSETS 100.0% $14,655,161
-----------
-----------
*<F22> Non-income producing
See notes to financial statements.
Frontegra Opportunity Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
ASSETS:
Investments at value (cost $14,139,761) $14,721,371
Interest and dividend receivable 8,464
Receivable for investments sold 13,384
Receivable from Adviser 973
Other assets 1,500
-----------
Total assets 14,745,692
-----------
LIABILITIES:
Payable for investments purchased 65,491
Accrued expenses 25,040
-----------
Total liabilities 90,531
-----------
NET ASSETS $14,655,161
-----------
-----------
NET ASSETS CONSIST OF:
Paid in capital $14,918,498
Undistributed net investment income 13,000
Undistributed net realized loss (857,947)
Net unrealized appreciation on investments 581,610
-----------
NET ASSETS $14,655,161
-----------
-----------
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 556,653
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $26.33
------
------
See notes to financial statements.
Frontegra Opportunity Fund
STATEMENT OF OPERATIONS
YEAR ENDED
JUNE 30, 2003
-------------
INVESTMENT INCOME:
Dividends $ 151,606
Interest 2,979
-----------
154,585
-----------
EXPENSES:
Investment advisory fees 90,819
Fund administration and accounting fees 50,005
Audit fees 15,305
Shareholder servicing fees 12,229
Custody fees 10,837
Legal fees 10,783
Federal and state registration fees 5,300
Directors' fees and related expenses 5,001
Reports to shareholders 4,148
Amortization of organizational costs 656
Other 1,005
-----------
Total expenses before waiver and reimbursement 206,088
Waiver and reimbursement of expenses by Adviser (80,339)
-----------
Net expenses 125,749
-----------
NET INVESTMENT INCOME 28,836
-----------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on investments (535,747)
Change in net unrealized
appreciation/depreciation on investments (1,811,268)
-----------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (2,347,015)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(2,318,179)
-----------
-----------
See notes to financial statements.
Frontegra Opportunity Fund
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
OPERATIONS:
Net investment income $ 28,836 $ 83,863
Net realized gain (loss) on investments (535,747) 3,327,152
Change in net unrealized
appreciation/depreciation on investments (1,811,268) (974,890)
----------- -----------
Net increase (decrease) in net assets
resulting from operations (2,318,179) 2,436,125
----------- -----------
DISTRIBUTIONS
PAID FROM:
Net investment income (71,225) (66,837)
Net realized gain on investments (3,542,732) (655,364)
----------- -----------
Net decrease in net assets resulting
from distributions paid (3,613,957) (722,201)
----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 1,957,425 1,575,662
Shares issued to holders in
reinvestment of distributions 3,608,707 722,201
Shares redeemed (2,060,710) (5,317,325)
----------- -----------
Net increase (decrease) in net assets resulting
from capital share transactions 3,505,422 (3,019,462)
----------- -----------
TOTAL DECREASE IN NET ASSETS (2,426,714) (1,305,538)
----------- -----------
NET ASSETS:
Beginning of period 17,081,875 18,387,413
----------- -----------
End of period
(includes undistributed
net investment income of
$13,000 and $62,841, respectively) $14,655,161 $17,081,875
----------- -----------
----------- -----------
See notes to financial statements.
Frontegra Opportunity Fund
FINANCIAL HIGHLIGHTS
EIGHT
YEAR YEAR YEAR YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, OCTOBER 31,
2003 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- -----------
NET ASSET VALUE,
BEGINNING OF PERIOD $39.48 $37.02 $28.21 $32.02 $27.93 $32.22
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS:
Net investment income 0.03 0.16 0.42 0.27 0.07 0.26
Net realized and unrealized
gain (loss) on investments (5.61) 3.73 8.84 (2.44) 4.23 (4.52)
------ ------ ------ ------ ------ ------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS (5.58) 3.89 9.26 (2.17) 4.30 (4.26)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
PAID:
From net investment income (0.15) (0.13) (0.45) (0.22) (0.21) (0.03)
From net realized gain
on investments (7.42) (1.30) -- (1.42) -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS PAID (7.57) (1.43) (0.45) (1.64) (0.21) (0.03)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $26.33 $39.48 $37.02 $28.21 $32.02 $27.93
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN(1)<F23> (12.67)% 10.74% 33.02% (6.67)% 15.49% (13.24)%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of period
(in thousands) $14,655 $17,082 $18,387 $18,204 $17,211 $6,827
Ratio of expenses to
average net assets(2)<F24>(3)<F25> 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of net investment
income to average
net assets(2)<F24>(3)<F25> 0.21% 0.44% 1.05% 0.97% 1.00% 0.92%
Portfolio turnover rate(1)<F23> 44% 64% 81% 64% 38% 54%
(1)<F23> Not annualized for periods less than a full year.
(2)<F24> Net of waivers and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net
assets would have been 1.47%, 1.28%, 1.33%, 1.44%, 1.73% and 2.53%
and the ratio of net investment income (loss) to average net assets
would have been (0.36)%, 0.06%, 0.62%, 0.43%, 0.17% and (0.71)% for
the periods ended June 30, 2003, June 30, 2002, June 30, 2001, June
30, 2000, June 30, 1999 and October 31, 1998, respectively.
(3)<F25> Annualized.
See notes to financial statements.
FRONTEGRA
GROWTH FUND
REPORT FROM NORTHERN CAPITAL MANAGEMENT, LLC:
This represents the last shareholder letter you will receive from the Frontegra
Growth Fund. The Fund will be closing in September 2003. Since its inception,
the Frontegra Growth Fund has been operated by Frontegra Asset Management, Inc.
(Frontegra) with Northern Capital acting as the investment sub-advisor.
Frontegra and Northern Capital determined that it was in the best interest of
the Fund and its shareholders to close the Fund. You will receive more
information about the decision to close the Fund and your options as a
shareholder in a separate mailing.
PERFORMANCE OVERVIEW
The U.S. equity market came roaring back to life in the first half of 2003, as
the S&P 500 rose 11.84% and the Russell 1000 Growth index rose 13.09%. As we
discussed in our last letter to you, we expected a recovery in stock prices and
the Fund was well positioned to take advantage of the rally. During the first
six months of the calendar year, our Fund rose 14.30%, nicely ahead of the
market indices. This kind of quick reversal in sentiment reinforces the
importance of consistently following our investment process - which allowed us
to be proactive in getting ahead of the market's climb. For the Fund's fiscal
year, the Frontegra Growth Fund outperformed the indices with a return of 4.89%.
SIX MONTHS 12 MONTHS
12/02 TO 6/03 6/02 TO 6/03
------------- ------------
FRONTEGRA GROWTH FUND 14.30% 4.89%
S&P 500 Index 11.84% 0.32%
Russell 1000 Growth Index 13.09% 2.94%
Fund vs. S&P 500 +2.46% +4.57%
Fund vs. Russell Growth Index +1.21% +1.95%
The rally in stocks over the past several months began as a result of the
positive news flow from the Middle East. The military operation in Iraq was
relatively quick and effective. The regime was toppled, and the first oil
exports began to flow in June. A consistent flow of Iraqi oil to the world
markets will result in lower and more stable global oil prices, in addition to
providing the necessary cash to finance the rebuilding of Iraq. While much work
remains to be done, the good news from overseas has helped to ease investor
concerns about future economic growth and global stability.
As the focus shifted from war to economic and corporate news, investors received
positive news on that front as well. First quarter S & P 500 earnings rose
approximately 11%, which was well ahead of expectations. While we had been
expecting favorable news, we were quite impressed by the strength of Q1 earnings
growth. This was further reinforced by Q2 earnings, which as of this writing
were also coming in well ahead of expectations. We believe corporate earnings
growth will continue to surprise investors, as analysts commonly underestimate
the operating leverage that many companies will demonstrate as the economy
begins to recover in earnest.
Additional good news came when President Bush's tax cut plan was passed. While
the long-term effects of the plan are unclear, it is certain that the near-term
impact will be to stimulate spending and improve the strength of the economy for
the second half of the year. This tax cut, combined with the Federal Reserve
Board's continued support of low interest rates, makes it likely that the
economy will continue to gather steam as we finish the year.
The second quarter rally was impressively broad-based, both with respect to
sector performance and across the market capitalization spectrum. One
investment theme so far this year is that many of the best performers were solid
companies whose stock prices were depressed by (overblown) fears during the
recession. Stocks we own such as Cendant, Home Depot, Liberty Media, and AOL
Time Warner are good examples of this phenomenon - all are up significantly this
year after a prolonged period of weakness. Our stock selection process is
founded on fundamental research - understanding a company's earnings prospects,
assessing its competitive advantages as a means of valuing the future earnings
growth, and being opportunistic in buying and holding these companies when these
prospects are not reflected in the price of the stock. The rewarding bounce our
portfolios have realized in 2003 is a direct result of being true to our
process.
OUTLOOK
We continue to believe that our focus on high quality, market leading companies
selling at attractive valuations will allow us to outperform the market in most
environments. We also have not forgotten the lessons learned in 2002, and
continue to monitor sentiment and technical factors more closely in an effort to
avoid buying good companies at prices we believe to be attractive, only to find
that we were too early.
We expect economic growth to continue to improve, helping to sustain the
recovery in corporate earnings. We also expect interest rates to remain
reasonably low for the foreseeable future, which should continue to encourage a
rotation of capital back towards stocks. While some period of consolidation
during the summer months could occur, we are confident that the bear market has
finally ended, and a period of more normal stock returns lies ahead.
PORTFOLIO CHARACTERISTICS
The Fund's characteristics reflect our commitment to disciplined growth stock
investing. The portfolio has better historical sales growth rates than the
market (14% versus 8%) and better expected EPS growth over the next year (16%
versus 12%). Reflective of our tilt towards companies that will see earnings
recover from an improving economy, the P/E is slightly higher than the S&P 500
(21x vs. 18x).
From a sector weighting standpoint, we have overweighted positions in the
healthcare, technology and the media sectors. The sector that is most
significantly underweighted is the Consumer Staples sector. This positioning is
consistent with our belief that the biggest earnings increases will come out of
sectors with the most exposure to an improving economy.
TEN LARGEST HOLDINGS AS OF 6/30/03
NAME TICKER POSITION SIZE
---- ------ -------------
Pfizer PFE 4.5%
Microsoft MSFT 4.0%
Allergan AGN 3.6%
Cendant CD 3.5%
American Intl Group AIG 3.3%
Liberty Media L 3.2%
Intel INTC 3.0%
AOL Time Warner AOL 3.0%
Washington Mutual WM 3.0%
Pepsico PEP 2.9%
We want to thank you for your support through the years, and if you have any
questions regarding the closing of the Fund, please do not hesitate to call.
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 Director of Research Chairman and
Investment Officer Northern Capital Chief Executive Officer
Northern Capital Management, LLC Northern Capital
Management, LLC brian.hellmer@norcap.com Management, LLC
dan.murphy@norcap.com steve.hawk@norcap.com
INVESTMENT HIGHLIGHTS
Growth of a $10,000 Investment
Date Frontegra Growth Fund S&P 500 Index
---- --------------------- -------------
3/18/98*<F26> $10,000 $10,000
3/31/98 $10,110 $10,152
6/30/98 $10,200 $10,488
9/30/98 $8,580 $9,444
12/31/98 $10,894 $11,456
3/31/99 $11,314 $12,026
6/30/99 $11,945 $12,874
9/30/99 $11,264 $12,070
12/31/99 $13,616 $13,866
3/31/00 $14,179 $14,184
6/30/00 $13,777 $13,807
9/30/00 $13,948 $13,673
12/31/00 $12,322 $12,603
3/31/01 $11,696 $11,109
6/30/01 $12,599 $11,759
9/30/01 $10,393 $10,033
12/31/01 $12,259 $11,105
3/31/02 $11,076 $11,136
6/30/02 $8,947 $9,644
9/30/02 $7,446 $7,978
12/31/02 $8,211 $8,651
3/31/03 $7,963 $8,378
6/30/03 $9,385 $9,668
*<F26> 3/18/98 commencement of operations.
Portfolio Total Return**<F27>
FOR THE YEAR ENDED 6/30/03
- -----------------------------
ONE YEAR 4.89%
FIVE YEAR
AVERAGE ANNUAL (1.65)%
SINCE COMMENCEMENT
AVERAGE ANNUAL (1.19)%
This chart assumes an initial gross investment of $10,000 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 Index consists of 500 stocks chosen for market size, liquidity and
industry group representation. It is a market-value weighted index, with each
stock's weight in the Index proportionate to its market value. The Index does
not reflect investment management fees, brokerage commissions and other expenses
associated with investing in equity securities.
**<F27> The returns shown do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
Frontegra Growth Fund
SCHEDULE OF INVESTMENTS
June 30, 2003
Number of Shares Value
- ---------------- -----
COMMON STOCKS 96.6%
Advertising 1.5%
3,225 Omnicom Group Inc. $ 231,233
-----------
Aerospace 2.0%
4,225 General Dynamics Corp. 306,312
-----------
Banks and Savings & Loans 4.9%
6,875 State Street Corp. 270,875
2,100 Synovus Financial Corp. 45,150
10,525 Washington Mutual, Inc. 434,683
-----------
750,708
-----------
Computers & Software 10.8%
19,400 BEA Systems, Inc.*<F28> 211,266
11,450 Dell Computer Corp.*<F28> 364,568
7,175 Hewlett-Packard Co. 152,827
6,650 Intuit Inc.*<F28> 296,523
23,700 Microsoft Corp. 607,668
5,475 Seagate Technology, Inc. Tax Refund Right --
-----------
1,632,852
-----------
Cosmetics & Toiletries 1.7%
4,400 Colgate-Palmolive Co. 254,980
-----------
Data Processing 3.7%
6,900 First Data Corp. 285,936
7,775 Fiserv, Inc.*<F28> 276,868
-----------
562,804
-----------
Electronic Components 4.9%
26,925 Flextronics International Ltd.*<F28> 280,828
22,050 Intel Corp. 458,287
-----------
739,115
-----------
Financial 3.3%
33,375 The Charles Schwab Corp. 336,754
8,275 MBNA Corp. 172,451
-----------
509,205
-----------
Food & Beverages 2.9%
9,750 PepsiCo, Inc. 433,875
-----------
Insurance 3.3%
8,975 American International Group, Inc. 495,240
-----------
Media & Entertainment 6.2%
28,025 AOL Time Warner Inc.*<F28> 450,922
42,300 Liberty Media Corp. - Class A*<F28> 488,988
-----------
939,910
-----------
Medical Instruments 4.3%
5,800 Boston Scientific Corp.*<F28> 354,380
4,250 Stryker Corp. 294,822
-----------
649,202
-----------
Medical Laboratories & Research 6.1%
4,400 Amgen Inc.*<F28> 292,336
12,150 Baxter International Inc. 315,900
4,925 Quest Diagnostics Inc.*<F28> 314,215
-----------
922,451
-----------
Multi-Sector Companies 5.9%
27,200 Cendant Corp.*<F28> 498,304
13,725 General Electric Co. 393,633
-----------
891,937
-----------
Oil & Gas 3.0%
3,925 Devon Energy Corp. 209,595
5,950 Weatherford International Ltd.*<F28> 249,305
-----------
458,900
-----------
Pharmaceuticals 17.1%
7,000 Allergan, Inc. 539,700
14,325 Bristol-Myers Squibb Co. 388,924
7,700 Forest Laboratories, Inc.*<F28> 421,575
3,150 Genentech, Inc.*<F28> 227,178
9,450 McKesson Corp. 337,743
19,975 Pfizer Inc. 682,146
-----------
2,597,266
-----------
Retailing 7.9%
10,650 The Home Depot, Inc. 352,728
7,525 Kohl's Corp.*<F28> 386,635
3,100 Lowe's Companies, Inc. 133,145
10,850 Walgreen Co. 326,585
-----------
1,199,093
-----------
Semiconductor Equipment 4.3%
12,000 Applied Materials, Inc.*<F28> 190,080
8,525 Microchip Technology, Inc. 210,994
14,275 Texas Instruments, Inc. 251,240
-----------
652,314
-----------
Telecommunications 2.8%
11,950 QUALCOMM Inc. 429,483
-----------
TOTAL COMMON STOCKS
(cost $13,594,993) 14,656,880
-----------
Principal Amount
- ----------------
SHORT-TERM INVESTMENTS 2.4%
Variable Rate Demand Notes 2.4%
$226,524 American Family Financial Services Inc., 0.8510% 226,524
137,529 Wisconsin Corporate Central Credit Union, 0.6975% 137,529
-----------
364,053
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $364,053) 364,053
-----------
TOTAL INVESTMENTS 99.0%
(cost $13,959,046) 15,020,933
Other Assets, less Liabilities 1.0% 152,584
-----------
NET ASSETS 100.0% $15,173,517
-----------
-----------
*<F28> Non-income producing
See notes to financial statements.
Frontegra Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
ASSETS:
Investments at value (cost $13,959,046) $15,020,933
Interest and dividend receivable 7,895
Receivable for investments sold 170,336
Receivable from Adviser 2,219
Other assets 5,673
-----------
Total assets 15,207,056
-----------
LIABILITIES:
Accrued expenses 24,671
-----------
Total liabilities 24,671
-----------
NET ASSETS $15,182,385
-----------
-----------
NET ASSETS CONSIST OF:
Paid in capital $19,735,409
Undistributed net investment income 30,053
Undistributed net realized loss (5,644,964)
Net unrealized appreciation on investments 1,061,887
-----------
NET ASSETS $15,182,385
-----------
-----------
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 100,000,000
Issued and outstanding 1,666,476
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $9.11
-----
-----
See notes to financial statements.
Frontegra Growth Fund
STATEMENT OF OPERATIONS
YEAR ENDED
JUNE 30, 2003
-------------
INVESTMENT INCOME:
Dividends $ 136,211
Interest 6,239
-----------
142,450
-----------
EXPENSES:
Investment advisory fees 111,897
Fund administration and accounting fees 49,758
Federal and state registration fees 23,464
Shareholder servicing fees 15,973
Audit fees 15,303
Legal fees 12,824
Custody fees 8,578
Reports to shareholders 5,181
Directors' fees and related expenses 5,000
Other 1,003
-----------
Total expenses before waiver and reimbursement 248,981
Waiver and reimbursement of expenses by Adviser (137,085)
-----------
Net expenses 111,896
-----------
NET INVESTMENT INCOME 30,554
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (2,612,365)
Change in net unrealized
appreciation/depreciation on investments 3,177,691
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 565,326
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 595,880
-----------
-----------
See notes to financial statements.
Frontegra Growth Fund
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
OPERATIONS:
Net investment income $ 30,554 $ 27,241
Net realized loss on investments (2,612,365) (2,796,108)
Change in net unrealized
appreciation/depreciation on investments 3,177,691 (3,064,606)
----------- -----------
Net increase (decrease) in net assets
resulting from operations 595,880 (5,833,473)
----------- -----------
DISTRIBUTIONS
PAID FROM:
Net investment income (24,919) (31,018)
Net realized gain on investments -- (13,493)
----------- -----------
Net decrease in net assets resulting
from distributions paid (24,919) (44,511)
----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 2,828,476 6,003,099
Shares issued to holders in
reinvestment of distributions 24,246 43,355
Shares redeemed (3,737,163) (1,608,114)
----------- -----------
Net increase (decrease) in net assets resulting
from capital share transactions (884,441) 4,438,340
----------- -----------
TOTAL DECREASE IN NET ASSETS (313,480) (1,439,644)
----------- -----------
NET ASSETS:
Beginning of period 15,495,865 16,935,509
----------- -----------
End of period
(includes undistributed
net investment income of
$30,053 and $24,890, respectively) $15,182,385 $15,495,865
----------- -----------
----------- -----------
See notes to financial statements.
Frontegra Growth Fund
FINANCIAL HIGHLIGHTS
EIGHT
YEAR YEAR YEAR YEAR MONTHS PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, OCTOBER 31,
2003 2002 2001 2000 1999 1998(1)<F29>
-------- -------- -------- -------- -------- ------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.70 $12.27 $13.69 $11.93 $ 9.29 $10.00
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS:
Net investment income 0.02 0.01 0.02 --(5)<F33> 0.01 0.01
Net realized and unrealized
gain (loss) on investments 0.40 (3.55) (1.20) 1.82 2.64 (0.72)
------ ------ ------ ------ ------ ------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 0.42 (3.54) (1.18) 1.82 2.65 (0.71)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
PAID:
From net investment income (0.01) (0.02) --(5)<F33> (0.01) (0.01) --
From net realized gain
on investments -- (0.01) (0.24) (0.05) -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS PAID (0.01) (0.03) (0.24) (0.06) (0.01) --
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $ 9.11 $ 8.70 $12.27 $13.69 $11.93 $ 9.29
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN(2)<F30> 4.89% (28.98)% (8.55)% 15.33% 28.58% (7.10)%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of period
(in thousands) $15,174 $15,496 $16,936 $16,258 $4,619 $2,343
Ratio of expenses to
average net assets(3)<F31>(4)<F32> 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment
income to average
net assets(3)<F31>(4)<F32> 0.22% 0.16% 0.19% 0.05% 0.16% 0.28%
Portfolio turnover rate(2)<F30> 93% 186% 219% 213% 106% 67%
(1)<F29> Commenced operations on March 18, 1998.
(2)<F30> Not annualized for periods less than a full year.
(3)<F31> Net of waivers and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net
assets would have been 1.78%, 1.59%, 1.54%, 1.89%, 4.52% and 9.23%,
and the ratio of net investment loss to average net assets would have
been (0.76)%, (0.63)%, (0.55)%, (1.04)%, (3.56)% and (8.15)% for the
periods ended June 30, 2003, June 30, 2002, June 30, 2001, June 30,
2000, June 30, 1999 and October 31, 1998, respectively.
(4)<F32> Annualized.
(5)<F33> Less than one cent per share.
See notes to financial statements.
FRONTEGRA
HORIZON FUND
REPORT FROM IRONBRIDGE CAPITAL MANAGEMENT, LLC:
We are excited about the last year's launch of the Frontegra Horizon Fund. The
Horizon Fund is off to a strong start, returning 30.40% since its August 30,
2002 inception, compared to 16.15% for the Russell 2000, a proxy for small
stocks. Even in this short period, the Fund exhibited its "all-weather" nature
by protecting returns while the market was under pressure and outperforming
while the market was improving.
Since the Fund is still relatively new to the Frontegra family of funds, we
thought it would be instructive to review our investment process and provide a
brief outlook for the Fund and for equities in general.
INVESTMENT PHILOSOPHY
o Our portfolio management process is rooted in financial principles of the
CFROI(R) Valuation Framework (CFROI is a registered trademark in the
United States of Credit Suisse First Boston or its subsidiaries or
affiliates.)
Those basic principles are that:
o Reported accounting data is misleading due to distortions in the income
statement and balance sheet.
o CFROI (cash flow return on investment) eliminates accounting distortions
and measures the real economic return of a business.
o CFROI and growth drive the near term net cash receipts of a business.
o Sustainability of CFROI and growth drives the long-term net cash receipts
of a business.
o Over the long term, CFROI and growth fade towards the long-term
competitive average (life cycle fade).
o Life cycle fade recognizes that companies go through different stages
over time. Those stages include Development, Growth, Maturity and
Decline.
o The value of a company is the present value of the net cash receipts
generated from its existing business plus the present value of the net
cash receipts generated from future investments.
o Companies deliver excess returns to shareholders when they:
- Invest capital consistent with wealth creation principles
- Deliver future CFROI and growth in excess of current market
expectations.
Our investment discipline relies on the above principles to construct portfolios
likely to deliver attractive risk adjusted returns. To achieve this goal we
focus on stock selection and risk control.
STOCK SELECTION PROCESS
IronBridge's stock selection process begins with a proprietary process of
determining where a company is in its life cycle. The life cycle position
determines our path of research in terms of which "value drivers" are most
important to future wealth creation. With our proprietary ranking system, we
screen thousands of companies to identify the most attractive companies within
each life cycle class. Among the most attractive screened companies we then
determine whether capital investment is consistent with wealth creation. This
process produces a manageable list of companies for which we apply extensive
valuation work to determine whether the company is likely to beat CFROI and
growth expectations embedded in the current share price. We like to buy
companies whose management action is consistent with wealth creation and that
are likely to beat expectations built into the current share price. Our core
investment approach strives to own the best of "growth" stocks and the best of
"value" stocks.
RISK CONTROL
In order to control risk, no single holding exceeds 5% of the portfolio.
Additionally, the portfolio employs a proprietary "dual diversification"
strategy, which diversifies holdings across industries and economic life cycle.
The portfolio will not overweight or underweight any industry or life cycle
class by more than 5%. We diversify across industries because we can't forecast
market sentiment or industry winners and losers. We diversify across "Life
Cycle" because sentiment also shifts between "growth" and "value" styles. Our
research shows that traditionally defined "growth" or "value" portfolios perform
about the same over the long term, but in the near term they experience
significant volatility relative to each other. We believe Life Cycle
diversification provides a "bridge" linking the two styles and lowering
portfolio volatility. Our thesis is that "dual diversification" will force our
excess return to come from stock selection, not industry selection or style
selection and result in high information ratios.
PORTFOLIO OUTLOOK AND STRATEGY
Several early stage growth companies currently in the Fund are innovative,
operate in niche growth markets, and have the potential to disrupt larger, less
nimble competitors. In researching these companies, our team looks at the
capitalized value of R&D plus cash, and we compare that value to the market
value of the company. In order to assess the financial risk, we determine how
long the company can operate without raising more cash. We then look at the
vision of the top management, the markets they want to grow into or
revolutionize, and their overall competitive position. If we can find solid
companies that are cheap and we can get a 5-to10 times potential upside move, we
might invest, but only in very small weights (usually 0.5%) in order to control
risk and portfolio volatility. We expect only a few big winners, but that is
all it takes to get a meaningful and positive impact on the portfolio.
IRONBRIDGE INNOVATORS (INNOVATION)
American Supercomputer (140x power & speed of copper)
Syntroleum (Gas to liquids / synthetic oil)
Intuitive Surgical (Robotic surgery / minimally invasive)
Stamps.com (Internet postage)
TiVo (On-demand video)
Thoratic (Artificial heart devices)
Cryolife (Bio-glue, human transplant tissue)
Aksys (In-home dialysis)
Identix (Biometric identification)
Macrovision (Copyright protection devices)
LeapFrog (Edu-tainment)
Symyx Technologies (Material discovery)
Small companies continue to perform well relative to large companies.
Innovative companies with developing business models are leading the way. A
bearish thesis might interpret this fact as evidence that investors have again
become "irrational", and the market has returned to the speculative bubble of
the late 90's. A bullish interpretation might conclude that massive capital
raised in the 90's funded an incredible amount of innovation, which is causing
tremendous disruption within the economy and changing the competitive landscape
to the benefit of small innovative companies. The history of capitalism favors
the latter. Our life cycle diversification strategy ensures that we will
participate in the wealth created if our thesis is correct. IronBridge's risk
controls, which include life cycle specific company weights, and dual
diversification across both life cycle and industry, should keep our risk of
under-performing the benchmark low if our thesis is wrong.
OUTLOOK
What's next? Is this a new bull market or a bear market rally? Answer: long-
term, we are bullish, near-term, there is a high degree of uncertainty.
The bulls point to: An accommodative Federal Reserve Bank; a pick up in capital
spending; an increase in consumer confidence; the stimulative effect of the Bush
tax cut; the solid improvement in quarterly corporate earnings; and the rise in
stock prices as evidence that the bear market is now behind us.
The bears counter and suggest: The accommodative Fed is proof that the U.S. is
on the verge of a Japan-style deflation crisis; stubbornly high unemployment
means that the economy is not growing or creating jobs; corporate earnings
improved due to cost cutting (not top line growth), which is not sustainable;
and the 30% move from the March low is a bear market rally like the dozens
during the Japanese 15-year bear market.
As we try to reconcile seemingly contradictory data, it occurs to us that it is
possible that economic growth could remain slow, that big mature, economic
sensitive stocks could tread water or even fall for the next several years.
However, unlike Japan, a tremendous amount of wealth could still be created.
The super-bear deflationary spiral scenario is unlikely because the U.S. is
different from Japan in two very important ways: 1) capital formation, and 2)
flexible labor and capital markets. Therefore, we believe...
It is possible that we are in a period of disruption, where small niche growth
markets are disrupting big established markets, resulting in low aggregate
growth but causing major shifts within the economy, thereby favoring small
innovative companies at the expense of large, less nimble companies that
participate in over-capitalized markets.
SUMMARY
Our thesis goes like this: The low cost capital of the 90's funded a tremendous
amount of innovation. Yes, investors overpaid for "potential profit" in the
late 90's, and yes, the bubble burst. Recently, the portfolio has benefited
primarily from a surge in early life cycle companies. Now, some of the most
innovative companies left standing could be on the verge of exploding to the
upside, as capital raised at an absurdly cheap price has been deployed into R&D,
which is just now being converted into real products and business models that
are obsoleting, or significantly disrupting, big, slow mature businesses and
business models. It would not be the first time that this has happened. In
fact, this chain of events is an inherent and necessary part of the process of
capitalism.
We are very excited about the prospects for the Horizon Fund. We appreciate
your confidence in our approach and style of investing in small cap stocks and
look forward to a long and mutually beneficial relationship with our
shareholders.
Regards,
/s/ Christopher Faber
Christopher Faber
IronBridge Capital Management, LLC
INVESTMENT HIGHLIGHTS
Growth of a $100,000 Investment
Date Frontegra Horizon Fund Russell 2000 Index
---- ---------------------- ------------------
8/30/2002*<F34> $100,000 $100,000
8/31/2002 $100,000 $100,000
9/30/2002 $95,200 $92,820
10/31/2002 $100,300 $95,796
11/30/2002 $108,700 $104,345
12/31/2002 $106,200 $98,535
1/31/2003 $103,500 $95,807
2/28/2003 $101,700 $92,912
3/31/2003 $104,500 $94,109
4/30/2003 $114,400 $103,032
5/31/2003 $125,500 $114,088
6/30/2003 $130,400 $116,153
*<F34> 8/30/02 commencement of operations.
Portfolio Total Return**<F35>
FOR THE PERIOD ENDED 6/30/03
- -----------------------------
SINCE COMMENCEMENT 30.40%
This chart assumes an initial gross investment of $100,000 made on 8/30/02
(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 Russell 2000 Index measures the performance of the 2,000 smallest companies
in the Russell 3000 Index. The Russell 3000 Index measures the performance of
the 3,000 largest U.S. companies based on total market capitalization. The
Index does not reflect investment management fees, brokerage commissions and
other expenses associated with investing in equity securities.
**<F35> The returns shown do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
Frontegra Horizon Fund
SCHEDULE OF INVESTMENTS
June 30, 2003
Number of Shares Value
- ---------------- -----
COMMON STOCKS 95.8%
Aerospace 2.9%
18,795 DRS Technologies, Inc.*<F36> $ 524,756
62,580 Herley Industries, Inc.*<F36> 1,062,608
-----------
1,587,364
-----------
Apparel Manufacturer 1.2%
15,595 Oxford Industries, Inc. 647,504
-----------
Audio/Video Products 1.1%
7,700 Harman International Industries, Inc. 609,378
-----------
Banks and Savings & Loans 10.1%
13,889 BOK Financial Corp.*<F36> 535,699
12,140 Cathay Bancorp, Inc. 541,201
6,975 Community Bank System, Inc. 265,050
19,190 Community First Bankshares, Inc. 523,887
33,010 First Bancorp. 906,124
26,180 Fulton Financial Corp. 520,197
16,158 Pacific Capital Bancorp 566,338
8,910 R&G Financial Corp. - Class B 264,627
22,922 Texas Regional Bancshares, Inc. - Class A 795,393
18,375 United Bankshares, Inc. 526,444
-----------
5,444,960
-----------
Biomedical 4.5%
63,070 Aksys, Ltd.*<F36> 816,756
54,100 CryoLife, Inc.*<F36> 559,935
84,780 Interpore International, Inc.*<F36> 1,079,249
-----------
2,455,940
-----------
Biotechnology 4.6%
8,515 Celgene Corp.*<F36> 258,856
17,290 Cell Genesys, Inc.*<F36> 149,386
73,500 Embrex, Inc.*<F36> 749,700
36,230 Exelixis, Inc.*<F36> 251,436
23,940 Isis Pharmaceuticals, Inc.*<F36> 126,882
28,230 Ligand Pharmaceuticals Inc. - Class B*<F36> 383,646
28,751 Neurogen Corp.*<F36> 131,105
16,730 Telik, Inc.*<F36> 268,851
34,090 Vical Inc.*<F36> 148,291
-----------
2,468,153
-----------
Building Contractor 1.0%
6,635 Centex Corp. 516,137
-----------
Chemicals 4.2%
18,365 Cabot Corp. 527,076
74,210 Methanex Corp. 793,231
59,010 Symyx Technologies, Inc.*<F36> 963,043
-----------
2,283,350
-----------
Computers & Software 9.4%
40,860 Activision, Inc.*<F36> 527,911
24,260 CACI International Inc. - Class A*<F36> 832,118
144,715 Cray, Inc.*<F36> 1,143,249
38,425 DocuCorp International, Inc.*<F36> 254,758
32,160 Overland Storage, Inc.*<F36> 654,134
65,315 Synaptics Inc.*<F36> 879,140
65,710 TiVo Inc.*<F36> 800,348
-----------
5,091,658
-----------
E-Commerce 0.3%
36,460 Stamps.com Inc.*<F36> 175,008
-----------
Electronic Components & Technology 4.2%
42,885 Cubic Corp. 952,905
32,280 InVision Technologies, Inc.*<F36> 802,158
50,725 KEMET Corp.*<F36> 512,322
-----------
2,267,385
-----------
Energy 3.5%
59,470 DQE, Inc. 896,213
51,820 Headwaters Inc.*<F36> 761,236
96,475 Syntroleum Corp.*<F36> 256,623
-----------
1,914,072
-----------
Financial 3.6%
19,020 A.G. Edwards, Inc. 650,484
17,432 Doral Financial Corp. 778,339
10,865 Jefferies Group, Inc. 540,968
-----------
1,969,791
-----------
Identification Systems 2.2%
100,185 Identix Inc.*<F36> 636,175
102,755 Viisage Technology, Inc.*<F36> 526,106
-----------
1,162,281
-----------
Instruments of Measurement 4.4%
23,460 Analogic Corp. 1,143,910
33,215 BEI Technologies, Inc. 398,580
35,970 Trimble Navigation Ltd.*<F36> 824,792
-----------
2,367,282
-----------
Insurance 1.9%
18,435 Arthur J. Gallagher & Co. 501,432
16,687 Fidelity National Financial, Inc. 513,292
-----------
1,014,724
-----------
Machinery 1.3%
42,675 Stewart & Stevenson Services, Inc. 672,131
-----------
Medical Instruments 5.6%
24,050 Cyberonics, Inc.*<F36> 517,316
95,215 Intuitive Surgical, Inc.*<F36> 721,730
26,110 Techne Corp.*<F36> 792,177
66,450 Thoratec Corp.*<F36> 990,105
-----------
3,021,328
-----------
Motion Pictures & Services 1.6%
44,300 Macrovision Corp.*<F36> 882,456
-----------
Oil & Gas 5.4%
23,425 Cabot Oil & Gas Corp. 646,764
31,110 Energen Corp. 1,035,963
42,095 Frontier Oil Corp. 639,844
2,760 Holly Corp. 76,176
30,025 Nuevo Energy Co.*<F36> 523,936
-----------
2,922,683
-----------
Optical Supplies 1.9%
88,300 Oakley, Inc.*<F36> 1,039,291
-----------
Paper 1.0%
46,160 Wausau-Mosinee Paper Corp. 516,992
-----------
Pharmaceuticals 1.2%
23,560 CIMA Labs Inc.*<F36> 633,528
-----------
Real Estate Investment Trust 1.7%
54,755 Corporate Office Properties Trust 927,002
-----------
Retailing & Restaurants 3.4%
23,215 Bob Evans Farms, Inc. 641,430
25,740 Sonic Corp.*<F36> 654,568
26,340 Too Inc.*<F36> 533,385
-----------
1,829,383
-----------
Schools 2.4%
19,170 Bright Horizons Family Solutions, Inc.*<F36> 643,346
12,515 Education Management Corp.*<F36> 665,548
-----------
1,308,894
-----------
Scientific Instruments 1.0%
15,380 Varian Inc.*<F36> 533,225
-----------
Semiconductor Equipment 0.6%
43,780 Nanometrics Inc.*<F36> 309,962
-----------
Superconductor Equipment 0.2%
13,545 American Superconductor Corp.*<F36> 78,967
-----------
Telecommunications 5.9%
47,245 Applied Signal Technology, Inc. 803,165
61,600 Newport Corp.*<F36> 911,680
26,714 Tollgrade Communications, Inc*<F36> 498,216
27,880 UTStarcom, Inc.*<F36> 991,692
-----------
3,204,753
-----------
Tobacco 0.3%
25,535 DIMON Inc. 182,831
-----------
Toys 2.2%
37,875 Leapfrog Enterprises, Inc.*<F36> 1,204,804
-----------
Transportation 1.0%
12,635 Teekay Shipping Corp. 542,041
-----------
TOTAL COMMON STOCKS
(cost $46,095,465) 51,785,258
-----------
Principal Amount
- ----------------
SHORT-TERM INVESTMENTS 29.7%
U.S. Government Agency 29.4%
$15,881,000 Federal Home Loan Bank Discount Note, 0.80% 15,880,824
-----------
Variable Rate Demand Notes 0.3%
91,911 American Family Financial Services Inc., 0.8510% 91,911
99,087 Wisconsin Corporate Central Credit Union, 0.6975% 99,087
-----------
190,998
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $16,071,822) 16,071,822
-----------
TOTAL INVESTMENTS 125.5%
(cost $62,167,287) 67,857,080
Liabilities, less Other Assets (25.5)% (13,783,017)
-----------
NET ASSETS 100.0% $54,074,063
-----------
-----------
*<F36> Non-income producing
See notes to financial statements.
Frontegra Horizon Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
ASSETS:
Investments at value (cost $62,167,287) $67,857,080
Cash 2,462
Interest and dividend receivable 35,296
Receivable for Fund shares sold 1,100,000
Other assets 6,069
-----------
Total assets 69,000,907
-----------
LIABILITIES:
Payable for investments purchased 14,872,919
Accrued investment advisory fee 22,141
Accrued expenses and other liabilities 31,784
-----------
Total liabilities 14,926,844
-----------
NET ASSETS $54,074,063
-----------
-----------
NET ASSETS CONSIST OF:
Paid in capital $47,959,742
Undistributed net investment income 107
Undistributed net realized gain 424,421
Net unrealized appreciation on investments 5,689,793
-----------
NET ASSETS $54,074,063
-----------
-----------
CAPITAL STOCK, $0.01 PAR VALUE
Authorized 50,000,000
Issued and outstanding 4,146,919
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $13.04
------
------
See notes to financial statements.
Frontegra Horizon Fund
STATEMENT OF OPERATIONS
PERIOD ENDED
JUNE 30, 2003(1)<F37>
---------------------
INVESTMENT INCOME:
Dividends(2)<F38> $ 76,225
Interest 5,398
----------
81,623
----------
EXPENSES:
Investment advisory fees 79,591
Fund administration and accounting fees 40,196
Audit fees 12,000
Shareholder servicing fees 11,839
Federal and state registration fees 9,813
Legal fees 9,347
Directors' fees and related expenses 5,000
Reports to shareholders 2,099
Custody fees 548
Other 751
----------
Total expenses before waiver and reimbursement 171,184
Waiver and reimbursement of expenses by Adviser (83,634)
----------
Net expenses 87,550
----------
NET INVESTMENT LOSS (5,927)
----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 424,389
Change in net unrealized
appreciation/depreciation on investments 5,689,793
----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 6,114,182
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,108,255
----------
----------
(1)<F37> Commenced operations on August 30, 2002.
(2)<F38> Net of $1,078 in foreign withholding taxes.
See notes to financial statements.
Frontegra Horizon Fund
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED
JUNE 30, 2003(1)<F39>
---------------------
OPERATIONS:
Net investment loss $ (5,927)
Net realized gain on investments 424,389
Change in net unrealized
appreciation/depreciation on investments 5,689,793
-----------
Net increase in net assets
resulting from operations 6,108,255
-----------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 48,088,461
Shares redeemed (122,653)
-----------
Net increase in net assets resulting
from capital share transactions 47,965,808
-----------
TOTAL INCREASE IN NET ASSETS 54,074,063
-----------
NET ASSETS:
Beginning of period --
-----------
End of period
(includes undistributed
net investment income of $107) $54,074,063
-----------
-----------
(1)<F39> Commenced operations on August 30, 2002.
See notes to financial statements.
Frontegra Horizon Fund
FINANCIAL HIGHLIGHTS
PERIOD ENDED
JUNE 30,
2003(1)<F40>
------------
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income --(5)<F44>
Net realized and unrealized
gain on investments 3.04
------
TOTAL INCOME FROM
INVESTMENT OPERATIONS 3.04
------
NET ASSET VALUE,
END OF PERIOD $13.04
------
------
TOTAL RETURN(2)<F41> 30.40%
SUPPLEMENTAL DATA
AND RATIOS:
Net assets, end of period
(in thousands) $54,074
Ratio of expenses to
average net assets(3)<F42>(4)<F43> 1.09%
Ratio of net investment
loss to average
net assets(3)<F42>(4)<F43> (0.07)%
Portfolio turnover rate(2)<F41> 28%
(1)<F40> Commenced operations on August 30, 2002.
(2)<F41> Not annualized for periods less than a full year.
(3)<F42> Net of waivers and reimbursements by Adviser. Without waivers and
reimbursements of expenses, the ratio of expenses to average net
assets would have been 2.14% and the ratio of net investment loss to
average net assets would have been (1.12)% for the period ended June
30, 2003.
(4)<F43> Annualized.
(5)<F44> Less than one cent per share.
See notes to financial statements.
Frontegra Funds
NOTES TO FINANCIAL STATEMENTS
June 30, 2003
(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 five
series: the Frontegra Total Return Bond Fund, the Frontegra Investment
Grade Bond Fund, the Frontegra Opportunity Fund, the Frontegra Growth Fund
and the Frontegra Horizon Fund (the "Funds"). The Frontegra Total Return
Bond, Investment Grade Bond and Opportunity Funds, sub-advised by Reams
Asset Management Co., LLC ("Reams"), commenced operations on November 25,
1996, February 23, 2001 and July 31, 1997, respectively. The Frontegra
Growth Fund, sub-advised by Northern Capital Management, LLC ("Northern"),
commenced operations on March 18, 1998. The Frontegra Horizon Fund, sub-
advised by IronBridge Capital Management, LLC ("IronBridge"), commenced
operations on August 30, 2002.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements.
(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 (other than short-term investments) 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 price. With respect to all Funds
other than the Growth Fund, all equity securities that are traded
using the National Association of Securities Dealers' Automated
Quotation System ("NASDAQ") are valued using the NASDAQ Official
Closing Price ("NOCP"). 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, Northern and
IronBridge, pursuant to guidelines established by the Board of
Directors.
(b) Federal Income Taxes
Each Fund intends to comply with the requirement of Subchapter M of
the Internal Revenue Code necessary to qualify as regulated investment
companies and to make the requisite distributions of income and
capital gains to its shareholders sufficient to relieve it from all or
substantially all federal income taxes. Therefore, no federal income
tax provision has been provided.
(c) Distributions to Shareholders
Dividends from net investment income are usually declared and paid
quarterly for the Frontegra Total Return Bond and Frontegra Investment
Grade Bond Funds and at least annually for the Frontegra Opportunity,
Frontegra Growth and Frontegra Horizon Funds. Distributions of net
realized gains, if any, will be declared and paid at least annually
for all Funds. All short-term capital gains are included in ordinary
income for tax purposes. Distributions to shareholders are recorded on
the ex-dividend date.
The tax character of distributions paid during the fiscal year ended
June 30, 2003 were as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
-------- -------------
Frontegra Total Return Bond Fund $24,310,788 $ 0
Frontegra Investment Grade Bond Fund 5,274,240 17,352
Frontegra Opportunity Fund 362,661 3,251,296
Frontegra Growth Fund 24,919 0
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted
in the United States of America and federal income tax purposes,
permanent differences between book and tax basis reporting have been
identified and appropriately reclassified on the Statements of Assets
and Liabilities.
As of June 30, 2003, the components of accumulated earnings (losses)
on a tax basis were as follows:
FRONTEGRA
FRONTEGRA INVESTMENT FRONTEGRA FRONTEGRA FRONTEGRA
TOTAL RETURN GRADE OPPORTUNITY GROWTH HORIZON
BOND FUND BOND FUND FUND FUND FUND
------------ ---------- ----------- --------- ---------
Cost of
investments(a)<F45> $395,172,239 $146,513,429 $14,444,526 $14,520,516 $62,174,436
------------ ------------ ----------- ----------- -----------
Gross unrealized
appreciation 8,981,582 1,274,270 2,178,272 1,893,069 6,121,855
Gross unrealized
depreciation (10,035,688) (825,945) (1,901,427) (1,392,652) (439,211)
------------ ------------ ----------- ----------- -----------
Net unrealized
appreciation $ (1,054,106) $ 448,325 $ 276,845 $ 500,417 $ 5,682,644
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Undistributed
ordinary income 11,034,171 2,605,980 13,000 30,053 431,677
Undistributed
long-term capital gain -- 210,269 -- -- --
------------ ------------ ----------- ----------- -----------
Total distributable
earnings $ 11,034,171 $ 2,816,249 $ 13,000 $ 30,053 $ 431,677
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Other accumulated
gains/losses (844,458) -- (553,182) (5,083,494) --
------------ ------------ ----------- ----------- -----------
Total accumulated
earnings (losses) $ 9,135,607 $ 3,264,574 $ (263,337) $(4,553,024) $ 6,114,321
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
(a)<F45> Represents cost for federal income tax purposes and differs from the
cost for financial reporting purposes.
(d) When-Issued Securities
The Frontegra Total Return Bond and Investment Grade Bond Funds may
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 within 45 days of the purchase. At the
time of purchase, the Funds will record the transaction and reflect
the value of the security and related liability in determining their
net asset value. During the period between the purchase and
settlement, no payment is made by the Funds to the issuer and no
interest is accrued. The Funds will maintain segregated cash, U.S.
government securities and liquid securities equal in value to
commitments for when-issued securities.
(e) Mortgage Dollar Rolls
The Frontegra Total Return Bond and Investment Grade Bond Funds may
enter into mortgage dollar rolls, in which a 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 a 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. A Fund also could be compensated
through the receipt of fee income equivalent to a lower forward price.
(f) Stock Index Options
Each Fund may purchase stock index options for any purpose, sell stock
index options in order to close out existing positions, and/or write
covered options on stock indexes for hedging purposes. Stock index
options are put options and call options on various stock indexes.
Upon the exercise of an index option, the option holder who exercises
the index option receives an amount of cash if the closing level of
the stock 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. Each Fund will
comply with the regulatory requirements of the SEC and the CFTC with
respect to coverage of options 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 options position is outstanding,
unless replaced with other permissible assets, and will be marked-to-
market daily.
(g) Other
Investment transactions are accounted for on the trade date. The Funds
determine 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. All
discounts/premiums are accreted/amortized and are included in interest
income.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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
Each of the Funds has entered into an agreement with Frontegra Asset
Management, Inc. (the "Adviser"), with whom certain officers and directors
of the Funds are affiliated, to furnish investment advisory services to the
Funds. The terms of these agreements are as follows:
The Frontegra Total Return Bond 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 August 30, 2002, 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. This expense cap agreement will continue
in effect until October 31, 2003 with successive renewal terms of one year
unless terminated by the Adviser or the Fund prior to any such renewal.
The Frontegra Investment Grade Bond Fund will pay the Adviser a monthly fee
at the annual rate of 0.42% of the Fund's average daily net assets.
Pursuant to an expense cap agreement dated August 30, 2002, 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 0.42%
of the Fund's average daily net assets. This expense cap agreement will
continue in effect until October 31, 2003 with successive renewal terms of
one year unless terminated by the Adviser or the Fund prior to any such
renewal.
The Frontegra Opportunity Fund will pay the Adviser a monthly fee at the
annual rate of 0.65% of the Fund's average daily net assets. Pursuant to
an expense cap agreement dated August 30, 2002, 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 0.90% of the Fund's
average daily net assets. This expense cap agreement will continue in
effect until October 31, 2003 with successive renewal terms of one year
unless terminated by the Adviser or the Fund prior to any such renewal.
The Frontegra Growth Fund will pay the Adviser a monthly fee at the annual
rate of 0.80% of the Fund's average daily net assets. Pursuant to an
expense cap agreement dated August 30, 2002, the Adviser has 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 0.80% of the Fund's
average daily net assets. This expense cap agreement will continue in
effect until October 31, 2003 with successive renewal terms of one year
unless terminated by the Adviser or the Fund prior to any such renewal.
The Frontegra Horizon Fund will pay the Adviser a monthly fee at the annual
rate of 1.00% of the Fund's average daily net assets. Pursuant to an
expense cap agreement dated August 30, 2002, the Adviser has 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 1.10% of the Fund's
average daily net assets. This expense cap agreement will continue in
effect until October 31, 2003 with successive renewal terms of one year
unless terminated by the Adviser or the Fund prior to any such renewal.
Any waivers or reimbursements are subject to later adjustment to allow the
Adviser to recoup amounts waived or reimbursed to the extent actual fees
and expenses for a fiscal period are less than each Fund's expense
limitation cap, provided, however, that the Adviser shall only be entitled
to recoup such amounts for a period of three years from the date such
amount was waived or reimbursed.
The following table shows the remaining waived or reimbursed expenses
subject to potential recovery expiring in:
FRONTEGRA FRONTEGRA FRONTEGRA FRONTEGRA FRONTEGRA
TOTAL RETURN INVESTMENT GRADE OPPORTUNITY GROWTH HORIZON
BOND FUND BOND FUND FUND FUND FUND
------------ ---------------- ----------- --------- ---------
2004 $181,420 $ 57,467 $73,110 $120,178 --
2005 $308,637 $132,621 $73,234 $135,557 --
2006 $271,055 $216,003 $80,339 $137,085 $83,634
(4) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Frontegra Total Return Bond Fund were as
follows:
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
Shares sold 1,598,327 6,799,291
Shares issued to holders in
reinvestment of distributions 774,555 594,649
Shares redeemed (2,732,298) (1,207,807)
---------- ----------
Net increase (decrease) in shares outstanding (359,416) 6,186,133
---------- ----------
---------- ----------
Transactions in shares of the Frontegra Investment Grade Bond Fund were as
follows:
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
Shares sold 10,153,278 2,804,260
Shares issued to holders in
reinvestment of distributions 439,040 81,147
Shares redeemed (1,309,884) (160,728)
---------- ----------
Net increase in shares outstanding 9,282,434 2,724,679
---------- ----------
---------- ----------
Transactions in shares of the Frontegra Opportunity Fund were as follows:
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
Shares sold 71,822 41,949
Shares issued to holders in
reinvestment of distributions 147,475 19,414
Shares redeemed (95,358) (125,388)
---------- ----------
Net increase (decrease) in shares outstanding 123,939 (64,025)
---------- ----------
---------- ----------
Transactions in shares of the Frontegra Growth Fund were as follows:
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------- -------------
Shares sold 347,769 549,312
Shares issued to holders in
reinvestment of distributions 2,993 3,671
Shares redeemed (465,094) (152,706)
---------- ----------
Net increase (decrease) in shares outstanding (114,332) 400,277
---------- ----------
---------- ----------
Transactions in shares of the Frontegra Horizon Fund were as follows:
PERIOD ENDED
JUNE 30, 2003(1)<F46>
---------------------
Shares sold 4,156,701
Shares redeemed (9,782)
---------
Net increase in shares outstanding 4,146,919
---------
---------
(1)<F46> Commenced operations on August 30, 2002.
(5) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments and U.S. government securities, for the Funds for the period
ended June 30, 2003, are summarized below:
FRONTEGRA FRONTEGRA FRONTEGRA FRONTEGRA FRONTEGRA
TOTAL RETURN INVESTMENT GRADE OPPORTUNITY GROWTH HORIZON
BOND FUND BOND FUND FUND FUND FUND
------------ ---------------- ----------- --------- ---------
Purchases $995,965,283 $417,734,127 $6,412,773 $12,540,522 $49,386,652
Sales $970,699,412 $333,356,704 $6,144,726 $13,567,741 $3,715,876
Purchases and sales of U.S. government securities for the Frontegra Total
Return Bond Fund were $599,766,043 and $638,617,050, respectively.
Purchases and sales of U.S. government securities for the Frontegra
Investment Grade Bond Fund were $234,458,585 and $234,973,507,
respectively.
There were no purchases and sales of U.S. government securities for the
other Funds.
The Funds intend to utilize provisions of the federal income tax laws which
allow them to carry a realized capital loss forward for eight years
following the year of loss and offset such losses against any future
realized capital gains. At June 30, 2003 the Frontegra Growth Fund had a
capital loss carryforward of $1,058,984 and $2,502,163 with an expiration
date of June 30, 2010 and June 30, 2011, respectively. There were no
capital loss carryforwards for the other Funds.
At June 30, 2003 the Frontegra Total Return Bond, Opportunity and Growth
Funds had post-October losses of $844,458, $553,182 and $1,522,347,
respectively.
(6) RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (Unaudited)
At a Special Meeting of the Shareholders of the Frontegra Growth Fund held
on April 30, 2003, shareholders of the Fund approved a new sub-advisory
agreement between Frontegra Asset Management, Inc. and Northern Capital
Management, LLC with respect to the Fund in connection with the purchase of
a controlling interest in Northern by MDF Partners LLC from Northern's
previous majority owner, Old Mutual (US) Holdings Inc.
The results of the shareholder vote were as follows (no shares represented
broker non-votes):
For Against Abstain
--- ------- -------
1,054,750 1,623 0
(7) SUBSEQUENT EVENT (Unaudited)
Due to a relative lack of investor interest, Frontegra Asset Management,
Inc. has determined to close the Frontegra Growth Fund to shareholders in
September 2003. The Board of Directors approved a Plan of Liquidation for
the Fund on August 25, 2003, to be effective September 30, 2003.
Liquidations out of the Frontegra Growth Fund will be treated as a taxable
event.
Frontegra Funds
REPORT OF INDEPENDENT AUDITORS
June 30, 2003
To the Board of Directors and Shareholders of the Frontegra Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Frontegra Funds, Inc. comprised of the
Frontegra Total Return Bond Fund, Frontegra Investment Grade Bond Fund,
Frontegra Opportunity Fund, Frontegra Growth Fund and Frontegra Horizon Fund
(collectively the "Funds"), as of June 30, 2003, and the related statements of
operations, statements of changes in net assets, financial highlights and notes
to financial statements for the periods indicated therein. These financial
statements, financial highlights and notes to financial statements are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements, financial highlights and notes to
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of June 30, 2003, by correspondence with the custodian and brokers or
by other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds at June 30, 2003, the results of their operations, changes in net assets,
financial highlights and notes to financial statements for the periods,
indicated therein, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
August, 2003
Frontegra Funds
ADDITIONAL INFORMATION
(Unaudited)
The business and affairs of the Funds are managed under the direction of the
Funds' Board of Directors. Information pertaining to the Directors and Officers
of the Funds is set forth below. The SAI includes additional information about
the Funds' Directors and Officers and is available without charge, upon request
by calling 1-888-825-2100.
INTERESTED DIRECTORS AND OFFICERS
PRINCIPAL NUMBER OF OTHER
OCCUPATION PORTFOLIOS DIRECTORSHIPS
POSITION(S) TERM DURING PAST OVERSEEN HELD BY
NAME, ADDRESS AND AGE HELD WITH FUNDS OF OFFICE FIVE YEARS BY DIRECTOR DIRECTOR
- --------------------- --------------- --------- ----------- ----------- -------------
William D. Forsyth III Co-President, Indefinite Mr. Forsyth received his B.S. in 5 None
Frontegra Asset Treasurer, term Finance from the University of
Management, Inc. Assistant Illinois in 1986 and his M.B.A.
400 Skokie Boulevard Secretary and from the University of Chicago
Suite 500 Director in 1988. Mr. Forsyth has served
Northbrook, IL 60062 since as Co-President, Treasurer, Assistant
Age: 39 May 1996 Secretary and a Director of the Adviser
since May 1996. From July 1993 until
the present, Mr. Forsyth also served as
a Partner of Frontier Partners, Inc., a
consulting/marketing firm. Mr. Forsyth
received his CFA designation in 1991.
Thomas J. Holmberg, Jr. Co-President, Indefinite Mr. Holmberg received his B.A. in 5 None
Frontegra Asset Secretary and term Economics from the College of
Management, Inc. Assistant William and Mary in 1980 and his
400 Skokie Boulevard Treasurer M.P.P.M from Yale University in 1987.
Suite 500 since Mr. Holmberg has served as
Northbrook, IL 60062 May 1996; Co-President, Secretary, Assistant
Age: 44 Director Treasurer and a Director of the Adviser
from May 1996 since May 1996. From July 1993 until
to May 2002 the present, Mr. Holmberg also served
as a Partner of Frontier Partners, Inc.,
a consulting/marketing firm. Mr.
Holmberg received his CFA designation
in 1991.
NON-INTERESTED DIRECTORS
David L. Heald Director Indefinite Mr. Heald received his B.A. in English 5 None
400 Skokie Boulevard since term from Denison University in 1966 and
Suite 260 June his J.D. from Vanderbilt University
Northbrook, IL 60062 1996 School of Law in 1969. Mr. Heald has
Age: 58 been a principal and a Director 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.
James M. Snyder Director Indefinite Mr. Snyder received his B.S. in Finance 5 None
1723 Pinehurst Lane since May term from Indiana University in 1969 and his
Flossmoor, IL 60422 2002 M.B.A. from DePaul University in 1973.
Age: 56 Mr. Snyder served as an investment
professional with Northern Trust from
June 1969 until his retirement in June
2001. He served in a variety of
capacities at Northern Trust, most
recently as Executive Vice President of
Northern Trust and Vice Chairman of
Northern Trust Global Investments.
Mr. Snyder is a Chartered Financial
Analyst (CFA).
ITEM 2. CODE OF ETHICS.
- -----------------------
Not applicable to annual reports filed for periods ending before July 15, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- -----------------------------------------
Not applicable to annual reports filed for periods ending before July 15, 2003.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
Not required for annual reports filed for periods ending before December 15,
2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable to open-end investment companies.
ITEM 6. [RESERVED]
- ------------------
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES.
- --------------------------------
Not applicable to open-end investment companies.
ITEM 8. [RESERVED]
- ------------------
ITEM 9. CONTROLS AND PROCEDURES.
- --------------------------------
(a) Based on their evaluation of the registrant's disclosure controls and
procedures, as defined in Rule 30a-3(c) under the Investment Company Act of
1940 (the "Disclosure Controls") as of a date within 90 days of the filing
date (the "Filing Date") of this Form N-CSR (the "Report"), the
registrant's Co-Presidents and Treasurer have determined that the
Disclosure Controls are effectively designed to ensure that information
required to be disclosed by the registrant in the Report is recorded,
processed, summarized and reported by the Filing Date, including ensuring
that information required to be disclosed in the Report is accumulated and
communicated to the registrant's management, including the registrant's
principal executive officers and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
(b) There was no change in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal half-year
that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
- ------------------
(a) Not applicable.
(b) (1) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
(b) (2) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Frontegra Funds, Inc.
-------------------------------------------------------
By: /s/William D. Forsyth III
----------------------------------------------------
William D. Forsyth III, Co-President
(Principal Executive Officer)
Date September 5, 2003
--------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Thomas J. Holmberg, Jr.
----------------------------------------------------
Thomas J. Holmberg, Jr., Co-President
(Principal Executive Officer)
Date September 5, 2003
--------------------------------------------------
By: /s/William D. Forsyth III
----------------------------------------------------
William D. Forsyth III, Co-President and Treasurer
(Principal Executive and Financial Officer)
Date September 5, 2003
--------------------------------------------------